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, 1996
                                       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   1-11331
                          333-06693
                            Ferrellgas Partners, L.P.
                        Ferrellgas Partners Finance Corp.

           (Exact name of registrants as specified in their charters)

          Delaware                                   43-1698480
          Delaware                                   43-1742520
  ----------------------------                ----------------------------
(State 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)

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

Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of each exchange on
         Title of each class                              which registered

            Common Units                                New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act:   None

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

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

The aggregate market value as of September 16, 1996, of the registrant's  Common
Units held by  nonaffiliates  of the registrant,  based on the reported  closing
price  of  such  units  on the  New  York  Stock  Exchange  on  such  date,  was
approximately $309,414,998.

At September 16, 1996, the registrant had units outstanding as follows:
Ferrellgas Partners, L.P.            14,612,580       Common Units
                                     16,593,721       Subordinated Units
Documents Incorporated by Reference:   None


<PAGE>


                            FERRELLGAS PARTNERS, L.P.
                        FERRELLGAS PARTNERS FINANCE CORP.

                          1996 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..........  10
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.......................  17

                                    PART III

ITEM    10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.......  17
ITEM    11.     EXECUTIVE COMPENSATION....................................  19
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"),
a publicly traded Delaware limited  partnership,  was formed April 19, 1994. 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
reflects 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 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  523
retail  outlets with 283  satellite  locations in 38 states (some  outlets serve
interstate markets).  For the Partnership's fiscal years ended July 31, 1996 and
1995 and the pro forma year ended July 31, 1994,  annual  retail  propane  sales
volumes were 650 million, 576 million and 564 million gallons, respectively. The
retail propane business of the Partnership  consists principally of transporting
propane purchased through various suppliers to its retail distribution  outlets,
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 1.7
billion,  1.5 billion and 1.7 billion gallons during the fiscal years ended July
31, 1996 and 1995 and the pro forma year ended July 31, 1994, 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  companies.  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, 1996,  Ferrellgas has
acquired 100 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, 1996 to 1992, the Partnership
or its Predecessor invested  approximately $108.8 million,  $70.1 million,  $3.4
million,  $0.9 million and, $10.1 million,  respectively,  to acquire operations
with annual retail sales of  approximately  111.8  million,  70.0  million,  2.9
million, 0.7 million, and 8.6 million gallons of propane, respectively.

     The  Partnership  intends to  concentrate  its  acquisition  activities  in
geographical areas in close proximity to the Company'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.

         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.

                                      2
<PAGE>

   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 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,  1996,  sales to  residential
customers  accounted  for 60% of retail gross profit,  sales to  industrial  and
other commercial  customers  accounted for 28% of retail gross profit,  sales to
agricultural  and other  customers  accounted  for 12% 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 natural gas processing  plants and 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, 1996, 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  111 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 it's 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 1,435
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 1995 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
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.
                                       4
<PAGE>

   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  June  1996  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
distributions.

   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 150  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, 1996 and
1995 and the pro forma  fiscal  year ended July 31,  1994 net  revenues  of $7.3
million, $5.8 million and $6.8 million, respectively,  were derived from trading
activities.
                                       5
<PAGE>

   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 320 railroad tank cars
to facilitate  product  delivery.  Revenues of $44.4 million,  $91.9 million and
$43.0 million were derived from such  activities  for the  Partnership's  fiscal
years ended July 31, 1996 and 1995 and the pro forma  fiscal year ended July 31,
1994, respectively.

   Wholesale Marketing

     The Partnership  engages in the wholesale  distribution of propane to other
retail  propane  distributors.  During the fiscal  years ended July 31, 1996 and
1995 and the pro  forma  year  ended  July 31,  1994  the  Partnership  sold 104
million,  96 million  and 61  gallons,  respectively,  of  propane to  wholesale
customers and had revenues  attributable  to such sales of $42.6 million,  $33.5
million and $22.5 million, respectively.

Employees

     The  Partnership  has no  employees  and is managed by the General  Partner
pursuant to the Partnership Agreement. At July 31, 1996, the General Partner had
3,370 full-time employees and 770 temporary and part-time employees.  The number
of  temporary  and  part-time  employees is  generally  higher by  approximately
350-500 people during the winter heating  season.  At July 31, 1996, the General
Partner's full-time employees were employed in the following areas:

                   Retail Locations                                       2,817
                   Transportation and Storage                               197
                   Corporate Offices (Liberty, MO & Houston, TX)            356
                                                                     ==========
                           Total                                          3,370
                                                                     ==========

     Approximately   one  percent  of  the  General   Partner's   employees  are
represented  by seven  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 94 people.

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.
                                       6
<PAGE>

     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.  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.

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 ...................................................       89         42          131
         Transport trailers................................................      118         10          128
         Bulk delivery trucks..............................................      954        481        1,435
         Pickup and service trucks.........................................    1,066        381        1,447
Railroad tank cars.........................................................        -        320          320
</TABLE>

     The highway  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  675,000 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 650,000 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,  1996,  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 111 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 18,124  square  feet of office  space in  Houston,  Texas,  where its
trading,  chemical feedstocks  marketing and wholesale marketing  operations are
primarily located.

     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.

                                       8

<PAGE>


ITEM 3.       LEGAL PROCEEDINGS.

Litigation

     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, 1996.

                                                      PART II

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

     The Common Units,  representing  common  limited  partner  interests in the
Partnership,  are listed and  traded on the New York  Stock  Exchange  under the
symbol FGP.  The Common  Units  began  trading on June 28,  1994,  at an initial
public offering price of $21.00 per Common Unit. As of September 16, 1996, there
were 791 registered Common Unitholders of record. The following table sets forth
the high and low  sales  prices  for the  Common  Units on the NYSE and the cash
distributions declared per Common Unit for the periods indicated.
<TABLE>
<CAPTION>

                                          Common Unit Price Range                                Distributions
                      -----------------------------------------------------------------
                                   High                              Low                       Declared per Unit
                      -------------------------------- -------------------------------- ---------------------------------
                        1994       1995       1996       1994       1995        1996       1994*      1995       1996
                      ---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
<S>                                <C>        <C>                   <C>         <C>                    <C>        <C>  
First Quarter                      $22.75     $23.00                $20.88      $21.00                 $0.50      $0.50
Second Quarter                      22.50      24.50                 19.75       21.25                  0.50       0.50
Third Quarter                       21.25      24.25                 19.75       21.88                  0.50       0.50
Fourth Quarter         $21.13      $22.63     $23.50     $20.75     $20.25      $21.25     $0.15      $0.50      $0.50
</TABLE>

   * Consisted of the period from the  inception of the  Partnership  on July 5,
   1994 through July 31, 1994, a 26-day period. The $0.15 distribution reflected
   a pro rata  share of the  Minimum  Quarterly  Distribution  of $0.50 per Unit
   which  would  have  been  payable  for the  full  quarter,  and  was  paid in
   conjunction with the first quarter 1995 distribution.

     The Partnership also has  Subordinated  Units, all of which are held by the
Company or Ferrell, for which there is no established public trading market.

     The Partnership  makes quarterly cash  distributions of its Available Cash,
as  defined by the MLP's  Agreement  of Limited  Partnership  (the  "Partnership
Agreement").  Available Cash is generally  defined as consolidated cash receipts
less consolidated cash disbursements and changes in cash reserves established by
the General Partner for future requirements.
                                       9
<PAGE>

     The  Partnership  is a  publicly  traded  limited  partnership  that is not
subject to federal income tax. Instead, Unitholders are required to report their
allocable share of the Partnership's  income,  gain, loss, deduction and credit,
regardless of whether the Partnership makes distributions.


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.

(in thousands, except per unit data)
<TABLE>
<CAPTION>

                                                                           Ferrellgas, Inc. and Subsidiaries (Predecessor)
                                                                           -----------------------------
                                                   Ferrellgas Partners L.P.           
                                         -----------------------------------------                  
                                                                                             Historical
                                              Historical        Pro Forma     Historical    Eleven Months    Historical
                                          Year Ended July 31,   Year Ended    Inception to     Ended     Year Ended July 31,
                                         -------------------     July 31,       July 31,      June 30,   ------------------
                                            1996      1995       1994 (1)        1994          1994        1993     1992
                                         --------- ---------   ---------       ---------    ---------    ------------------
Income Statement Data:
<S>                                       <C>       <C>         <C>           <C>            <C>         <C>       <C>    
    Total revenues                       $653,640  $596,436    $526,556       $ 24,566      $501,990     $541,945 $501,129
    Depreciation and amortization          37,024    32,014      28,835          2,383        26,452       30,840   31,196
    Operating income (loss)                62,506    55,927      68,631         (2,391)       71,522       58,553   56,408
    Interest expense                       37,983    31,993      28,130          2,662        53,693       60,071   61,219
    Earnings (loss) from continuing        24,312    23,820      39,909         (5,026)       12,337          109   (1,700)
      operations
    Earnings from continuing operations      0.77      0.76      1.29
      per unit
    Cash distributions declared per unit(3)  2.00      1.65

Balance Sheet Data (at end of period):
    Working capital                      $ 15,294  $ 28,928  $ 34,948         $ 34,948      $ 91,912    $ 74,408  $ 67,973
    Total assets                          654,295   578,596   477,193          477,193       592,664     573,376   598,613
    Payable to (receivable from)
      parent and affiliates                                                                   (4,050)       (916)    2,236
    Long-term debt                        439,112   338,188   267,062          267,062       476,441     489,589   501,614
    Stockholder's equity                                                                      22,829      11,359     8,808

Partners' Capital:
    Common Unitholders                   $ 71,323  $ 84,489  $ 84,532         $ 84,532
    Subordinated Unitholders               71,302    91,824    99,483           99,483
    General Partner (2)                   (58,016)  (57,676)  (62,622)         (62,622)

Operating Data:
    Retail propane sales volumes          650,214   575,935   564,224           23,915       540,309     553,413   495,707
      (in gallons)
    Capital expenditures (4):                                                                   
        Maintenance                      $  6,657  $  8,625  $  5,688         $    911      $  4,777    $ 10,527  $ 10,250
        Growth                              6,654    11,097     4,032              983         3,049       2,851     3,342
        Acquisition                       108,803    70,069     3,429              878         2,551         897    10,112
                                         --------- ---------  ---------        ---------     ---------   --------- ---------
            Total                        $122,114  $ 89,791  $ 13,149         $  2,772      $ 10,377    $ 14,275  $ 23,704
                                         ========= =========  =========        =========     =========   ========= =========

Supplemental Data:
    Earnings (loss) before deprecition,  $ 99,530  $ 87,941  $ 97,466         $     (8)     $ 97,974    $ 89,393  $ 87,604
      amortization interest and taxes(5)

</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)  Pursuant to the MLP's Agreement of Limited  Partnership  (the  "Partnership
     Agreement"),  the net loss from  continuing  operations of  $5,026,000  was
     allocated 100% to the General  Partner from inception of the Partnership to
     the last day of the taxable year ending July 31,  1994.  An amount equal to
     99% of this net loss was reallocated to the limited partners in the taxable
     year ending July 31, 1995 based on their ownership percentage. In addition,
     the  retirement  of  debt  assumed  by  the  Partnership   resulted  in  an
     extraordinary  loss  of  approximately   $60,062,000  resulting  from  debt
     prepayment premiums, consent fees and the write-off of unamortized discount
     and financing  costs. In accordance with the  Partnership  Agreement,  this
     extraordinary  loss was allocated  100% to the General  Partner and was not
     reallocated to the limited partners in the next taxable year.

