<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                  --------------------------------------------


                                   FORM 10-K/A
                                (AMENDMENT NO. 1)

|X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

| |  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM     TO
                                                         ----    ----

                         COMMISSION FILE NUMBER: 1-10934

                  --------------------------------------------


                        LAKEHEAD PIPE LINE PARTNERS, L.P.
             (Exact Name of Registrant as Specified in its Charter)

           DELAWARE                                            39-1715850
 (State or Other Jurisdiction of                            (I.R.S. Employer
 Incorporation or Organization)                            Identification No.)

       LAKE SUPERIOR PLACE
     21 WEST SUPERIOR STREET
        DULUTH, MINNESOTA                                        55802-2067
(Address of Principal Executive Offices)                         (Zip Code)

       Registrant's Telephone Number, Including Area Code: (218) 725-0100

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:


                                                   NAME OF EACH EXCHANGE
    TITLE OF EACH CLASS                              ON WHICH REGISTERED
    -------------------                            -----------------------
   Class A Common Units                            New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X   No     .
                                              ---     ---

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
          ---

     As of February 6, 1998, the aggregate market value of the Registrant's
Class A Common Units held by non-affiliates of the Registrant was $1,037,822,000
based on the reported closing sales price of such units on the New York Stock
Exchange on that date.

     As of February 6, 1998, there were 22,290,000 of the Registrant's Class A
Common Units outstanding.

     Documents Incorporated by Reference:  None

================================================================================

<PAGE>   2


                                EXPLANATORY NOTE

         The following Amendment No. 1 is being filed to amend Items 6, 7 and 8
to the Registrant's Form 10-K for the fiscal year ended December 31, 1997.
Specifically, revisions have been made to "Item 6. Selected Financial Data" to
add cash flows for financing and investing activities and to disclose in Note 3
the amount of income attributable to the general partner's interest in the
Registrant; "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" has also been revised to expand the disclosure
related to the alternative use for a portion of the IPL System pipeline,
including the potential impact thereof, to revise the comparative discussion to
be based on amounts in the historical financial statements and to amend the
disclosures concerning environmental matters and Year 2000 computer issues; and
"Item 8. Financial Statements and Supplementary Data" has been amended to
disclose on the face of the balance sheet the number of limited partner units
authorized and to revise Notes 2, 9 and 10.



<PAGE>   3
                                                                     

ITEM 6. SELECTED FINANCIAL DATA

         The following table sets forth, for the periods and at the dates
indicated, summary historical financial and operating data for the Partnership.
The table is derived from the consolidated financial statements of the
Partnership and notes thereto, and should be read in conjunction with those
audited financial statements.
<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                (DOLLARS IN MILLIONS, EXCEPT PER UNIT AMOUNTS)
                                                              1997       1996(1)      1995(1)       1994        1993
                                                          ------------ -----------  -----------  ----------   --------
<S>                                                       <C>          <C>          <C>          <C>          <C>     
INCOME STATEMENT DATA:
  Operating revenue.......................................$      282.1 $     274.5  $     268.5  $    246.0   $  240.1
  Operating expenses(2)...................................       174.0       187.1        195.2       159.7      159.6
                                                          ------------ -----------  -----------  ----------   --------
  Operating income........................................       108.1        87.4         73.3        86.3       80.5
  Other income............................................         9.7         9.6          7.1         4.1        3.1
  Interest expense........................................       (38.6)      (43.9)       (40.3)      (29.8)     (30.9)
  Minority interest.......................................        (0.9)       (0.7)        (0.5)       (0.7)      (0.7)
                                                          ------------ -----------  -----------  ----------   --------

  Net income..............................................$       78.3 $      52.4  $      39.6  $     59.9   $   52.0
                                                          ============ ===========  ===========  ==========   ========
  Net income per unit(3)..................................$       3.02 $      2.11  $      1.60  $     2.61   $   2.36
                                                          ============ ===========  ===========  ==========   ========
  Cash distributions paid per unit........................$       2.92 $      2.60  $      2.56  $     2.51   $   2.36
                                                          ============ ===========  ===========  ==========   ========



FINANCIAL POSITION DATA (AT YEAR END):
  Property, plant and equipment, net......................$      850.3 $     763.5  $     725.1  $    727.6   $  622.1
  Total assets............................................$    1,059.3 $     975.9  $     915.2  $    868.6   $  758.8
  Long-term debt..........................................$      463.0 $     463.0  $     395.0  $    364.0   $  344.0
  Partners' capital.......................................                                               
    Class A Common Unitholder.............................$      461.6 $     376.3  $     387.9  $    409.3   $  354.4
    Class B Common Unitholder.............................        36.7        21.7         21.7        23.5       11.8
    General Partner.......................................         3.5         1.6          1.5         1.6        0.7
                                                          ------------ -----------  -----------  ----------   --------
                                                          $      501.8 $     399.6  $     411.1  $    434.4   $  366.9
                                                          ============ ===========  ===========  ==========   ========

CASH FLOW DATA:
  Cash provided from Operating Activities.................$      102.0 $      93.9  $     121.5  $    108.1   $   92.5
  Cash used in Investing Activities.......................$      (97.1)$     (84.7) $     (54.0) $   (102.7)  $  (85.3)
  Cash provided from (used in) Financing Activities.......$       24.1 $       3.4  $     (32.5) $     27.7   $  (28.5)
  Capital expenditures included in Investing Activities...$     (126.9)$     (76.7) $     (35.5) $   (136.9)  $  (35.6)

OPERATING DATA:
  Barrel miles (billions).................................         389         384          385         366        358
  Deliveries (thousands of barrels per day)
    United States.........................................         960         901          876         795        757
    Eastern Canada........................................         552         550          533         531        531
                                                          ------------ -----------  -----------  ----------   --------
                                                                 1,512       1,451        1,409       1,326      1,288
                                                          ============ ===========  ===========  ==========   ========
</TABLE>

------------------

(1)      1996 results reflect the impact of the Settlement Agreement between the
         Partnership and customer representatives on all outstanding contested
         tariff rates. 1995 results reflect the impact of the June 1995 FERC
         decision.

(2)      Operating expenses include provisions for prior years' rate refunds of
         $20.1 million and $22.9 million in 1996 and 1995, respectively.

(3)      The General Partner's allocation of net income has been deducted before
         calculating net income per unit as follows: 1997, $4.4 million; 1996,
         $1.6 million; 1995, $1.2 million; 1994, $1.4 million; and 1993, $0.7
         million.



                                       -1-

<PAGE>   4



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS Of FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The Partnership experienced a record year during 1997 as net income,
pipeline system deliveries and barrel miles all reached record levels. These
operational milestones were reached primarily as a result of additional pipeline
capacity and increased crude oil production in western Canada. Deliveries to the
Midwest markets served by the Partnership increased 7% over 1996 primarily due
to the successful completion of the Partnership's System Expansion Program I
("SEP I") during late 1996. The exceptional performance of the Partnership
during 1997 prompted the Board of Directors of the General Partner to increase
the quarterly cash distribution on July 17, 1997 to $0.78 per unit ($3.12 per
unit on an annualized basis) from $0.68 per unit. This increase, the third since
the Partnership's inception, is primarily the result of earnings growth from
capacity expansions and the removal of uncertainty surrounding the Partnership's
tariff rates that existed prior to an October 1996 settlement agreement.

         The Partnership is continuing its efforts to further expand the
pipeline system. Significant progress was made on the System Expansion Program
II ("SEP II"), which primarily involves the construction of a new pipeline from
Superior, Wisconsin to the Chicago, Illinois area. When complete, SEP II will
provide an additional 170,000 barrels per day of delivery capacity on the
Partnership's pipeline from Superior to Chicago. During the past year,
construction of the new pipeline, pump stations, and other system modification
was begun. In addition to SEP II, during 1997 the Partnership announced a
further staged expansion of the pipeline system to commence in 1998 which will
provide the capability to transport a further 170,000 barrels per day of heavy
crude oil by late 1999.

