UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

X]  Annual  Report  Pursuant  to  Section  13 or 15(d)  of the  Securities
    Exchange Act of 1934

For the fiscal year ended July 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 numbers:       33-53379
                               33-53379-01


                                Ferrellgas, L.P.
                            Ferrellgas Finance Corp.

           (Exact name of registrants as specified in their charters)


             Delaware                                    43-1698481
             Delaware                                    43-1677595
States or other jurisdictions of           (I.R.S. Employer Identification Nos.)
incorporation or organization)

                   One Liberty Plaza, Liberty, Missouri 64068

               (Address of principal executive offices) (Zip Code)

Registrants' telephone number, including area code: (816) 792-1600

Indicate  by check mark  whether  the  registrants  (1) have  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
registrants  were required to file such  reports),  and (2) have 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]


     At September 16, 1997,  Ferrellgas  Finance Corp. had 1,000 shares of $1.00
par value common stock outstanding.

Documents Incorporated by Reference:    None


<PAGE>


                                FERRELLGAS, L.P.
                            FERRELLGAS FINANCE CORP.

                          1997 FORM 10-K ANNUAL REPORT

                                Table of Contents

                                                                         Page
                                     PART I
ITEM     1.     BUSINESS...................................................1
ITEM     2.     PROPERTIES.................................................8
ITEM     3.     LEGAL PROCEEDINGS..........................................9
ITEM     4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........9

                                     PART II

ITEM     5.     MARKET FOR THE REGISTRANT'S UNITS AND
                RELATED UNITHOLDER MATTERS.................................9
ITEM     6.     SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA...........9
ITEM     7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............11
ITEM     8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............16
ITEM     9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL DISCLOSURE.......................16

                                    PART III

ITEM    10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.......17
ITEM    11.     EXECUTIVE COMPENSATION....................................18
ITEM    12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                AND MANAGEMENT............................................21
ITEM    13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............22

                                     PART IV

ITEM    14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
                REPORTS ON FORM 8-K.......................................23

<PAGE>




                                     PART I

ITEM 1.       BUSINESS.

Business of Ferrellgas Partners, L.P.

     Ferrellgas Partners,  L.P. (the "Master Limited Partnership" or the "MLP"),
is a Delaware limited  partnership which was formed on April 19, 1994. The MLP's
Common Units are listed on the New York Stock Exchange. The MLP's activities are
conducted through its subsidiary Ferrellgas,  L.P. (the "Operating  Partnership"
or the "OLP"). The MLP, with a 99% limited partner interest, is the sole limited
partner of the Operating Partnership.  The MLP and the Operating Partnership are
together  referred to herein as the  "Partnership".  The  Operating  Partnership
accounts for nearly all of the MLP's  consolidated  assets,  sales and operating
earnings.  The MLP's  consolidated  net earnings also reflect  interest  expense
related to $160  million of 9 3/8%  Senior  Secured  Notes  issued by the MLP in
April 1996.

Business of Ferrellgas, L.P.

     The Operating  Partnership,  a Delaware limited partnership,  was formed on
April 22, 1994, to acquire,  own and operate the propane  business and assets of
Ferrellgas,  Inc. (the  "Company",  "Ferrellgas",  and "General  Partner").  The
Company has retained a 1% general  partner  interest in the MLP and also holds a
1.0101% general partner interest in the Operating Partnership, representing a 2%
general  partner  interest in the  Partnership on a combined  basis.  As General
Partner of the  Partnership,  the  Company  performs  all  management  functions
required for the Partnership.

General

     The Partnership is engaged in the sale, distribution, marketing and trading
of propane and other natural gas liquids. The discussion that follows focuses on
the  Partnership's  retail  operations and its other  operations,  which consist
primarily  of propane  and  natural gas  liquids  trading  operations,  chemical
feedstocks marketing and wholesale propane marketing, all of which were conveyed
to the Partnership on July 5, 1994. All historical  references  prior to July 5,
1994 relate to the operations as conducted by the Company.

     The General  Partner  believes that the  Partnership  is the second largest
retail  marketer of propane in the United States (as measured by gallons  sold),
serving more than 800,000  residential,  industrial/commercial  and agricultural
customers in 45 states and the District of Columbia  through  approximately  513
retail  outlets with 295  satellite  locations in 38 states (some  outlets serve
interstate  markets).  For the  Partnership's  fiscal years ended July 31, 1997,
1996 and 1995,  annual  retail  propane  sales  volumes  were 694  million,  650
million, and 576 million gallons,  respectively.  The retail propane business of
the Partnership  consists  principally of transporting  propane purchased in the
contract and spot markets,  primarily  from major oil  companies,  to its retail
distribution  outlets and then to tanks located on its customers'  premises,  as
well as to portable propane cylinders.

     The General Partner also believes that the Partnership is a leading natural
gas liquids  trading  company.  Annual propane and natural gas liquids  trading,
chemical  feedstocks and wholesale propane sales volumes were  approximately 1.2
billion,  1.7 billion and 1.5 billion gallons during the fiscal years ended July
31, 1997, 1996 and 1995, respectively.



<PAGE>


Retail Operations

   Formation

     Ferrell Companies, Inc. ("Ferrell"),  the parent of Ferrellgas, was founded
in  1939  as a  single  retail  propane  outlet  in  Atchison,  Kansas  and  was
incorporated  in  1954.  In  1984,  a  subsidiary  was  formed  under  the  name
Ferrellgas,  Inc. to operate the retail propane business previously conducted by
Ferrell.  Ferrell is  primarily  owned by James E.  Ferrell and his family.  The
Company's  initial growth largely resulted from small  acquisitions in the rural
areas of eastern Kansas, northern and central Missouri,  Iowa, Western Illinois,
Southern  Minnesota,  South Dakota and Texas. In July 1984, the Company acquired
propane  operations with annual retail sales volumes of approximately 33 million
gallons and in December  1986,  the Company  acquired  propane  operations  with
annual retail sales volumes of approximately  395 million  gallons.  These major
acquisitions  and many other  smaller  acquisitions  significantly  expanded and
diversified  the  Company's  geographic  coverage.  In July  1994,  the  propane
business and assets of the Company were contributed to the Partnership.

   Business Strategy

     The Partnership's  business strategy is to continue Ferrellgas'  historical
focus on residential and commercial retail propane  operations and to expand its
operations  through strategic  acquisitions of smaller retail propane operations
located throughout the United States and through increased  competitiveness  and
efforts to acquire new customers. The propane industry is relatively fragmented,
with the ten largest retail  distributors  possessing  approximately  33% of the
total retail  propane  market and much of the industry  consisting of over 5,000
local or regional distributors.  The Partnership's retail operations account for
approximately  8% of the  retail  propane  purchased  in the United  States,  as
measured by gallons sold.  Since 1986,  and as of July 31, 1997,  Ferrellgas has
acquired 108 smaller  independent  propane  retailers which Ferrellgas  believes
were not individually  material,  except for the acquisition of Skelgas Propane,
Inc.  ("Skelgas") in May 1996 and Vision Energy  Resources,  Inc.  ("Vision") in
November 1994. For the fiscal years ended July 31, 1997 to 1993, the Partnership
or its predecessor invested  approximately $38.8 million,  $108.8 million, $70.1
million,  $3.4 million,  and $0.9 million,  respectively,  to acquire operations
with annual retail sales of  approximately  20.5 million,  111.8  million,  70.0
million, 2.9 million, and 0.7 million gallons of propane, respectively.

     The  Partnership  intends to  concentrate  its  acquisition  activities  in
geographical areas in close proximity to the Partnership's  existing  operations
and to acquire  propane  retailers  that can be  efficiently  combined with such
existing  operations to provide an attractive  return on investment after taking
into account the efficiencies  which may result from such combination.  However,
the  Partnership  will also pursue  acquisitions  which  broaden its  geographic
coverage.  The  Partnership's  goal in any  acquisition  will be to improve  the
operations and profitability of these smaller companies by integrating them into
the  Partnership's  established  supply network.  The General Partner  regularly
evaluates a number of propane distribution companies which may be candidates for
acquisition.  The General Partner  believes that there are numerous local retail
propane  distribution  companies that are possible candidates for acquisition by
the Partnership and that the  Partnership's  geographic  diversity of operations
helps to create  many  attractive  acquisition  opportunities.  The  Partnership
intends to fund acquisitions  through internal cash flow, external borrowings or
the issuance of additional Common Units. The Partnership's ability to accomplish
these  goals  will be  subject  to the  continued  availability  of  acquisition
candidates at prices  attractive to the  Partnership.  There is no assurance the
Partnership will be successful in sustaining the recent level of acquisitions or
that any acquisitions that are made will prove beneficial to the Partnership.

                                       2
<PAGE>
         In  addition  to  growth  through  acquisitions,  the  General  Partner
believes  that the  Partnership  may also  achieve  growth  within its  existing
propane  operations.  As a result of its experience in responding to competition
and in  implementing  more efficient  operating  standards,  the General Partner
believes that it has positioned the  Partnership to be more successful in direct
competition  for customers.  The  Partnership  currently has marketing  programs
underway which focus specific resources toward this effort.

   Marketing

     Natural  gas  liquids  are  derived  from  petroleum  products  and sold in
compressed  or liquefied  form.  Propane,  the  predominant  type of natural gas
liquid,  is typically  extracted from natural gas or separated  during crude oil
refining. Although propane is gaseous at normal pressures, it is compressed into
liquid form at relatively low pressures for storage and transportation.  Propane
is a clean-burning  energy source,  recognized for its transportability and ease
of use relative to alternative forms of stand alone energy sources.

     In the  residential and commercial  markets,  propane is primarily used for
space heating,  water heating and cooking. In the agricultural market propane is
primarily used for crop drying,  space heating,  irrigation and weed control. In
addition, propane is used for certain industrial applications,  including use as
engine fuel, which is burned in internal  combustion engines that power vehicles
and  forklifts  and as a heating or energy  source in  manufacturing  and drying
processes.

     The retail propane marketing  business  generally involves large numbers of
small volume  deliveries  averaging  approximately  200 gallons each. The market
areas  are  generally  rural but also  include  suburban  areas  for  industrial
applications where natural gas service is not available.

     The Partnership utilizes marketing programs targeting both new and existing
customers  emphasizing  its superior  ability to deliver propane to customers as
well  as its  training  and  safety  programs.  The  Partnership  sells  propane
primarily  to  four  specific   markets:   residential,   industrial/commercial,
agricultural  and other  (principally  to other propane  retailers and as engine
fuel).  During  the  fiscal  year  ended  July 31,  1997,  sales to  residential
customers  accounted  for 61% of retail gross profit,  sales to  industrial  and
other commercial  customers  accounted for 24% of retail gross profit, and sales
to agricultural  and other  customers  accounted for 15% of retail gross profit.
Residential  sales have a greater profit margin,  more stable  customer base and
tend to be less  sensitive to price changes than the other markets served by the
Partnership.  No single customer of the Partnership  accounts for 10% or more of
the Partnership's consolidated revenues.

     Profits in the retail propane business are primarily based on margins,  the
cents-per-gallon  difference  between the purchase  price and the sales price of
propane.  The Partnership  generally  purchases propane in the contract and spot
markets,  primarily from major oil companies,  on a short-term basis, therefore,
its supply costs  fluctuate  with market price  fluctuations.  Should  wholesale
propane prices decline in the future,  the  Partnership's  margins on its retail
propane  distribution  business should increase in the short-term because retail
prices tend to change less rapidly than wholesale  prices.  Should the wholesale
cost of propane  increase,  for similar reasons retail margins and profitability
would likely be reduced at least for the  short-term  until retail prices can be
increased.  Retail propane  customers  typically  lease their storage tanks from
their propane  distributors.  Approximately 70% of the  Partnership's  customers
lease their tank from the  Partnership.  The lease  terms and,  in some  states,
certain fire safety regulations, restrict the filling of a leased tank solely to
the propane supplier that owns the tank. The cost and inconvenience of switching
tanks minimizes a customers tendency to switch among suppliers of propane on the
basis of minor variations in price.

     The retail market for propane is seasonal  because it is used primarily for
heating  in  residential  and  commercial  buildings.  Consequently,  sales  and
operating  profits  are  concentrated  in the second and third  fiscal  quarters
(November through April). To the extent necessary,  the Partnership will reserve
cash inflows from the second and third quarters for  distribution  to holders of
Common Units in the first and fourth fiscal quarters. In addition,  sales volume
traditionally fluctuates from year to year in response to variations in weather,
prices and other  factors,  although  the  Partnership  believes  that the broad
geographic distribution of its operations helps to minimize exposure to regional
weather or economic patterns. Long-term, historic weather data from the National
Climatic Data Center indicate that the average annual temperatures have remained
relatively  constant  over the last 30 years with  fluctuations  occurring  on a
year-to-year basis only. During times of colder-than-normal  winter weather, the
Company has been able to take  advantage  of its large,  efficient  distribution
network to help avoid supply  disruptions  such as those  experienced by some of
its competitors, thereby broadening its long-term customer base.
                                       3
<PAGE>

Supply and Distribution

     The  Partnership  purchases  propane  primarily  from  major  domestic  oil
companies.  Supplies  of propane  from these  sources  have  traditionally  been
readily  available,  although no assurance can be given that supplies of propane
will be readily  available in the future.  As a result of (i) the  Partnership's
ability  to buy  large  volumes  of  propane  and (ii) the  Partnership's  large
distribution  system and  underground  storage  capacity,  the  General  Partner
believes that the  Partnership is in a position to achieve  product cost savings
and avoid  shortages  during  periods of tight supply to an extent not generally
available to other retail propane distributors. The Partnership is not dependent
upon any single  supplier or group of suppliers,  the loss of which would have a
material adverse effect on the Partnership. For the year ended July 31, 1997, no
supplier  at  any  single   delivery   point  provided  more  than  10%  of  the
Partnership's  total domestic  propane  supply.  A portion of the  Partnership's
propane inventory is purchased under supply contracts which typically have a one
year term and a fluctuating price relating to spot market prices. Certain of the
Partnership's  contracts  specify certain minimum and maximum amounts of propane
to be purchased  thereunder.  The Partnership may purchase and store inventories
of propane in order to help insure uninterrupted  deliverability  during periods
of extreme demand.  The Partnership owns three  underground  storage  facilities
with an aggregate  capacity of  approximately  184 million  gallons.  Currently,
approximately  142 million  gallons of this capacity is leased to third parties.
The remaining space is available for the Partnership's use.

     Propane is generally  transported  from natural gas  processing  plants and
refineries,  pipeline  terminals and storage  facilities to retail  distribution
outlets and wholesale  customers by railroad tank cars leased by the Partnership
and highway transport trucks owned or leased by the Partnership. The Partnership
operates a fleet of  transport  trucks to  transport  propane  from  refineries,
natural gas processing plants or pipeline  terminals to its retail  distribution
outlets.  Common carrier  transport  trucks may be used during the peak delivery
season in the  winter  months or to  provide  service  in areas  where  economic
considerations  favor common carrier use.  Propane is then  transported from the
Partnership's  retail  distribution  outlets to  customers by its fleet of 1,605
bulk  delivery  trucks,  which are fitted  generally  with 2,000 to 3,000 gallon
propane tanks. Propane storage tanks located on the customers' premises are then
filled from the  delivery  truck.  Propane is also  delivered  to  customers  in
portable cylinders.

Industry and Competition

   Industry

     Based upon information contained in the Energy Information Administration's
Annual Energy Review 1996 magazine,  propane accounts for approximately  3-4% of
household  energy  consumption in the United States,  an average level which has
remained  relatively  constant for the past 19 years. It competes primarily with
natural gas,  electricity  and fuel oil as an energy source  principally  on the
basis of price,  availability and portability.  Propane serves as an alternative
to natural gas in rural and suburban  areas where natural gas is  unavailable or
portability  of product is required.  Propane is generally  more  expensive than
natural  gas on an  equivalent  BTU basis in  locations  served by natural  gas,
although  propane is often  sold in such areas as a standby  fuel for use during
peak demands and during  interruption  in natural gas service.  The expansion of

                                       4
<PAGE>

natural gas into traditional  propane markets has historically been inhibited by
the capital costs required to expand distribution and pipeline systems. Although
the extension of natural gas pipelines tends to displace propane distribution in
the neighborhoods  affected, the Partnership believes that new opportunities for
propane sales arise as more geographically  remote  neighborhoods are developed.
Propane is generally less expensive to use than  electricity  for space heating,
water heating and cooking and competes  effectively  with  electricity  in those
parts of the country where propane is cheaper than  electricity on an equivalent
BTU basis. Although propane is similar to fuel oil in application, market demand
and price,  propane and fuel oil have  generally  developed  their own  distinct
geographic  markets.  Because  residential  furnaces  and  appliances  that burn
propane  will not operate on fuel oil, a  conversion  from one fuel to the other
requires the installation of new equipment. The Partnership's residential retail
propane customers,  therefore, will have an incentive to switch to fuel oil only
if fuel oil becomes  significantly  less expensive than propane.  Likewise,  the
Partnership may be unable to expand its customer base in areas where fuel oil is
widely used,  particularly the Northeast,  unless propane becomes  significantly
less expensive than fuel oil.  Alternatively,  many industrial customers who use
propane as a heating fuel have the  capacity to switch to other  fuels,  such as
fuel oil, on the basis of  availability  or minor  variations in price.  Propane
generally is becoming  increasingly  favored over fuel oil and other alternative
sources of fuel as an environmentally preferred energy source.