(3) No cash  distributions  were declared by the  Partnership  from inception to
    July 31, 1994. The $0.65  distribution made at the end of the 1995 first
    quarter included $0.50 for the first quarter 1995 and $0.15 for the
    inception period.
                                       10
<PAGE>

(4)  The Company'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 Company'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.

(5)  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).

(6)  In August 1991, the Company  revised the estimated  useful lives of storage
     tanks from 20 to 30 years in order to more closely reflect  expected useful
     lives of the  assets.  The  effect of the  change in  accounting  estimates
     resulted  in a  favorable  impact on loss  from  continuing  operations  of
     approximately $3.7 million for the fiscal year ended July 31, 1992.


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
and pro forma consolidated  financial  statements and the notes thereto included
elsewhere in this Form 10-K.

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  523  retail  outlets  and  283  satellite
locations. Annual retail propane sales volumes were 650 million, 576 million and
564 million  gallons for the fiscal years ended July 31, 1996,  1995, and 1994 ,
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 1996, the  Partnership's  wholesale
and trading sales volume was  approximately  1.7 billion  gallons of propane and
other natural gas liquids, over 44% of which was propane.
                                       11
<PAGE>

     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 150  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, 1996 and
1995,  and the pro forma  fiscal year ended July 31,  1994,  net  revenues  from
trading   activities   were  $7.3  million,   $5.8  million  and  $6.8  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.  The  following  presents  the
Partnership's selected quarterly financial data for the two years ended July 31,
1996.
<TABLE>
<CAPTION>
Fiscal year ended July 31, 1996
                                         First Quarter        Second Quarter        Third Quarter        Fourth Quarter
                                                                                                              (1)
                                        -----------------    -----------------     ----------------     -----------------

<S>                                            <C>                  <C>                  <C>                    <C>    
Revenues                                       $124,588             $238,381             $190,743               $99,928
Gross profit                                     55,479              111,909               85,480                44,458
Earnings (loss) before
  extraordinary loss                             (7,303)              41,476               18,012               (27,873)
Earnings (loss) before
  extraordinary loss per limited
  partner unit                                    (0.23)                1.32                 0.57                (0.89)
Net earnings (loss) (1)                          (7,303)              41,476               18,012              (28,838)

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

Fiscal year ended July 31, 1995

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

<S>                                             <C>               <C>                  <C>                  <C>      
Revenues                                        119,413           $  218,661           $  168,013           $  90,349
Gross profit                                     52,002               95,772               73,254              35,767
Net earnings (loss)                               (666)               30,527               11,939            (17,980)
Net earnings (loss) per
  limited partner unit                           (0.02)                 0.98                 0.38              (0.58)
</TABLE>



                                       12
<PAGE>


Results of Operations

   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).

     Retail volumes  increased by 12.9% or 74 million gallons,  primarily due to
the impact 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 in fiscal 1996 and 1995.

     The acquisition of Skelgas in May 1996 did not have a significant impact 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 margi  sales,
therefore, the decrease in revenues did not significantly impact gross profit.

     Operating Expenses. Operating expenses increased 17.1% over the prior year.
Depreciation and Amortization.  Depreciation and amortization  expense increased
15.6% over the prior year due primarily to acquisitions of propane  businesses.o
acquisitions of propane businesses.

     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 18.7%
over the prior year. This increase is primarily the result of the MLP's issuance
of  $160,000,000  of 9 3/8% Senior  Secured Notes in April 1996 (the "MLP Senior
Notes"), 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
Partnership  expects interest expense to increase in fiscal 1997 due to the full
year effect of the issuance of the MLP Senior Notes.

     The extraordinary charge of $965,000 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.   The
Partnership  expects interest expense related to this debt to decrease by 2% per
annum in fiscal 1997.
                                       13
<PAGE>

   Fiscal Year Ended July 31, 1995 versus Pro Forma Year Ended July 31, 1994

     The pro forma year ended July 31, 1994 equals the sum of the  Predecessor's
eleven months ended June 30, 1994 and the Partnership's one month ended July 31,
1994,  adjusted for the effects of the  transactions  consummated  in connection
with the formation of the Partnership  (principally  related to the reduction in
interest  expense  resulting  from early  retirement of debt,  net of additional
borrowings).

     Total Revenues.  Total revenues increased 13.3% to $596,436,000 as compared
to $526,556,000 for the prior year. The increase is attributable to acquisitions
of propane businesses during November 1994 and to revenues from other operations
(net trading  operations,  wholesale propane  marketing and chemical  feedstocks
marketing) increasing 82.4% to $131,948,000. The increase in revenues from other
operations  is  primarily  due  to  an  unusually  strong  demand  for  chemical
feedstocks driving increased prices and volumes.  These increases were offset by
a  decrease  in  revenues  from  existing   retail   operations  due  to  warmer
temperatures  as compared to normal and to the prior  period that have  affected
the majority of the Operating Partnership's areas of operation. Unrealized gains
and losses on options,  forwards,  and futures contracts were not significant in
fiscal  1995 and 1994.  Fiscal  1995  winter  temperatures,  as  reported by the
American  Gas  Association,  were 10.3% warmer than normal and 12.4% warmer than
the prior year.  The average  degree days in regions  served by the Company have
historically  varied on an annual  basis by a greater  amount  than the  average
national degree days.

     Gross Profit.  Total retail  gallons sold  increased 2.1% to 576 million as
compared  to 564  million  for the prior  year.  This  increase  is due to sales
contributed by acquisitions,  partially offset by warmer  temperatures.  Despite
the increase in sales volume,  gross profit was essentially flat at $256,795,000
as compared  with  $257,250,000  for the prior year due primarily to the weather
impact on higher margin  residential sales. Other operations is comprised of low
margin  sales,  therefore,  the increase in revenues did not impact gross profit
significantly.

     Operating  Expenses.  Operating  expenses increased 5.6% to $153,225,000 as
compared  to  $145,136,000  for  the  prior  year.  The  increase  is  primarily
attributable  to  acquisitions  of propane  businesses  offset by a reduction in
expenses of the base  business  (primarily  personnel  and vehicle  expenses) as
compared to the prior year.

     Depreciation  and  Amortization.   Depreciation  and  amortization  expense
increased 11.0% to $32,014,000 as compared to $28,835,000 for the prior year due
primarily to acquisitions of propane businesses.

     Net  Earnings.  Net  earnings  decreased  to  $24,064,000  as  compared  to
$40,312,000  for the prior  year.  This  decrease  is due to  acquisition-driven
increases  in  expenses,  including  interest  expense,  combined  with the warm
weather impact on gross profit.


Liquidity and Capital Resources

     The ability of the MLP 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, 1997, 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
the MLP 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 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.  During  the year  ended  July 31,  1996,  the MLP issued
213,758 Common Units in connection with the  acquisition of propane  businesses.
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.
                                       14
<PAGE>

     Operating Activities. Cash provided by operating activities was $65,096,000
for the year ended July 31,  1996,  compared to  $66,030,000  in the prior year.
This slight decrease is primarily due to the decrease in accounts payable offset
by a  decrease  in  inventories  related  to the  decreased  level  of  chemical
feedstocks operations. Additional factors impacting cash provided from operating
activities  include an increase in other  liabilities,  offset by an increase in
retail accounts receivable primarily due to unfavorable economic conditions.

     Investing Activities.  On April 30, 1996, the General Partner completed the
acquisition of Skelgas for a cash purchase price of  $89,650,000.  Following the
closing of the  acquisition,  the General Partner (i) caused Skelgas and each of
its  subsidiaries to be merged into  Ferrellgas 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 Ferrellgas of certain income tax liabilities,
the  Partnership  issued  41,203  Common Units to  Ferrellgas.  The  liabilities
assumed by the  Operating  Partnership  included the  obligations  of Ferrellgas
under  a  $89,650,000  million  Bank  of  America  ("BofA")   Acquisition  Loan.
Immediately following the transfer of assets and related transactions  described
above,  the Operating  Partnership  repaid the BofA Acquisition Loan principally
fromcash  proceeds of the MLP Senior Notes and  borrowings  under the  Operating
Partnership's  existing  acquisition  bank credit  line.  Including  the Skelgas
acquisition,  the Partnership  made total  acquisition  capital  expenditures of
$128,165,000 (including working capital acquired of $19,362,000) in fiscal 1996.
This amount was funded by $108,120,000  debt assumed,  $8,116,000 cash payments,
$4,825,000 Common Units issued, and $7,104,000 in other costs and consideration.

     During  the year ended  July 31,  1996,  the  Partnership  made  growth and
maintenance  capital  expenditures  of $13,011,000  consisting  primarily of the
following:  1) additions to Partnership-owned  customer tanks and cylinders,  2)
vehicle lease buyouts,  3) relocating and upgrading  district plant  facilities,
and 4)  development  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
seeking to expand  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 1997, the Partnership expects growth
and maintenance capital expenditures to increase over fiscal 1996 levels.

     Financing  Activities.  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 of each year  commencing  on December 15, 1996. A portion of
the net  proceeds was used to retire  outstanding  indebtedness  of  $66,350,000
under the OLP's credit  facility.  The  remaining  proceeds  were used to retire
$89,650,000  of  indebtness  assumed  from the General  Partner  pursuant to the
Skelgas acquisition.
                                       15
<PAGE>

     On July 31,  1996,  the OLP amended and restated  its  $205,000,000  Credit
Facility (the "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 extends 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 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").  On July 31,
1996, the OLP used the proceeds of the  Refinancing  Loan to redeem the Floating
Senior Notes.  The OLP expects interest expense related to this debt to decrease
by 2% per annum.

     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, 1996,  the total  notional  principal  amount of these
agreements was $125,000,000.

     At July 31, 1996,  $44,500,000  of borrowings  were  outstanding  under the
revolving portion of the Credit Facility.  Letters of credit  outstanding,  used
primarily to secure  obligations under certain insurance  arrangements,  totaled
$26,824,000.  At July 31, 1996, the OLP had  $133,676,000  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  September  cash
distribution. The OLP also has outstanding $200,000,000 of 10% Fixed Rate Senior
Notes due 2001.

     During  the  year  ended  July  31,  1996,   the   Partnership   paid  cash
distributions of $2.00 per limited partner unit. These distributions covered the
period from May 1, 1995 to April 30, 1996. On August 19, 1996,  the  Partnership
declared its fourth-quarter cash distribution of $0.50 per limited partner unit,
which was paid September 13, 1996. The Partnership's  annualized distribution is
presently $2.00 per limited partner unit.

     The MLP Senior Notes,  the OLP Fixed Rate Senior Notes and Credit  Facility
contain  various  restrictive  covenants  applicable  to the MLP, 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 MLP and the  Operating
Partnership  are in compliance  with all  requirements,  tests,  limitations and
covenants  related to the MLP Senior Notes,  the OLP Fixed Rate Senior Notes and
Credit Facility.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The  Partnership'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.
                                       16


<PAGE>

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

     None.