RESULTS OF OPERATIONS

         The Partnership experienced record operational performance during 1997
as deliveries averaged 1,512,000 barrels per day, up from the 1,451,000 barrels
per day averaged during 1996. This 4% growth in Lakehead System deliveries
translated into a 1% increase from last year in system utilization measured in
barrel miles, reflecting a higher proportion of shorter haul deliveries to the
significant Midwest and eastern Canadian markets served by the Partnership.
Deliveries during 1996 increased 3%, and barrel miles were relatively unchanged,
compared with 1995 results. Over the three-year period, increased deliveries
resulted from greater crude oil production in western Canada and increased
pipeline capacity from the Partnership's expansion programs.

         Net income for 1997 was $78.3 million ($3.02 per unit) compared with
$52.4 million ($2.11 per unit) for 1996 and $39.6 million ($1.60 per unit) for
1995. Net income for 1996 and 1995 was impacted by rate refunds and related
interest recorded in response to various tariff rate regulatory developments.
Even though the Partnership had been recording a provision for a potential rate
refund since 1992, additional provisions were required in 1995, with respect to
Federal Energy Regulatory Commission ("FERC") Opinion No. 397, and in 1996, with
respect to a settlement agreement (the "Settlement Agreement") between the
Partnership and representatives of certain of the Partnership's customers. In
October 1996, the FERC approved the Settlement Agreement. The Settlement
Agreement provided for a tariff rate reduction of approximately 6% and total
rate refunds and interest of $120.0 million through the effective date of
October 1, 1996, with interest accruing thereafter on the unpaid balance. The
Settlement Agreement concluded a protracted dispute between the Partnership and
its customers concerning the level of tariff rates.

         Net income for 1997 was $25.9 million higher than net income in 1996. A
1996 non-recurring charge of $20.1 million related to prior years' rate refunds
accounts for a majority of the increase. This provision, together with an
interest accrual of $3.2 million, were recorded in 1996 in response to the
Settlement Agreement. In addition, a combination of higher operating revenue and
lower interest expense, partially offset by higher operating expense, led to the
increase in net income. Per unit amounts increased significantly due to
increased net income. The impact of increased net income on per unit amounts was
somewhat offset by increased incentive income allocations to the General Partner
primarily as a result of higher distribution levels, and an increase in the
weighted average Common Units outstanding as a result of the October 1997 Class
A Common Unit offering. Net income per unit was calculated using 24.4 million
Common Units during 1997. Due to the issuance of 2.2 million Class A Common
Units during October


                                       -2-

<PAGE>   5



1997, the weighted average number of Common Units outstanding will increase from
24.4 million Common Units in 1997 to 26.2 million Common Units in 1998
(excluding any additional Common Units that may be issued).

         Net income for 1996 was $12.8 million, or $0.51 per unit, greater than
net income for 1995 primarily due to increased revenues and lower operating
costs resulting from cost control activities of the General Partner. In
addition, a lower provision for prior years' rate refunds during 1996
contributed to the increase in net income. During 1995, prior years' rate
refunds and interest charges of $22.9 million and $1.5 million, respectively,
were recorded in response to FERC Opinion No. 397, compared with $20.1 million
and $3.2 million, respectively, recorded in 1996 as a result of the Settlement
Agreement.

         Operating revenue for 1997 was $7.6 million greater than operating
revenue for 1996 primarily due to increased deliveries and the transportation of
a greater proportion of heavy crude oil (up 22% to 573,000 barrels per day).
Operating revenue was also favorably impacted by the full year impact of a July
1996 tariff rate increase of 0.9%, and an additional 1.6% on July 1, 1997, as
allowed under the FERC's indexing methodology. Operating revenue for 1996 and
1995 is computed at the tariff rates implied in the Settlement Agreement.
Operating revenue for 1996 was $6.0 million higher than 1995 primarily due to a
greater proportion of heavy crude oil deliveries (up 29% to 471,000 barrels per
day) and the 1996 mid-year tariff rate increase. The tariff rate for heavier
crude oil is greater than that for lighter crude oils primarily due to its
higher viscosity which requires more power to pump. The Partnership's current
tariff rate for medium and heavy crude oil deliveries to the Chicago area is
approximately 7% and 18% higher, respectively, than that for lighter crude oils.

         Total 1997 operating expenses were $13.1 million less than 1996
operating expenses primarily due to the absence of a provision for prior years'
rate refunds in 1997 as compared to the $20.1 million rate refund recorded in
1996 as a result of the Settlement Agreement. The decrease in total operating
expenses was somewhat offset by higher power costs ($3.9 million) associated
with a heavier crude oil mix, operational considerations, and increased
deliveries. Depreciation expense for 1997 increased $1.8 million primarily due
to growth in property, plant and equipment, somewhat offset by the impact of
revised depreciation rates that became effective on July 1, 1996. The
depreciation rates were revised to better represent the expected service life of
the pipeline system. Other operating expenses increased $1.3 million primarily
due to higher property taxes.

         Total 1996 operating expenses were $8.1 million less than in 1995
primarily due to lower power costs ($2.2 million), oil losses ($2.8 million) and
provision for prior years' rate refunds ($2.8 million). Efficiencies gained from
the Partnership's ongoing power cost management initiative, partially offset by
the transportation of greater amounts of heavy crude oil, led to the decrease in
power costs in 1996. Oil losses are impacted by operational considerations,
including changing customer delivery requirements, and the volatility of crude
oil prices, resulting in variances in the level of oil losses from year to year.
Depreciation expense for 1996 increased only slightly over 1995 due to the
impact of new depreciation rates, effective July 1, 1996.

         Interest expense for 1997 decreased $5.3 million from 1996 interest
expense. This decrease was primarily due to lower balances and interest rates
with respect to rate refunds payable, and increased capitalized interest
attributable to greater construction work in process balances during 1997. These
changes were partially offset by additional interest on greater average
borrowings in 1997 under the Partnership's credit facility. Interest expense for
1996 was $3.6 million greater than in 1995 primarily due to the impact of
additional borrowings under the Partnership's credit facility to finance
enhancement capital expenditures including SEP I and additional interest
accruals required in 1996 as a result of the Settlement Agreement ($1.7
million).

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1997, cash, cash equivalents and short-term investments
totalled $172.5 million, down $0.8 million since December 31, 1996, as cash
required for distributions, capital expenditures and other business needs
slightly exceeded cash generated from operating activities and the 1997 equity
offering. Of this $172.5 million, $22.0


                                       -3-

<PAGE>   6



million ($0.78 per unit) was set aside for the cash distribution paid on
February 13, 1998, with the remaining $150.5 million available for capital
expenditures and other business needs.

         Cash generated from operating activities in 1997 increased $8.1
million, primarily due to higher net income, partially offset by the reduction
in liability for rate refunds. Cash generated from operating activities in 1996
decreased $27.6 million from 1995 primarily due to the repayment of rate refunds
and related interest, partially offset by higher net income. Timing differences
in the collection of accounts receivable and payment of accrued obligations led
to the year-to-year changes in working capital requirements.

         In response to the October 1996 Settlement Agreement, the Partnership
made rate refunds of $27.7 million in 1997 and $41.8 million in 1996 with the
remaining balance being repaid through a 10% reduction of tariff rates. This
reduction will continue until all refunds have been made. Based on the $55.1
million remaining balance at December 31, 1997, and projected pipeline system
deliveries, the 10% refund credit is expected to remain effective until sometime
during the second half of 1999.

         In 1997, the Partnership made capital expenditures of $126.9 million,
of which $84.9 million was for SEP II and $42.0 million was for other projects.
With $7.1 million incurred in 1996, the remaining $308 million of the
approximately $400 million total cost of SEP II is expected to be incurred in
1998. In addition to SEP II, the Partnership anticipates spending approximately
$11.0 million for pipeline system enhancements and $11.0 million for core
maintenance activities in 1998. Thereafter, ongoing capital expenditures are
expected to average approximately $12.0 million on an annual basis
(approximately 50% for enhancement and 50% for core maintenance of the pipeline
system). Core maintenance activities, such as the replacement of equipment that
is completing its useful life and preventive maintenance programs, are expected
to be undertaken to enable the Partnership's pipeline system to continue to
operate at its maximum operating capacity. Enhancements to the pipeline system,
such as renewal and replacement of pipe, are expected to extend the life of the
Lakehead System and permit the Partnership to respond to developing industry and
government standards and the changing service expectations of its customers. In
addition, the Partnership anticipates it may incur other capital expenditures to
significantly expand the pipeline system. In particular, the Partnership
anticipates expending approximately $100 million and $38 million on the Terrace
Project expansion program during 1998 and 1999 respectively. See"-- Future
Prospects -- Lakehead System Expansion Projects."