   Competition

     In addition to competing  with  marketers of other fuels,  the  Partnership
competes  with  other  companies  engaged  in the  retail  propane  distribution
business.  Competition within the propane  distribution  industry stems from two
types of participants:  the larger multi-state marketers and the smaller,  local
independent marketers.  Based upon information contained in the National Propane
Gas  Association's  LP-Gas  Market  Facts and the  January  1997 issue of LP Gas
magazine,  the  Partnership  believes  that the ten largest  multi-state  retail
marketers of propane,  including the Partnership,  account for approximately 33%
of  the  total  retail  sales  of  propane  in the  United  States.  Based  upon
information contained in industry publications, the Partnership also believes no
single  marketer  has a greater than 10% share of the total market in the United
States and that the Partnership is the second largest retail marketer of propane
in the United  States,  with a market share of  approximately  8% as measured by
volume of national retail propane sales.

     Most of the Partnership's retail distribution outlets compete with three or
more marketers or distributors.  The principal factors  influencing  competition
among propane  marketers are price and service.  The  Partnership  competes with
other  retail  marketers  primarily on the basis of  reliability  of service and
responsiveness  to customer needs,  safety and price.  Each retail  distribution
outlet  operates in its own  competitive  environment  because retail  marketers
locate in close  proximity to customers to lower the cost of providing  service.
The typical  retail  distribution  outlet has an effective  marketing  radius of
approximately 25 miles.

Other Operations

     The  other  operations  of the  Partnership  consist  principally  of:  (1)
trading,  (2) chemical feedstocks marketing and (3) wholesale propane marketing.
The  Partnership,  through  its  natural  gas  liquids  trading  operations  and
wholesale  marketing,  has  become  one of the  largest  independent  traders of
propane and natural gas liquids in the United States.  The  Partnership  owns no
properties that are material to these  operations.  These operations may utilize
available  space in the  Partnership's  underground  storage  facilities  in the
furtherance  of these  businesses.  Because  the  Partnership  possesses a large
distribution  system,  underground storage capacity and the utility to buy large
volumes of propane,  the General  Partner  believes that the Partnership is in a
position to achieve product cost savings and avoid  shortages  during periods of
tight  supply to an extent  not  generally  available  to other  retail  propane
distributors.

                                       5
<PAGE>



   Trading

     The Partnership's  traders are engaged in trading propane and other natural
gas liquids for the  Partnership's  account and for supplying the  Partnership's
retail and  wholesale  propane  operations.  The  Partnership  primarily  trades
products  purchased  from its  over 110  suppliers,  however,  it also  conducts
transactions on the New York Mercantile Exchange.  Trading activity is conducted
primarily  to  generate  a  profit  independent  of  the  retail  and  wholesale
operations,  but is also conducted to insure the  availability of propane during
periods of short supply.  Propane represents over 50% of the Partnership's total
trading  volume,  with the  remainder  consisting  principally  of various other
natural gas liquids.  The Partnership  attempts to minimize trading risk through
the enforcement of its trading  policies,  which include total inventory  limits
and loss limits,  and attempts to minimize credit risk through credit checks and
application  of its credit  policies.  However,  there can be no assurance  that
historical  experience or the  existence of such  policies will prevent  trading
losses in the future.  For the  Partnership's  fiscal years ended July 31, 1997,
1996 and 1995 net revenues of $5.5  million,  $7.3  million,  and $5.8  million,
respectively, were derived from trading activities.

   Chemical Feedstocks Marketing

     The  Partnership  is  also  involved  in  the  marketing  of  refinery  and
petrochemical  feedstocks.  Petroleum  by-products are purchased from refineries
and sold to petrochemical  plants. The Partnership leases 361 railroad tank cars
to facilitate  product  delivery.  Revenues of $29.8 million,  $44.4 million and
$91.9 million were derived from such  activities  for the  Partnership's  fiscal
years ended July 31, 1997, 1996 and 1995, respectively.

   Wholesale Marketing

     The Partnership  engages in the wholesale  distribution of propane to other
retail propane  distributors.  During the fiscal years ended July 31, 1997, 1996
and 1995, the Partnership sold 123 million,  104 million and 96 million gallons,
respectively, of propane to wholesale customers and had revenues attributable to
such sales of $68.7 million, $42.6 million and $33.5 million, respectively.

Employees

     The  Partnership  has no  employees  and is managed by the General  Partner
pursuant to the Partnership Agreement. At July 31, 1997, the General Partner had
3,370 full-time employees and 837 temporary and part-time employees. At July 31,
1997, the General Partner's  full-time  employees were employed in the following
areas:

    Retail Locations                                                2,834
    Transportation and Storage                                        219
    Corporate Offices (Liberty, MO & Houston, TX)                     317
                                                                  ==========
                           Total                                    3,370
                                                                  ==========

     Approximately   one  percent  of  the  General   Partner's   employees  are
represented  by six  local  labor  unions,  which  are all  affiliated  with the
International  Brotherhood of Teamsters. The General Partner has not experienced
any significant work stoppages or other labor problems.

     The  Partnership's   supply,   trading,   chemical  feedstocks   marketing,
distribution  scheduling and product accounting functions are operated primarily
out of the  Partnership's  offices  located  in  Houston,  by a total  full-time
corporate staff of 83 people.

                                       6
<PAGE>



Governmental Regulation; Environmental and Safety Matters

     From August 1971 until January 1981, the United States Department of Energy
regulated the price and  allocation  of propane.  The  Partnership  is no longer
subject to any similar regulation.

     Propane is not a  hazardous  substance  within the  meaning of federal  and
state  environmental laws. In connection with all acquisitions of retail propane
businesses that involve the purchase of real estate, the Partnership  conducts a
due diligence  investigation to attempt to determine whether any substance other
than  propane has been sold from or stored on any such real estate  prior to its
purchase.  Such  due  diligence  includes  questioning  the  sellers,  obtaining
representations   and  warranties   concerning  the  sellers'   compliance  with
environmental laws and visual  inspections of the properties,  whereby employees
of the  General  Partner  look  for  evidence  of  hazardous  substances  or the
existence of underground storage tanks.

     With respect to the  transportation of propane by truck, the Partnership is
subject to regulations  promulgated  under the Federal Motor Carrier Safety Act.
These  regulations  cover the  transportation  of  hazardous  materials  and are
administered by the United States Department of Transportation ("DOT"). National
Fire Protection  Association  Pamphlet No. 58, which  establishes a set of rules
and   procedures   governing  the  safe  handling  of  propane,   or  comparable
regulations,  have been  adopted as the  industry  standard in a majority of the
states in which the Partnership  operates.  There are no material  environmental
claims pending and the  Partnership  complies in all material  respects with all
material   governmental   regulations  and  industry  standards   applicable  to
environmental and safety matters,  except as it relates to the DOT Final Interim
Rule on  emergency  shut off valves.  The DOT has  determined  that all existing
emergency shut off devices used on propane cargo vessels fail to comply with the
existing Emergency  Discharge Control Regulation 49CFR 178.337-11.  Accordingly,
the DOT has  issued a Final  Interim  Rule that  requires  all  transporters  of
propane to implement  revised  procedures to ensure immediate  activation of the
emergency  shut off  device in the event of a  catastrophic  failure  of a cargo
vehicle's  discharge  system.  The  Partnership is working with both the DOT and
outside  experts to develop a system that complies  with the existing  Emergency
Discharge  Control  Regulations  as well as the  provisions of the Final Interim
Rule.

Service Marks and Trademarks

     The Partnership markets retail propane under the "Ferrellgas" tradename and
uses  the  tradename  "Ferrell  North  America"  for its  other  operations.  In
addition,  the  Partnership  has a  trademark  on the name  "FerrellMeter,"  its
patented gas leak detection device.  The Company  contributed all of its rights,
title and interest in such  tradenames and trademark in the  continental  United
States to the  Partnership.  The General Partner will have an option to purchase
such  tradenames and trademark from the  Partnership  for a nominal value if the
General Partner is removed as general partner of the Partnership  other than for
cause.  If the General  Partner  ceases to serve as the  general  partner of the
Partnership  for any other  reason,  it will have the  option to  purchase  such
tradenames and trademark from the Partnership for fair market value.

Business of Ferrellgas Finance Corp. and Ferrellgas Partners Finance Corp.

     Ferrellgas Finance Corp. (the "OLP Finance Corp."), a Delaware corporation,
was formed April 28, 1994,  and is a  wholly-owned  subsidiary  of the Operating
Partnership.  Ferrellgas  Partners  Finance  Corp.  (the "MLP  Finance  Corp") a
Delaware corporation (together with the OLP Finance Corp., the "Finance Corps.")
was formed on March 28, 1996, and is a  wholly-owned  subsidiary of the MLP. The
Finance Corps. have nominal assets and do not conduct any operations,  but serve
as co-obligors for securities  issued by the Operating  Partnership and the MLP.
Certain institutional investors that might otherwise be limited in their ability
to  invest  in  securities  issued  by  partnerships  by  reasons  of the  legal
investment laws of their states of organization or their charter documents,  may
be able to invest in the Operating Partnership's or MLP's securities because the
Finance  Corps.  are  co-obligors.  Accordingly,  a discussion of the results of
operations,  liquidity  and  capital  resources  of the Finance  Corps.  are not
presented.  See  the  Finance  Corp's.  notes  to  financial  statements  for  a
discussion  of the  securities  with  respect to which the  Finance  Corps.  are
serving as co-obligor.

                                       7
<PAGE>

ITEM 2.       PROPERTIES.

     The Partnership owns or leases the following transportation equipment which
is utilized primarily in retail operations, except for railroad tank cars, which
are used primarily by chemical feedstocks operations.
<TABLE>
<CAPTION>
                                                                             Owned       Leased        Total
<S>                                                                              <C>         <C>         <C>
         Truck tractors ...................................................      106         48          154
         Transport trailers................................................      256         31          287
         Bulk delivery trucks..............................................      951        654        1,605
         Pickup and service trucks.........................................    1,015        442        1,457
         Railroad tank cars................................................        -        361          361
</TABLE>

     The transport  trailers  have an average  capacity of  approximately  9,000
gallons.  The bulk  delivery  trucks are  generally  fitted  with 2,000 to 3,000
gallon  propane  tanks.  Each railroad tank car has a capacity of  approximately
30,000 gallons.

     A typical  retail  distribution  outlet is located on one to three acres of
land and includes a small office,  a workshop,  bulk storage  capacity of 18,000
gallons to 60,000 gallons and a small inventory of stationary  customer  storage
tanks and portable propane cylinders that the Partnership provides to its retail
customers for propane  storage.  The Partnership  owns the land and buildings of
about 50% of its retail  outlets and leases the  remaining  facilities  on terms
customary in the industry and in the applicable local markets.

     Approximately  697,000 propane tanks are owned by the Partnership,  most of
which are  located  on  customer  property  and leased to those  customers.  The
Partnership also owns approximately 638,000 portable propane cylinders,  most of
which are leased to industrial and commercial customers for use in manufacturing
and  processing  needs,  including  forklift  operations,   and  to  residential
customers  for home  heating and  cooking,  and to local  dealers  who  purchase
propane from the Partnership for resale.

     The Partnership owns underground storage facilities at Hutchinson,  Kansas;
Adamana,  Arizona;  and Moab,  Utah.  At July 31,  1997,  the  capacity of these
facilities  approximated  88 million  gallons,  88 million gallons and 8 million
gallons,  respectively  (an  aggregate of  approximately  184 million  gallons).
Currently, approximately 142 million gallons of this capacity is leased to third
parties. The remaining space is available for the Partnership's use.

     The  Partnership  owns the land and two  buildings  (50,245  square feet of
office space) comprising its corporate  headquarters in Liberty,  Missouri,  and
leases the 27,696  square  feet of office  space in  Houston,  Texas,  where its
trading,  chemical feedstocks  marketing and wholesale marketing  operations are
primarily located.

                                       8
<PAGE>



     The Partnership  believes that it has satisfactory title to or valid rights
to use all of its material  properties and, although some of such properties are
subject to liabilities and leases and, in certain cases, liens for taxes not yet
currently   due  and  payable  and   immaterial   encumbrances,   easements  and
restrictions,  the  Partnership  does not  believe  that any such  burdens  will
materially  interfere with the continued use of such properties in its business,
taken as a whole. In addition,  the  Partnership  believes that it has, or is in
the process of  obtaining,  all  required  material  approvals,  authorizations,
orders, licenses,  permits, franchises and consents of, and has obtained or made
all  required  material  registrations,  qualifications  and filings  with,  the
various state and local governmental and regulatory  authorities which relate to
ownership of the Partnership's properties or the operations of its business.


ITEM 3.       LEGAL PROCEEDINGS.

     Propane  is a  flammable,  combustible  gas.  Serious  personal  injury and
property damage can occur in connection with its transportation, storage or use.
The  Partnership,  in the ordinary course of business,  is threatened with or is
named as a defendant in various lawsuits which,  among other items,  seek actual
and punitive damages for product liability, personal injury and property damage.
The Partnership  maintains  liability  insurance  policies with insurers in such
amounts and with such coverages and deductibles as the General Partner  believes
is  reasonable  and  prudent.  However,  there  can be no  assurance  that  such
insurance  will be adequate to protect the  Partnership  from material  expenses
related  to such  personal  injury or  property  damage  or that such  levels of
insurance will continue to be available in the future at economical  prices.  It
is not possible to determine the ultimate disposition of these matters discussed
above;  however,  management is of the opinion that there are no known claims or
known contingent claims that are likely to have a material adverse effect on the
results of operations or financial condition of the Partnership.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No  matters  were  submitted  to a vote  of  the  security  holders  of the
Partnership during the fiscal year ended July 31, 1997.

                                                      PART II

ITEM 5.       MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS.

     The Operating Partnership does not have an established trading market for a
class of common  equity.  The  Operating  Partnership's  only  limited  partner,
Ferrellgas Partner,  L.P. owns 98.9899% of the Operating  Partnership's  equity,
while  Ferrellgas,  Inc.,  has a  1.0101%  general  partner  equity  share.  The
Operating Partner does not have any publicly traded equity.


ITEM 6.       SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.

     The following table presents selected consolidated historical and pro forma
financial data of the Partnership and Predecessor.

                                       9
<PAGE>



(in thousands)

<TABLE>
<CAPTION>


                                                                                                                  
                                                                                                           
                                                                 Ferrellgas, L.P.                              (Predecessor)
                                        ---------------------------------------------------------------- ------------------------- 
                                       Historical   Historical   Historical  Pro Forma      Historical Historical Eleven Historical
                                       Year Ended   Year Ended   Year Ended  Year Ended    Inception to   Months Ended    Year Ended
                                        July 31,    July 31,     July 31,      July 31,       July 30,     July 30,        July 31, 
                                         1997          1996        1995         1994(1)        1994          1994           1993
                                        ----------- -----------  ----------   -----------   ------------  ------------   -----------
Income Statement Data:
<S>                                     <C>          <C>          <C>         <C>           <C>           <C>            <C>     
    Total revenues                      $804,298     $653,640     $596,436    $526,556      $ 24,566      $501,990       $541,945
    Depreciation and amortization         43,789       37,024       32,014      28,835         2,383        26,452         30,840
    Operating income (loss)               68,846       62,506       55,928      68,631        (2,391)       71,522         58,553
    Interest expense                      30,341       33,822       31,993      28,130         2,662        53,693         60,071
    Earnings (loss) from continuing       39,068       28,764       24,064      39,909        (5,026)       12,337            109
    operations
    Partnership distributions (2)         80,902       63,504       52,180           0             0             -              -

Balance Sheet Data (at end of period):
    Working capital                     $ 21,182     $ 20,149     $ 28,929    $ 34,948      $ 34,948      $ 91,912       $ 74,408
    Total assets                         653,777      650,398      578,596     477,193       477,193       592,664        573,376
    Payable to (receivable from)
     parent and affiliates                                                                                  (4,050)          (916) 
    Long-term debt                       327,334      279,112      338,188     267,062       267,062       476,441        489,589
    Stockholder's equity                                                                                    22,829         11,359

Partners' Capital:
    Limited partners                    $203,360     $244,771     $118,638    $121,393      $121,393             -               -
    General Partner                        2,075        2,498        1,211       1,239         1,239             -               -

Operating Data:
    Retail propane sales volumes
     (in gallons)                        693,995      650,214      575,935     564,224        23,915        540,309       553,413
    Capital expenditures (3):
        Maintenance                     $ 10,137     $  6,657     $  8,625    $  5,688      $    911      $   4,777      $ 10,527
        Growth                             6,055        6,654       11,097       4,032           983          3,049         2,851
        Acquisition                       38,780      108,803       70,069       3,429           878          2,551           897
                                        ----------- -----------  ----------   -----------   ------------  ------------   -----------
            Total                       $ 54,972     $122,114     $ 89,791    $ 13,149      $ 2,772       $  10,377      $ 14,275
                                        =========== ===========  ==========   ===========   ============  ============   ===========
Supplemental Data:
    Earnings (loss) before
    depreciation,amortization           $112,635     $ 99,530     $ 87,941    $ 97,466      $    (8)      $  97,974      $ 89,393
    interest and taxes (4)
</TABLE>


(1)  The pro forma year ended July 31, 1994  includes  the eleven  months  ended
     June 30, 1994 and  historical  financial  data of the  partnership  for the
     period from inception, July 5, 1994, to July 31, 1994 (adjusted principally
     for the pro  forma  effect on  interest  expense  resulting  from the early
     retirement of debt net of additional borrowings).