                                    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, 1996, 3,370 full-time and 770
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.  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             56      1984     President, Chairman of the Board,
                                              Chief Executive Officer
                                              and a Director of the
                                              General Partner

Danley K. Sheldon            38               Senior Vice President,
                                              Chief Financial
                                              Officer, President-Retail
                                              Operations,Treasurer and Managing
                                              Director

Shahid J. A. Malik           36               Senior Vice President,
                                              Chief Operating Officer,
                                              Ferrell North America and
                                              Managing Director
                                       17
<PAGE>

                                              Director
Name                         Age     Since    Position
James M. Hake                36               Vice President, Acquisitions

Patrick J. Chesterman        46               Vice President, Retail Operations

Daniel M. Lambert            55      1994     Director of the General Partner

A. Andrew Levison            40      1994     Director of the General Partner

     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 Chief  Financial  Officer of the
Company since January 1994.  He was appointed President-Retail Operations in
October 1996 and has served as Treasurer since 1989. He joined the
Company in 1986.

     Shahid J. A. Malik--Mr.  Malik has been Chief Operating  Officer of Ferrell
North America  ("FNA")  since  August,  1994. He joined the Company in February,
1994 as Vice  President of Business  Development.  Prior to joining the Company,
Mr.  Malik  was  Commercial  Manager  at  British  Petroleum  from 1990 to 1994,
responsible  for oil  supply,  trading  and  operations  of British  Petroleum's
business for most of North America.

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

     Patrick  J.  Chesterman--Mr.  Chesterman  has been Vice  President,  Retail
Operations  since August,  1996. After joining the Company in June, 1994, he had
one-year  assignments  as  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.

     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. Mr. Levison is also a director of
Rickel Home Centers, Inc., a leading full service home improvement retailer that
operates stores in the Northeastern United States, and Flagstar Companies, Inc.

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.
                                       18
<PAGE>

ITEM 11.      EXECUTIVE COMPENSATION.

   Summary Compensation Table

     The following table sets forth the compensation for the past three years of
all  individuals  serving  as  the  Partnership's  or  its  Predecessor's  Chief
Executive  Officer  ("CEO")  or  acting in a similar  capacity  during  the last
completed fiscal year, regardless of compensation level, and the Company's three
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 1996 fiscal year.

<TABLE>
<CAPTION>

                                                                                      Long Term Compensation
                                                                              ----------------------------------------
                                                 Annual Compensation                     Awards             Payouts
                                         ------------------------------------ ----------------------------------------
                                                                    Other                    Securities
                                                                   Annual     Restricted     Underlying                All Other
                                                                   Compen-       Stock        Options/        LTIP      Compen-
            Name and                       Salary       Bonus      sation       Awards          SARs        Payouts     sation
       Principal Position         Year       ($)         ($)         ($)          ($)           (#)           ($)         ($)
--------------------------------- ------ ------------ ---------- ------------ ----------------------------------------------------
<S>                                <C>       <C>        <C>          <C>          <C>           <C>           <C>       <C>    <C>
James E. Ferrell                   1996      480,000     ---         ---          ---           ---                     16,801 (1)
   Chairman and                    1995      480,000    180,000      ---          ---           ---                     36,977
   Chief Executive Officer         1994      480,000     ---         ---          ---           ---                     22,920

Danley K. Sheldon                  1996      177,500    100,000      ---          ---           ---                     13,972 (1)
   Senior Vice President, Chief    1995      165,000     50,000      ---          ---          70,000                   15,897
   Financial Officer,            1994      120,185    125,875      ---          ---           ---                      7,693
   President-Retail Operations
   and Managing Director

 Shahid Malik                      1996      162,500    165,000      ---          ---           ---                      6,457 (1)
   Senior Vice President, Chief    1995      150,000    100,000      ---          ---          25,000                    9,706
   Operating Officer, FNA                                            
   and Managing Director

James A. Hake
   Vice President, Acquisitions    1996      120,000     85,000      ---          ---           ---                      9,962 (1)
                                   1995      112,583     60,000      ---          ---          36,000                   10,424
                                                                    
</TABLE>

(1)  Includes for Mr. Ferrell  contributions of $15,189 to the employee's 401(k)
     and profit  sharing plans and  compensation  of $1,612  resulting  from the
     payment of life insurance premiums.  Includes for Mr. Sheldon contributions
     of  $12,850  to  the  employee's   401(k)  and  profit  sharing  plans  and
     compensation  of  $1,122  resulting  from  the  payment  of life  insurance
     premiums.  Includes for Mr. Malik  contributions  of $5,598 to the employee
     401(k) and profit sharing plans and compensation of $860 resulting from the
     payment of life insurance premiums.  Includes for Mr. Hake contributions of
     $9,236 to the employee's  401(k) and profit sharing plans and  compensation
     of $726 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").  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,  by  giving  such  employees  the  opportunity  to  acquire
Subordinated Units.
                                       19
<PAGE>

     The Unit Options have the  following  characteristics:  1) exercise  prices
which are an estimate of the fair market value of the Subordinated  Units at the
time of grant, 2) vest  immediately or over a one to five year period  depending
on the employee,  3)  exercisable  beginning  after July 31, 1999,  assuming the
subordination  period has elapsed, and 4) 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 Unit Options granted will convert to Common Unit
Options.

     There were no grants of unit options during the 1996 fiscal year to the CEO
and named executive officers.

     The  following  table  lists  information  on the CEO and  named  executive
officers'  exercised/unexercised unit options for the fiscal year ended July 31,
1996.

     AGGREGATED OPTION/SAR EXERCISES IN LAST FY AND FY-END OPTION SAR VALUES
<TABLE>
<CAPTION>

                                                              Number of Securities
                                                             Underlying Unexercised       Value of Unexercised
                                                                Options/SARs at        In-The-Money Options/SARs
                                                                   FY-End (#)                at FY-End ($)
                                                            ------------------------- -----------------------------
                             Shares
                          Acquired on        Value                Exercisable/                Exercisable/
Name                      Exercise (#)   Realized ($)            Unexercisable                Unexercisable

------------------------ --------------- --------------     ------------------------- ------------------------------
J.E. Ferrell                   -               -                       -                            -
<S>                            <C>             <C>                  <C>                         <C>      
D.K. Sheldon                   0               0                    0/70,000                    0/381,500
S.J.A. Malik                   0               0                    0/25,000                    0/136,250
J.M. Hake                      0               0                    0/36,000                    0/196,200
</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 participant's based on each participant's wages or salary as
compared to the total of all participants' wages and salaries.

     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.

                                       20

<PAGE>



Compensation of Directors

     The  General  Partner  does  not pay  any  additional  remuneration  to its
employees  (or  employees  of,  or  legal  counsel  to,  a  direct  or  indirect
wholly-owned  subsidiary)  for  serving  as  directors.  Directors  who  are not
employees of the General Partner, a direct or indirect wholly-owned  subsidiary,
or  counsel to any of the  foregoing,  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  following  table sets forth certain  information  as of July 31, 1996,
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>

                                                                     Units
                          Name and Address                       Beneficially         Percentage of 
Title of Class            of Beneficial Owner                         Owned (1)            Class
------------------------ ---------------------------------------------------    ----------------
<S>                                                               <C>       <C>               <C>
Common Units             James E. Ferrell                         1,214,162 (2)               8.3
                         Goldman, Sachs & Co.                     1,186,495 (3)               8.1
                         The Goldman Sachs Group                  1,186,495 (3)               8.1
                         Danley K. Sheldon                            1,000                     *
                         Shahid J. A. Malik                           1,350 (4)                 *
                         James M. Hake                                  400                     *
                         A. Andrew Levison                           15,000                     *
                         Daniel M. Lambert                              560                     *
                         All Directors and Officers as a Group    1,212,472                   8.4

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

* Less than 1%
</TABLE>

(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 (i)  1,210,162  Common Units and  16,593,721  Subordinated  Units
     held by  Ferrellgas,  Inc. a wholly owned  subsidiary of Ferrell Companies,
     Inc. and (ii) 4,000 Common Units held by the Sarah A. Ferrell Trust
     of which Elizabeth J. Ferrell, Mr. Ferrell's wife, is a trustee. 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 1,186,495 Common Units owned by their customers.

(4)  Mr. Malik shares Voting and Investment Power with this wife.


                                       21
<PAGE>


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 percent
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 1996 all filing  requirements  applicable  to its  officers,
directors,  and greater than 10 percent  beneficial  owners were met in a timely
manner with the exception of the late filing by the CEO of one Form 4.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

    
                                       22
<PAGE>

     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 $109,637,000 and $100,750,000 for the years
ended July 31, 1996 and 1995 and  $7,561,000  from  inception  to July 31, 1994,
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.

     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. No fees were paid in 1995. DLJ acted as an underwriter  with regard
to the public  offering of Common  Units and Senior Notes as described in Note A
of  the  Ferrellgas  Partners,   L.P.'s  notes  to  the  consolidated  financial
statements and was paid total fees of $5,100,000 during 1994.

     The law firm of Smith,  Gill,  Fisher & Butts, a Professional  Corporation,
was general counsel to the Partnership, General Partner, Ferrell Companies, Inc.
and their respective subsidiaries and affiliates. David S. Mouber, a director of
Ferrell  through  July 31,  1994,  was a member of such law firm  during the pro
forma fiscal year of the Partnership  and the  Predecessor  ended July 31, 1994.
The Partnership,  Ferrell and their respective  subsidiaries paid such firm fees
of $1,394,000 during the pro forma year ended July 31, 1994.

See Note L to the financial statements in Item 14 for discussion of transactions
involving acquisitions related to the General partner and the Partnership
<PAGE>

                                     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
                S-1.

         3.   Exhibits.

              See "Index to Exhibits" set forth on page E-1.

     (b) Reports on Form 8-K.

         The  Partnership  filed one Form 8-K during the quarter  ended July 31,
          1996.


          Form 8-K dated May 6, 1996, (as amended on July 12, 1996) reporting
           the acquisition by the Operating Partnership of the propane business
           of Skelgas Propane, Inc.
                                       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 PARTNERS, 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,                    10/15/96
  James E. Ferrell           Chief Executive Officer and
                             Director (Principal Executive Officer)




  /s/ Daniel M. Lambert       Director                                 10/15/96
  Daniel M. Lambert




  /s/ A. Andrew Levison       Director                                 10/15/96
  A. Andrew Levison




  /s/ Danley K. Sheldon        Senior Vice President and Chief         10/15/96
  Danley K. Sheldon            Financial Officer (Principal
                               Financial 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 PARTNERS 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,                 10/15/96
  James E. Ferrell              Chief Executive Officer and
                                Sole Director (Principal
                                Executive Officer)






  /s/ Danley K. Sheldon          Senior Vice President and Chief       10/15/96
  Danley K. Sheldon              Financial Officer (Principal
                                 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 Ferrellgas 
                          Partners, L.P.

     (4)     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.

     (5)     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.

     (6)     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.

     (7)     10.2         Agreement dated as of April 1, 1994, between BP
                          Exploration & Oil, Inc. and
                          Ferrellgas, L.P. dba Ferrell North America

     (8)#    10.3         Ferrell Companies, Inc. Supplemental Savings Plan.

     (9)#    10.4         Ferrellgas, Inc. Unit Option Plan.

     (10)    10.5         Contribution, Conveyance and Assumption Agreement
                          dated as of November 1, 1994 among the Partnership,
                          the Operating Partnership and Ferrellgas, Inc.

     (11)    10.6         First Amendment to Contribution, Conveyance and 
                          Assumption Agreement between Ferrellgas, the
                          Partnership and the Operating Partnership.