         On an annual basis the Partnership makes expenditures of a capital and
operating nature related to maintaining compliance of the Lakehead System with
applicable environmental and safety regulations. Capital expenditure amounts for
safety and environmental purposes comprise a portion of the routine core
maintenance and enhancement capital expenditure amounts routinely incurred by
the Partnership. Amounts are not readily segregated since individual projects
may be undertaken for a variety of reasons in addition to environment and safety
considerations. Other reasons for undertaking a project include age and
condition, and improvement in the efficiency of pipeline operations. In addition
to capital expenditures the Partnership incurs operating expenses of a safety
and environmental nature. These amounts are not material in relation to the
Partnership's results of operations. Environment, safety, and remediation
expenditures, whether capital or operating, are not anticipated to vary
materially from recent historical experience of the Partnership, and are not
anticipated to adversely impact results of operations.

         In connection with the transfer of the pipeline business to the
Partnership in 1991, the General Partner has agreed to indemnify the Partnership
from and against substantially all liabilities, including liabilities related to
environmental matters, arising from operations prior to the transfer. This
indemnification does not apply to amounts that the Partnership would be able to
recover through its tariffs or through insurance, or to any liabilities relating
to changes in laws after December 27, 1991. The Partnership maintains insurance
coverage approximating Cdn. $500 million for sudden and accidental discharges of
crude oil and NGL. The General Partner considers this level of coverage and the
Cdn. $1 million deductible appropriate in the Partnership's business
environment.

         In 1996, the Partnership made capital expenditures of $76.7 million, of
which $59.0 million was for SEP I. Of the remaining capital expenditures in
1996, $5.9 million (compared with $7.6 million in 1995) was spent for core


                                       -4-

<PAGE>   7



maintenance capital expenditures and $11.8 million (compared with $27.9 million
in 1995) for other enhancements including $7.1 million for SEP II.

         In October 1997, the Partnership issued an additional 2,200,000 Class A
Common Units. Net proceeds from the offering, including the General Partner's
contribution, were $99.2 million. This offering increased the number of Class A
Common Units outstanding to 22,290,000. Proceeds from this offering are being
used to finance SEP II. For additional information regarding the 1997 equity
offering and Partnership organization, see Note 1 to the Partnership's
Consolidated Financial Statements.

         At December 31, 1997, the Partnership had outstanding $310.0 million
aggregate principal amount of First Mortgage Notes bearing interest at the rate
of 9.15% per annum, payable semi-annually. The notes are due and payable in ten
equal annual installments beginning in the year 2002. During 1997, the
Partnership did not further borrow against its $205.0 million Revolving Credit
Facility. Total borrowings under the facility of $153.0 million were outstanding
at December 31, 1997. Subject to complying with certain financial covenants, the
Partnership expects to have the ability to borrow an additional $52.0 million
under this facility. In 1996 the Partnership borrowed $68.0 million under its
revolving credit facility primarily to finance SEP I. For additional details
relating to the Partnership's debt, see Note 6 to the Partnership's Consolidated
Financial Statements.

         Distributions paid to partners for 1997 increased $11.4 million to
$75.3 million ($2.92 per unit) compared to 1996. This increase was primarily
attributable to the $0.10 per unit distribution increase declared July 17, 1997,
an additional 2,200,000 Class A Common Units issued October 24, 1997, and
increased incentive distributions paid to the General Partner as a result of the
increase in cash distributions per unit. The Partnership distributes quarterly
all of its Available Cash, which is generally defined to mean, with respect to
any calendar quarter, the sum of all of the cash receipts of the Partnership
plus net reductions to reserves less all of its cash disbursements and net
additions to reserves. These reserves are retained to provide for the proper
conduct of the Partnership's business, to stabilize distributions of cash to the
Class A and Class B Common Unitholders and the General Partner and as necessary
to comply with the terms of any agreement or obligation of the Partnership.
Distributions paid to partners for 1996 increased $1.0 million to $63.9 million
($2.60 per unit) compared to 1995. The $0.04 per unit quarterly distribution
increase first paid in November 1996 accounted for this increase. On February
13, 1998, the Partnership paid a $0.78 per unit distribution related to the
fourth quarter of 1997.

         The General Partner believes that the Partnership will continue to have
adequate liquidity to fund future recurring operating, investing and financing
activities. The Partnership intends to fund the remaining portion of SEP II, and
ongoing capital expenditures with the proceeds from future equity and debt
offerings, bank borrowings, cash generated from operating activities, and
existing cash, cash equivalents and short-term investments. Cash distributions
are expected to be funded with internally generated cash. The Partnership's
ability to make future equity and debt offerings will depend on prevailing
market conditions and interest rates and the then-existing financial condition
of the Partnership.

FUTURE PROSPECTS

         Income and cash flows are sensitive to oil industry supply and demand
in both Canada and the United States, as well as the regulatory environment. As
the Partnership's pipeline system is operationally integrated with the
Interprovincial Pipe Line Inc. system ("IPL" or "IPL System") in western Canada,
the Partnership's revenues are dependent upon the utilization of the IPL System
by producers of western Canadian crude oil. IPL and the General Partner believe
demand for their pipeline systems will continue in light of industry's
increasing production forecasts for western Canadian crude oil.

         The Lakehead and IPL Systems (the "System") serve as a strategic link
between the western Canadian oil fields and the markets of the Midwest U.S. and
eastern Canada and currently operates at or near capacity. In response to the
continuing trend of increasing supply of crude oil from western Canada and the
growth of demand in the markets of the Midwest U.S., the Partnership plans not
only to maintain the service capability of the existing Lakehead System but also


                                       -5-

<PAGE>   8



to expand its capacity where appropriate. This is consistent with the
Partnership's principal business objective which is to increase cash generated
from its operations and the distribution of Available Cash. This strategy has
enabled the Partnership to increase quarterly cash distributions to Common
Unitholders from $0.59 per unit in 1992 to $0.78 per unit for the fourth
quarter of 1997.

LAKEHEAD SYSTEM EXPANSION PROJECTS

         Key current and future expansion projects of the Partnership are
summarized below:

     -   SEP II-- This expansion program, which began in 1996, is expected to
         provide an additional 170,000 barrels per day of delivery capacity on
         the Lakehead System from Superior to Chicago. Current constraints on
         the capacity of the IPL System in western Canada, however, will limit
         incremental volumes reaching the Lakehead System to approximately
         120,000 barrels per day. These capacity constraints are expected to be
         alleviated following the completion of the Terrace expansion program.
         See "--Terrace Expansion Program." SEP II, which is expected to cost
         approximately $400 million, was undertaken in response to apportionment
         of the existing capacity on the System among suppliers of western
         Canadian crude oil and NGLs. SEP II is being undertaken in conjunction
         with a Cdn. $140 million capacity expansion of the IPL System by IPL.
         SEP II is expected to be completed in early 1999.

     -   Terrace Expansion Program-- This expansion program, which is being
         undertaken by the Partnership in conjunction with IPL, consists of a
         multi-stage expansion of both the Lakehead System and the IPL System.
         Subject to continued industry support, customer requirements and
         receipt of regulatory approvals, the General Partner and IPL anticipate
         that this expansion program will be completed over the period 1999
         through 2005. The first phase of the Terrace expansion program is
         expected to provide an initial 95,000 barrels per day of added heavy
         crude oil capacity commencing in the first quarter of 1999, rising to a
         total of 170,000 barrels per day of added heavy crude oil capacity by
         the end of 1999. Phase one construction commenced in Canada in August
         1998 and is expected to begin in the U.S. in September 1998. The first
         phase of Terrace is anticipated to cost the Partnership approximately
         $138 million for construction of facilities in the U.S., and IPL Cdn.
         $610 million for construction of facilities in Canada. The General
         Partner expects that approximately $100 million will be spent by the
         Partnership on its portion of Terrace in 1998 with the remaining
         balance to be spent in 1999. Subsequent phases of Terrace are dependent
         upon customer requirements and, if completed, are expected to provide
         up to 350,000 barrels per day of added heavy crude oil capacity in
         addition to the 170,000 barrels per day to be provided by the first
         phase of Terrace. Subject to completion of all phases of Terrace, and
         after allowing for anticipated declines in light crude oil production,
         total System delivery capability is expected to increase by 350,000
         barrels per day.