(2)  No cash  distributions  were  declared by the  Operating  Partnership  from
     inception to July 31, 1994. Fiscal 1997 distributions  included amounts for
     the  interest  expense owed by the MLP on the $160 million of 9 3/8% Senior
     Secured Notes issued by the MLP in April 1996.

(3)  The   Partnership's   capital   expenditures   fall  generally  into  three
     categories:   (i)   maintenance   capital   expenditures,   which   include
     expenditures  for repair and replacement of property,  plant and equipment;
     (ii) growth capital expenditures,  which include expenditures for purchases
     of new propane  tanks and other  equipment to  facilitate  expansion of the
     Partnership's  customer base and operating capacity;  and (iii) acquisition
     capital   expenditures,   which   include   expenditures   related  to  the
     acquisitions of retail propane operations. Acquisition capital expenditures
     represent total cost of acquisition less working capital acquired.

(4)  EBITDA is  calculated  as operating  income  (loss) plus  depreciation  and
     amortization.  EBITDA is not intended to  represent  cash flow and does not
     represent  the  measure of cash  available  for  distribution.  EBITDA is a
     non-GAAP measure,  but provides  additional  information for evaluating the
     Partnership's  ability  to make  the  Minimum  Quarterly  Distribution.  In
     addition,  EBITDA is not intended as an alternative to earnings (loss) from
     continuing operations or net earnings (loss).


                                       10
<PAGE>


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

     The following  discussion should be read in conjunction with the historical
consolidated  financial  statements and the notes thereto included  elsewhere in
this Form 10-K.  Except for the  $160,000,000  of 9 3/8%  Senior  Secured  Notes
issued  in April  1996 by the MLP  (the  "MLP  Senior  Notes")  and the  related
interest  expense,  the  Operating  Partnership  accounts  for nearly all of the
consolidated assets,  sales, and earnings of the MLP. When the discussion refers
to both MLP and OLP, the term "Partnership" may be used.

   Statements included in this report that are not historical facts, including a
statement  concerning the Partnership's belief that the OLP will have sufficient
funds to meet its  obligations  to enable it to distribute to the MLP sufficient
funds to permit the MLP to meet its  obligations  with respect to the MLP Senior
Notes issued in April 1996, and to enable it to distribute the Minimum Quarterly
Distribution  ($0.50 per Unit) on all Common Units and  Subordinated  Units, are
forward-looking statements.

     Such  statements  are subject to risks and  uncertainties  that could cause
actual results to differ  materially  from those  expressed in or implied by the
statements.  The risks and  uncertainties  include  but are not  limited  to the
following  and their effect on the  Partnership's  operations:  a) the effect of
weather  conditions on demand for propane,  b) price and availability of propane
supplies,  c) the availability of capacity to transport propane to market areas,
d)  competition  from other energy sources and within the propane  industry,  e)
operating risks incidental to transporting,  storing, and distributing  propane,
f) changes in interest rates g)  governmental  legislation and  regulations,  h)
energy efficiency and technology trends and (i) other factors that are discussed
in the Partnership's filings with the Securities and Exchange Commission.

General

     The Partnership is engaged in the sale, distribution, marketing and trading
of propane and other natural gas liquids.  The Partnership's  revenue is derived
primarily  from the retail  propane  marketing  business.  The  General  Partner
believes the Partnership is the second largest retail marketer of propane in the
United  States,  based on gallons sold,  serving more than 800,000  residential,
industrial/commercial  and agricultural  customers in 45 states and the District
of  Columbia  through   approximately  513  retail  outlets  and  295  satellite
locations.  Annual retail  propane sales volumes were 694 million,  650 million,
and 576 million  gallons for the fiscal  years ended July 31,  1997,  1996,  and
1995, respectively.

     The retail  propane  business of the  Partnership  consists  principally of
transporting propane purchased in the contract and spot markets,  primarily from
major  oil  companies,  to its  retail  distribution  outlets  and then to tanks
located on the customers' premises, as well as to portable propane cylinders. In
the  residential  and  commercial  markets,  propane is primarily used for space
heating,  water  heating and cooking.  In the  agricultural  market,  propane is
primarily used for crop drying,  space heating,  irrigation and weed control. In
addition, propane is used for certain industrial applications,  including use as
an engine  fuel,  which is burned in  internal  combustion  engines  that  power
vehicles and forklifts and as a heating or energy  source in  manufacturing  and
drying processes.

     The Partnership is also engaged in the trading of propane and other natural
gas liquids,  chemical  feedstocks  marketing and wholesale  propane  marketing.
Through its natural gas liquids trading operations and wholesale marketing,  the
Partnership is one of the largest independent traders of propane and natural gas
liquids in the United States. In fiscal year 1997, the  Partnership's  wholesale
and trading sales volume was  approximately  1.2 billion  gallons of propane and
other natural gas liquids, almost 50% of which was propane.

     The Partnership's  traders are engaged in trading propane and other natural
gas liquids for the  Partnership's  account and for supplying the  Partnership's
retail and  wholesale  propane  operations.  The  Partnership  primarily  trades

                                       11
<PAGE>

products  purchased  from its  over 110  suppliers,  however,  it also  conducts
transactions on the New York Mercantile Exchange.  Trading activity is conducted
primarily  to  generate  a  profit  independent  of  the  retail  and  wholesale
operations,  but is also conducted to insure the  availability of propane during
periods of short supply.  Propane represents over 44% of the Partnership's total
trading  volume,  with the  remainder  consisting  principally  of various other
natural gas liquids.  The Partnership  attempts to minimize trading risk through
the enforcement of its trading  policies,  which include total inventory  limits
and loss limits,  and attempts to minimize credit risk through credit checks and
application  of its credit  policies.  However,  there can be no assurance  that
historical  experience or the  existence of such  policies will prevent  trading
losses in the future.  For the  Partnership's  fiscal years ended July 31, 1997,
1996 and 1995,  net revenues from trading  activities  were $5.5  million,  $7.3
million and $5.8 million, respectively.

Selected Quarterly Financial Data
(in thousands, except per unit data)

     Due to the  seasonality  of the retail propane  business,  first and fourth
quarter  revenues,  gross profit and net earnings are consistently less than the
comparable second and third quarter results. Other factors affecting the results
of operations include competitive conditions,  demand for product, variations in
the weather and fluctuations in propane prices.

Fiscal 1997

During the first three  quarters of fiscal  1997,  the  Partnership  experienced
increased  revenues  and gross profit due to the affect of  acquisitions  in the
fourth quarter of fiscal 1996 and significantly higher wholesale propane product
costs,  partially  offset by the impact of warmer  weather.  The fourth  quarter
gross  profit  was  negatively  affected  by  a  cumulative   inventory  costing
adjustment  that related to the prior three  quarters.  This  inventory  costing
adjustment  contributed to approximately .3%, 1.4%, and 1.0%, as a percentage of
revenues,  of the Partnership's  gross profit increase in the first,  second and
third quarters of fiscal 1997,  respectively.  In addition,  net earnings (loss)
for the third and fourth  quarters  of fiscal 1997 were  positively  affected by
favorable  general  liability  claims  experience.  The  following  presents the
Partnership's selected quarterly financial data for the two years ended July 31,
1997.
<TABLE>
<CAPTION>

Fiscal year ended July 31, 1997

                                              First              Second                Third               Fourth 
                                             Quarter             Quarter              Quarter              Quarter
                                        ----------------     ----------------      ---------------     ---------------

<S>                                            <C>                  <C>                  <C>                  <C>    
Revenues                                       $167,860             $347,056             $192,873             $96,509
Gross profit                                     66,785              143,291               84,855              39,239
Net earnings (loss)                              (6,403)              58,770               13,658             (26,957)

Fiscal year ended July 31, 1996
                                               First              Second                Third               Fourth 
                                              Quarter             Quarter              Quarter              Quarter
                                        ----------------     ----------------      ---------------     ---------------

Revenues                                       $124,588             $238,381             $190,743             $99,928
Gross profit                                     55,479              111,909               85,480              44,458
Earnings (loss) before
  extraordinary loss                             (7,378)              41,900               18,365             (24,123)
Net earnings (loss) (1)                          (7,378)              41,900               18,365             (25,098)
</TABLE>

(1)      Reflects a $965 extraordinary loss on early retirement of debt, net of
         minority interest of $10.
                                       12
<PAGE>

Results of Operations

   Fiscal Year Ended July 31, 1997 versus Fiscal Year Ended July 31, 1996

     Total Revenues.  Total revenues increased 23.0% to $804,298,000 as compared
to  $653,640,000  in the prior year,  primarily due to increased sales price per
retail  gallon,  increased  retail  propane  volumes,  and to a lesser extent an
increase in revenues from other  operations (net trading  operations,  wholesale
propane marketing and chemical feedstocks marketing).

     A volatile  propane  market  during the first half of fiscal  1997 caused a
significant  increase in the cost of product which in turn caused an increase in
sales price per gallon.  Retail volumes increased by 6.7% or 44 million gallons,
primarily  due to the  increase  in volumes  related to  acquisitions  partially
offset by the affect of warmer  weather during fiscal 1997 as compared to fiscal
1996 and by customer conservation efforts.  Fiscal 1997 winter temperatures,  as
reported by the American Gas Association, were 6% warmer than the prior year and
4% warmer than normal.

     The 10.2% increase in revenues from other operations to $103,971,000 is due
to an  increase  in  wholesale  marketing  volumes  and sales  price per gallon,
partially  offset by a  decrease  in  chemical  feedstocks  marketing  revenues.
Wholesale   marketing  volumes   increased   primarily  due  to  the  effect  of
acquisitions  while price  increased as a result of  increased  cost of product.
Chemical  feedstocks volumes decreased as a result of decreased  availability of
product from  refineries  and  decreased  demand from  petrochemical  companies.
Unrealized gains and losses on options, forwards, and futures contracts were not
significant at July 31, 1997 and 1996, respectively.

     Gross Profit.  Gross profit  increased 12.4% to $334,170,000 as compared to
$297,326,000  in the 1996 fiscal  year,  primarily  due to an increase in retail
sales gross margin,  partially  offset by a decrease in gross profits from other
operations. Retail operations results increased primarily due to the increase in
volumes attributed to acquisitions and an increase in retail margins,  partially
offset by the  effect of  warmer  weather  and  customer  conservation  efforts.
Wholesale  marketing  and chemical  feedstocks is comprised of low margin sales,
therefore,  the net  increase in revenues  did not  significantly  affect  gross
profit.

     Operating  Expenses.  Operating expenses increased 10.5% to $198,271,000 as
compared to $179,462,000 in the prior year primarily due to acquisition  related
increases in personnel costs,  plant and office expenses,  and vehicle and other
expenses, partially offset by favorable general liability claims experience.

     Depreciation  and  Amortization.   Depreciation  and  amortization  expense
increased 18.3% to $43,789,000 as compared to $37,024,000 for the prior year due
primarily to acquisitions of propane businesses.

     Interest  expense.  Interest  expense  decreased 10.3% from the prior year.
This  decrease is  primarily  due to the result of reduced  borrowings  and to a
lesser extent an overall  decrease in interest  rates on  borrowings  during the
year. The OLP significantly  reduced its borrowings in April 1996, subsequent to
receiving  a  contribution  from the MLP after the MLP had issued the MLP Senior
Notes.


   Fiscal Year Ended July 31, 1996 versus Fiscal Year Ended July 31, 1995

     Total  Revenues.  Total  revenues  increased  9.6% as compared to the prior
year,  primarily due to increased  retail  propane  volumes and increased  sales
price per retail gallon,  partially offset by the decline in revenues from other
operations (net trading  operations,  wholesale  propane  marketing and chemical
feedstocks marketing).
                                       13
<PAGE>

     Retail volumes  increased by 12.9% or 74 million gallons,  primarily due to
the affect of colder  weather  during fiscal 1996 as compared to fiscal 1995 and
acquisition related growth. Fiscal 1996 winter temperatures,  as reported by the
American Gas Association,  were 14.3% colder than the prior year and 3.0% colder
than normal. Colder winter temperatures also caused higher cost of product which
in turn produced a corresponding  increase in sales price per gallon as compared
to the prior fiscal year.

     The 28.5%  decrease in revenues  from other  operations to  $94,318,000  is
primarily due to a decrease in chemical  feedstocks  marketing revenues due to a
decrease in sales volume and selling price. Both volume and price decreased as a
result of decreased availability of product from refineries and decreased demand
from petrochemical companies.  Unrealized gains and losses on options, forwards,
and  futures  contracts  were  not  significant  at  July  31,  1996  and  1995,
respectively.

     The acquisition of Skelgas in May 1996 did not have a significant affect on
fiscal  1996  revenues  due to the  expected  low  retail  volumes in the fourth
quarter of fiscal  1996.  The  Partnership  expects  fiscal 1997 retail  propane
revenues to increase primarily due to the full fiscal year impact of the Skelgas
acquisition.  Due to, among other factors,  the  uncertainty in both fiscal 1997
temperature  levels and sales price per  gallon,  the  Partnership  is unable to
predict the impact of the Skelgas  acquisition  on future  revenues.  During the
nine months ended April 30, 1996,  Skelgas sold  approximately 87 million retail
propane gallons, however, temperatures were 3.0% colder than normal.

     Gross Profit.  Gross profit  increased 15.8% as compared to the 1995 fiscal
year,  primarily due to a $28,415,000  increase in retail sales gross margin and
to a lesser  extent  gross  profits  from other  operations.  Retail  operations
results  increased  primarily  due to the  increase  in  retail  volumes.  Other
operations  increased  $11,027,000  mainly due to the  increased  activity  of a
non-retail  transportation operation. This increased activity did not materially
impact  income  from  continuing  operations  due to  the  related  increase  in
operating  expenses.  Chemical  feedstocks  is  comprised  of low margin  sales,
therefore, the decrease in revenues did not significantly impact gross profit.

     Operating Expenses. Operating expenses increased 17.1% over the prior year.
The increase is primarily  attributable to acquisitions of propane and increased
activity in the  non-retail  transportation  operations as compared to the prior
year.

     Depreciation  and  Amortization.   Depreciation  and  amortization  expense
increased  15.6% over the prior year due  primarily to  acquisitions  of propane
businesses.

     Interest expense and  extraordinary  loss.  Interest expense increased 5.7%
over the prior year.  This increase is primarily the result of the increased net
borrowings from the Operating  Partnership's  revolving  credit loans during the
first nine months of the year,  partially  offset by decreasing  interest  rates
during the first nine months of the year.

     The extraordinary charge of $975,000 is due to the write off of unamortized
debt  issuance  costs as a  result  of the  refinancing  of the  $50,000,000  of
floating rate debt previously issued by the Operating Partnership.

Liquidity and Capital Resources

     The ability of the OLP to satisfy its  obligations is dependent upon future
performance,  which will be subject to prevailing economic,  financial, business
and weather conditions and other factors,  many of which are beyond its control.
For the fiscal year ending July 31, 1998, the General Partner  believes that the
OLP will  have  sufficient  funds  to meet  its  obligations  and  enable  it to
distribute to the MLP sufficient funds to permit the MLP to meet its obligations
with  respect to the MLP Senior  Notes  issued in April  1996,  and enable it to
distribute  the Minimum  Quarterly  Distribution  ($0.50 per Unit) on all Common
Units and Subordinated  Units.  Future  maintenance and working capital needs of

                                       14
<PAGE>
the  Partnership  are  expected  to be provided  by cash  generated  from future
operations,  existing cash balances and the working capital borrowing  facility.
In order to fund expansive capital projects and future acquisitions, the OLP may
borrow on existing bank lines,  the MLP or OLP may issue  additional debt or the
MLP may issue additional  Common Units.  Toward this purpose the MLP maintains a
shelf  registration  statement with the  Securities and Exchange  Commission for
1,887,420 Common Units  representing  limited partner  interests in the MLP. The
Common Units may be issued from time to time by the MLP in  connection  with the
OLP's  acquisition  of other  businesses,  properties  or securities in business
combination transactions.