     (12)    10.7         Second Amendment to Contribution, Conveyance and
                          Assumption Agreement between Ferrellgas, the
                          Partnership and the Operating Partnership.

     (13)    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.

     (14)    10.9         Amended and Restated Agreement of Limited Partnership
                          of Ferrellgas, L.P. dated as of April 23, 1996.

     (15)    10.10        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.

             10.11        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.

                                      E-1
<PAGE>

     (16)    21.1         List of subsidiaries.

             27.1         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 10.2 to the Registrant's
                Current Report on Form 8-K filed August 15, 1994.

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

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

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

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

        (9)     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

       (10)     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

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

       (12)     Incorporated by reference to the Exhibit 10.11 to Registrant's
                Annual Report on Form 10-K filed on October 17, 1995.
                                    
       (13)     Incorporated by reference to Exhibit 10.1 to Registrant's
                Current Report on Form 8-K filed on May 6, 1996. 

       (14)     Incorporated by reference to Exhibit 10.1 to Registrant's
                Quarterly Report on Form 10-Q filed on June 12, 1996. 

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

       (16)     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
<TABLE>
<CAPTION>

                                                                                                               Page

Ferrellgas Partners, L.P. and Subsidiaries
<S>                                                                                                              <C>
         Independent Auditors' Report..........................................................................F-2
         Consolidated Balance Sheets - July 31, 1996 and 1995..................................................F-3
         Consolidated Statements of Earnings- Years ended July 31, 1996 and 1995,
              One month ended July 31, 1994 (Successor),
              Eleven months ended June 30, 1994 (Predecessor)..................................................F-4
         Consolidated Statements of Stockholder's Equity/Partners' Capital -
              Years ended July 31, 1996 and 1995,  One month ended July 31, 1994
              (Successor), and Eleven months ended June 30, 1994 (Predecessor).................................F-5
         Consolidated Statements of Cash Flows - Year ended July 31, 1996 and 1995,
              One month ended July 31, 1994 (Successor), and
              Eleven months ended June 30, 1994 (Predecessor)..................................................F-6
         Notes to Consolidated Financial Statements............................................................F-7


Ferrellgas Partners Finance Corp.
         Independent Auditors' Report.........................................................................F-20
         Balance Sheets - July 31, 1996 and April 8, 1996 (Date of Inception).................................F-21
         Statement of Earnings - From the Date of inception to July 31, 1996..................................F-22
         Statement of Stockholder's Equity - From the Date of Inception to July 31, 1996......................F-23
         Statement of Cash Flows - From the Date of Inception to July 31,1996.................................F-24
         Notes to Financial Statements........................................................................F-25

</TABLE>

                                      F-1
<PAGE>
                                       
                          INDEPENDENT AUDITORS' REPORT

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

We have  audited the  accompanying  consolidated  balance  sheets of  Ferrellgas
Partners, L.P. (formerly Ferrellgas,  Inc.) and subsidiaries as of July 31, 1996
and 1995, and the related consolidated statements of earnings, partners' capital
and cash flows for the years  ended July 31, 1996 and 1995 and for the one month
ended July 31,  1994  (Successor)  and the  eleven  months  ended June 30,  1994
(Predecessor).   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  Partners,  L.P. and
subsidiaries  as of July 31, 1996 and 1995, and the results of their  operations
and their cash flows for the years  ended July 31, 1996 and 1995 and for the one
month ended July 31, 1994  (Successor) and the eleven months ended June 30, 1994
(Predecessor) in conformity with generally accepted accounting principles.






DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 18, 1996

                                      F-2
<PAGE>


                   FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except unit data)

<TABLE>
<CAPTION>


                                                                    July 31,             July 31,
ASSETS                                                                1996                 1995
----------------------------------------------------------       ----------------    -----------------
                                                                  
Current Assets:
<S>                                                                     <C>                  <C>     
  Cash and cash equivalents                                             $ 13,770             $ 29,877
  Accounts and notes receivable (net of
    allowance for doubtful accounts of $1,169 and
    $874 in 1996 and 1995, respectively)                                  70,118               58,239
  Inventories                                                             41,395               44,090
  Prepaid expenses and other current assets                                5,685                5,884
                                                                 ----------------    -----------------
    Total Current Assets                                                 130,968              138,090

Property, plant and equipment, net                                       403,732              345,642
Intangible assets, net                                                   107,960               86,886
Other assets, net                                                         11,635                7,978
                                                                 ----------------    -----------------
    Total Assets                                                        $654,295             $578,596
                                                                 ================    =================



LIABILITIES AND PARTNERS' CAPITAL
----------------------------------------------------------
Current Liabilities:
  Accounts payable                                                     $  48,400            $  57,729
  Other current liabilities                                               41,754               31,433
  Short-term borrowings                                                   25,520               20,000
                                                                 ----------------    -----------------
    Total Current Liabilities                                            115,674              109,162

Long-term debt                                                           439,112              338,188
Other liabilities                                                         12,402               11,398
Contingencies and commitments
Minority interest                                                          2,498                1,211

Partners' Capital:
  Common unitholders (14,612,580 and 14,398,942
    units outstanding in 1996 and 1995, respectively)                     71,324               84,489
  Subordinated unitholders (16,593,721 units outstanding
    in 1996 and 1995)                                                     71,302               91,824
  General partner                                                        (58,017)             (57,676)
                                                                 ----------------    -----------------
    Total Partners' Capital                                               84,609              118,637
                                                                 ----------------    -----------------
    Total Liabilities and Partners' Capital                             $654,295             $578,596
                                                                 ================    =================

</TABLE>

                                      F-3

                 See notes to consolidated financial statements

                                                 

<PAGE>
    FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF EARNINGS
                        (in thousands, except unit data)
<TABLE>
<CAPTION>

                                                                                                           
                                                                                          For the year ended July 31, 1994
                                                                                          --------------------------------   
                                                    For the year      For the year         One month         Eleven months      
                                                        ended             ended              ended               ended          
                                                    July 31, 1996     July 31, 1995      July 31, 1994       June 30, 1994      
                                                   ----------------  ----------------   ----------------    ----------------   
                                                                                                             (Predecessor)      
Revenues:
<S>                                                       <C>               <C>                 <C>                <C>          
  Gas liquids and related product sales                   $612,593          $565,607            $22,411            $477,285     
  Other                                                     41,047            30,829              2,155              24,705     
                                                   ----------------  ----------------   ----------------    ----------------   
    Total revenues                                         653,640           596,436             24,566             501,990     

Cost of product sold (exclusive of
  depreciation, shown separately below)                    356,314           339,641             13,211             256,095      
                                                   ----------------  ----------------   ----------------    ----------------   

Gross profit                                               297,326           256,795             11,355             245,895    

Operating expense                                          179,462           153,226             10,078             135,058    
Depreciation and amortization expense                       37,024            32,014              2,383              26,452    
General and administrative expense                          13,221            11,357                935               8,923    
Vehicle leases expense                                       5,113             4,271                350               3,940    
                                                   ----------------  ----------------   ----------------    ----------------   

Operating income (loss)                                     62,506            55,927             (2,391)             71,522    

Interest expense                                           (37,983)          (31,993)            (2,662)            (53,693)    
Interest income (including related parties of $1,108
  in eleven months ended June 30, 1994)                      1,666             1,268                 73               3,599     
Loss on disposal of assets                                  (1,586)           (1,139)               (97)             (1,215)    
                                                   ----------------  ----------------   ----------------    ----------------   
Earnings (loss) before income taxes,
  minority interest and extraordinary loss                  24,603            24,063             (5,077)             20,213    

Income tax provision                                             -                 -                  -               7,876    
Minority interest                                              291               243                (51)                  -      
                                                   ----------------  ----------------   ----------------    ----------------   
                                                                                                                                
Earnings (loss) before extraordinary loss                   24,312            23,820             (5,026)             12,337    

Extraordinary loss on early extinguishment of debt,
   net of minority interest of $10 and $607 in year
   ended July 31, 1996 and in one month ended
   July 31, 1994, respectively, and tax benefit of $531
   in eleven months ended June 30, 1994                        965                 -             59,455                 867     
                                                   ----------------  ----------------   ----------------    ----------------    
Net earnings (loss)                                         23,347            23,820            (64,481)           $ 11,470   
                                                                                        ----------------    ================   

General partner's interest in net earnings (loss)              233               238            (64,481)
                                                   ----------------  ----------------   ----------------
Limited partners' interest in net earnings                $ 23,114          $ 23,582            $     0
                                                   ================  ================   ================
 
Net earnings per limited partner unit:
   Earnings before extraordinary loss                     $   0.77          $   0.76            $     -
   Extraordinary loss                                         0.03               -
                                                   ----------------  ----------------   ----------------
Net earnings per limited partner unit                     $   0.74          $   0.76            $     -
                                                   ================  ================   ================
 
Weighted average number of units outstanding             31,128.8          30,908.1              30,693.7
                                                   ================  ================   ================
</TABLE>
                                      

                 See notes to consolidated financial statements
                                      F-4
<PAGE>
                   FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
 
       CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY / PARTNERS' CAPITAL
                                 (in thousands)

<TABLE>
<CAPTION>

                                                 Number of                    Additional                     Total
                                                   common         Common       paid-in      Accumulated   stockholder's
                                                   shares         stock        capital        deficit        equity
                                               ---------------  ----------- --------------- ------------ ---------------
<S>    <C>                                                <C>         <C>        <C>         <C>             <C>     
August 1, 1993 (Predecessor)                              1.0         $1         $32,863     $(21,505)       $ 11,359

  Net earnings                                            -            -               -       11,470          11,470
                                               ---------------  ----------- --------------- ------------ ---------------
June 30, 1994 (Predecessor)                               1.0         $1         $32,863     $(10,035)        $22,829
                                               ===============  =========== =============== ============ ===============
</TABLE>
<TABLE>
<CAPTION>
                                       Number of units
                                 -----------------------------
                                                                                              General      Total partners'
                                   Common       Subordinated      Common     Subordinated     partner         capital
                                 ------------  ---------------  ----------- --------------- ------------ ---------------
<S>                                <C>          <C>               <C>           <C>          <C>             <C>           
April 19, 1994                             -                -     $     -       $     -      $     -         $      -      
  Contributions in connection
    with formation of the
    Partnership                     14,100.0         16,593.7      84,532        99,483        1,859          185,874

  Net loss                                 -                -           -             -      (64,481)         (64,481)
                                 ------------  ---------------  ----------- --------------- ------------ ---------------
July 31, 1994                       14,100.0         16,593.7      84,532        99,483      (62,622)         121,393

  Special allocation of  prior
     year operating loss                   -                -      (2,312)       (2,664)       4,976               -

  Assets contributed in
    connection with acquisitions           -                -       3,324         3,830           72           7,226
 
  Common units issued in
     connection with
     acquisitions                      298.9                -       6,600             -           66           6,666

  Quarterly distributions                  -                -     (23,756)      (27,380)        (518)        (51,654)

  Adjustments to capital related to
     resolution of income tax
     contingencies                         -                -       5,145         5,929          112          11,186

  Net earnings                             -                -      10,956        12,626          238          23,820

                                 ------------  ---------------  ----------- --------------- ------------ ---------------
July 31, 1995                       14,398.9         16,593.7      84,489        91,824      (57,676)        118,637

  Assets contributed in
   connection with acquisitions                                       284           325            6             615