         The Partnership is subject to a rate regulatory methodology that
prescribes rate ceilings that are adjusted every July 1. The rate ceilings are
adjusted by reference to annual changes in the Producer Price Index for Finished
Goods minus one percent ("PPIFG-1"). The General Partner expects the PPIFG-1 to
be negative for 1997; however, the PPIFG-1 should not decrease enough to have a
material effect on 1998 operating revenue. The Settlement Agreement is
benefiting the Partnership and its customers by restoring stability and
providing predictable tariff rates as customer representatives who are a party
to the agreement have agreed not to challenge any rates within the indexed
ceiling for a period of five years. In addition, to the extent allowed under
FERC orders or by agreement with customers, the Partnership anticipates the
possibility of filing for additional tariff increases from time to time to
reflect ongoing expansion programs. Specifically, the Partnership and customer
representatives agreed to the terms of an incremental tariff rate surcharge to
recover the cost of, and allow a rate of return on, SEP II. The rate of return
on SEP II will be based, in part, on the utilization level of the additional
capacity constructed.

IPL ENERGY PROJECTS

         IPL Energy Inc. ("IPL Energy"), the ultimate parent of the General
Partner, is also engaged in North American crude oil pipeline projects which are
related to the IPL and Lakehead Systems. The General Partner believes that
certain


                                       -6-

<PAGE>   9



of these projects are complementary to SEP II and the Terrace Project, even
though they are not owned by the Partnership, since the projects may result in
increased deliveries on the Lakehead System. Such projects are summarized below:

     -   Mustang-- In 1996, a U.S. subsidiary of IPL Energy entered into a
         partnership ("Mustang Pipe Line Partners") with Mobil Illinois Pipe
         Line Company, a subsidiary of Mobil Oil Corporation, to own and operate
         a crude oil pipeline that connects the Lakehead System to the
         Patoka/Wood River refinery area and pipeline hub south of Chicago. The
         Partnership has entered into a joint tariff agreement with Mustang Pipe
         Line Partners covering future shipments of western Canadian crude oil
         over the Lakehead System and the Mustang pipeline. The joint tariff
         agreement provides for lower transportation costs to shippers desiring
         access to the Patoka/Wood River market area. The Mustang system has a
         capacity of approximately 100,000 barrels per day.

     -   Toledo -- IPL Energy is proposing a new pipeline which would connect
         the Partnership's facilities at Stockbridge, Michigan to a refinery in
         the Toledo, Ohio area. This pipeline is anticipated to have an
         approximate capacity of 80,000 barrels per day in heavy crude oil
         service.

     -   Wild Rose -- IPL Energy recently filed an application with the Alberta
         Energy Utilities Board for approval of a project to construct a new
         30-inch pipeline for the delivery of heavy crude oil from the Athabasca
         oil sands region near Fort McMurray, Alberta to Hardisty, Alberta. At
         Hardisty, the Wild Rose pipeline would access other pipeline systems
         including the IPL System in western Canada. This project would provide
         new pipeline capacity to accommodate anticipated growth in production
         in the Athabasca oil sands region. The Wild Rose pipeline is
         anticipated to have a capacity in excess of 500,000 barrels per day.

Montreal Extension Reversal

         The IPL System includes a section which extends from Sarnia, Ontario to
Montreal, Quebec (the "Montreal Extension" or "Line 9"). The portion of the
Montreal Extension from Sarnia to North Westover, Ontario is currently in
west-to-east service and the portion of the Montreal Extension from North
Westover to Montreal has been purged with nitrogen and remains available for
service. IPL and a group of refiners have developed the Line 9 reversal project
to enable crude oil imported into eastern Canada through facilities of Portland
Pipe Line Corporation and Montreal Pipe Line Limited to be transported on Line 9
in an east-to-west direction from Montreal to the major refining centers in
Ontario. The NEB approved construction of facilities as well as the tolling
methodology for the Line 9 project on December 18, 1997. When construction is
complete (expected in 1999), the reversed Line 9 is anticipated to have a
capacity of approximately 160,000 barrels per day and will have an ultimate
capacity of 240,000 barrels per day by 2000. While the reversal of the Montreal
extension would result in IPL becoming a competitor of the Lakehead System for
supplying crude oil to the Ontario market, such a reversal is expressly
permitted by the agreements entered into at the time of formation of the
Partnership.

         Although the General Partner anticipates that the reversal of Line 9
will result in a decline in deliveries over the Lakehead System to eastern
Canada, such reversal is not anticipated to have a material adverse impact on
the Partnership because displaced volumes are expected to be redirected to
existing U.S. markets served by the Partnership. At December 31, 1997, the
Partnership's published tariff rate to Chicago of $0.541 per barrel for light
crude oil was approximately $0.076 per barrel less than the light crude oil rate
to eastern Canada. The level of decline in deliveries over the Lakehead System
to eastern Canada will be dependent upon the global crude oil market dynamics
and the level of utilization of Line 9.

YEAR 2000 COMPUTER ISSUE

         The Year 2000 issue is a world-wide concern resulting from many
existing computer hardware and software applications being initially designed to
ignore the first two digits of the year. When these systems and applications
must process dates both before and after January 1, 2000, the shortened year
descriptions could cause system failures or erroneous results. Furthermore, the
interdependence of computerized systems between the Partnership, its customers


                                       -7-

<PAGE>   10



and suppliers as well as government agencies will play a significant role in the
ability of the Partnership to conduct its business and exacerbates the risk of
business interruptions due to Year 2000 problems.

         The Lakehead System is operationally dependent on the ability of the
IPL System to transport crude oil and other liquid hydrocarbons from western
Canada to reach markets in the United States and eastern Canada. Due to the
integrated nature of these two pipeline systems, the Partnership's Year 2000
readiness program is being conducted in conjunction with IPL. IPL and the
General Partner have established a Year 2000 project management office (the 
"PMO") to coordinate the joint system wide compliance work. The PMO works in 
conjunction with the General Partner to ensure timely completion of the 
Year 2000 initiatives for both pipeline systems.

         The PMO has implemented a course of action to identify and remediate
non compliant at-risk systems including:

         -        IT Hardware (mainframes, servers, Network LAN/WAN, desktop,
                  peripheral software) 

         -        Application Software (business area and user developed 
                  applications)

         -        Process Control Technology (Supervisory Control and Data
                  Acquisition ("SCADA"), distribution components, pipeline
                  devices)

         -        Corporate Infrastructure (supply chain management embedded
                  technology including facilities, security systems, vehicles)

         To address these issues, the PMO is utilizing both internal and
external resources to identify, test, and reprogram or replace, as appropriate,
all computerized systems and applications. No material resource constraints have
been encountered to date and none are anticipated for project completion. In
addition, an independent consultant has been retained to provide observations on
the due diligence being exercised by management and, where appropriate, make
recommendations based upon industry best practices.

         The PMO has compiled a comprehensive list of all computer hardware and
software, embedded chip technologies and business processes including those
having significant interdependence upon third party computer systems. A risk
assessment and business impact analysis of each item has also been completed and
the General Partner will attempt to diligently prioritize its efforts and
resources to help ensure that all mission critical processes and assets are made
to be compliant on a timely basis. Some mission critical systems, such as
certain accounting systems which are being replaced under a business system
upgrade project, are already known to be Year 2000 compliant, thereby reducing
the risk of failure.