     Operating Activities. Cash provided by operating activities was $92,158,000
for the year ended July 31,  1997,  compared to  $64,396,000  in the prior year.
This increase is primarily due to the decrease in accounts receivable related to
timing of trading activity at year end and increased  earnings prior to non-cash
deductions.

     Investing  Activities.  The  Partnership  made  total  acquisition  capital
expenditures of $40,200,000  (including  working capital acquired of $1,420,000)
during  fiscal  1997.  This  amount  was  funded by  $36,114,000  cash  payments
(including  $795,000 for  transition  costs  previously  accrued for fiscal 1996
acquisitions) and $4,881,000 in other costs and consideration.

     During  the year ended  July 31,  1997,  the  Partnership  made  growth and
maintenance  capital  expenditures  of  $16,192,000  primarily for the following
purposes:  1) additions to  Partnership-owned  customer tanks and cylinders,  2)
vehicle lease  buyouts,  3) relocating  the Houston  office and  relocating  and
upgrading  district  plant  facilities,  and 4)  development  of an enhanced gas
inventory  management  system and  upgrading  computer  equipment  and software.
Capital requirements for repair and maintenance of property, plant and equipment
are relatively low since technological change is limited and the useful lives of
propane tanks and cylinders,  the Partnership's  principal  physical assets, are
generally  long.  The  Partnership  maintains  its  vehicle  and  transportation
equipment  fleet by leasing  light and medium  duty  trucks  and  tractors.  The
General Partner  believes vehicle leasing is a cost effective method for meeting
the Partnership's  transportation  equipment needs. The Partnership continues to
seek  expansion of its  operations  through  strategic  acquisitions  of smaller
retail  propane  operations   located   throughout  the  United  States.   These
acquisitions will be funded through internal cash flow,  external  borrowings or
the issuance of additional Partnership interests.  The Partnership does not have
any material commitments of funds for capital expenditures other than to support
the current level of operations.  In fiscal 1998, the Partnership expects growth
and  maintenance  capital  expenditures  to increase  slightly  over fiscal 1997
levels.

     Financing  Activities.  During the fiscal  year  ended July 31,  1997,  the
Partnership  borrowed  $41,729,000  under its $255,000,000  Credit Facility (the
"Credit  Facility") to fund expected  seasonal  working capital needs,  business
acquisitions,  and  capital  expenditures.  At July  31,  1997,  $86,400,000  of
borrowings were outstanding  under the revolving portion of the Credit Facility.
In addition, letters of credit outstanding, used primarily to secure obligations
under certain insurance arrangements, totaled $24,102,000. At July 31, 1997, the
Operating   Partnership  had  $94,498,000   available  for  general   corporate,
acquisition  and  working  capital  purposes  under  the  Credit  Facility.  The
Partnership typically has significant cash needs during the first quarter due to
expected  low  revenues,  increasing  inventories  and  the  Partnership's  cash
distribution paid in mid-September.

     On April 26,  1996,  the MLP issued the MLP  Senior  Notes.  The MLP Senior
Notes will be redeemable at the option of the Partnership,  in whole or in part,
at any  time on or  after  June 15,  2001.  The MLP  Senior  Notes  will  become
guaranteed by the OLP on a senior  subordinated  basis if certain conditions are
met. The Amended and Restated Credit Agreement and the OLP Senior Note Indenture
currently  prohibit the OLP from  guaranteeing  any indebtedness  unless,  among
meeting  other  conditions,  the fixed charge  coverage  ratio for the OLP meets
certain  levels  at  prescribed  dates.  Currently  the OLP does  not meet  such
conditions and, therefore,  there can be no assurance as to whether or when this
guarantee will occur.  Interest is payable  semi-annually  in arrears on June 15
and December  15. The OLP also has  outstanding  $200,000,000  of 10% Fixed Rate
Senior  Notes due 2001.  These notes are  redeemable,  at the option of the OLP,
anytime on or after August 1, 1998 with a premium through August 1, 2000.

                                     15
<PAGE>

     On July 31,  1996,  the OLP amended and restated  its  $205,000,000  Credit
Facility (with Bank of America National Trust & Savings Association ("BofA"), as
Agent. Among other changes, the amendment increased the maximum borrowing amount
to  $255,000,000  and extended the  termination  date of the  revolving  line of
credit to July 1999. The unsecured Credit Facility  permits  borrowings of up to
$185,000,000  on a  senior  unsecured  revolving  line of  credit  basis to fund
general  corporate,  working  capital and  acquisition  purposes (of which up to
$50,000,000 is available to support letters of credit). The Credit Facility also
provides an unsecured  revolving line of credit for additional  working  capital
needs of $20,000,000.  The Partnership  anticipates  either exercising a renewal
for up to one year or  refinancing  any  amounts  still owed in July  1999.  The
Credit  Facility  also  includes  an  unsecured  term loan due June 1, 2001 (the
"Refinancing Loan ") which was used to refinance the OLP's $50,000,000  Floating
Rate Series B Senior Notes (the "Floating Senior Notes").

     To offset the variable rate characteristic of the Credit Facility,  the OLP
has entered into  interest  rate collar  agreements,  expiring  between June and
December 1998 with three major banks, that effectively limit interest rates on a
certain  notional  amount  between  4.9%  and 6.5%  under  the  current  pricing
arrangement.  At July 31, 1997,  the total  notional  principal  amount of these
agreements was $125,000,000.

     During the year ended July 31, 1997,  the OLP  distributed  enough funds to
permit the MLP to meet its  obligations  with  respect  to the MLP Senior  Notes
issued  in April  1996,  and  enable  it to  distribute  the  Minimum  Quarterly
Distribution  ($0.50 per Unit) on all Common Units and Subordinated Units. These
distributions  covered the period from May 1, 1996 to April 30, 1997.  On August
19, 1997, the MLP declared its  fourth-quarter  cash  distribution  of $0.50 per
limited  partner unit,  which was paid September 12, 1997. The MLP's  annualized
distribution is presently $2.00 per limited partner unit.

     The OLP  Fixed  Rate  Senior  Notes and  Credit  Facility  contain  various
restrictive   covenants   applicable  to  the  Operating   Partnership  and  its
subsidiaries, the most restrictive relating to additional indebtedness, sale and
disposition  of assets,  and  transactions  with  affiliates.  In addition,  the
Operating  Partnership  is  prohibited  from  making cash  distributions  of the
Minimum Quarterly  Distribution if a default or event of default exists or would
exist upon making such  distribution,  or if the Operating  Partnership fails to
meet certain coverage tests. The Operating Partnership is in compliance with all
requirements,  tests,  limitations  and covenants  related to the OLP Fixed Rate
Senior Notes and Credit Facility.


ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The OLP's  Consolidated  Financial  Statements and the Reports of Certified
Public Accountants thereon and the Supplementary Financial Information listed on
the accompanying Index to Financial Statements and Financial Statement Schedules
are  hereby  incorporated  by  reference.  See  Item  7 for  Selected  Quarterly
Financial Data.



ITEM 9. CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     None.


                                       16
<PAGE>


                                    PART III


ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.

Partnership Management

     The General Partner manages and operates the activities of the Partnership,
and the General Partner  anticipates that its activities will be limited to such
management and operation.  Unitholders do not directly or indirectly participate
in the management or operation of the  Partnership.  The General  Partner owes a
fiduciary duty to the Unitholders.

     In  September  1994,  the  General  Partner  appointed  two persons who are
neither  officers nor  employees of the General  Partner or any affiliate of the
General  Partner  to  serve  on a  committee  of  the  Partnership  (the  "Audit
Committee") with the authority to review, at the request of the General Partner,
specific  matters  as to which  the  General  Partner  believes  there  may be a
conflict of interest in order to determine if the  resolution  of such  conflict
proposed by the General Partner is fair and reasonable to the  Partnership.  The
Audit  Committee will only review  matters  relating to conflicts of interest at
the request of the General Partner,  and the General Partner has sole discretion
to  determine  which  matters,  if any,  to submit to the Audit  Committee.  Any
matters  approved by the Audit Committee will be conclusively  deemed to be fair
and reasonable to the  Partnership,  approved by all partners of the Partnership
and not a breach by the General Partner of any duties it may owe the Partnership
or the Unitholders.

     The Partnership does not directly employ any of the persons responsible for
managing or operating the Partnership. At July 31, 1997, 3,370 full-time and 837
temporary and part-time individuals were employed by the General Partner.

Directors and Executive Officers of the General Partner

     The  following  table sets forth  certain  information  with respect to the
directors and executive  officers of the General  Partner at July 31, 1997. Each
of the  persons  named  below is elected to their  respective  office or offices
annually. None of the executive officers have entered into employment agreements
with the General Partner.

                                    Director
Name                      Age        Since      Position
James E. Ferrell          57          1984       Chairman of the Board, Chief
                                                 ExecutiveOfficer and a
                                                 Director of the General Partner

Danley K. Sheldon         39                     President, Chief Financial
                                                 Officer and Treasurer

Patrick J. Chesterman     47                     Senior Vice President, Supply

James M. Hake             37                     Vice President, Acquisitions

Robert J. Wikse           48                     Vice President, Administration

Daniel M. Lambert         56           1994      Director of the General Partner

A. Andrew Levison         41           1994      Director of the General Partner
                                       
                                       17
<PAGE>

     James E. Ferrell--Mr. Ferrell has been with Ferrell or its predecessors and
its affiliates in various executive capacities since 1965.

     Danley K.  Sheldon--Mr.  Sheldon has been  President  of the Company  since
October 1996 and Chief  Financial  Officer of the Company since January 1994. He
served as Treasurer since 1989 and joined the Company in 1986.

     Patrick J.  Chesterman--Mr.  Chesterman  has been  Senior  Vice  President,
Supply since  September  1997.  After joining the Company in June,  1994, he had
one-year  assignments  as Vice  President-Retail  Operations,  Director of Human
Resources  and  Director of Field  Support.  Prior to joining the  Company,  Mr.
Chesterman was Director of Fuels Policy and Operations for the U.S. Air Force.

     James M.  Hake--Mr.  Hake  has been  Vice  President,  Acquisitions  of the
Company since October, 1994. He joined the Company in 1986.

     Robert J. Wikse--Mr.  Wikse has been Vice President,  Administration  since
his appointment in January 1995. After joining the Company in July, 1991, he had
a three-year assignment as Region Director of Western US -Retail Operations.

     Daniel M.  Lambert---Dr.  Lambert  was elected a director of the Company in
September  1994. Dr.  Lambert has been President of Baker  University in Baldwin
City, Kansas, since July 1, 1987.

     A.  Andrew  Levison---Mr.  Levison was elected a director of the Company in
September 1994. Mr. Levison has been a Managing Director of Donaldson,  Lufkin &
Jenrette Securities Corporation since 1989.

Compensation of the General Partner

     The General Partner  receives no management fee or similar  compensation in
connection  with its management of the  Partnership and receives no remuneration
other than:

     (i)  distributions  in  respect of its 2% general  partner  interest,  on a
combined basis, in the Partnership and the Operating Partnership; and

     (ii)  reimbursement for all direct and indirect costs and expenses incurred
     on behalf of the  Partnership,  all  selling,  general  and  administrative
     expenses  incurred  by  the  General  Partner  for  or  on  behalf  of  the
     Partnership and all other expenses  necessary or appropriate to the conduct
     of the business of, and allocable to, the Partnership. The selling, general
     and  administrative  expenses  reimbursed include specific employee benefit
     and incentive plans for the benefit of the executive officers and employees
     of the General Partner.

ITEM 11.      EXECUTIVE COMPENSATION.

   Summary Compensation Table

     The following table sets forth the compensation for the past three years of
the Company's Chief Executive Officer ("CEO") and the Company's four most highly
compensated  executive  officers other than the Chief Executive  Officer ("named
executive  officers"),  who were serving as executive officers at the end of the
1997 fiscal year.

                                       18
<PAGE>
<TABLE>
<CAPTION>
                                                                        Long-Term Compensation
                                                                    -------------------------------
                                           Annual Compensation          Awards         Pay-outs
                                         -------------------------  --------------- ---------------
                                                                        Stock         Long-Term
                                                                       Options/       Incentive           All Other
            Name and                       Salary        Bonus           SARs          Payouts          Compensation
       Principal Position         Year       ($)          ($)            (#)             ($)                 ($)
--------------------------------- ------ ------------ ------------  --------------- ---------------    ----------------
<S>                                <C>       <C>                <C>         <C>           <C>                         <C>      <C>
James E. Ferrell                   1997      480,000            0          ---             ---                    32,126       (1)
   Chairman and Chief Executive    1996      480,000            0          ---             ---                    16,801
   Officer                         1995      480,000      180,000          ---             ---                    36,977

Danley K. Sheldon                  1997      218,221            0       30,000             ---                    15,440       (1)
   President, Chief Financial      1996      177,500      100,000          ---             ---                    13,972
   Officer and Treasurer           1995      165,000       50,000       70,000             ---                    15,897

Patrick J. Chesterman              1997      132,917       27,500       20,000             ---                     9,087       (1)
   Senior Vice President, Supply

James A. Hake                      1997      120,000       90,000       15,000             ---                    13,592       (1)
   Vice President, Acquisitions    1996      120,000       85,000          ---             ---                     9,962
                                   1995      112,583       60,000       36,000             ---                    10,424

Robert J. Wikse                    1997      125,000       14,700          ---             ---                     6,245       (1)
   Vice President,  Administration
</TABLE>

 (1) Includes for Mr. Ferrell  contributions of $14,814 to the employee's 401(k)
     and profit  sharing plans and  compensation  of $17,312  resulting from the
     payment of life insurance premiums.  Includes for Mr. Sheldon contributions
     of  $15,300  to  the  employee's   401(k)  and  profit  sharing  plans  and
     compensation of $140 resulting from the payment of life insurance premiums.
     Includes for Mr. Chesterman  contributions of $8,443 to the employee 401(k)
     and  profit  sharing  plans and  compensation  of $644  resulting  from the
     payment of life insurance premiums.  Includes for Mr. Hake contributions of
     $12,866 to the employee's  401(k) and profit sharing plans and compensation
     of $726 resulting from the payment of life insurance premiums. Includes for
     Mr.  Wikse  contributions  of $5,985 to the  employee's  401(k)  and profit
     sharing plans and  compensation  of $260 resulting from the payment of life
     insurance premiums.

     Unit Options

     On October 14, 1994, the General Partner adopted the Ferrellgas,  Inc. Unit
Option Plan (the "Unit Option Plan") pursuant to which key employees are granted
options to purchase the MLP's Subordinated Units. The purpose of the Unit Option
Plan is to  encourage  certain  employees  of the  General  Partner to develop a
proprietary  interest  in the  growth and  performance  of the  Partnership,  to
generate an  increased  incentive  to  contribute  to the  Partnership's  future
success and  prosperity,  thus  enhancing the value of the  Partnership  for the
benefit of its Unitholders, and to enhance the ability of the General Partner to
attract and retain key  individuals  who are  essential to progress,  growth and
profitability of the Partnership.

     The Unit Options are exercisable  beginning  after July 31, 1999,  assuming
the subordination  period has lapsed at prices ranging from $16.80 to $21.67 per
unit, which is an estimate of the fair market value of the Subordinated Units at
the time of grant,  vest immediately over a one to five year period,  and expire
on  the  tenth  anniversary  of  the  date  of  grant.  Upon  conversion  of the
Subordinated  Units held by the General Partner and its affiliates,  outstanding
Subordinated Unit Options will convert to Common Unit Options.

     The  following  table  lists  information  on the CEO and  named  executive
officers' Unit Options granted in the fiscal year ended July 31, 1997.

                                       19
<PAGE>
<TABLE>
<CAPTION>
                                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                                Individual Grant
                           -----------------------------------------------------------
                             Number of
                             Securities        % of Total
                             Underlying     Options Granted     Exercise                           Grant Date
                               Options      to Employees in       Price     Expiration              Present
Name                         Granted (1)      Fiscal Year       ($/Unit)       Date               Value $ (2)
-------------------------   -------------- ------------------- ------------ ------------     -----------------------
James E. Ferrell                    -               -                 -            -                      -
<S>                            <C>                 <C>            <C>          <C>                   <C>   
Danley K. Sheldon              30,000              14             20.19       8/1/06                 23,000
Patrick J. Chesterman          20,000               9             20.19       8/1/06                 16,000
James M. Hake                  15,000               7             20.19       8/1/06                 12,000
Robert J. Wikse                     -               -                 -            -                      -
</TABLE>
(1)  Unit options generally vest over five years.

(2)  Based on a binomial option valuation model. The key input variables used in
     valuing the options were the  following:  risk-free  interest rate - 5.85%;
     distribution  amount  of $0.50  per unit per  quarter;  Common  Unit  price
     volatility  of  16.9%  was  used  as  an  estimate  of  Subordinated   Unit
     volatility;  options exercised on earliest possible dates,  i.e., August 1,
     1999,  2000 and  2001,  assuming  certain  financial  tests  are  achieved.
     Additionally,  it was assumed  that the  Partnership  will make its Minimum
     Quarterly  Distribution each quarter and that the Subordination Period will
     end in 1999. The New York Stock Exchange "Monthly Market Statistics Report"
     was used and the volatility variable reflected 130 weeks of historical Unit
     price trading  data.  No  adjustments  for  non-transferability  or risk of
     forfeiture  were made. The actual value, if any, a grantee may realize will
     depend on the excess of the Unit price over the exercise  price on the date
     the option is exercised,  so that there is no assurance the value  realized
     will be at or near the value  estimated  by the binomial  option  valuation
     model.