  Common units issued in
     connection with
     acquisitions                      213.7                        4,825                         48           4,873

  Quarterly distributions                                         (29,047)      (33,188)        (628)        (62,863)

  Net earnings                                                     10,773        12,341          233          23,347
                                 ============  ===============  =========== =============== ============ ===============
July 31, 1996                       14,612.6         16,593.7     $71,324       $71,302     $(58,017)        $84,609
</TABLE>
                 See notes to consolidated financial statements.
                                      F-5
<PAGE>

                   FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>


                                                                                           For the year ended July 31, 1994
                                                        For the year     For the year      One month        Eleven months     
                                                            ended           ended            ended              ended         
                                                        July 31, 1996   July 31, 1995    July 31, 1994      June 30, 1994    
                                                        --------------  ---------------  ---------------   ---------------- 
                                                                                                            (Predecessor)      
Cash Flows From Operating Activities:
<S>                                                           <C>              <C>             <C>                 <C>          
 Net earnings (loss)                                          $23,347          $23,820         $(64,481)           $11,470      
 Reconciliation of net earnings (loss) to net
  cash from operating activities:
  Depreciation and amortization                                37,024           32,014            2,383             26,452     
  Extraordinary loss                                              965                -           59,455                867     
  Minority interest                                               291              243              658                         
  Other                                                         4,478            3,191               22              5,130      
  Changes in operating assets and liabilities net of
  effects from business acquisitions:
    Accounts and notes receivable                              (3,988)            (906)             196               (816)     
    Inventories                                                 7,612            7,388           (5,631)           (14,279)    
    Prepaid expenses and other current assets                     765           (3,497)             618               (763)     
    Accounts payable                                          (10,576)           5,246           (2,809)            16,231      
    Accrued interest expense                                    1,270           10,680           (3,448)            (4,765)    
    Other current liabilities                                   3,649          (11,703)           1,715              7,001      
    Other liabilities                                             259             (446)             (35)            (1,072)     
    Deferred income taxes                                           -                -                -              7,667     
                                                        --------------  ---------------  ---------------   ----------------  
      Net cash provided (used) by operating activities         65,096           66,030          (11,357)            53,123    
                                                        --------------  ---------------  ---------------   ----------------  

Cash Flows From Investing Activities:
 Business acquisitions                                         (8,116)         (19,677)            (874)            (2,451)   
 Cash from acquired company                                     9,620                -                -                  -    
 Capital expenditures                                         (13,011)         (19,722)          (1,894)            (7,826)    
 Other                                                         (1,587)             173               31                 26     
                                                        --------------  ---------------  ---------------   ---------------- 
      Net cash used by investing activities                   (13,094)         (39,226)          (2,737)           (10,251)   
                                                        --------------  ---------------  ---------------   ----------------  

Cash Flows From Financing Activities:
 Net additions to short-term borrowings                         5,520           17,000            3,000                  -       
 Additions to long-term debt                                  222,268           85,000          265,000                  -       
 Reductions of long-term debt                                (234,082)         (61,400)        (477,903)           (13,640)     
 Distributions                                                (62,863)         (51,654)               -                  -      
 Minority interest activity                                     1,002             (459)          (1,202)                 -       
 Additional payments to retire debt                                 -                -          (48,364)            (1,190)      
 Additions to financing costs                                       -                -           (6,575)               (51)      
 Net issuance of Common Units                                       -                -          255,006                  -         
 Cash transfer from predecessor company                             -                -           39,791                  -        
 Other                                                             46               51             (124)            (6,330)     
                                                        --------------  ---------------  ---------------   ---------------
                                                       
      Net cash provided (used) by financing activities        (68,109)         (11,462)          28,629            (21,211)   
                                                        --------------  ---------------  ---------------   ----------------  

Increase (decrease) in cash and cash equivalents              (16,107)          15,342           14,535             21,661    
Cash and cash equivalents - beginning of period                29,877           14,535                -             32,706    
                                                        --------------  ---------------  ---------------   ---------------- 
Cash and cash equivalents - end of period                     $13,770          $29,877          $14,535            $54,367    
                                                        ==============  ===============  ===============   ================   

Cash paid for interest                                        $34,994          $19,918         $  6,093            $55,681   
                                                        ==============  ===============  ===============   ================  
</TABLE>

                 See notes to consolidated financial statements

                                                           F-6


<PAGE>
                                      


                            FERRELLGAS PARTNERS, L.P.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 1996

A.  Partnership Organization and Formation

    Ferrellgas  Partners,  L.P. (the "MLP") was formed April 19, 1994,  and is a
    publicly traded limited  partnership,  owning a 99% limited partner interest
    in Ferrellgas,  L.P. (the "Operating  Partnership" or "OLP"),  both Delaware
    limited partnerships, and collectively known as the Partnership.  Ferrellgas
    Partners, L.P., was formed to acquire and hold a limited partner interest in
    the Operating 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. The Company has retained a 1% general  partner  interest in
    Ferrellgas Partners,  L.P. 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.

    On July 5, 1994, the  Partnership  completed an initial  public  offering of
    13,100,000 Common Units representing  limited partner interests (the "Common
    Units")  at $21  per  Common  Unit.  As of the  date  of the  offering,  the
    13,100,000  Common Units represented a 41.8% limited partner interest in the
    Partnership.  Concurrent  with the  closing  of the  offering,  the  Company
    contributed  all of its  propane  business  and  assets  to the  Partnership
    (excluding  approximately  $39,000,000  in cash,  payables to or receivables
    from its parent and  affiliates  and an  investment  in the Class B Stock of
    Ferrell Companies,  Inc.) in exchange for 1,000,000 Common Units, 16,593,721
    Subordinated Units and Incentive  Distribution Rights,  representing a 56.2%
    limited partner interest in the Partnership, as of the date of the offering,
    in addition to the 2% general partner interest in the Partnership.

    In connection with the  contribution  of the propane  business and assets by
    the  Company,  the  Operating  Partnership  assumed all of the  liabilities,
    whether known or unknown, associated with such assets (other than income tax
    liabilities).   The  net  book  value  of  the  assets  contributed  to  the
    Partnership,  adjusted for the settlement of a tax contingency (see Note F),
    is reported below:

            (In thousands)
            Total assets conveyed                       $509,535
            Total liabilities assumed                    565,471
                                                     --------------
            Net liabilities                            $ (55,936)
                                                     ==============


    Supplementary Pro Forma Consolidated Statements of Earnings (Unaudited):
    The  following pro forma  consolidated  statement of earnings for the fiscal
    year ended July 31,  1994,  was derived  from the  historical  statement  of
    earnings of the Company for the eleven  months ended June 30, 1994,  and the
    statement of earnings of the  Partnership  from  inception to July 31, 1994.
    The pro forma consolidated  statements of earnings of the Partnership should
    be read in conjunction  with the  consolidated  financial  statements of the
    Partnership  and the Company and the notes  thereto.  The  objective of this
    data is to show the effects on the  historical  financial  information as if
    the Partnership formation had occurred on August 1, 1993.
                                      F-7
<PAGE>


The following  supplementary pro forma  consolidated  statements of earnings are
    for  comparative  purposes and are not  indicative  of the results of future
    operations of the Partnership:

      (in thousands, except unit amounts)
<TABLE>
<CAPTION>

                                                        Audited              Audited              Pro Forma
                                                     July 31, 1996        July 31, 1995         July 31, 1994
                                                   ------------------   ------------------     -----------------
      Revenues:
<S>                                                         <C>                  <C>                   <C>     
        Gas liquids and related product sales               $612,593             $565,607              $499,696
        Other                                                 41,047               30,829                26,860
                                                   ------------------   ------------------     -----------------
                                                                        
          Total revenues                                     653,640              596,436               526,556

      Cost of product sold (exclusive of
      depreciation, shown separately below)                  356,314              339,641               269,306
                                                   ------------------   ------------------     -----------------

      Gross profit                                           297,326              256,795               257,250

      Operating expense                                      179,462              153,226               145,136
      Depreciation and amortization expense                   37,024               32,014                28,835
      General and administrative expense                      13,221               11,357                10,358 (1)
      Vehicle leases expense                                   5,113                4,271                 4,290
                                                   ------------------   ------------------     -----------------

      Operating income                                        62,506               55,927                68,631

      Interest expense                                       (37,983)             (31,993)              (28,130)(2)
      Interest income                                          1,666                1,268                 1,123 (3)
      Loss on disposal of assets                             (1,586)              (1,139)               (1,312)
                                                   ------------------   ------------------     -----------------

      Earnings before minority interest and
         extraordinary loss                                   24,603               24,063                40,312

      Minority interest                                          291                  243                   403 (4)
                                                   ------------------   -----------------      ------------------
                                                                        

      Earnings before extraordinary loss                   $  24,312            $  23,820             $  39,909
                                                   ==================   ==================     =================


      Earnings before extraordinary loss per
        limited partner unit                             $      0.77          $      0.76            $     1.29
                                                   ==================   ==================     =================

      Weighted average limited partner units                31,128.8             30,908.1              30,693.7
                                                   ==================   ==================     =================

      (1)    Reflects estimated general and administrative costs associated with
             the Partnership. 
      (2)    Reflects the adjustment to interest expense resulting from the
             early retirement of debt, net of additional borrowings.
      (3)    Reflects the reduction of interest  income to the  Partnership as a
             result of lower cash balances  available for short-term  investment
             opportunities.
      (4)    Reflects  that  portion  of  earnings  from  continuing  operations
             allocated to the General Partner for its ownership in the Operating
             Partnership.


                                      F-8
</TABLE>

<PAGE>


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
    subsidiary,  Ferrellgas  Partners Finance Corp. The Company's 1.0101%
    General Partner interest in Ferrellgas, L.P. is accounted for as a minority
    interest. 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 15 to 40 years.  Accumulated  amortization of intangible assets
    totaled   $95,801,000  and  $81,995,000  as  of  July  31,  1996  and  1995,
    respectively.

    (7) Forward,  futures and option contracts: The Partnership also enters into
    forward and futures  purchase/sale  agreements and 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 on a mark-to-market basis.
    Mark to market adjustments on trading positions are recorded through income.

    (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 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.

    The  Predecessor  filed a  consolidated  Federal  income tax return with its
    parent and  affiliates.  Income  taxes were  computed as though each company
    filed  its own  income  tax  return  in  accordance  with  the  tax  sharing
    agreement.  Deferred  income  taxes were  provided as a result of  temporary
    differences  between  financial  and tax  reporting  as described in Note M,
    using the asset/liability  method. Deferred income taxes were recognized for
    the  tax  consequences  of  temporary   differences  between  the  financial
    statement  carrying  amounts  and the  tax  basis  of  existing  assets  and
    liabilities.

                                      F-9
<PAGE>

    (9) Net earnings (loss) per limited partner unit: Net earnings (loss) per
    limited partner unit is computed by dividing net earnings, after deducting
    the General Partner's 1% interest, by the weighted average number of
    outstanding Common Units, Subordinated Units and the dilutive effect
    (if any) of subordinated unit options. As described in Note F, the 1994 net
    loss before extraordinary loss of approximately  $5,026,000, and the 1994
    extraordinary loss from early extinguishment of debt of approximately
    $59,455,000,  net of $607,000  minority  interest,  were allocated 100% to
    the General  Partner. Accordingly, there was no net earnings per limited
    partner unit calculation attributable to the limited partners from
    inception to July 31, 1994.