         The most significant mission critical system is the SCADA system, as
the pipeline cannot operate without it. The SCADA system is used to control the
entire pipeline system and the tank farms. Instrumentation along the
pipeline measures and controls temperatures, pressures, volume flow, pump
operation, valve operation control equipment and alarm states. Information is
passed back and forth to Programmable Logic Controllers and on to microcomputers
that run the Remote Telemetry Units ("RTU") software. The RTU's interface with
the Pipeline Control Systems and Tank Farm Control Systems to effectively
control, monitor and track liquid hydrocarbons flowing through the System. The
Process Control Technology has been assigned the highest priority by the PMO.

         In addition, the PMO is contacting third parties whose systems may have
a significant effect on the ability of the Partnership to continue to conduct
its business without disruption from Year 2000 problems in order to ascertain
whether these third parties will be Year 2000 compliant in advance of
January 1, 2000. The most significant third party interdependencies are reliance
on electrical and telecommunication suppliers as they provide the ability to
transport crude oil and liquid hydrocarbons through the System. Feeder pipeline
systems are also considered significant as they provide much of the hydrocarbons
entering the System, as are the receiving connecting pipelines and
refineries. The General Partner cannot as yet provide an assessment of these
entities' Year 2000 compliance status.

         In the case of critical suppliers and feeder pipelines, joint testing
initiatives will be implemented. Where timely assurance is not received,
restrictions on use or replacement of vendors will be considered.



                                       -8-

<PAGE>   11



         In the review of the systems potentially impacted by the Year 2000
problem, consideration will be given by the General Partner and IPL to the
repair, replacement, workaround, outsourcing and other methods of eliminating
deficiencies. As of August 1998, the General Partner is involved in various
stages of implementing its Year 2000 compliance initiatives and expects to have
all mission critical processes and assets compliant by mid 1999, at which point
lower risk systems will be conformed.

         Despite the General Partner's best efforts there can be no assurance
that all systems and applications will continue without interruption through
January 1, 2000 and beyond. Limited testing ability on commercial software
packages and the complexity of identifying all embedded microprocessors that may
be used in a great variety of hardware used for process or flow control,
environmental, transportation, security, communication and other systems may
result in missed systems. Additionally, despite ongoing dialogue with
interdependent third parties there can be no assurance that their systems will
be fully compliant. In the event of an embedded microprocessor failure, pipeline
deliveries could be temporarily delayed until control procedures are
re-established. Failures that result in substantial disruptions of business
activities could be material to the Partnership.

         In order to deal with unforeseen Year 2000 problems that could arise
and in an attempt to minimize business disruptions, the General Partner and IPL
have commenced developing business contingency plans for all mission critical
processes, systems, technologies and external relationships. These plans are
expected to be completed by mid 1999. 

         Preliminary costs estimates for achieving Year 2000 compliance for the
Partnership are approximately $6 million, including $1 million in capital costs
and $5 million of operating costs. Expenditures of approximately, $1.5 million,
$4.0 million and $0.5 million are anticipated to be incurred in 1998, 1999, and
2000, respectively. Although Management believes this estimate to be reasonable,
due to the complexities outlined above, there can be no assurance that the
actual costs of the project will not differ materially from the estimated costs
or that the Partnership will not be adversely affected by Year 2000 related
issues.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements of the Partnership together with
the notes thereto and the independent accountants' reports thereon, appear on
pages F-2 through F-13 of this Report, and are incorporated by reference.
Reference should be made to the Index to Financial Statements, Supplementary
Information and Financial Statement Schedules on page F-1 of this Report.





                                       -9-

<PAGE>   12




     INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY INFORMATION AND FINANCIAL
                               STATEMENT SCHEDULES

                        LAKEHEAD PIPE LINE PARTNERS, L.P.



                                                                            PAGE
Financial Statements
      Report of Independent Accountants..................................    F-2
      Consolidated Statement of Income for the Years Ended 
      December 31, 1997, 1996, 1995......................................    F-3
      Consolidated Statement of Cash Flows for the Years 
      Ended December 31, 1997, 1996, 1995................................    F-4
      Consolidated Statement of Financial Position as at 
      December 31, 1997 and 1996.........................................    F-5
      Consolidated Statement of Partners' Capital for the 
      Years Ended December 31, 1997, 1996, 1995..........................    F-6
      Notes to the 1997 Consolidated Financial Statements................    F-7

Supplementary Information (Unaudited)
      Selected Quarterly Financial Data..................................   F-14



                          FINANCIAL STATEMENT SCHEDULES

         Financial statement schedules not included in this Report have been
omitted because they are not applicable or the required information is shown in
the financial statements or notes thereto.





                                       F-1

<PAGE>   13



                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Partners of
      Lakehead Pipe Line Partners, L.P.

         In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of partners' capital and of cash
flows present fairly, in all material respects, the financial position of
Lakehead Pipe Line Partners, L.P. and its subsidiary (the "Partnership") at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.





PRICE WATERHOUSE LLP

Minneapolis, Minnesota
January 12, 1998



                                       F-2
<PAGE>   14



<TABLE>
<CAPTION>


-----------------------------------------------------------------------------------------------------------------------------
                                             LAKEHEAD PIPE LINE PARTNERS, L.P.
                                             CONSOLIDATED STATEMENT OF INCOME
-----------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per unit amounts)
-----------------------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                        1997             1996              1995
-----------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                                               <C>              <C>               <C>      
Operating Revenue (Note 9)                                                $  282.1         $    274.5        $   268.5
-----------------------------------------------------------------------------------------------------------------------------

Expenses
     Power                                                                    65.9               62.0             64.2
     Operating and administrative                                             68.0               66.7             70.1
     Depreciation                                                             40.1               38.3             38.0
     Provision for prior years' rate refunds (Note 9)                           --               20.1             22.9
-----------------------------------------------------------------------------------------------------------------------------
                                                                             174.0              187.1            195.2
-----------------------------------------------------------------------------------------------------------------------------
Operating Income                                                             108.1               87.4             73.3
Interest and Other Income                                                      9.7                9.6              7.1
Interest Expense (Note 6)                                                    (38.6)             (43.9)           (40.3)
Minority Interest                                                             (0.9)              (0.7)            (0.5)
-----------------------------------------------------------------------------------------------------------------------------
Net Income                                                                $   78.3         $     52.4        $    39.6
=============================================================================================================================
Net Income Per Unit (Note 4)                                              $   3.02               2.11        $    1.60
=============================================================================================================================
Weighted Average Units Outstanding (millions)                                 24.4               24.0             24.0
=============================================================================================================================
The accompanying notes to the consolidated financial statements are an integral part of these statements
</TABLE>






                                       F-3

<PAGE>   15

<TABLE>
<CAPTION>


-----------------------------------------------------------------------------------------------------------------------------
                                             LAKEHEAD PIPE LINE PARTNERS, L.P.
                                           CONSOLIDATED STATEMENT OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------------------
(dollars in millions)
-----------------------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                        1997             1996              1995
-----------------------------------------------------------------------------------------------------------------------------

Operating Activities
<S>                                                                       <C>              <C>               <C>      
   Net Income                                                             $    78.3        $    52.4         $    39.6
   Adjustments to reconcile net income to cash
     provided from operating activities:
        Depreciation                                                           40.1             38.3              38.0
        Accrued rate refunds and related interest (Note 9)                      3.5             42.6              46.4
        Minority interest                                                       0.9              0.7               0.5
        Other                                                                   0.5              0.6               0.8
        Changes in operating assets and liabilities:
            Accounts receivable and other                                       4.8             (0.7)              4.3
            Materials and supplies                                             (0.1)            (1.6)             (0.7)
            General Partner and affiliates                                     (4.1)             0.2               0.2
            Accounts payable and other                                          3.4              3.6             (12.1)
            Interest payable                                                    2.1              0.7               1.1
            Property and other taxes                                            0.3             (1.1)              3.4
            Payment of rate refunds and related interest (Note 9)             (27.7)           (41.8)               --
-----------------------------------------------------------------------------------------------------------------------------
                                                                              102.0             93.9             121.5
-----------------------------------------------------------------------------------------------------------------------------
Investing Activities
   Short-term investments, net                                                 29.8             (8.0)            (18.5)
   Additions to property, plant and equipment                                (126.9)           (76.7)            (35.5)
-----------------------------------------------------------------------------------------------------------------------------
                                                                              (97.1)           (84.7)            (54.0)
-----------------------------------------------------------------------------------------------------------------------------
Financing Activities
   Issuance of variable rate financing                                           --             68.0              31.0
   Proceeds from unit issuance, net (Note 1)                                   99.2               --                --
   Distributions to partners (Note 3)                                         (75.3)           (63.9)            (62.9)
   Minority interest                                                            0.2             (0.7)             (0.6)
-----------------------------------------------------------------------------------------------------------------------------
                                                                               24.1              3.4             (32.5)
-----------------------------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents                                          29.0             12.6              35.0
Cash and Cash Equivalents at Beginning of Year                                 89.6             77.0              42.0
-----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                                  $   118.6        $    89.6         $    77.0
=============================================================================================================================
The accompanying notes to the consolidated financial statements are an integral part of these statements