     The  following  table  lists  information  on the CEO and  named  executive
officers'  exercised/unexercised unit options for the fiscal year ended July 31,
1997.

     AGGREGATED OPTION/SAR EXERCISES IN LAST FY AND FY-END OPTION SAR VALUES
<TABLE>
<CAPTION>
                                                               Number of Securities       Value of Unexercised
                                                              Underlying Unexercised    In-The-Money Options/SARs
                                                                 Options/SARs at              at FY-End ($)
                                                                    FY-End (#)
                                                             ------------------------- ----------------------------
                              Shares
                            Acquired on       Value                Exercisable/                Exercisable/
Name                       Exercise (#)   Realized ($)            Unexercisable               Unexercisable
-------------------------- -------------- --------------     ------------------------- -----------------------------
James E. Ferrell                 -              -                           -                           -
<S>                              <C>            <C>                 <C>                         <C>      
Danley K. Sheldon                0              0                   0/100,000                   0/518,300
Patrick J. Chesterman            0              0                    0/30,000                    0/96,430
James M. Hake                    0              0                    0/51,000                   0/265,350
Robert J. Wikse                  0              0                    0/20,000                   0/124,000
</TABLE>
   Profit Sharing Plan

     The  Ferrell  Profit  Sharing  and 401(k)  Investment  Plan is a  qualified
defined  contribution plan (the "Profit Sharing Plan"). All full-time  employees
of Ferrell or any of its direct or indirect  wholly owned  subsidiaries  with at
least one year of service are  eligible  to  participate  in the Profit  Sharing
Plan.  In regards to the  profit  sharing  portion,  the Board of  Directors  of
Ferrell  determines the amount of the annual  contribution to the Profit Sharing
Plan,  which is purely  discretionary.  This  decision is based on the operating
results of Ferrell  for the  previous  fiscal year and  anticipated  future cash
needs of the General Partner and Ferrell. The contributions are allocated to the
Profit Sharing Plan participants based on each participant's  wages or salary as
compared to the total of all participants' wages and salaries.

                                       20
<PAGE>

     Historically,  the annual  contribution to the Profit Sharing Plan has been
1% to 7% of each  participant's  annual wage or salary.  The Profit Sharing Plan
also has a cash-or-deferred, or 401(k), feature allowing all full-time employees
to  specify a portion  of their  pre-tax  and/or  after-tax  compensation  to be
contributed to the Profit Sharing Plan.

   Supplemental Savings Plan

     The Ferrell  Supplemental  Savings Plan was established  October 1, 1994 in
order to  provide  certain  management  or  highly  compensated  employees  with
supplemental  retirement  income which is  approximately  equal in amount to the
retirement  income that would have been  provided to members of the select group
of employees  under the terms of the 401(k)  feature of the Profit  Sharing Plan
based on such members'  deferral  elections  thereunder,  but which could not be
provided  under the 401(k) feature of the Profit Sharing Plan due to application
of certain IRS rules and regulations.

Compensation of Directors

     The  General  Partner  does  not pay  any  additional  remuneration  to its
employees  for serving as  directors.  Directors  who are not  employees  of the
General  Partner  receive a fee per  meeting  of $500,  plus  reimbursement  for
out-of-pocket expenses.


ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The  MLP  holds  a  98.9899%  limited  partner  interest  in the  Operating
Partnership,  while  Ferrellgas,  Inc. holds a 1.0101% general partner interest.
The  following  table  sets  forth  certain  information  as of July  31,  1997,
regarding the beneficial  ownership of the Common and Subordinated  Units of the
MLP by certain  beneficial owners, all directors and named executive officers of
the General Partner and the Partnership,  each of the named executive  officers,
and all directors and executive  officers of the General Partner as a group. The
General Partner knows of no other person beneficially owning more than 5% of the
Common Units.

Ferrellgas Partners, L.P.

<TABLE>
<CAPTION>

Ferrellgas Partners, L.P.
                                                                                Units
                                                                               Benefically                 Percentage 
Title of Class           Name and Address of Beneficial Owner                   Owned    (1)                of Class
---------------          ------------------------------------                 --------------              --------------
<S>                                                                            <C>       <C>                  <C>
Common Units                   James E. Ferrell                                1,210,162 (2)                  8.3
                               Goldman, Sachs & Co.                            1,463,470 (3)                 10.0
                               The Goldman Sachs Group                         1,463,470 (3)                 10.0
                               Danley K. Sheldon                                   1,000                        *
                               Patrick J. Chesterman                                 200                        *
                               Robert J. Wikse                                       500                        *
                               James M. Hake                                         400                        *
                               A. Andrew Levison                                  15,000                        *
                               Daniel M. Lambert                                     575                        *
                               All Directors and Officers as a Group           1,227,837                      8.4

Subordinated Units             James E. Ferrell                               16,593,721 (2)                100.0

* Less than 1%

</TABLE>
                                       21
<PAGE>
(1)  Beneficial  ownership for the purposes of the foregoing table is defined by
     Rule 13d-3 under the  Securities  Exchange Act of 1934.  Under that rule, a
     person is generally  considered to be the beneficial owner of a security if
     he has or shares the power to vote or direct the  voting  thereof  ("Voting
     Power")  or to  dispose  or direct  the  disposition  thereof  ("Investment
     Power") or has the right to acquire  either of those  powers  within  sixty
     (60) days.

     (2) The address for James E.  Ferrell is c/o  Ferrellgas,  Inc.,  P.O.  Box
4644, Houston, TX, 77210.

     Includes  1,210,162 Common Units and 16,593,721  Subordinated Units held by
Ferrellgas,  Inc. a wholly  owned  subsidiary  of Ferrell  Companies,  Inc.  Mr.
Ferrell is the sole director of Ferrell Companies, Inc.

     (3) The address for both Goldman Sachs Group, L.P. and Goldman, Sachs & Co.
is 85 Broad Street, New York, New York, 10004.

     Goldman, Sachs & Co., a broker/dealer,  and its parent Goldman Sachs Group,
     L.P. are deemed to have shared  voting power and shared  dispositive  power
     over 1,463,470 Common Units owned by their customers.


Compliance With Section 16(a) of the Securities and Exchange Act

     Section  16(a) of the  Securities  and  Exchange  Act of 1934  requires the
General Partner's officers and directors, and persons who own more than 10% of a
registered  class of the  Partnership's  equity  securities,  to file reports of
beneficial ownership and changes in beneficial ownership with the Securities and
Exchange   Commission  ("SEC").   Officers,   directors  and  greater  than  10%
unitholders  are required by SEC regulation to furnish the General  Partner with
copies of all Section 16(a) forms.

     Based  solely on its  review of the copies of such  forms  received  by the
General Partner, or written  representations from certain reporting persons that
no Form 5's were required for those persons,  the General Partner  believes that
during  fiscal year 1997 all filing  requirements  applicable  to its  officers,
directors, and greater than 10% beneficial owners were met in a timely manner.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Set forth  below is a  discussion  of  certain  relationships  and  related
transactions among affiliates of the Partnership.

     The  Partnership  has no  employees  and is managed and  controlled  by the
General Partner.  Pursuant to the Partnership Agreement,  the General Partner is
entitled  to  reimbursement  for all direct and  indirect  expenses  incurred or
payments  it makes on behalf of the  Partnership,  and all  other  necessary  or
appropriate  expenses  allocable  to the  Partnership  or  otherwise  reasonably
incurred by the General Partner in connection  with operating the  Partnership's
business. These costs, which totaled $128,033,000 and $109,637,000 for the years
ended July 31, 1997 and 1996, include compensation and benefits paid to officers
and employees of the General Partner,  and general and administrative  costs. In
addition,  the  conveyance  of the net assets of the Company to the  Partnership
included the assumption of specific  liabilities related to employee benefit and
incentive  plans for the benefit of the  officers  and  employees of the General
Partner.  The conveyance of the net assets of the Company to the  Partnership is
described in Note A of the Ferrellgas  Partners,  L.P. notes to the consolidated
financial statements.

     Ferrell,  the parent of the  General  Partner,  and its other  wholly-owned
subsidiaries engage in various investment activities including,  but not limited
to, commodity  investments and the trading thereof. The Partnership from time to
time acts as an agent on behalf of Ferrell to  purchase  and market  natural gas
liquids and enter into certain trading  activities.  The Partnership charges all
direct and indirect  expenses incurred in performing this agent role to Ferrell.
During  the year ended July 31,  1997,  the  Partnership,  as  Ferrell's  agent,
performed the following services:  a) purchased 1,089,929 barrels of propane, b)
marketed  and  sold  619,929  barrels,  and  c)  entered  into  certain  hedging
arrangements.  The  Partnership  charged  Ferrell  $73,078  for its  direct  and
indirect  expenses  incurred  during fiscal year 1997. Of the 619,929 barrels of
propane sold,  534,929  barrels were sold to and used by the  Partnership at the
applicable market prices (an aggregate of $13,128,765).  

                                       22
<PAGE>

The Partnership believes these transactions were under terms that were no less
favorable to the OLP than those arranged with other parties.

     A. Andrew Levison, a director of the General Partner is a Managing Director
of Donaldson,  Lufkin & Jenrette Securities Corporation ("DLJ"). DLJ acted as an
underwriter  with  regard  to  the  private  placement  of  $160,000,000  senior
subordinated  notes  issued  in April  1996 and was paid fees of  $4,000,000  in
fiscal 1996.

     See  Note L to the  financial  statements  in  Item  14 for  discussion  of
transactions  involving  acquisitions  related to the  General  Partner  and the
Partnership.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
              FORM 8-K.

     (a) 1.   Financial Statements.
              See "Index to Financial Statements" set forth on page F-1.
         2.   Financial Statement Schedules.
              See "Index to  Financial  Statement  Schedules"  set forth on page
         3.   Exhibits.
              See "Index to Exhibits" set forth on page E-1.

     (b) Reports on Form 8-K.
          None filed during the fiscal year ended July 31, 1997.



                                       23
<PAGE>
                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                           FERRELLGAS, L.P.

                                           By Ferrellgas, Inc. (General Partner)



                                           By     /s/ James E. Ferrell
                                           ----------------------------  
                                                      James E. Ferrell
                                           Chairman and Chief Executive Officer


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following  persons in the  capacities  and on
the dates indicated:

Signature                         Title                                   Date



/s/ James E. Ferrell       Chairman of the Board,                      10/29/97
-----------------------    Chief Executive Officer and
James E. Ferrell           Director (Principal Executive Officer)




/s/ Daniel M. Lambert      Director                                    10/29/97
---------------------
Daniel M. Lambert




/s/ A. Andrew Levison      Director                                    10/29/97
----------------------
 A. Andrew Levison




/s/ Danley K. Sheldon      President and Chief Financial               10/29/97
---------------------      Officer (Principal Financial
Danley K. Sheldon          and Accounting Officer)


<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                           FERRELLGAS FINANCE CORP.



                                           By     /s/ James E. Ferrell
                                           ---------------------------
                                           James E. Ferrell
                                           Chairman and Chief Executive Officer


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following  persons in the  capacities  and on
the dates indicated:


Signature                            Title                                Date


/s/ James E. Ferrell       Chairman of the Board,                      10/29/97
-----------------------    Chief Executive Officer and
James E. Ferrell           Sole Director (Principal
                           Executive Officer







/s/ Danley K. Sheldon       Senior Vice President and Chief            10/29/97
---------------------       Financial Officer (Principal
Danley K. Sheldon           Financial and Accounting Officer)


<PAGE>
                                INDEX TO EXHIBITS

         The exhibits listed on the accompanying Exhibit Index are filed as part
of this report.  Exhibits  required by Item 601 of Regulation  S-K which are not
listed are not applicable.
               Exhibit
                Number    Description
     (1)     2.1          Stock Purchase Agreement dated September 30, 1994,
                          between Ferrellgas, Inc. and Bell
                          Atlantic Enterprises International, Inc.

     (2)     2.2          Agreement for Purchase and Sale of Stock dated March
                          23, 1996, between Superior Propane, Inc. and
                          Ferrellgas, Inc.

     (3)     3.1          Agreement of Limited Partnership of Ferrellga
                          Partners, L.P.

     (4)     3.2          Amended and Restated Agreement of Limited Partnership
                          of Ferrellgas, L.P. dated as of April 23, 1996.

     (5)     3.3          Articles of Incorporation for Ferrell Finance Corp.

     (6)     4.1          Indenture dated as of July 5, 1994, among Ferrellgas,
                          L.P., Ferrellgas Finance Corp. and Norwest Bank
                          Minnesota, National Association, as Trustee, relating 
                          to $200,000,000 10% Series A Fixed Rate Senior Notes
                          due 2001 and $50,000,000 Series B Floating Rate 
                          Senior Notes due 2001.

     (7)     4.2          Indenture dated as of April 26, 1996, among Ferrellgas
                          Partners, L.P., Ferrellgas Partners Finance Corp.,
                          Ferrellgas, L.P. as guarantor, and Amercan Bank
                          National Association, as Trustee, relating to
                          $160,000,000 9 3/8% Senior Secured Notes due 2006.

     (8)     4.3          Registration  Rights Agreement dated as of April, 26,
                          1996, among Ferrellgas  Partners, L.P.,  Ferrellgas 
                          Partners  Finance  Corp.,  Ferrellgas,  L.P.,
                          Donaldson,  Lufkin  & Jenrette Securities Corporation
                          and Goldman, Sachs & Co.

     (9)     10.2         Agreement dated as of April 1, 1994, between BP
                          Exploration & Oil, Inc. and Ferrellgas, L.P. dba     
                          Ferrell North America

     (10)#   10.3         Ferrell Companies, Inc. Supplemental Savings Plan.

     (11)#   10.4         Ferrellgas, Inc. Unit Option Plan.

     (12)                 10.5 Contribution, Conveyance and Assumption Agreement
                          dated as of November 1, 1994,  among the  Partnership,
                          the Operating Partnership and Ferrellgas, Inc.

     (13)    10.6         First Amendment to Contribution, Conveyance and
                          Assumption Agreement between
                          Ferrellgas, the Partnership and the Operating
                          Partnership.

     (14)    10.7         Second Amendment to Contribution, Conveyance an
                          Assumption Agreement between Ferrellgas, the 
                          Partnership and the Operating Partnership.

     (15)    10.8         Purchase  Agreement  dated as of April 23, 1996,
                          between  Ferrellgas  Partners,  L.P.,
                          Ferrellgas  Partners Finance Corp.,  Ferrellgas,
                          Inc.,  Ferrellgas,  L.P.,  Donaldson,
                          Lufkin & Jenrette Securities Corporation and Goldman,
                          Sachs & Co.

                                      E-1
<PAGE>

     (16)                 10.9 Pledge and Security  Agreement  dated as of April
                          26, 1996 among Ferrellgas Partners,  L.P., Ferrellgas,
                          Inc.,  and  American  Bank  National  Association,  as
                          collateral agent.

             10.10        Amended and Restated Credit Agreement dated as of July
                          31, 1996, among Ferrellgas,  L.P.,  Stratton Insurance
                          Company,  Inc.,  Ferrellgas,  Inc.,  Bank  of  America
                          National Trust and Savings Association,  as agent, and
                          the other financial institutions party thereto.

     (17)    21.1         List of subsidiaries.

             27           Financial Data Schedules - Filed only with the EDGAR
                          version.
--------------------------------------------------------------------------------

     #          Management contracts or compensatory plans.

        (1)     Incorporated by reference to the same numbered Exhibit to
                Registrant's Registration Statement on
                Form S-1 File No. 33-55185 filed with the Commission on
                November 14, 1994

        (2)     Incorporated by reference to Exhibit 2.1 to Registrant's Current
                Report on Form 8-K filed on May 6, 1996.

        (3)     Incorporated  by reference to the same  numbered  Exhibit to the
                Registrant's Current Report on Form 8-K filed August 15, 1994.

        (4)     Incorporated by reference to Exhibit 3.1 to Registrant's
                Quarterly Report on Form 10-Q filed on June 12, 1996.

        (5)     Incorporated by reference to Exhibit 3.2 to Registrant's
                Quarterly Report on Form 10-Q filed on December 13, 1996.

        (6)     Incorporated by reference to Exhibit 10.2 to the Registrant's
                Current Report on Form 8-K filed August 15, 1994.

        (7)     Incorporated by reference to Exhibit 4.1 to Registrant's Current
                Report on Form 8-K filed on May 6, 1996.

        (8)     Incorporated by reference to Exhibit 4.2 to Registrant's
                Current Report on Form 8-K filed on May 6, 1996.