    In accordance with the terms of the Partnership  Agreement,  the Partnership
    reallocated  99% of the initial  year's net loss before  extraordinary  loss
    ($4,976,000) based on ownership percentages to the limited partners in 1995.
    The fiscal 1995 special  allocation of the prior year  operating loss to the
    limited  partners  resulted  in a  reduction  in equity of $0.16 per limited
    partner unit.

    (10) Adoption of new accounting standard: Effective August 1, 1996, SFAS No.
    123,  "Accounting  for  Stock-Based  Compensation,"  will require  increased
    disclosure of  compensation  expense arising from stock  compensation  plans
    (including  the  Partnership's  unit option plan.) The Statement  encourages
    rather than requires  entities to adopt a new method that accounts for stock
    compensation awards based on their estimated fair value at the date they are
    granted.  Entities will be permitted,  however, to continue accounting under
    APB Opinion No. 25 which requires  compensation  cost to be recognized based
    on the excess,  if any,  between the quoted market price of the units at the
    date of grant and the amount an employee must pay to acquire the units.  The
    Partnership will continue to apply APB No. 25 in its consolidated  financial
    statements and will disclose pro forma net income and earnings per unit in a
    footnote to its consolidated financial statements,  determined as if the new
    method were applied.

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% to the Common and  Subordinated  Unitholders
    (the "Unitholders") and 2% to the General Partner, subject to the payment of
    incentive  distributions to the holders of Incentive  Distribution Rights to
    the extent that certain target levels of cash distributions are achieved. To
    the extent there is sufficient  Available  Cash, the holders of Common Units
    have the right to receive the "Minimum  Quarterly  Distribution"  ($0.50 per
    Unit), plus any "arrearages", prior to any distribution of Available Cash to
    the holders of Subordinated  Units.  Common Units will not accrue arrearages
    for any quarter  after the  "Subordination  Period"  (as defined  below) and
    Subordinated   Units  will  not  accrue  any  arrearages   with  respect  to
    distributions for any quarter.

    In general,  the Subordination  Period will continue  indefinitely until the
    first day of any quarter  beginning on or after August 1, 1999, in which (i)
    distributions  of  Available  Cash  equal or exceed  the  Minimum  Quarterly
    Distribution on the Common Units and the Subordinated  Units for each of the
    three consecutive four quarter periods  immediately  preceding such date and
    (ii) the Partnership  has invested at least $50 million in acquisitions  and
    capital additions or improvements to increase the operating  capacity of the
    Partnership.  Prior to the end of the Subordination Period (but not prior to
    August 1,  1997),  5,531,240  Subordinated  Units held by the  Company  will
    convert into Common  Units if (i)  distributions  of  Available  Cash on the
    Common  Units  and  Subordinated  Units  equaled  or  exceeded  the  Minimum
    Quarterly  Distribution for each of the two consecutive  four-quarter period
    preceding  August 1, 1997,  and (ii) the  operating  cash  generated  by the
    Partnership in each of such four-quarter periods equaled or exceeded 125% of
    the Minimum Quarterly  Distribution on all Common Units and all Subordinated
    Units.   Upon  expiration  of  the  Subordination   Period,   all  remaining
    Subordinated Units will convert to Common Units.

                                      F-10
<PAGE>

    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.


D.  Supplemental Balance Sheet Information
<TABLE>
<CAPTION>

    Inventories consist of:

        (in thousands)                                                                    1996             1995
                                                                                      --------------   --------------
<S>                                                                                         <C>              <C>    
        Liquefied propane gas and related products                                          $33,366          $37,550
        Appliances, parts and supplies                                                        8,029            6,540
                                                                                      --------------   --------------
                                                                                            $41,395          $44,090
                                                                                      ==============   ==============
</TABLE>

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

    Property, plant and equipment consist of:
<TABLE>
<CAPTION>

        (in thousands)                                                                     1996            1995
                                                                                       -------------   --------------
<S>                                                                                       <C>              <C>      
        Land and improvements                                                             $  26,024        $  21,380
        Buildings and improvements                                                           39,376           29,117
        Vehicles                                                                             55,860           46,199
        Furniture and fixtures                                                               22,074           23,336
        Bulk equipment and district facilities                                               43,203           37,086
        Tanks and customer equipment                                                        403,770          357,167
        Other                                                                                 5,800            6,825
                                                                                       -------------   --------------
                                                                                            596,107          521,110
        Less:  accumulated depreciation                                                     192,375          175,468
                                                                                       -------------   --------------
                                                                                           $403,732         $345,642
                                                                                       ==============  =============

     </TABLE>

        Depreciation expense totaled $25,101,000,  $21,649,000,  $1,602,000, and
        $17,659,000,  for the years  ended July 31,  1996,  1995,  the one month
        ended  July 31,  1994,  and the  eleven  months  ended  June  30,  1994,
        respectively.


                                      F-11

<PAGE>

<TABLE>
<CAPTION>

    Other current liabilities consist of:

        (in thousands)                                                                     1996             1995
                                                                                       --------------   -------------
<S>                                                                                         <C>             <C>     
        Accrued insurance                                                                   $  3,157        $  2,345
        Accrued interest                                                                      14,242          12,972
        Accrued payroll                                                                        7,062           4,036
        Other                                                                                 17,293          12,080
                                                                                       --------------   --------------
                                                                                             $41,754         $31,433
                                                                                       ==============   =============

E.   Long-Term Debt

     Long-term debt consists of:

      (in thousands)                                                                     1996             1995
                                                                                     -------------     ------------
      Senior Notes
        Fixed rate, 10%, due 2001 (1)                                                    $200,000         $200,000
        Floating rate, 9.3125% due 2001 (1)                                                     -           50,000
        Fixed rate, 9.375%, due 2006 (2)                                                  160,000                -

      Credit Agreement
        Term loan, 6%, due 2001 (3)                                                        50,000                -
        Term loan, 7.3125%, due 1997                                                            -           15,000
        Revolving credit loans, 8.25%, due 1999 (3)                                        18,980           70,000

      Notes payable, 5.7% and 5.6% weighted average interest rates,
        respectively, due 1996 to 2006 (4)                                                 11,742            3,983
                                                                                     -------------     ------------
                                                                                          440,722          338,983
      Less:  current portion                                                                1,610              795
                                                                                     -------------     ------------
                                                                                         $439,112         $338,188
                                                                                     =============     ============

</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  floating  rate senior notes bore interest at the
London  Interbank  Offered Rate ("LIBOR") plus 3.125% and had mandatory  sinking
fund  payments  of  $5,000,000  in 1999  and  2000.  On July 31,  1996,  the OLP
refinanced these notes with an unsecured term loan from its amended and restated
Credit Facility bearing interest at LIBOR plus a certain percentage depending on
various factors. The current rate at July 31, 1996 was 6.0%.

     (2) The MLP fixed rate Senior  Secured Notes issued in April 1996,  will be
redeemable  at the  option  of the MLP,  in whole or in part,  at any time on or
after June 15, 2001. The notes are secured by the MLP's partnership  interest in
the OLP. The 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
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.  The Senior Secured
Notes bear interest from the date of issuance,  payable semi-annually in arrears
on June 15 and December 15 of each year commencing on December 15, 1996.

F-12
<PAGE>

     (3) 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 0.50% or the
Bank's Base rate, depending on the nature of the borrowing. The Bank's Base rate
at July 31, 1996 was 8.25%.  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  interest rates
on a notional amount of $125,000,000 to between 4.9% and 6.5%.

     (4)  The  notes  payable  are  secured  by  approximately   $4,714,000  and
$1,413,000 of property and equipment at July 31, 1996 and 1995, respectively.

     At July 31, 1996 and 1995,  $25,520,000 and $20,000,000,  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 $26,824,000 and $24,471,000,
     respectively.

     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 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  $1,610,000 in 1997,  $2,356,000 in 1998,  $20,619,000  in
     1999, $1,685,000 in 2000, and $52,514,000 in 2001.

     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. During the
     one month ended July 31, 1994, the Partnership  recognized an extraordinary
     loss from the debt premium and write off of financing costs of $59,455,000,
     net  of  minority   interest  of   $607,000,   resulting   from  the  early
     extinguishment  of  $477,600,000  of indebtedness of the Company assumed by
     the  Operating  Partnership.  During the eleven months ended June 30, 1994,
     the  Predecessor  recognized  an  extraordinary  loss from debt premium and
     write off of financing costs of approximately  $867,000,  net of income tax
     benefit of $531,000, resulting from the early extinguishment of $11,900,000
     of its fixed rate senior notes.

F.   Partners' Capital

     Partners'  capital consists of 14,612,580  Common Units  representing a 46%
     limited partner interest,  16,593,721 Subordinated Units representing a 53%
     limited partner interest, and a 1% General Partner interest.

     The  Agreement of Limited  Partnership  of Ferrellgas  Partners,  L.P. (the
     "Partnership Agreement") contains specific provisions for the allocation of
     net earnings  and loss to each of the partners for purposes of  maintaining
     the partner  capital  accounts.  In  addition,  the  Partnership  Agreement
     contains special  provisions for the allocation of the  extraordinary  loss
     from the retirement of  indebtedness,  and the net loss from  operations of
     the Partnership from the closing date on July 5, 1994, to July 31, 1994. In
     accordance with these special provisions of the Partnership Agreement,  the
     extraordinary loss of $59,455,000,  net of $607,000 minority interest,  was
     allocated  100% to the  General  Partner  and was  not  reallocated  to the
     limited partners. The net loss from operations of approximately  $5,026,000
     was allocated 100% to the General Partner from inception of the Partnership
     to the last day of the taxable year ending July 31,  1994.  An amount equal
     to 99% of this net loss was reallocated to the limited partners in the year
     ending July 31, 1995 based on their ownership percentages. (See Note B.)
                                      F-13
<PAGE>

     During the Subordination  Period, the Partnership may issue up to 7,000,000
     Common Units  (excluding  Common Units issued in connection with conversion
     of  Subordinated  Units  into  Common  Units)  or an  equivalent  number of
     securities  ranking  on a parity  with the  Common  Units and an  unlimited
     number of  partnership  interests  junior  to the  Common  Units  without a
     Unitholder  vote. The  Partnership may also issue  additional  Common Units
     during the Subordination  Period in connection with acquisitions if certain
     cash flow criteria are met. After the Subordination Period, the Partnership
     Agreement  authorizes the General Partner to cause the Partnership to issue
     an unlimited number of additional general and limited partner interests and
     other equity  securities of the Partnership for such  consideration  and on
     such terms and conditions as shall be  established  by the General  Partner
     without the approval of any Unitholders.

     The Partnership  maintains a shelf registration  statement for Common Units
     representing limited partner interests in the Partnership. The Common Units
     may be issued from time to time by the  Partnership in connection  with the
     Partnership's acquisition of other businesses,  properties or securities in
     business combination transactions.

     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. 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 impacted 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  $109,637,000  and
     $100,750,000 for the years ended July 31, 1996 and 1995, respectively,  and
     $7,561,000  from  inception  to July 31,  1994,  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  described in Note A 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.

     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. No fees were paid in 1995. DLJ acted as an underwriter with regard
     to the public offering of Common Units and Senior Notes, and was paid total
     fees of $5,100,000 during 1994.