</TABLE>



                                       F-4

<PAGE>   16


<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------
                                            LAKEHEAD PIPE LINE PARTNERS, L.P.
                                      CONSOLIDATED STATEMENT OF FINANCIAL POSITION
---------------------------------------------------------------------------------------------------------------------------
(dollars in millions)
---------------------------------------------------------------------------------------------------------------------------
December 31,                                                                                 1997              1996
---------------------------------------------------------------------------------------------------------------------------

ASSETS
Current Assets
<S>                                                                                     <C>               <C>      
   Cash and cash equivalents                                                            $   118.6         $    89.6
   Short-term investments                                                                    53.9              83.7
   Due from General Partner and affiliates                                                    2.6                 -
   Accounts receivable and other                                                             22.4              27.2
   Materials and supplies                                                                     7.1               7.0
---------------------------------------------------------------------------------------------------------------------------
                                                                                            204.6             207.5
   Deferred Charges and Other                                                                 4.4               4.9
   Property, Plant and Equipment, Net (Note 5)                                              850.3             763.5
---------------------------------------------------------------------------------------------------------------------------
                                                                                        $ 1,059.3         $   975.9
===========================================================================================================================

LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
   Due to General Partner and affiliates                                                $       -         $     1.5
   Accounts payable and other                                                                20.2              16.8
   Interest payable                                                                           5.3               3.2
   Property and other taxes                                                                  11.4              11.1
   Current portion of accrued rate refunds and related interest (Note 9)                     29.0              29.0
---------------------------------------------------------------------------------------------------------------------------
                                                                                             65.9              61.6
Long-Term Debt (Note 6)                                                                     463.0             463.0
Accrued Rate Refunds and Related Interest (Note 9)                                           26.1              50.3
Minority Interest                                                                             2.5               1.4
Commitments and Contingencies (Note 10)                                                                    
---------------------------------------------------------------------------------------------------------------------------
                                                                                            557.5             576.3
---------------------------------------------------------------------------------------------------------------------------

Partners' Capital                                                                                          
   Class A Common Unitholders                                                                              
   (Units authorized and issued - 1997 - 22,290,000; 1996 - 20,090,000)                     461.6             376.3
   Class B Common Unitholder (Units authorized and issued - 3,912,750)                       36.7              21.7
   General Partner                                                                            3.5               1.6
---------------------------------------------------------------------------------------------------------------------------

                                                                                            501.8             399.6
---------------------------------------------------------------------------------------------------------------------------

                                                                                        $ 1,059.3         $   975.9
===========================================================================================================================
The accompanying notes to the consolidated financial statements are an integral part of these statements.
</TABLE>




                                       F-5

<PAGE>   17


<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------------
                                                 LAKEHEAD PIPE LINE PARTNERS, L.P.
                                            CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       
                                                               Class A         Class B                                      
                                                               Common          Common           General                     
(dollars in millions)                                       Unitholders      Unitholders        Partner          Total
--------------------------------------------------------------------------------------------------------------------------------

<S>                                                          <C>              <C>               <C>             <C>      
Partners' capital at December 31, 1994                       $   409.3        $    23.5         $     1.6       $   434.4

Net income allocation                                             30.2              8.2               1.2            39.6

Distributions to partners                                        (51.6)           (10.0)             (1.3)          (62.9)
--------------------------------------------------------------------------------------------------------------------------------

Partners' capital at December 31, 1995                           387.9             21.7               1.5           411.1

Net income allocation                                             40.6             10.2               1.6            52.4

Distributions to partners                                        (52.2)           (10.2)             (1.5)          (63.9)
--------------------------------------------------------------------------------------------------------------------------------

Partners' capital at December 31, 1996                           376.3             21.7               1.6           399.6

Allocation of net proceeds from
unit issuance (Note 1)                                            85.6             12.6               1.0            99.2

Net income allocation                                             60.1             13.8               4.4            78.3

Distributions to partners                                        (60.4)           (11.4)             (3.5)          (75.3)
--------------------------------------------------------------------------------------------------------------------------------

Partners' capital at December 31, 1997                       $   461.6        $    36.7         $     3.5       $   501.8
================================================================================================================================
The accompanying notes to the consolidated financial statements are an integral part of these statements.
</TABLE>




                                       F-6

<PAGE>   18




                        LAKEHEAD PIPE LINE PARTNERS, L.P.
               NOTES TO THE 1997 CONSOLIDATED FINANCIAL STATEMENTS

-------------------------------------------------------------------------------


(dollars in millions, except per unit amounts)
-------------------------------------------------------------------------------


1.       PARTNERSHIP ORGANIZATION AND NATURE OF OPERATIONS

         Lakehead Pipe Line Partners, L.P. ("Lakehead Partnership") is a
publicly traded limited partnership that owns a 99% limited partner interest in
Lakehead Pipe Line Company, Limited Partnership ("Operating Partnership"), both
Delaware limited partnerships, and collectively known as the "Partnership". The
Partnership was formed in 1991 to acquire, own and operate the crude oil and
natural gas liquids pipeline business of Lakehead Pipe Line Company, Inc. (the
sole "General Partner"). The General Partner is a wholly-owned subsidiary of
Interprovincial Pipe Line Inc. ("Interprovincial"), a Canadian company owned by
IPL Energy Inc. of Calgary, Alberta, Canada.

         In October 1997, the Lakehead Partnership issued an additional
2,200,000 Class A Common Units (total net proceeds, including the General
Partner's contribution, were $99.2 million), bringing the total number of Class
A Common Units issued to 22,290,000. Class A Common Units are publicly traded
and represent an 83.4% limited partner interest in the Partnership. The General
Partner has a 14.8% limited partner (in the form of 3,912,750 Class B Common
Units) and 1.0% general partner interest in the Lakehead Partnership, as well as
a 1.0% general partner interest in the Operating Partnership (an effective 16.6%
combined interest in the Partnership).

         The Partnership holds a 1% general partner interest in Lakehead
Services, Limited Partnership ("Services Partnership"), a Delaware limited
partnership, formed to facilitate the financing of the Operating Partnership.

         The Operating Partnership is engaged in the transportation of crude oil
and natural gas liquids through a common carrier pipeline system. Substantially
all of the shipments delivered originate in western Canadian oil fields. The
majority of the shipments reach the Operating Partnership at the Canada/United
States border in North Dakota, through a Canadian pipeline system owned by
Interprovincial. Deliveries are made in the Great Lakes region of the United
States and to the Canadian province of Ontario, principally to refineries,
either directly or through the connecting pipelines of other companies.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The consolidated financial statements of the Partnership are prepared
in accordance with generally accepted accounting principles in the United States
and conform in all material respects with the historical cost accounting
standards of the International Accounting Standards Committee. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and disclosure of
contingent assets and liabilities.

         PRINCIPLES OF CONSOLIDATION

         The financial statements of the Partnership include the accounts of the
Lakehead Partnership and the Operating Partnership on a consolidated basis. The
equity method is used to account for the Partnership's 1% general partner
interest in the Services Partnership. The General Partner's 1% interest in the
Operating Partnership is accounted for by the Partnership as a minority
interest.



                                       F-7

<PAGE>   19



REGULATION OF PIPELINE SYSTEM

         As an interstate common carrier oil pipeline, rates and accounting
practices are under the regulatory authority of the Federal Energy Regulatory
Commission ("FERC").