        (9)     Incorporated by reference to the Exhibit 10.4 to Registrant's
                Annual Report on Form 10-K filed on October 20, 1994.

       (10)     Incorporated by reference to the Exhibit 10.7 to Registrant's
                Annual Report on Form 10-K filed on October 17, 1995.

       (11)     Incorporated by reference to the Exhibit 10.8 to Registrant's
                Registration Statement on Form S-1 File No. 33-55185 filed with
                the Commission on November 14, 1994

       (12)     Incorporated by reference to the Exhibit 10.9 to Registrant's
                Registration Statement on Form S-1 File No. 33-55185 filed with
                the Commission on November 14, 1994

       (13)     Incorporated by reference to Exhibit 10.8 to Registrant's Annual
                Report on Form 10-K filed on October 20, 1994.

       (14)     Incorporated by reference to the Exhibit 10.11 to Registrant's
                Annual Report on Form 10-K filed on October 17, 1995.

       (15)     Incorporated by reference to Exhibit 10.1 to Registrant's
                Current Report on Form 8-K filed on May 6, 1996.

                                      E-2
<PAGE>

       (16)     Incorporated by reference to Exhibit 10.2 to Registrant's
                Current Report on Form 8-K filed on May 6, 1996.

       (17)     Incorporated by reference to the Exhibit 21.1 to Registrant's
                Registration Statement on Form S-4 File No. 333-06693 filed
                with the Commission on July 30, 1996




                                      E-3
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

                                                                           Page

Ferrellgas, L.P. and Subsidiaries
         Independent Auditors' Report.......................................F-2
         Consolidated Balance Sheets-July 31, 1997 and 1996.................F-3
         Consolidated Statements of Earnings-Years ended
         July 31, 1997, 1996 and 1995.......................................F-4
         Consolidated Statements of Partners' Capital -Years
         ended July 31, 1997, 1996 and 1995.................................F-5
         Consolidated Statements of Cash Flows-Years ended
         July 31, 1997, 1996 and 1995.......................................F-6
         Notes to Consolidated Financial Statements.........................F-7

Ferrellgas Finance Corp.
         Independent Auditors' Report.......................................F-16
         Balance Sheets-July 31, 1997 and 1996..............................F-17
         Statements of Earnings-Years ended
         July 31, 1997, 1996 and 1995.......................................F-18
         Statements of Stockholder's Equity-Years
         ended July 31, 1997, 1996 and 1995.................................F-19
         Statements of Cash Flows-Years ended
         July 31, 1997, 1996 and 1995......................................F-20
         Notes to Financial Statements.....................................F-21



                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Partners of
Ferrellgas, L.P.
Liberty, Missouri

We have audited the accompanying consolidated balance sheets of Ferrellgas, L.P.
and  subsidiaries  as of July 31, 1997 and 1996,  and the  related  consolidated
statements  of  earnings,  partners'  capital and cash flows for the years ended
July 31, 1997, 1996 and 1995. 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  in  accordance  with  generally   accepted  auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of Ferrellgas,  L.P. and subsidiaries
as of July 31, 1997 and 1996, and the results of their operations and their cash
flows for the years  ended July 31,  1997,  1996 and 1995,  in  conformity  with
generally accepted accounting principles.






DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 24, 1997


                                      F-2
<PAGE>
                        FERRELLGAS, L.P. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except unit data)


<TABLE>
<CAPTION>
                                                                    July 31,            July 31,
ASSETS                                                                1997                1996
----------------------------------------------------------       --------------    --------------
                                                                                    
Current Assets:
<S>                                                                  <C>               <C>      
  Cash and cash equivalents                                          $  14,787         $  13,769
  Accounts and notes receivable (net of
    allowance for doubtful accounts of $1,234 and
    $1,169 in 1997 and 1996, respectively)                              61,835            70,118
  Inventories                                                           43,112            41,395
  Prepaid expenses and other current assets                             10,102             6,482
                                                                 --------------    --------------
    Total Current Assets                                               129,836           131,764

  Property, plant and equipment, net                                   405,736           403,732
  Intangible assets, net                                               112,058           107,960
  Other assets, net                                                      6,147             6,942
                                                                 --------------    --------------
    Total Assets                                                      $653,777          $650,398
                                                                 ==============    ==============



LIABILITIES AND PARTNERS' CAPITAL
----------------------------------------------------------
Current Liabilities:
  Accounts payable                                                   $  39,322         $  48,400
  Other current liabilities                                             47,546            37,695
  Short-term borrowings                                                 21,786            25,520
                                                                 --------------    --------------
    Total Current Liabilities                                          108,654           111,615

  Long-term debt                                                       327,334           279,112
  Other liabilities                                                     12,354            12,402
  Contingencies and commitments

Partners' Capital
  Limited partner                                                      203,360           244,771
  General partner                                                        2,075             2,498
                                                                 --------------    --------------
    Total Partners' Capital                                            205,435           247,269
                                                                 --------------    --------------
    Total Liabilities and Partners' Capital                           $653,777          $650,398
                                                                 ==============    ==============

</TABLE>





                 See notes to consolidated financial statements

                                       F-3


<PAGE>
                       FERRELLGAS, L.P. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF EARNINGS
                                 (in thousands)

<TABLE>
<CAPTION>


                                                                                    For the year ended,
                                                             --------------------------------------------------------------
                                                                    1997                  1996                 1995
                                                             -------------------   -------------------  -------------------

Revenues:
<S>                                                                    <C>                   <C>                  <C>     
  Gas liquids and related product sales                                $759,941              $612,593             $565,607
  Other                                                                  44,357                41,047               30,829
                                                             -------------------   -------------------  -------------------
    Total revenues                                                      804,298               653,640              596,436

Cost of product sold (exclusive of
  depreciation, shown separately below)                                 470,128               356,314              339,641
                                                             -------------------   -------------------  -------------------

Gross profit                                                            334,170               297,326              256,795

Operating expense                                                       198,271               179,462              153,225
Depreciation and amortization expense                                    43,789                37,024               32,014
General and administrative expense                                       15,831                13,221               11,357
Vehicle and tank leases expense                                           7,433                 5,113                4,271
                                                             -------------------   -------------------  -------------------

Operating income                                                         68,846                62,506               55,928

Interest expense                                                        (30,341)              (33,822)             (31,993)
Interest income                                                           2,002                 1,666                1,268
Loss on disposal of assets                                               (1,439)               (1,586)              (1,139)
                                                             -------------------   -------------------  -------------------
 
Earnings before extraordinary loss                                       39,068                28,764               24,064

Extraordinary loss on early extinguishment of debt                            -                   975                    -
                                                             -------------------   -------------------  -------------------
 
Net earnings                                                          $  39,068             $  27,789            $  24,064
                                                             ===================   ===================  ===================

</TABLE>












                 See notes to consolidated financial statements

                                       F-4


<PAGE>
                        FERRELLGAS, L.P. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                           Limited         General       Total partners'
                                                                           partner         partner           capital
                                                                        --------------- --------------- -------------------

<S>                                                                                <C>               <C>               <C>    
July 31, 1994                                                                  121,393           1,239             122,632

Assets contributed in connection
  with acquisitions                                                              7,226              74               7,300

Additions to capital in connection
 with acquisitions                                                               6,666              69               6,735

Quarterly distributions                                                        (51,654)           (528)            (52,182)

Adjustments to capital related
to resolution of income tax
contingencies                                                                   11,186             114              11,300
 
Net earnings                                                                    23,821             243              24,064
                                                                        --------------- --------------- -------------------

July 31, 1995                                                                  118,638           1,211             119,849
 
Cash contributed in connection
 with debt offering                                                            156,000           1,592             157,592

Assets contributed in connection
 with acquisitions                                                                 614               6                 620

Additions to capital in connection
 with acquisitions                                                               4,873              50               4,923

Quarterly distributions                                                        (62,863)           (641)            (63,504)

Net earnings                                                                    27,509             280              27,789
                                                                        --------------- -------------------   ---------------

July 31, 1996                                                                 $244,771          $2,498            $247,269

Quarterly distributions                                                        (80,085)           (817)            (80,902)

Net earnings                                                                    38,674             394              39,068
                                                                        ---------------  -------------------   ---------------

July 31, 1997                                                                 $203,360          $2,075            $205,435
                                                                        ===============  ===================   ================

</TABLE>





                 See notes to consolidated financial statements.
 
                                       F-5
<PAGE>
                       FERRELLGAS, L.P. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


<TABLE>
<CAPTION>


                                                                             For the year ended,
                                                             ----------------------------------------------------
                                                                  1997              1996              1995
                                                             ---------------   ---------------   ----------------

Cash Flows From Operating Activities:
<S>                                                                 <C>               <C>                <C>    
 Net earnings                                                       $39,068           $27,789            $24,064
 Reconciliation of net earnings  to net
  cash from operating activities:
  Depreciation and amortization                                      43,789            37,024             32,014
  Extraordinary loss                                                      -               975                  -
  Other                                                               5,545             4,478              3,191
  Changes in operating assets and liabilities net of
  effects from business acquisitions:
    Accounts and notes receivable                                     6,685            (4,849)              (906)
    Inventories                                                        (906)            7,612              7,388
    Prepaid expenses and other current assets                        (3,221)              765             (3,497)
    Accounts payable                                                 (9,078)          (10,576)             5,246
    Accrued interest expense                                            954            (2,730)            10,680
    Other current liabilities                                         9,370             3,649            (11,704)
    Other liabilities                                                   (48)              259               (446)
                                                             ---------------   ---------------   ----------------
      Net cash provided by operating activities                      92,158            64,396             66,030
                                                             ---------------   ---------------   ----------------

Cash Flows From Investing Activities:
 Business acquisitions                                              (36,114)           (8,116)           (19,677)
 Cash from acquired company                                               -              9,620                 -
 Capital expenditures                                               (16,192)          (13,011)           (19,722)
 Other                                                                3,378             3,109                173
                                                             ---------------   ---------------   ----------------
      Net cash used by investing activities                         (48,928)           (8,398)           (39,226)
                                                             ---------------   ---------------   ----------------

Cash Flows From Financing Activities:
 Distributions                                                      (80,902)          (63,504)           (52,182)
 Additions to long-term debt                                         45,463            62,268             85,000
 Reductions of long-term debt                                        (2,640)         (234,082)           (61,400)
 Net additions to short-term borrowings                              (3,734)            5,520             17,000
 Contributions from partners                                              -           157,690                  -
 Other                                                                 (399)                2                120
                                                             ---------------   ---------------   ----------------
      Net cash provided (used) by financing activities              (42,212)          (72,106)            17,120
                                                             ---------------   ---------------   ----------------
Increase (decrease) in cash and cash equivalents                      1,018           (16,108)            43,924
Cash and cash equivalents - beginning of period                      13,769            29,877             14,535
                                                             ---------------   ---------------   ----------------
Cash and cash equivalents - end of period                           $14,787           $13,769            $58,459
                                                             ===============   ===============   ================

Cash paid for interest                                            $  27,474         $  34,994          $  19,918
                                                             ===============   ===============   ================


</TABLE>

                 See notes to consolidated financial statements

                                       F-6




<PAGE>
                                FERRELLGAS, L.P.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 1997

A.  Partnership Organization and Formation

    Ferrellgas, L.P. (the "Partnership" or "Operating Partnership" or "OLP") was
    formed April 22, 1994, and is a Delaware limited partnership.  The Operating
    Partnership was formed to acquire,  own and operate the propane business and
    assets  of  Ferrellgas,   Inc.  (the  "Company"  or  "General  Partner"),  a
    wholly-owned subsidiary of Ferrell Companies,  Inc. ("Ferrell").  Ferrellgas
    Partners,  L.P.  (the "Master  Partnership"  or "MLP") is a publicly  traded
    limited  partnership and holds a 98.9899% interest in the Partnership as the
    sole limited  partner.  The Company holds a 1.0101% general partner interest
    in the Operating  Partnership and performs all management functions required
    for the Partnership.


B.  Summary of Significant Accounting Policies

    (1) Nature of operations:  The Partnership is engaged primarily in the sale,
    distribution, marketing and trading of propane and other natural gas liquids
    throughout the United States.  The retail market is seasonal because propane
    is used primarily for heating in residential and commercial  buildings.  The
    Partnership serves more than 800,000 residential,  industrial/commercial and
    agricultural customers.

    (2)  Accounting  estimates:  The  preparation  of  financial  statements  in
    conformity with generally accepted  accounting  principles ("GAAP") requires
    management  to make  estimates  and  assumptions  that  affect the  reported
    amounts of assets and liabilities  and disclosures of contingent  assets and
    liabilities at the date of the financial statements and the reported amounts
    of revenues and expenses  during the reported  period.  Actual results could
    differ from these estimates.  Significant  estimates impacting the financial
    statements include reserves that have been established for product liability
    and other claims.

    (3) Principles of consolidation:  The  accompanying  consolidated  financial
    statements present the consolidated financial position,results of operations
    and cash flows of the Partnership and its wholly-owned subsidiaries,
    Ferrellgas Partners Finance Corp. and Stratton Insurance Company. All
    material intercompany profits, transactions and balances have been
    eliminated.

    (4) Cash and cash equivalents:  For purposes of the Consolidated  Statements
    of Cash Flows, the Partnership  considers all highly liquid debt instruments
    purchased  with an  original  maturity  of three  months  or less to be cash
    equivalents.

     (5)  Inventories:  Inventories  are  stated  at the lower of cost or market
     using average cost and actual cost methods.

    (6) Property, plant and equipment and intangible assets: Property, plant and
    equipment is stated at cost less accumulated depreciation.  Expenditures for
    maintenance  and routine  repairs are expensed as incurred.  Depreciation is
    calculated using the straight-line method based on estimated useful lives of
    the assets ranging from two to thirty years.  Intangible assets,  consisting
    primarily of customer location values and goodwill,  are stated at cost, net
    of  amortization  calculated  using the  straight-line  method over  periods
    ranging from 5 to 40 years.  Accumulated  amortization of intangible  assets
    totaled  $109,211,000  and  $95,801,000  as  of  July  31,  1997  and  1996,
    respectively.
                                      F-7
<PAGE>

    (7) Accounting for derivative  commodity  contracts:  The Partnership enters
    into commodity  forward and futures  purchase/sale  agreements and commodity
    options  involving  propane  and  related  products  which are used both for
    trading and overall risk management  purposes.  To the extent such contracts
    are entered  into at fixed  prices and thereby  subject the  Partnership  to
    market risk,  the  contracts  are accounted for using the fair value method.
    Under the fair value method, derivatives are carried on the balance sheet at
    fair  value  with  changes  in  that  value  recognized  in  earnings.   The
    Partnership  classifies all earnings from derivative  commodity contracts as
    other  revenue on the  statement  of earnings  and as net income on the cash
    flow statement.

    (8) Income taxes: The Partnership is a limited partnership. As a result, the
    Partnership's  earnings or loss for Federal  income tax purposes is included
    in the tax returns of the individual partners.  Accordingly,  no recognition
    has been given to income taxes in the accompanying  financial  statements of
    the Partnership.  Net earnings for financial  statement  purposes may differ
    significantly  from taxable  income  reportable to the Master  Partnership's
    unitholders 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.

    (9) Unit-based compensation: The Partnership accounts for its Unit Option
    Plan  under the provisions of Accounting  Principles Board ("APB") No. 25,
    "Accounting for Stock Issued to Employees," and makes the pro forma
    information  disclosures required  under the  provisions of Statement of
    Financial  Accounting  Standards ("SFAS") No. 123, "Accounting for
    Stock-Based Compensation."

    (10)  Adoption  of  new  accounting   standards:   The  Financial  Standards
    Accounting  Board recently  issued the following new  accounting  standards:
    SFAS No. 130 "Reporting  Comprehensive Income" and SFAS No. 131 "Disclosures
    About Segments of an Enterprise and Related  Information." SFAS Nos. 130 and
    131 are required to be adopted by the  Partnership for the fiscal year ended
    July 31,  1998.  The  adoption of both  standards  are not  expected to have
    material  effect on the  Partnership's  financial  position  or  results  of
    operations.

C.  Quarterly Distributions of Available Cash

    The Partnership makes quarterly cash  distributions of all of its "Available
    Cash",  generally  defined as consolidated  cash receipts less  consolidated
    cash  disbursements  and net changes in reserves  established by the General
    Partner for future requirements.  These reserves are retained to provide for
    the proper  conduct of the  Partnership  business,  or to provide  funds for
    distributions  with  respect  to any  one or more of the  next  four  fiscal
    quarters.

    Distributions by the Partnership in an amount equal to 100% of its Available
    Cash will generally be made 98.9899% to the Master  Partnership  and 1.0101%
    to the General Partner.  The Partnership  makes  distributions of all of its
    Available  Cash within 45 days after the end of each fiscal  quarter  ending
    January,  April,  July and  October to  holders of record on the  applicable
    record date.