                                      F-14
<PAGE>
     The law firm of Smith, Gill, Fisher & Butts, a Professional Corporation was
     general counsel to the  Partnership,  General Partner,  Ferrell  Companies,
     Inc.  ("Ferrell") and their respective  subsidiaries and affiliates  during
     the pro forma fiscal year of the Partnership and the Predecessor ended July
     31, 1994. David S. Mouber, a director of Ferrell through July 31, 1994, was
     a member of such law firm. The  Partnership,  Ferrell and their  respective
     subsidiaries  paid such firm fees of $1,394,000 during the pro forma fiscal
     year ended July 31, 1994.


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
     $12,054,000, $11,233,000, $725,000, and $9,556,000 for the years ended July
     31, 1996 and 1995, the one month ended July 31, 1994, and the eleven months
     ended June 30, 1994,  respectively.  Future minimum lease  commitments  for
     such leases are  $10,566,000  in 1997,  $7,336,000  in 1998,  $5,377,000 in
     1999, $3,871,000 in 2000, $1,714,000 in 2001 and $601,000 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 Companies, Inc., ("FCI") 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 FCI'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, 1996 and July 31, 1995,  were  $1,160,000  and
     $1,300,000  under the profit  sharing  provision  and were  $1,388,000  and
     $1,407,000 under the 401(k)  provision.  There were no contributions  under
     the profit sharing provision or 401(k) provision of the plan from inception
     to July 31,  1994.  Contributions  during the eleven  months ended June 30,
     1994 were  $1,200,000  under the profit sharing  provision,  and $1,445,000
     under the 401(k) provision.


J.  Unit Options

     On October 14, 1994, the General Partner adopted the Ferrellgas,  Inc. Unit
     Option  Plan (the "Unit  Option  Plan"),  which  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 have the following  characteristics:  1) exercise
     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, 2) vest
     immediately  or over a one to five year period,  3)  exercisable  beginning
     after July 31, 1999, assuming the subordination  period has elapsed, and 4)
     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
     Unit Options granted will convert to Common Unit Options.

                                      F-15
<PAGE>

<TABLE>
<CAPTION>

                                                               Units               Price per Unit
                                                       ---------------------- --------------------------
<S>                                                    <C>                        <C>                                
         Outstanding, July 31, 1994                                -                           -

         Granted                                              775,000               $16.80-$18.54
         Canceled                                           (73,500)                   16.80
                                                       ---------------------- --------------------------
         Outstanding, July 31, 1995                           701,500               16.80 - 18.54

         Granted                                              99,750                19.88 - 21.67
         Canceled                                           (132,825)              16.80 - 19.88
                                                       ---------------------- --------------------------
         Outstanding, July 31, 1996                           668,425              $16.80 - $21.67
                                                       ---------------------- --------------------------
         Options exercisable, July 31, 1996                     0
                                                       ---------------------- --------------------------
         Options available for future grants                  181,575
                                                       ---------------------- --------------------------

</TABLE>

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

     The carrying amount of cash and cash  equivalents  approximate  fair value
     because of the short  maturity of the  instruments.  Short-term  borrowings
     approximates  fair value as of July 31, 1996 and 1995.  The estimated  fair
     value of the Partnership's long-term debt was $440,122,000 and $347,485,000
     as of July 31,  1996 and 1995,  respectively.  The fair value is  estimated
     based on quoted market prices adjusted for discounted cash flows.

     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,  1996,  the  total  notional
     principal amount of these agreements was $125,000,000.  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, 1996 was not
     material to the  financial  position or the  results of  operations  of the
     Partnership.

     Option  Contracts.  The Partnership is a party to certain option contracts,
     involving various liquefied petroleum products, for overall risk management
     purposes in connection with its 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  Contracts.  The  Partnership  is a party to  certain
     forward and futures contracts for trading purposes.  Net gains from trading
     activities were $7,323,000,  $5,818,000,  $331,000,  and $6,458,000 for the
     years ended July 31, 1996, 1995, the one month ended July 31, 1994, and the
     eleven  months ended June 30, 1994,  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).


                                      F-16
<PAGE>


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


                    Derivative Commodity Instruments Held for                Commodity Instruments Held for
                           Purposes Other than Trading                             Trading Purposes
                                     (Options)                                   (Forward and Futures) 
                   -------------------------------------------    --------------------------------------------------
                           1996                     1995                     1996                        1995
                    --------------------    -------------------    -----------------------     -----------------------
                     Asset      Liab.        Asset     Liab.         Asset       Liab.           Asset        Liab.
                    --------- ----------    -------- ----------    ----------- -----------     ----------- -----------
   Volume
<S>                  <C>          <C>         <C>       <C>           <C>        <C>              <C>         <C>  

   (gallons)           -        (21)         1,071    (9,765)       178,011    (153,990)        170,057    (129,198)

   Price (cent)/gal)   -         30          16-36     16-36         24-65      24-2025          13-45       14-52

   Maturity                     8/96-         8/95-     8/95-         8/96-     8/96-             8/95-       8/95-
   Dates               -        12/96         1/96      1/96          7/97      3/37              1/96        1/96

   Contract
   Amounts ($)         -       (1,575)          380     (3,572)        64,223     (62,917)         57,419     (43,605)

   Fair Value ($)      -       (1,541)          340     (3,758)        65,972     (62,623)         57,463     (43,504)

   Unrealized
   gain(loss) ($)      -         34          (40)      (186)         1,749        294              44         101
</TABLE>

    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.


L.  Acquisitions

     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 for a cash purchase price of $89,650,000,
     subject to final working capital adjustments.

     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
     $89,650,000  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.  Certain  working
     capital  adjustments  occurred  after the  acquisition  that  resulted in a
     reduction of the amount paid for the  acquisition  of Skelgas and the total
     assets acquired.  The total assets contributed to the Operating Partnership
     (at the General Partner's cost basis) have been preliminarily  allocated as
     follows:  (i) working  capital of  $17,951,000,  (ii)  property,  plant and
     equipment of $62,178,000 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.

                                      F-17
<PAGE>

     On November 1, 1994, the General Partner purchased all of the capital stock
     of Vision Energy  Resources,  Inc.  ("Vision") for a cash purchase price of
     $45 million.  Immediately  following the closing of the purchase of Vision,
     the General  Partner (i) caused Vision and each of its  subsidiaries  to be
     merged into the General  Partner  (except for a trucking  subsidiary  which
     dividended  substantially all of its assets to the General  Partner) and
     (ii) transferred all of the assets of Vision and its Subsidiaries to the
     Operating Partnership.  As a result of the contribution, the Operating 
     Partnership assumed substantially all of the  liabilities, whether known or
     unknown,  associated with Vision and its  subsidiaries  (excluding  income
     tax  liabilities),  including the obligation of the General Partner under a
     $45,000,000  loan agreement under which the General  Partner  borrowed 
     funds to pay the purchase price for Vision. In consideration of the 
     retention by the General Partner of certain income tax liabilities,  the
     Partnership issued 138,392 Common Units to the General Partner. The 
     Operating  Partnership also recorded a contribution of $7,300,000 from the
     General  Partner,  representing the excess of the value of the assets over
     the  liabilities  conveyed  and the units  issued to the  General  Partner.
     This  contribution is allocated to each partner based on their relative
     ownership  percentages  following the closing of the Vision acquisition. 
     In total, during the year ended July 31, 1995, the Partnership made
     acquisitions  and  received  contributions  of  businesses  valued at
     $80,651,000 (including working capital acquired of $3,282,000). This amount
     was  funded  by  $19,677,000  cash  payments  and  the  following   noncash
     transactions:  $45,000,000 debt assumed,  $7,300,000  contributed  capital,
     $6,600,000  issuance of Partnership  units,  and $2,074,000 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 and Vision  transactions  occurred at the  beginning  of each of the
    periods   presented   and  also  includes  the  pro  forma  effects  of  the
    Partnership's  issuance of the  $160,000,000 of 9 3/8% Senior Notes in April
    1996 (as described in Note E):
<TABLE>
<CAPTION>

      (in thousands, except per unit amounts)
      (unaudited)                                                        Pro Forma Year        Pro Forma Year
                                                                             Ended             Ended July 31,
                                                                          July 31, 1996             1995
                                                                         -----------------     -----------------

<S>                                                                      <C>                   <C>     
      Total revenues                                                     $732,372              $684,340
      Income before extraordinary loss                                   21,734                22,387
      Net earnings                                                       20,769                22,387
      Net earnings per limited partner unit                              $      0.66           $      0.72

</TABLE>
                                      F-18
<PAGE>




M.   Income Taxes (Predecessor)

     As stated Note B, 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.  For the Predecessor
     period,  income tax expense  consisted of deferred  taxes of $7,136,000 and
     current  taxes of  $209,000.  Nearly all of the  expense was  allocated  to
     operating  activities.  Deferred taxes result from temporary differences in
     the  recognition  of income and  expense  for tax and  financial  statement
     purposes.  The significant temporary differences and related deferred tax
     provision related to net operating loss  carryforwards.  For Federal income
     tax  purposes,   the  Company  had  net  operating  loss   carryforwards of
     approximately  $201,000,000  at June 30, 1994  available  to offset  future
     taxable income.  These net operating loss  carryforwards  expire at various
     dates through 2009.  The  difference  between the effective tax rate of 39%
     and the statutory federal rate of 35% was primarly state income taxes.

                                      F-19
<PAGE>
                                      
                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Ferrellgas Partners Finance Corp.
Liberty, Missouri

We have audited the accompanying  balance sheets of Ferrellgas  Partners Finance
Corp. (a wholly-owned  subsidiary of Ferrellgas Partners,  L.P.), as of July 31,
1996 and April 8, 1996,  and the related  statement of  earnings,  stockholder's
equity and cash flows for the period from inception  (April 8, 1996) to July 31,
1996.  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 Partners Finance Corp. as of July
31, 1996 and April 8, 1996, and the results of its operations and its cash flows
for the period from  inception  (April 8, 1996) to July 31,  1996 in  conformity
with generally accepted accounting principles.








DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 18, 1996


                                      F-20
<PAGE>
                        FERRELLGAS PARTNERS FINANCE CORP.
            (a wholly owned subsidiary of Ferrellgas Partners, L.P.)

                                 BALANCE SHEETS
<TABLE>
<CAPTION>



                                                                               July 31,             April 8,
                                                                                 1996                 1996
                                                                           -----------------    -----------------
                                                                            

      ASSETS
      -----------------------------------------------------------------

<S>                                                                                  <C>                  <C>   
      Cash                                                                           $1,000               $1,000
                                                                           -----------------    -----------------
      Total Assets                                                                   $1,000               $1,000
                                                                           =================    =================




      STOCKHOLDER'S EQUITY
      -----------------------------------------------------------------

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

      Additional paid in capital                                                         42                    0

      Accumulated deficit                                                               (42)                   0
                                                                           -----------------    -----------------
      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-21
<PAGE>
                         FERRELLGAS PARTNERS FINANCE CORP.
      (a wholly owned subsidiary of Ferrellgas Partners, L.P.)

                       STATEMENT OF EARNINGS

<TABLE>
<CAPTION>



                                                     From inception
                                                      to July 31,
                                                          1996
                                                    -----------------

<S>                                                             <C> 
Revenues                                                        $  -

General and administrative expense                                42

                                                    -----------------
                                                    
Net loss                                                        $(42)
                                                    =================

</TABLE>

                      See notes to financial statements
                                      F-22

<PAGE>
                       Ferrellgas Partners Finance Corp.
            (a wholly owned subsidiary of Ferrellgas Partners, L.P.