REVENUE RECOGNITION

         Substantially all pipeline system revenues are derived from
transportation of crude oil and natural gas liquids and are recognized in income
upon delivery. Amounts provided for accrued rate refunds are recognized as a
direct reduction from revenues except for amounts related to prior years (Note
9), which are separately stated as a provision for prior years' rate refunds.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

         Cash equivalents are defined as all highly marketable securities with a
maturity of three months or less when purchased. Short-term investments are
marketable securities with a maturity of more than three months when purchased.
Both are accounted for as held-to-maturity securities and valued at amortized
cost.

MATERIALS AND SUPPLIES

         Materials and supplies are stated at the lower of cost or net
realizable value.

DEFERRED FINANCING CHARGES

         Deferred financing charges are amortized on the straight line basis
over the life of the related debt. Amortization expense utilizing the straight
line method is not materially different from results using the effective
interest method.

PROPERTY, PLANT AND EQUIPMENT

         Expenditures for system expansion and major renewals and betterments
are capitalized; maintenance and repair costs are expensed as incurred. An
allowance for interest incurred on external borrowings during construction is
capitalized. Depreciation of property, plant and equipment is provided on the
straight line basis over their estimated service lives. When property, plant and
equipment are retired or otherwise disposed of, the cost less net proceeds is
normally charged to accumulated depreciation and no gain or loss is recognized.

INCOME TAXES

         For federal and state income tax purposes, the Partnership is not a
taxable entity. Accordingly, no recognition has been given to income taxes for
financial reporting purposes. The tax on Partnership net income is borne by the
individual partners through the allocation of taxable income. Such taxable
income reportable to Unitholders may vary substantially from financial income as
a result of differences between the tax basis and financial reporting basis of
assets and liabilities and the taxable income allocation requirements under the
Partnership Agreement. The aggregate difference in the basis of the
Partnership's net assets for financial and tax reporting purposes cannot be
readily determined due to inaccessible information regarding each partner's tax
attributes in the Partnership.

3.       CASH DISTRIBUTIONS

         The Partnership distributes quarterly all of its "Available Cash",
which is generally defined in the Partnership Agreement as cash receipts less
cash disbursements and net additions to reserves for future requirements. These
reserves are retained to provide for the proper conduct of the Partnership
business and as necessary to comply with the terms of any agreement or
obligation of the Partnership. Distributions by the Partnership of its Available
Cash generally are


                                       F-8

<PAGE>   20



made 98% to the Class A and B Common Unitholders and 2% to the General Partner,
subject to the payment of incentive distributions to the General Partner to the
extent that certain target levels of cash distributions to the Unitholders are
achieved. The incremental incentive distributions payable to the General Partner
are 15%, 25% and 50% of all quarterly distributions of Available Cash that
exceed target levels of $0.59, $0.70, and $0.99 per Class A and B Common Unit,
respectively.

         In 1997, the Partnership paid cash distributions of $2.92 per unit
consisting of $0.68 per unit paid in February and May, and $0.78 per unit paid
in August and November. In 1996, distributions of $2.60 per unit were paid
consisting of $0.64 per unit paid in February, May and August, and $0.68 per
unit paid in November. In 1995, distributions of $2.56 per unit were paid,
representing quarterly distributions of $0.64 per unit.

         The cash distribution in respect of the fourth quarter of 1996 was the
last distribution subject to certain preferential rights of the Class A Common
Units and certain support obligations of the General Partner. These rights
terminated with the distribution paid in February 1997 and, with respect to
subsequent cash distributions, Class A and B Common Units are treated as one
class of units.

4.       NET INCOME PER UNIT

         Net income per unit is computed by dividing net income, after deduction
of the General Partner's allocation, by the weighted average number of Class A
and Class B Common Units outstanding. The General Partner's allocation is equal
to an amount based upon its 1% general partner interest, adjusted to reflect an
amount equal to incentive distributions and an amount required to reflect
depreciation on the General Partner's historical cost basis for assets
contributed on formation of the Partnership. Net income per unit was determined
as follows:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                        1997             1996              1995
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>               <C>      
Net income                                                                $     78.3       $      52.4       $    39.6
-----------------------------------------------------------------------------------------------------------------------------

Net income allocated to General Partner                                         (0.8)             (0.5)           (0.4)
Adjusted to reflect:
     Incentive distributions                                                    (3.5)             (1.0)           (0.7)
     Historical cost basis depreciation                                         (0.1)             (0.1)           (0.1)
-----------------------------------------------------------------------------------------------------------------------------

                                                                                (4.4)             (1.6)           (1.2)
-----------------------------------------------------------------------------------------------------------------------------

Net income allocable to Common Units                                      $     73.9       $      50.8       $    38.4
=============================================================================================================================
Weighted average units outstanding (millions)                                   24.4              24.0            24.0
=============================================================================================================================
Net income per unit                                                       $     3.02       $      2.11       $    1.60
=============================================================================================================================
</TABLE>





                                       F-9

<PAGE>   21




5.       PROPERTY, PLANT AND EQUIPMENT, NET

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
                                                                                 Average
                                                                            Depreciation
December 31,                                                                       Rates        1997              1996
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>               <C>      
Land                                                                          -            $     6.1         $     5.4
Rights-of-way                                                             3.6%                  12.6              12.4
Pipeline                                                                  4.1%                 519.6             506.1
Pumping equipment, buildings and tanks                                    4.6%                 355.4             310.8
Vehicles, office and communications equipment                            13.9%                  27.4              27.1
Construction in progress                                                      -                 87.4              22.4
-----------------------------------------------------------------------------------------------------------------------------
                                                                                             1,008.5             884.2
Accumulated depreciation                                                                      (158.2)           (120.7)
-----------------------------------------------------------------------------------------------------------------------------
                                                                                           $   850.3         $   763.5
=============================================================================================================================

</TABLE>

         Effective July 1, 1996, the Partnership revised the estimated service
lives of its property, plant and equipment to better represent the service life
of its pipeline system. Prior to this change, the average depreciation rate for
rights-of-way was 4.0%, pipeline - 4.0%, pumping equipment, buildings and tanks
- 6.9% and vehicles, office and communications equipment - 6.2%. The change in
depreciation rates resulted in 1996 net income being $1.8 million, or $0.07 per
unit, higher than it would have been utilizing the prior rates.

6.       DEBT
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
December 31,                                                                                 1997              1996
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>      
First Mortgage Notes                                                                    $   310.0         $   310.0
Revolving Credit Facility Agreement                                                     $   153.0         $   153.0
                                                                                        $   463.0         $   463.0
==========================================================================================================================
</TABLE>

FIRST MORTGAGE NOTES

         The First Mortgage Notes are secured by a first mortgage on
substantially all of the property, plant and equipment of the Partnership and
are due and payable in ten equal annual installments beginning in the year 2002.
The interest rate on the Notes is 9.15% per annum, payable semi-annually. The
Notes contain various restrictive covenants applicable to the Partnership, and
restrictions on the incurrence of additional indebtedness including compliance
with certain issuance tests. The General Partner believes these issuance tests
will not negatively impact the Partnership's ability to finance current
expansion projects. Under the Note Agreements, the Partnership is permitted to
make cash distributions not more frequently than quarterly in an amount not to
exceed Available Cash (Note 3) for the immediately preceding calendar quarter.

REVOLVING CREDIT FACILITY AGREEMENT

         The Partnership has a $205.0 million Revolving Credit Facility
Agreement which was amended in September 1996 to effectively reduce the interest
rate spread, extend the maturity date to at least September 2001, and replace
the standby fee with a facility fee. The maturity date is subject to extension
on an annual basis. Upon drawdown, the loans are secured by a first lien on the
mortgaged property that ranks equally with the Notes or may be fully
collateralized


                                      F-10

<PAGE>   22



with U.S. government securities. The facility contains restrictive covenants
substantially identical to those in the Note Agreements, provides for variable
interest rates and carries a facility fee of 0.075% (1996 - 0.085%) per annum on
the entire $205.0 million. Prior to the September 1996 amendment, the
Partnership paid a standby fee of 0.5% to the Services Partnership (Note 7) on
the unutilized portion, by the Partnership, of the $205.0 million. At December
31, 1997 and 1996, $153.0 million of the facility was utilized and is classified
as long-term debt. The interest rate on loans averaged 6.2% (1996 - 6.8%; 1995 -
6.9%) and was 6.2% at the end of 1997 (1996 - 6.0%).