                                      F-8
<PAGE>


<TABLE>
<CAPTION>


D.  Supplemental Balance Sheet Information

    Inventories consist of:

        (in thousands)                                                                    1997             1996
                                                                                      --------------   --------------
<S>                                                                                         <C>              <C>    
        Liquefied propane gas and related products                                          $35,351          $33,366
        Appliances, parts and supplies                                                        7,761            8,029
                                                                                      --------------   --------------
                                                                                            $43,112          $41,395
                                                                                      ==============   ==============
</TABLE>
  

        In  addition  to  inventories  on  hand,  the  Partnership  enters  into
        contracts to buy product for supply purposes.  Nearly all such contracts
        have  terms of less  than one year and most  call for  payment  based on
        market prices at date of delivery.  All fixed price contracts have terms
        of less than one year.

<TABLE>
<CAPTION>

    Property, plant and equipment consist of:

        (in thousands)                                                                     1997            1996
                                                                                       -------------   --------------
<S>                                                                                         <C>            <C>      
        Land and improvements                                                               $29,849        $  26,024
        Buildings and improvements                                                           39,907           39,376
        Vehicles                                                                             54,879           55,860
        Furniture and fixtures                                                               23,985           22,074
        Bulk equipment and district facilities                                               59,876           43,203
        Tanks and customer equipment                                                        402,608          403,770
        Other                                                                                 3,870            5,800
                                                                                       -------------   --------------
                                                                                            614,974          596,107
        Less:  accumulated depreciation                                                     209,238          192,375
                                                                                       -------------    -------------
                                                                                           $405,736         $403,732
                                                                                       ==============   =============
</TABLE>

        Depreciation expense totaled $29,960,000,  $25,101,000, and $21,649,000,
        for the years ended July 31, 1997, 1996, and 1995, respectively.

<TABLE>
<CAPTION>

    Other current liabilities consist of:

        (in thousands)                                                                     1997             1996
                                                                                       --------------   -------------
<S>                                                                                           <C>             <C>   
        Accrued insurance                                                                     $7,327          $6,638
        Accrued interest                                                                      11,196          10,242
        Accrued payroll                                                                        8,161           7,062
        Other                                                                                 20,862          13,753
                                                                                       --------------   -------------
                                                                                             $47,546         $41,754
                                                                                       ==============   =============
</TABLE>

                                      F-9

<PAGE>
<TABLE>
<CAPTION>


E.   Long-Term Debt

     Long-term debt consists of:

      (in thousands)                                                                     1997             1996
                                                                                     -------------     ------------
      Senior Notes
<S>                                                                                            <C>              <C>     
        Fixed rate, 10%, due 2001 (1)                                                    $200,000         $200,000

      Credit Agreement
        Term loan, 6.25% and 6%, due 2001 (2)                                              50,000           50,000
        Revolving credit loans, 6.25% and 8.25%, due 1999 (2)                              64,614           18,980

      Notes payable, 6.4% and 5.7% weighted average interest rates,
        respectively, due 1997 to 2007 (3)                                                 14,567           11,742
                                                                                     -------------     ------------
                                                                                          329,181          284,722
      Less:  current portion                                                                1,847            1,610
                                                                                     -------------     ------------
                                                                                         $327,334         $279,112
                                                                                     =============     ============
</TABLE>


     (1) The OLP fixed rate  Senior  Notes,  issued in June,  1994,  are general
     unsecured  obligations  of the OLP and rank on an  equal  basis in right of
     payment  with  all  senior  indebtedness  of  the  OLP  and  senior  to all
     subordinated  indebtedness  of the OLP. The Senior Notes are  redeemable at
     the  option of the OLP  anytime  on or after  August 1, 1998 with a premium
     until August 1, 2000.

     (2) On July 31, 1996, the OLP amended and restated its $205,000,000  Credit
     Facility (the "Credit Facility") with a major bank as Agent. The unsecured
     Credit Facility now consists of a $50,000,000 term loan facility, a 
     $185,000,000 revolving credit facility for general corporate, working
     capital and acquisition purposes (of which  $50,000,000 is available to
     support letters of credit) and a $20,000,000  revolving working capital
     facility,  which is subject to an annual reduction in  outstandings to $0
     for 30 consecutive  days. All borrowings  under the current pricing
     arrangement bear interest at either LIBOR plus an applicable margin varying
     from 0.425% to 1.375% or the Bank's Base rate,  depending on the
     nature of the  borrowing.  The Bank's  Base rates at July 31, 1997 and 1996
     were 8.50% and 8.25%, respectively. To offset the variable rate
     characteristic of the Credit Facility, the OLP entered into interest rate
     collar agreements,  expiring between June and  December  1998,  with three
     major banks limiting the floating rate portion of LIBOR-based loan interest
     rates on a  notional  amount  of $125,000,000 to between 4.9% and 6.5%.

     (3)  The  notes  payable  are  secured  by  approximately   $4,542,000  and
     $4,714,000 of property and equipment at July 31,1997 and 1996,respectively.

     At July 31, 1997 and 1996,  $21,786,000 and $25,520,000,  respectively,  of
     short-term  borrowings were outstanding  under the revolving line of credit
     and letters of credit  outstanding,  used  primarily to secure  obligations
     under certain insurance arrangements,  totaled $24,102,000 and $26,824,000,
     respectively.

     On April 26, 1996, the Master  Partnership  issued  $160,000,000  of 9 3/8%
     Senior  Notes due 2006 ("MLP  Senior  Notes").  The MLP  Senior  Notes will
     become  guaranteed  by the OLP on a senior  subordinated  basis if  certain
     conditions are met. The OLP's Credit  Agreement  related to the amended and
     restated  Credit  Facility  ("Credit  Agreement")  and  the  OLP  Indenture
     relating  to the  $200,000,000  Senior  Notes ("OLP  Indenture")  currently
     prohibit the OLP from guaranteeing any indebtedness  unless,  among meeting
     other conditions, the fixed charge coverage ratio for the OLP meets certain
     levels at prescribed dates. Currently the OLP does not meet such conditions
     and,  therefore,  there  can be no  assurance  as to  whether  or when this
     guarantee will occur.
                                      F-10
<PAGE>

     The  OLP  Indenture  and  Credit  Agreement  contain  various   restrictive
     covenants applicable to the Operating Partnership and its subsidiaries, the
     most restrictive relating to additional indebtedness,  sale and disposition
     of assets,  and transactions  with affiliates.  In addition,  the Operating
     Partnership  is prohibited  from making cash  distributions  of the Minimum
     Quarterly  Distribution  if a default or event of  default  exists or would
     exist upon making such distribution,  or if the Operating Partnership fails
     to meet  certain  coverage and capital  expenditure  tests.  The  Operating
     Partnership is in compliance with all requirements,  tests, limitations and
     covenants related to the Senior Note Indenture and Credit Agreement.

     Annual  principal  payments  on  long-term  debt for each of the next  five
     fiscal years are  $1,847,000 in 1998,  $66,805,000  in 1999,  $2,131,000 in
     2000, $52,996,000 in 2001 and $200,876,000 in 2002.

     During fiscal year 1996, the Partnership  recognized an extraordinary  loss
     from  the  write-off  of  unamortized   financing  costs  of  approximately
     $965,000,  net of minority  interest of $10,000,  resulting  from the early
     extinguishment of $50,000,000 of its floating rate senior notes.

F.   Partners' Capital

     Partners'  capital  consists of a 98.9899% limited partner interest held by
     the Master  Partnership  and a 1.0101%  General  Partner  interest  held by
     Ferrellgas,  Inc. In connection with the MLP Senior Note offering mentioned
     in  Note E,  the  Master  Partnership  contributed  $156,000,000  in a cash
     transaction to the OLP,  thereby  increasing its limited partner  interest.
     The  General  Partner  then  contributed  $1,592,000  in cash to the OLP to
     maintain its 1.0101% equity ownership.

     In connection  with the formation of the  Partnership,  the General Partner
     contributed  certain assets and liabilities.  Pursuant to an examination by
     the Internal Revenue  Service,  certain  adjustments  which relate to these
     contributed  assets  resulted in additional  deferred taxes recorded by the
     General  Partner in fiscal  1995.  This  noncash  adjustment  retroactively
     increased the basis of the assets the General  Partner  contributed  to the
     Operating  Partnership by $11,300,000 which, in turn, caused an increase to
     the General  Partner's  contributed  capital  which was  allocated pro rata
     among all  partners.  In  addition,  Operating  Partnership  goodwill  also
     increased by $11,300,000 (to be amortized prospectively over a period of 15
     years). These adjustments were not material to the Partnership's  financial
     position or its results of operations or liquidity,  nor have they affected
     the limited partners' tax basis in the Partnership units.

G.   Transactions with Related Parties

     The  Partnership  has no  employees  and is managed and  controlled  by the
     General Partner. Pursuant to the Partnership Agreement, the General Partner
     is entitled to reimbursement  for all direct and indirect expenses incurred
     or payments it makes on behalf of the Partnership,  and all other necessary
     or  appropriate   expenses   allocable  to  the  Partnership  or  otherwise
     reasonably incurred by the General Partner in connection with operating the
     Partnership's   business.   These  costs,   which   totaled   $128,033,000,
     $109,637,000  and  $100,750,000 for the years ended July 31, 1997, 1996 and
     1995, respectively,  include compensation and benefits paid to officers and
     employees of the General Partner, and general and administrative  costs. In
     addition,  the  conveyance  of  the  net  assets  of  the  Company  to  the
     Partnership on July 5, 1994,  (the date the MLP completed an initial public
     offering)  included  the  assumption  of  specific  liabilities  related to
     employee  benefit and  incentive  plans for the benefit of the officers and
     employees of the General Partner. See Note L for discussion of transactions
     involving acquisitions related to the General Partner and the Partnership.
 
                                     F-11

<PAGE>

     Ferrell,  the parent of the  General  Partner,  and its other  wholly-owned
     subsidiaries  engage in various investment  activities  including,  but not
     limited to, commodity  investments and the trading thereof. The Partnership
     from time to time acts as an agent on behalf of  Ferrell  to  purchase  and
     market natural gas liquids and enter into certain trading  activities.  The
     Partnership charges all direct and indirect expenses incurred in performing
     this agent role to  Ferrell.  During  the year  ended  July 31,  1997,  the
     Partnership,  as Ferrell's  agent,  performed  the following  services:  a)
     purchased  1,089,929  barrels of  propane,  b)  marketed  and sold  619,929
     barrels, and c) entered into certain hedging arrangements.  The Partnership
     charged  Ferrell  $73,078  for its direct and  indirect  expenses  incurred
     during  fiscal year 1997. Of the 619,929  barrels of propane sold,  534,929
     barrels were sold to and used by the  Partnership at the applicable  market
     prices (an  aggregate  of  $13,128,765).  Management  believes  these
     transactions   were  under  terms  that  were  no  less  favorable  to  the
     Partnership than those arranged with other parties.

     A.  Andrew  Levison,  a  director  of the  General  Partner,  is a Managing
     Director of Donaldson,  Lufkin & Jenrette Securities  Corporation  ("DLJ").
     DLJ  acted as an  underwriter  with  regard  to the  private  placement  of
     $160,000,000 Senior Secured Notes issued in April 1996 and was paid fees of
     $4,000,000 in 1996.


H.   Contingencies and Commitments

     The  Partnership  is  threatened  with or named as a  defendant  in various
     lawsuits which, among other items, claim damages for product liability.  It
     is not possible to determine  the ultimate  disposition  of these  matters;
     however,  management  is of the opinion  that there are no known  claims or
     known  contingent  claims that are likely to have a material adverse effect
     on the results of operations or financial condition of the Partnership.

     Certain  property and  equipment is leased under  noncancellable  operating
     leases which  require  fixed  monthly  rental  payments and which expire at
     various  dates  through 2016.  Rental  expense  under these leases  totaled
     $13,169,000,  $12,054,000,  and  $11,233,000,  for the years ended July 31,
     1997,  1996 and 1995,  respectively.  Future minimum lease  commitments for
     such leases are  $11,095,000  in 1998,  $9,494,000  in 1999,  $8,101,000 in
     2000, $5,732,000 in 2001, $2,364,000 in 2002 and $521,296 thereafter.


I.   Employee Benefits

     The  Partnership  has no  employees  and is managed and  controlled  by the
     General Partner.  The Partnership  assumed all liabilities,  which included
     specific  liabilities  related to the following  employee benefit plans for
     the benefit of the officers and employees of the General Partner.

     The General  Partner and its parent,  Ferrell  have a defined  contribution
     profit-sharing plan which covers substantially all employees with more than
     one year of service.  Contributions  are made to the plan at the discretion
     of Ferrell's Board of Directors.  This plan,  which qualifies under section
     401(k)  of  the  Internal   Revenue   Code,   also  provides  for  matching
     contributions  under a cash or deferred  arrangement based upon participant
     salaries  and employee  contributions  to the plan.  Contributions  for the
     years ended July 31, 1997, 1996 and 1995,  respectively,  were  $3,000,000,
     $1,160,000  and  $1,300,000  under the profit  sharing  provision  and were
     $1,542,000, $1,388,000 and $1,407,000 under the 401(k) provision.

                                      F-12
<PAGE>

                                      
J.   Unit Options

     The  Ferrellgas,  Inc. Unit Option Plan (the "Unit Option Plan")  currently
     authorizes  the  issuance of options  (the "Unit  Options")  covering up to
     850,000 Subordinated Units to certain officers and employees of the General
     Partner.  The Unit Options are  exercisable  beginning after July 31, 1999,
     assuming the Subordination Period has elapsed at prices ranging from $16.80
     to $21.67 per unit,  which is an estimate  of the fair market  value of the
     Subordinated  Units at the time of grant, vest immediately or over a one to
     five year period, and expire on the tenth anniversary of the date of grant.
     Upon conversion of the  Subordinated  Units held by the General Partner and
     its  affiliates,  the  outstanding  Subordinated  Unit Options granted will
     convert to Common Unit Options.

     The Partnership  accounts for stock-based  compensation using the intrinsic
     value  method  prescribed  in  APB  No.  25  and  related  Interpretations.
     Accordingly,  no compensation  cost has been recognized for the Unit Option
     Plan. Had compensation  cost for the Unit Option Plan been determined based
     upon the  fair  value  of the  grant  date for  awards  under  these  plans
     consistent   with  the   methodology   prescribed   under  SFAS  123,   the
     Partnership's  net income and earnings per share would have been reduced by
     approximately  $29,000  and  $7,000  for the 1997 and  1996  fiscal  years,
     respectively.  The fair value of the  options  granted  during the 1997 and
     1996 fiscal years was determined  using a binomial  option  valuation model
     with the following  assumptions:  a) distribution  amount of $0.50 per unit
     per quarter,  b) average Common Unit price  volatility of 16.9% was used as
     an estimate of Subordinated Unit volatility, c) the risk-free interest rate
     used was 5.9%, and d) the expected life of the option is 5 years.
<TABLE>
<CAPTION>

                                                                    Number      Weighted Average       Weighted
                                                                      of         Exercise Price      Average Fair
                                                                     Units                              Value
                                                                  ------------ -------------------- ---------------
                                                                  ------------ -------------------- ---------------
<S>                                                                     <C>              <C>   
         Outstanding, July 31, 1995                                 701,500           $16.98
         Granted                                                     99,750            19.96            $0.34
         Forfeited                                                 (132,825)           17.21
                                                                  ------------
         Outstanding, July 31, 1996                                 668,425            17.38
         Granted                                                    216,500            20.23            $0.52
         Forfeited                                                 (157,325)           18.02
                                                                  ------------
         Outstanding, July 31, 1997                                 727,600           $18.09
                                                                  ------------
         Options exercisable, July 31, 1997                               0
                                                                  ------------

                                                                        Options Outstanding at July 31, 1997
                                                                  -------------------------------------------------
         Range of option prices at end of year                                     $16.80-$21.67
         Weighted average remaining contractual life                                 8.1 years


</TABLE>

     K.  Disclosures  About Off Balance  Sheet Risk and Fair Value of  Financial
Instruments

     The carrying amount of cash and cash  equivalents  approximates  fair value
     because of the short  maturity of the  instruments.  Short-term  borrowings
     approximate  fair value as of July 31, 1997 and 1996.  The  estimated  fair
     value of the Partnership's long-term debt was $338,534,000 and $285,722,000
     as of July 31,  1997 and 1996,  respectively.  The fair value is  estimated
     based on quoted market prices adjusted for discounted cash flows.

                                      F-13
<PAGE>

     Interest Rate Collar  Agreements.  The Partnership has entered into various
     interest  rate  collar  agreements  involving  the  exchange  of fixed  and
     floating  interest  payment   obligations   without  the  exchange  of  the
     underlying  principal  amounts.  At  July  31,  1997,  the  total  notional
     principal amount of these agreements was $125,000,000 and the fair value of
     these  agreements  was  immaterial to the financial  position or results of
     operations of the Partnership.  The  counterparties to these agreements are
     large financial  institutions.  The interest rate collar agreements subject
     the  Partnership  to financial risk that will vary during the life of these
     agreements  in  relation  to  market  interest  rates.  The mark to  market
     adjustment  applicable  to the portion of the notional  amount in excess of
     variable  rate  indebtedness  at July  31,  1997  was not  material  to the
     financial position or the results of operations of the Partnership.