                       Statements of Stockholder's Equity
<TABLE>
<CAPTION>

                                                                                                    Total
                                         Common stock      Additional         Accumulated       stockholder's
                           -----------------------------
                             Shares        Dollars       paid in capital        deficit             equity
                           ------------   -----------   -------------------------------------  -----------------

<S>                             <C>        <C>           <C>                 <C>                 <C>     
April 8, 1996                        0      $      0                   -               $   0           $      0
                           ------------   -----------   -----------------  ------------------  -----------------

Capital Contribution             1,000         1,000                 $42                   -              1,042
Net loss                             -             -                   -                 (42)               (42)
                           ------------   -----------   -----------------  ------------------  -----------------
July 31, 1996                    1,000        $1,000                 $42                $(42)            $1,000
                           ============   ===========   =================  ==================  =================

</TABLE>
                       See notes to financial statements
                                      F-23
<PAGE>
                        FERRELLGAS PARTNERS FINANCE CORP.
            (a wholly owned subsidiary of Ferrellgas Partners, L.P.)

                             STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>


                                                                                        From Inception to
                                                                                          July 31, 1996
                                                                                      ----------------------

                          Cash Flows From Operating Activities:
<S>                                                                                                <C>      
                            Net loss                                                               $    (42)
                                                                                      ----------------------
                                Cash used by operating activities                                       (42)
                                                                                      ----------------------

                          Cash Flows From Financing Activities:
                            Capital Contribution                                                      1,042
                                                                                      ----------------------
                                Cash provided by financing activities                                 1,042
                                                                                      ----------------------

                          Increase (decrease) in cash                                                 1,000
                          Cash - beginning of period                                                      0
                                                                                      ----------------------
                          Cash - end of period                                                       $1,000
                                                                                      ======================
                       See notes to financial statements
</TABLE>
                                      F-24
<PAGE>
                        FERRELLGAS PARTNERS FINANCE CORP.
            (a wholly-owned subsidiary of Ferrellgas Partners, L.P.)

                          NOTES TO FINANCIAL STATEMENTS
                                  JULY 31, 1996


A.      Formation

        Ferrellgas Partners, Finance Corp. (the "Finance Corp."), a Delaware
        corporation, was formed on March 28, 1996 and is a wholly-owned
        subsidiary of Ferrellgas Partners, L.P. (the "Partnership").

        The Partnership contributed $1,000 to the Finance Corp. on April 8, 1996
        in exchange for 1,000 shares of common stock.

B.      Commitment

        On April 26, 1996, the Partnership issued  $160,000,000 of 9 3/8% Senior
        Secured  Notes due 2006 (the "Senior  Notes").  The 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 Senior Notes will become  guaranteed
        by the Operating  Partnership (the "OLP") on a senior subordinated basis
        if certain  conditions are met. Certain OLP's credit  agreements and the
        indentures 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 of  each  year
        commencing  on  December  15,  1996.  The  Finance  Corp.  serves  as  a
        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 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 $17 associated with the current year net operating loss  carryforward
        of $40 expiring  July 31, 2011, 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 period ended July 31, 1996 and there is
        no net deferred tax asset as of July 31, 1996.


                                      F-25
<PAGE>

                     INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
1
                                                                                                                Page
Ferrellgas Partners, L.P. and Subsidiaries
<S>                                                                                                              <C>
Independent Auditors' Report on Schedules......................................................................S-2

Schedule I        Parent Company Only Balance Sheets as of July 31, 1996 and 1995, and
                  Statements of Earnings and Cash Flows for the Years ended July 31, 1996,
                  1995 and the One month ended July 31, 1994...................................................S-3


Schedule II       Valuation and Qualifying Accounts for the Years ended July 31, 1996
                  and 1995, the One month ended July 31, 1994 and the Eleven months ended
                  June 30, 1994................................................................................S-6
</TABLE>
                                      S-1

<PAGE>
                                       
                          INDEPENDENT AUDITORS' REPORT


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

We have audited the consolidated  financial  statements of Ferrellgas  Partners,
L.P.  (formerly  Ferrellgas,  Inc.),  and  subsidiaries as of July 31, 1996, and
1995,  (Successor),  and for the years ended July 31,1996, and 1995, for the one
month ended July 31, 1994 (Successor),  and for the eleven months ended June 30,
1994  (Predecessor) and have issued our report thereon dated September 18, 1996.
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 18, 1996

                                      S-2
<PAGE>

                           Ferrellgas Partners, L.P.
                                  Parent Only

                                 Balance Sheet
                                 (in thousands)
<TABLE>
<CAPTION>

ASSETS                                                  July 31, 1996             July 31, 1995           
----------------------------------------------------   -------------------      --------------------      

<S>                                                           <C>                  <C>    
 Cash and cash equivalents                                    $         1
 Investment in Ferrellgas, L.P.                                   244,771                  $118,638       
 Other assets, net                                                  4,693
                                                        -------------------      --------------------     
    Total Assets                                                 $249,465                  $118,638       
                                                       ===================      ====================      



LIABILITIES AND PARTNERS' CAPITAL
----------------------------------------------------

Other current liabilities                                        $  4,856               $         1         

Long term debt                                                    160,000

Partners' Capital
  Common unitholders                                               71,323                    84,489       
  Subordinated unitholders                                         71,302                    91,824       
  General partner                                                 (58,016)                  (57,676)      
                                                       -------------------      --------------------      
    Total Partners' Capital                                        84,609                   118,637        


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

    Total Liabilities and Partners' Capital                      $249,465                  $118,638      
                                                       ===================      ====================     
</TABLE>
                                      S-3
<PAGE>
Schedule I
                           Ferrellgas Partners, L.P.
                                  Parent Only

                             Statement of Earnings
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                  For the Year Ended               Inception to
                                                        ---------------------------------------
                                                          July 31, 1996        July 31, 1995      July 31, 1994
                                                        ------------------   ------------------ -------------------

<S>                                                               <C>                  <C>                <C>      
Equity in earnings (loss) of Ferrellgas, L.P.                     $27,508              $23,821            $(64,481)
Operating expense                                                       0                    1                   -
Interest expense                                                    4,161
                                                       ------------------   ------------------ -------------------
  Net earnings (loss)                                             $23,347              $23,820            $(64,481)
                                                        ==================   ================== ===================


</TABLE>

                                       S-4
<PAGE>
Schedule I
                           Ferrellgas Partners, L.P.
                                  Parent Only
                            Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                           For the Year Ended                
                                                                  -------------------------------------      Inception to
                                                                   July 31, 1996        July 31, 1995       July 31, 1994
                                                                  ----------------     ----------------     ---------------
     Cash Flows From Operating Activities:
<S>                                                                       <C>                  <C>                <C>      
      Net earnings (loss)                                                 $23,347              $23,820            $(64,481)
      Reconciliation of net earnings (loss) to
      net cash from operating activities:
         Amortization of capitalized financing costs                          161
         Equity in (earnings) loss of Ferrellgas, L.P.                    (27,508)             (23,821)             64,481
         Other current assets                                              (4,854)
         Distributions received from Ferrellgas, L.P.                      62,863               51,654                   -
         Increase in other current liabilities                              4,855                    1                   -
                                                                  ----------------     ----------------     ---------------
           Net cash provided by operating activities                       58,864               51,654                   -
                                                                  ----------------     ----------------     ---------------
     Cash Flows From Investing Activities:
      Investment in Ferrellgas, L.P.                                            -                    -            (255,006)
                                                                  ----------------     ----------------     ---------------
           Net cash used by investing activities                                -                    -            (255,006)
                                                                  ----------------     ----------------     ---------------
     Cash Flows From Financing Activities:
      Distributions to partners                                           (62,863)             (51,654)                  -
      Additions to long-term debt                                         160,000
      Contribution to subsidiary                                         (156,000)
      Net issuance of Common Units                                              -                    -             255,006
                                                                  ----------------     ----------------     ---------------
           Net cash provided (used) by financing activities               (58,863)             (51,654)            255,006
                                                                  ----------------     ----------------     ---------------
     Increase in cash and cash equivalents                                      1                    -                   -
     Cash and cash equivalents - beginning of period                            -                    -                   -
                                                                  ----------------     ----------------     ---------------
     Cash and cash equivalents - end of period                                 $1      $             -       $           -
                                                                  ================     ================     ===============
</TABLE>
<TABLE>
<CAPTION>
     Supplemental disclosure of noncash financing activity:
     Effective July 5, 1994, substantially all of the propane assets and liabilities of Ferrellgas, Inc. were conveyed
     at historical cost to Ferrellgas, L.P. in return for 1,000,000 Common Units, 16,593,721 Subordinated Units
     and the Incentive Distribution Rights of Ferrellgas Partners, L.P., as well as a 2% general partner interest
     in Ferrellgas Partners, L.P. and Ferrellgas, L.P., on  a combined basis.  Net liabilities assumed by
     Ferrellgas, L.P., adjusted for the settlement of a tax contingency, are as follows:
                                                                                        July 5, 1994
                                                                                       ----------------
<S>                                                                                           <C>     
     Cash                                                                                     $ 39,791
     Accounts receivable                                                                        50,747
     Inventories                                                                                37,931
     Prepaid expenses and other current assets                                                   2,660
     Property, plant and equipment, net                                                        293,729
     Intangible assets, net                                                                     75,350
     Other assets                                                                                9,327
                                                                                       ----------------
       Total assets conveyed                                                                   509,535
                                                                                       ----------------

     Accounts payable                                                                           49,177
     Other current liabilities                                                                  30,296
     Long-term debt, net                                                                       476,441
     Other non-current liabilities                                                               9,557
                                                                                       ----------------
       Total liabilities assumed                                                               565,471
                                                                                       ----------------
     Net liabilities assumed by Ferrellgas, L.P.                                              $(55,936)
                                                                                       ================
</TABLE>
                                      S-5
<PAGE>
Schedule II
                    Ferrellgas partners, L.P. and Subsidiary

                       Valuation and Qulaifying 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, 1996

<S>                                     <C>             <C>             <C>              <C>            <C>    
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       $ 1,742         $   975          $ 1,407        $ 4,647

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

Inception to July 31, 1994 (B)

Allowance for doubtful accounts         $     906       $   119         $     -          $   227        $   798
Accumulated amortization:

   Intangible assets                    $  67,730       $   759         $     -          $     -        $68,489

   Other assets                         $   9,845       $    23         $     -          $ 8,008        $ 1,860

Eleven months ended June 30, 1994 (Predecessor)

Allowance for doubtful accounts         $     607       $ 1,569         $     -          $ 1,270        $   906
Accumulated amortization:

   Intangible assets                    $  59,181        $ 8,549        $     -          $     -        $67,730

   Other assets                         $   7,592        $ 2,626        $     -          $   373        $ 9,845
</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  OperatingPartnership.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.

   (B)   On  July  5,  1994,   substantially  all  of  the  propane  assets  and
         liabilities  of  Ferrellgas,  Inc. were conveyed at historical  cost to
         Ferrellgas,   L.P.  Total  allowance  for  uncollectible   receivables,
         accumulated   amortization   of  intangible   assets  and   accumulated
         amortization of other assets transferred to Ferrellgas,  L.P. was $906,
         $67,730 and $9,845, respectively.