INTEREST

         Interest expense includes $3.5 million related to accrued rate refunds
(1996 - $9.7 million; 1995 - $7.3 million) and is net of amounts capitalized of
$3.3 million (1996 - $2.4 million; 1995 - $1.0 million). Interest paid amounted
to $39.9 million (1996 - $44.8 million; 1995 - $31.9 million).


7.       RELATED PARTY TRANSACTIONS

         The Partnership, which does not have any employees, uses the services
of the General Partner and its affiliates for managing and operating its
pipeline business. These services, which are reimbursed at cost in accordance
with service agreements, amounted to $33.2 million (1996 - $33.9 million; 1995 -
$33.8 million) and are included in operating and administrative expenses. At
December 31, 1997, the Partnership has accounts payable to General Partner and
affiliates of $3.9 million (1996 - $1.5 million).

         Under the terms of the Revolving Credit Facility Agreement, the
Services Partnership and the Partnership may draw down funds up to a combined
maximum of $205.0 million. The Partnership is entitled to require the Services
Partnership to repay any amounts owed by the Services Partnership in order to
allow the Partnership to borrow thereunder. During 1996 and 1995, the
Partnership paid the Services Partnership a standby fee of $0.4 million and $0.8
million, respectively, as consideration for the agreement by the Services
Partnership that the Partnership will have priority over the Services
Partnership to borrow up to the full amount available under the facility.
Effective September 1996, the standby fee was eliminated and replaced with a
facility fee which the Partnership pays directly. The Partnership will continue
to have borrowing priority over the Services Partnership.

         During 1997, the Partnership entered into an easement acquisition
agreement with IPL Patoka Pipeline Holdings (U.S.A.) Inc. ("IPL Patoka"), an
affiliate of the General Partner, to facilitate easement acquisitions for a new
pipeline under construction by the Partnership from Superior, Wisconsin to
Chicago, Illinois. For the benefit of the Partnership, IPL Patoka is acquiring
certain real property for purposes of granting pipeline easements to the
Partnership. The Partnership will ultimately reimburse IPL Patoka for the net
costs associated with acquiring, holding and disposing of the real property. As
well, during the acquisition period the Partnership will make non-interest
bearing cash advances to IPL Patoka in order to provide financing for easement
acquisition. The Partnership has advances to IPL Patoka of $6.5 million at
December 31, 1997.

8.       MAJOR CUSTOMERS

         Operating revenue received from major customers was as follows:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                        1997             1996              1995
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>               <C>      
Amoco Oil Company                                                         $   60.7         $     63.2        $    62.3
Mobil Oil Company of Canada Ltd.                                          $   42.5         $     37.2        $    34.7
Imperial Oil Limited                                                      $   33.2         $     35.4        $    31.4
=============================================================================================================================
</TABLE>



                                      F-11

<PAGE>   23



         The Partnership has a concentration of trade receivables from companies
operating in the oil and gas industry. These receivables are collateralized by
the crude oil and other products contained in the Partnership's pipeline and
storage facilities.


9.       ACCRUED RATE REFUNDS AND RELATED INTEREST

         In October 1996, the FERC approved a July 1996 agreement ("Settlement
Agreement") between the Partnership and customer representatives on all
outstanding contested tariff rates. The Settlement Agreement resulted in an
approximate tariff rate reduction of 6% and total rate refunds and related
interest of $120.0 million through the effective date of October 1, 1996.

         The Partnership provided for $42.6 million of rate refunds and related
interest in 1996 to reflect the Settlement Agreement. Of the amount provided,
rate refunds related to 1996 of $12.8 million have reduced operating revenue,
with the prior years' portion, $20.1 million, separately stated as a provision
for prior years' rate refunds. Rate refund interest expense for 1996 and prior
year amounts totalling $9.7 million were recorded in interest expense. In 1995,
the Partnership provided for $46.4 million of rate refunds and related interest
to reflect a June 1995 FERC decision. Of the amount provided, rate refunds
related to 1995 of $16.2 million reduced 1995 operating revenue, with the prior
years' portion, $22.9 million, separately stated as a provision for prior years'
rate refunds. Rate refund interest expense for 1995 and prior year amounts
totalling $7.3 million were recorded in interest expense. The balance of the
$120.0 million of accrued rate refunds and related interest required under the
Settlement Agreement was provided for prior to 1995.

         Refunds required under the Settlement Agreement began in 1996 with
$41.8 million repaid during the fourth quarter of 1996, with the remaining
balance to be repaid through a 10% reduction in future rates. This reduction
will continue until all refunds have been made, which is expected to occur
sometime during the second half of 1999. During 1997, refunds of $27.7 million
were made to customers and interest expense of $3.5 million was recorded by the
Partnership. Interest expense will continue to accrue on the unpaid balance
based on the 90-day Treasury bill rate.


10.      COMMITMENTS AND CONTINGENCIES

SYSTEM EXPANSION PROGRAM II

         During 1997, the Partnership began working on a system expansion which
is expected to increase delivery capacity to the Midwest U.S. market by
approximately 170,000 barrels per day. This system expansion will consist
primarily of a new 450-mile 24 inch pipeline from Superior, Wisconsin to
Chicago, Illinois at an approximate cost of $370 million, of which $84.9 million
and $7.1 million was expended during 1997 and 1996, respectively, with the
remaining $278.0 million expected to be expended in 1998.

ENVIRONMENT

         The Partnership is subject to federal and state laws and regulations
relating to the protection of the environment. Environmental risk is inherent to
liquid pipeline operations and the Partnership could, at times, be subject to
environmental cleanup and enforcement actions. The General Partner manages this
environmental risk through appropriate environmental policies and practices to
minimize the impact to the Partnership. To the extent that the Partnership is
unable to recover environmental costs in its rates or through insurance, the
General Partner has agreed to indemnify the Partnership from and against any
costs relating to environmental liabilities associated with the pipeline system
prior to its transfer to the Partnership in 1991. This excludes any liabilities
resulting from a change in laws after such transfer. The Partnership continues
to voluntarily investigate past leak sites for the purpose of assessing whether
any remediation is required in light of current regulations, and to date no
material environmental risks have been identified.


                                      F-12

<PAGE>   24



OIL IN CUSTODY

         The Partnership transports crude oil and natural gas liquids ("NGLs")
owned by its customers for a fee. The volume of liquid hydrocarbons in the
Partnership's pipeline system at any one time approximates 12 million barrels,
virtually all of which is owned by the Partnership's customers. Under terms of
the Partnership's tariffs, losses of crude oil not resulting from the direct
negligence of the Partnership may be apportioned among its customers. In
addition, the Partnership maintains property insurance coverage with respect to
crude oil and NGLs in the Partnership's custody. Insurance coverage is
considered adequate to cover any foreseeable losses in the ordinary course of
business.


11.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts of cash equivalents and short-term investments
approximate fair value because of the short maturity of these instruments.
Short-term investments consist of high quality commercial paper.

         Based on the borrowing rates currently available for instruments with
similar terms and remaining maturities, the carrying values of borrowings under
the Revolving Credit Facility approximate fair value and the fair value of the
First Mortgage Notes approximates $363 million (1996 - $344 million). Due to
contractual arrangements defined in the Note Agreements, refinancing of the
Notes would not result in any financial benefit to the Partnership.



                                      F-13




<PAGE>   25


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
this report to be signed on its behalf by the undersigned, thereunto duly
authorized on this 14th day of September, 1998.

                                  LAKEHEAD PIPE LINE PARTNERS, L.P.
                                  (REGISTRANT)

                                  By: Lakehead Pipe Line Company, Inc., as 
                                      General Partner

                                       By: /s/ S. J. WUORI
                                           -----------------------------------
                                           S. J. Wuori, President