     Option  Commodity  Contracts.  The Partnership is a party to certain option
     contracts, involving various liquefied petroleum products, for overall risk
     management  purposes in connection with its supply and trading  activities.
     Contracts are executed with private  counterparties  and to a lesser extent
     on national  mercantile  exchanges.  Open contract positions are summarized
     below.

     Forward and Futures  Commodity  Contracts.  The  Partnership  is a party to
     certain forward and futures contracts for trading purposes.  Net gains from
     trading activities were $5,476,000,  $7,323,000,  $5,818,000, for the years
     ended July 31, 1997,  1996, and 1995,  respectively.  Such contracts permit
     settlement  by delivery  of the  commodity.  Open  contract  positions  are
     summarized  below  (assets are defined as purchases or long  positions  and
     liabilities are sales or short positions).

                                  As of July 31
                  (In thousands, except price per gallon data)
<TABLE>
<CAPTION>

                    Derivative Commodity Instruments Held for                     Derivative Commodity
                           Purposes Other than Trading                            Instruments Held for
                                     (Options)                                      Trading Purposes
                                                                                 (Forward and Futures)
                    -------------------------------------------    ---------------------------------------------------
                           1997                    1996                     1997                        1996
                    --------------------    -------------------    -----------------------     -----------------------
                     Asset      Liab.        Asset     Liab.         Asset       Liab.           Asset       Liab.
                    --------- ----------    -------- ----------    ----------- -----------     ----------- -----------
   Volume
<S>                  <C>      <C>               <C>                   <C>        <C>              <C>        <C>      
   (gallons)         14,406   (13,189)          21         -          165,739    (187,744)        178,011    (153,990)

   Price ((cent)/gal) 38-35     50-35           30         -            40-32       43-33           37-33       40-35

   Maturity            8/97-     9/97-       8/96-12/96                  8/97-       8/97-        8/96-7/97      8/96-
   Dates               3/98      2/98                      -             3/98        7/98                        3/97

   Contract
   Amounts ($)       10,193   (13,164)       1,575         -           64,859     (75,578)         64,223     (62,917)

   Fair Value ($)    10,244   (13,071)       1,609         -           62,925     (73,217)         65,972     (62,623)

   Unrealized
   gain (loss) ($)       51        93           34         -          (1,934)       2,361           1,749         294

    Risks  related to these  contracts  arise  from the  possible  inability  of
    counterparties  to  meet  the  terms  of  their  contracts  and  changes  in
    underlying product prices. The Partnership  attempts to minimize market risk
    through  the  enforcement  of its  trading  policies,  which  include  total
    inventory  limits and loss  limits,  and  attempts to  minimize  credit risk
    through application of its credit policies.
</TABLE>

                                      F-14
<PAGE>


L.  Acquisitions

     During the year ended July 31, 1997, the Partnership  made  acquisitions of
     businesses  valued at $40,200,000  (including  working capital  acquired of
     $1,420,000).  This  amount  was funded by  $36,114,000  cash  payments  and
     noncash transactions totaling $4,086,000 in other costs and consideration.

     On April 30, 1996, the General  Partner  consummated the purchase of all of
     the stock of Skelgas Propane, Inc. ("Skelgas"), a  subsidiary  of  Superior
     Propane, Inc. of Toronto, Canada. The cash purchase price, after working 
     capital adjustments, was $89,404,000.

     As of May 1, 1996,  the General  Partner (i) caused Skelgas and each of its
     subsidiaries to be merged into the General Partner and (ii) transferred all
     of the assets of Skelgas and its subsidiaries to the Operating Partnership.
     In exchange,  the Operating  Partnership  assumed  substantially all of the
     liabilities,  whether  known or unknown,  associated  with  Skelgas and its
     subsidiaries and their propane business (excluding income tax liabilities).
     In  consideration of the retention by the General Partner of certain income
     tax liabilities,  the Partnership issued 41,203 Common Units to the General
     Partner. The liabilities assumed by the Operating  Partnership included the
     loan agreement  under which the General  Partner  borrowed funds to pay the
     purchase  price for Skelgas.  Immediately  following the transfer of assets
     and related transactions  described above, the Operating Partnership repaid
     the loan  with  cash  and  borrowings  under  the  Operating  Partnership's
     existing  acquisition bank credit line. The total assets contributed to the
     Operating  Partnership  (at the  General  Partner's  cost  basis) have been
     allocated as follows:  (i) working capital of  $17,168,000,  (ii) property,
     plant and equipment of $60,947,000  and (iii) and the balance to intangible
     assets. In total, during the year ended July 31, 1996, the Partnership made
     acquisitions   and  received   contributions   of   businesses   valued  at
     $128,165,000  (including  working capital  acquired of  $19,362,000).  This
     amount was funded by $8,116,000 of cash payments and the following  noncash
     transactions: $108,120,000 debt assumed, $4,825,000 issuance of Partnership
     units, and $7,104,000 other costs and consideration.

    All transactions have been accounted for similar to purchase accounting and,
    accordingly,  the  results  of  operations  of all  acquisitions  have  been
    included  in the  consolidated  financial  statements  from  their  dates of
    contribution.  The following  pro forma  financial  information  assumes the
    Skelgas transaction occurred at the beginning of the period presented:

      (in thousands, except per unit amounts)
       (unaudited)                                    Pro Forma Year
                                                           Ended
                                                      July 31, 1996
                                                     -----------------

      Total revenues                                    $732,372
      Income before extraordinary loss                    37,414
      Net earnings                                        36,449


                                      F-15
<PAGE>
                                      
                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Ferrellgas Finance Corp.
Liberty, Missouri

We have audited the accompanying  balance sheets of Ferrellgas  Finance Corp. (a
wholly-owned subsidiary of Ferrellgas Partners,  L.P.), as of July 31, 1997, and
1996, and the related statement of earnings, stockholder's equity and cash flows
for the years ended July 31, 1997, 1996 and 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects, the financial position of Ferrellgas Finance Corp. as of July 31, 1997
and 1996,  and the  results of its  operations  and its cash flows for the years
ended  July 31,  1997,  1996  and 1995 in  conformity  with  generally  accepted
accounting principles.








DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 24, 1997


                                      F-16
<PAGE>
                            FERRELLGAS FINNCE CORP.
                 A wholly owned subsidiary of Ferrellgas, L.P.)

                                 BALANCE SHEETS
<TABLE>
<CAPTION>

ASSETS                                                                              July 31,    July 31, 
-----------------------------------------------------------                          1997        1996
                                                                              -------------  ------------
<S>                                                                                 <C>         <C>   
Cash                                                                                $1,000      $1,000
                                                                              -------------  ------------
Total Assets                                                                        $1,000      $1,000
                                                                              =============  ============
</TABLE>


LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------------------------------
<TABLE>
<CAPTION>

<S>                                                                                 <C>         <C>     
Payable to affiliate                                                                $    -      $      -

Common stock, $1.00 par value; 2,000 shares
authorized; 1,000 shares issued and outstanding                                      1,000         1,000

Additional paid in capital                                                             759           545

Accumulated deficit                                                                   (759)         (545)
                                                                              -------------  ------------
Total Stockholder's Equity                                                           1,000         1,000
                                                                              -------------  ------------
Total Liabilities and Stockholder's Equity                                          $1,000        $1,000
                                                                              =============  ============
</TABLE>


                       See notes to financial statements
                                      F-17
<PAGE>

                            FERRELLGAS FINANCE CORP.
                (A wholly owned subsidiary of Ferrellgas, L.P.)

                             STATEMENTS OF EARNINGS



<TABLE>
<CAPTION>
                                                           For the year ended July 31,
                                                ---------------------------------------------------
                                                     1997             1996               1995
                                                ---------------  ----------------   ---------------
Revenues                                               $     -           $     -           $     -
<S>                                                        <C>                <C>              <C>
General and administrative expense                         214                89               456
                                                 ---------------  ----------------   ---------------
Net loss                                                 $(214)             $(89)            $(456)
                                                ===============  ================   ===============


</TABLE>

                       See notes to financial statements
                                      F-18
<PAGE>

                            FERRELLGAS FINANCE CORP.
                (A wholly owned subsidiary of Ferrellgas, L.P.)

                       STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>


                                                                                               
                                                Common stock             Additional                      Total
                                       -------------------------------    Paid in      Accumulated    stockholder's
                                          Shares           Dollars        Capital         deficit        equity
                                       --------------   -------------- --------------- -------------- --------------
<S>                                            <C>              <C>                <C>           <C>            <C>    
July 31, 1994                                  1,000     $      1,000           $   -         $    -         $ 1,000

Net loss                                           -                -               -           (456)          (456)
                                       --------------   -------------- --------------- -------------- --------------
July 31, 1995                                  1,000            1,000               -           (456)            544

Capital contribution                               -                -             545              -            545

Net loss                                           -                -               -            (89)           (89)
                                       --------------   -------------- --------------- -------------- --------------

July 31, 1996                                  1,000            1,000             545          $(545)         1,000

Capital contribution                               -                -             214              -            214

Net loss                                           -                -               -           (214)          (214)
                                       --------------   -------------- --------------- -------------- --------------

July 31, 1997                                  1,000           $1,000           $ 759          $(759)        $1,000
                                       ==============   ============== =============== ============== ==============


</TABLE>


                       See notes to financial statements
                                      F-19

<PAGE>
                            FERRELLGAS FINANCE CORP.
                (A wholly owned subsidiary of Ferrellgas, L.P.)

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                    For the year ended July 31,
                                                         ---------------------------------------------------
                                                               1997              1996             1995
                                                         -----------------  ---------------  ---------------

Cash Flows From Operating Activities:
<S>                                                              <C>               <C>             <C>      
  Net loss                                                       $   (214)         $   (89)        $   (456)
                                                         -----------------  ----------------  ---------------  
Cash used by operating activities                                    (214)             (89)            (456)
                                                         -----------------  ---------------  ---------------

Cash Flows From Financing Activities:
  Capital contribution                                                214              545                -
  Net advance from affiliate                                            -             (153)             153
                                                         ----------------   ----------------  ---------------
      Cash provided by financing activities                           214              392              153
                                                         -----------------  ---------------  ---------------

Increase (decrease) in cash                                             0              303             (303)
Cash - beginning of period                                          1,000              697            1,000
                                                         -----------------  ---------------  ---------------
Cash - end of period                                              $ 1,000          $ 1,000            $ 697
                                                         =================  ===============  ===============
</TABLE>


                       See notes to financial statements
                                      F-20


<PAGE>
                                                       
                            FERRELLGAS FINANCE CORP.
                 (A wholly owned subsidiary of Ferrellgas, L.P.)

                          NOTES TO FINANCIAL STATEMENTS
                                  JULY 31, 1997


     A.  Formation   Ferrellgas  Finance  Corp.  (the  "Company"),   a  Delaware
corporation,  was formed on April 28, 1994, and is a wholly-owned  subsidiary of
Ferrellgas,  L.P.  (the  "Partnership").  Ferrellgas,  L.P. was formed April 22,
1994, as a Delaware limited partnership.  The Partnership was formed to acquire,
own  and  operate   substantially   all  of  the  assets  of  Ferrellgas,   Inc.
("Ferrellgas").  Ferrellgas  conveyed  substantially  all of its  assets  to the
Partnership  (excluding  cash,  receivables  from parent and  affiliates  and an
investment in the Class B Stock of Parent) and all of the  liabilities,  whether
known  or  unknown,   associated   with  such  assets  (other  than  income  tax
liabilities).

     The  Partnership  contributed  $1,000 to the  Company on May 20,  1994,  in
     return for common  stock.  There were no other  transactions  involving the
     Company during the period ended July 31, 1994.


B.   Commitment

     In July,  1994,  the  Partnership  issued 10% Fixed Rate Senior  Notes (the
     "Fixed Notes") due 2001 in the aggregate  principal  amount of $200,000,000
     and Floating Rate Senior Notes (the "Floating  Notes" and together with the
     Fixed Notes the "Senior Notes") due 2001 in the aggregate  principal amount
     of $50,000,000. The $200,000,000 Fixed Rate Senior Notes are not redeemable
     prior to August 1,  1999.  Thereafter,  the  Partnership  has the option to
     redeem the notes, in whole or part, at a premium. The $50,000,000 aggregate
     principal  amount of  Floating  Notes  were  redeemed  at the option of the
     Partnership on August 1, 1996, in whole at a redemption price equal to 100%
     of the principal amount, plus accrued and unpaid interest at the redemption
     date. The Company is acting as co-obligor for the Senior Notes.

C.   Income Taxes

     Income taxes have been  computed as though the Company files its own income
     tax return.  Deferred  income  taxes are  provided as a result of temporary
     differences  between financial and tax reporting using the  asset/liability
     method.  Deferred  income taxes are recognized for the tax  consequences of
     temporary  differences between the financial statement carrying amounts and
     tax basis of existing assets and liabilities.

     Due to the  inability of the Company to utilize the deferred tax benefit of
     $297  associated  with the current year net operating loss  carryforward of
     $759,  of which $456 expires July 31, 2010,  and $89 expires July 31, 2011,
     and $214 expires July 31, 2012, a valuation  allowance has been provided on
     the full amount of the  deferred  tax asset.  Accordingly,  there is no net
     deferred tax benefit for the years ended July 31,  1997,  1996 and 1995 and
     there is no net deferred tax asset as of July 31, 1997 and 1996.

                                      F-21
<PAGE>
                                       
                     INDEX TO FINANCIAL STATEMENT SCHEDULES
                                                                          Page

Ferrellgas, L.P. and Subsidiaries
Independent Auditors' Report on Schedules..................................S-2

Schedule II       Valuation and Qualifying Accounts for the Years
                  ended July 31, 1997, 1996 and 1995.......................S-3





                                      S-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT


To the Partners of
Ferrellgas, L.P.
Liberty, Missouri

We have  audited the  consolidated  financial  statements  of  Ferrellgas,  L.P.
(formerly Ferrellgas, Inc.), and subsidiaries as of July 31, 1997, and 1996, and
for the years  ended July 31,  1997,  1996 and 1995,  and have issued our report
thereon  dated  September  24,  1997.  Our audit  also  included  the  financial
statement  schedules listed at Item 14(a)2.  These financial statement schedules
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion based on our audit. In our opinion,  such financial statement
schedules,  when  considered  in  relation to the basic  consolidated  financial
statements  taken  as a whole,  present  fairly  in all  material  respects  the
information therein set forth.





DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 24, 1997


                                      S-2
<PAGE>
                       FERRELLGAS, L.P. AND SUBSIDIARIES

                       VALUATIOIN AND QUALIFYING ACCOUNTS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                 Balance at         Charged to                          Deductions         Balance
                                                 beginning            cost/             Other            (amounts          at end
                   Description                   of period           expenses       Additions (A)      charged-off)      of period
------------------------------------------    ---------------    ---------------  ----------------    --------------   -------------

Year ended July 31, 1997
<S>                                               <C>                <C>               <C>                   <C>           <C>     
Allowance for doubtful accounts                   $ 1,169            $ 2,604           $     0               $2,539        $  1,234

Accumulated amortization:

     Intangible assets                            $95,801            $13,410           $     0               $    0        $109,211

     Other assets                                 $ 4,486            $ 1,595           $     0               $    0        $  6,081


Year ended July 31, 1996

Allowance for doubtful accounts                   $   874            $ 1,151           $   702               $1,558        $  1,169

Accumulated amortization:

     Intangible assets                            $81,995            $11,620           $ 2,946               $  760        $ 95,801

     Other assets                                 $ 3,337            $ 1,581           $   975               $1,407        $  4,486


Year ended July 31, 1995

Allowance for doubtful accounts                   $   798            $ 1,191           $   400               $1,515        $    874

Accumulated amortization:

     Intangible assets                            $68,489            $ 9,997           $ 3,509               $    -        $  81,995

     Other assets                                 $ 1,860            $   368           $ 1,109               $    -        $  3,337

</TABLE>


(A)     On April 30,  1996,  the General  Partner  purchased  all of the capital
        stock of Skelgas,  Inc. On May 1, 1996 the General  Partner  contributed
        the assets and  substantially  all of the  liabilities  associated  with
        Skelgas,  Inc. to the  Operating  Partnership.The  amounts  reflected as
        "Other Additions"  represent valuation and qualifying accounts assumedby
        the Operating  Partnership in connection  with the  contribution  by the
        General Partner.

      On November 1, 1994,  the  General  Partner  purchased  all of the capital
       stock of Vision Energy Resources, Inc. Immediately following the close of
       the   purchase,   the  General   Partner   contributed   the  assets  and
       substantially  all of  the  liabilities  associated  with  Vision  Energy
       Resources,  Inc. to the Operating  Partnership.  The amounts reflected as
       "Other Additions"  represent valuation and qualifying accounts assumed by
       the Operating  Partnership  in connection  with the  contribution  by the
       General Partner.


                                      S-3