<PAGE>   1

                       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 DECEMBER 31, 2000

                         COMMISSION FILE NUMBER 1-10403

                              TEPPCO PARTNERS, L.P.
             (Exact name of Registrant as specified in its charter)

<TABLE>
<CAPTION>
<S>                                                  <C>
         DELAWARE                                                76-0291058
 (State of Incorporation or Organization)            (I.R.S. Employer Identification Number)
</TABLE>

                               2929 ALLEN PARKWAY
                                  P.O. BOX 2521
                            HOUSTON, TEXAS 77252-2521
          (Address of principal executive offices, including zip code)

                                 (713) 759-3636
              (Registrant's telephone number, including area code)

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

<TABLE>
<CAPTION>
<S>                                                             <C>
                                                                NAME OF EACH EXCHANGE ON
         TITLE OF EACH CLASS                                        WHICH REGISTERED
 Limited Partner Units representing Limited                      New York Stock Exchange
         Partner Interests
</TABLE>

        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 twelve 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. / /

         At March 6, 2001 the aggregate market value of the registrant's Limited
Partner Units held by non-affiliates was $884,183,957, which was computed using
the average of the high and low sales prices of the Limited Partner Units on
March 6, 2001. Limited Partner Units outstanding as of March 6, 2001:
34,950,000.





<PAGE>   2
                                TABLE OF CONTENTS
<TABLE>
                                     PART I

<S>           <C>                                                               <C>
  ITEMS 1.
    AND 2.    Business and Properties............................................ 1
   ITEM 3.    Legal Proceedings..................................................15
   ITEM 4.    Submission of Matters to a Vote of Security Holders................15

                                  PART II

   ITEM 5.    Market for Registrant's Units and Related Unitholder Matters.......16
   ITEM 6.    Selected Financial Data............................................17
   ITEM 7.    Management's Discussion and Analysis of Financial Condition and
              Results of Operations..............................................18
   ITEM 7A.   Quantitative and Qualitative Disclosures About Market Risks........28
   ITEM 8.    Financial Statements and Supplementary Data........................28
   ITEM 9.    Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure...............................................28

                                 PART III

  ITEM 10.    Directors and Executive Officers of the Registrant.................29
  ITEM 11.    Executive Compensation.............................................31
  ITEM 12.    Security Ownership of Certain Beneficial Owners and Management.....37
  ITEM 13.    Certain Relationships and Related Transactions.....................38

                                  PART IV

  ITEM 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K....38
</TABLE>


                                        i


<PAGE>   3

ITEMS 1 AND 2. BUSINESS AND PROPERTIES


GENERAL

         TEPPCO Partners, L.P. (the "Partnership"), a Delaware limited
partnership, was formed in March 1990. The Partnership operates through TE
Products Pipeline Company, Limited Partnership (the "Products OLP") and TCTM,
L.P. (the "Crude Oil OLP"). Collectively the Products OLP and the Crude Oil OLP
are referred to as "the Operating Partnerships." The Partnership owns a 99%
interest as the sole limited partner interest in both the Products OLP and the
Crude Oil OLP. On March 31, 2000, Texas Eastern Products Pipeline Company, a
Delaware corporation and general partner of the Partnership and the Operating
Partnerships, was converted into Texas Eastern Products Pipeline Company, LLC
(the "Company" or "General Partner"), a Delaware limited liability company.
Additionally on March 31, 2000, Duke Energy Corporation ("Duke Energy"),
contributed its ownership of the General Partner to Duke Energy Field Services,
LP ("DEFS"). DEFS is a joint venture between Duke Energy and Phillips Petroleum
Company. Duke Energy holds a majority interest in DEFS. The Company owns a 1%
general partner interest in the Partnership and a 1% general partner interest in
each Operating Partnership. The General Partner performs all management and
operating functions required for the Partnership and the Operating Partnerships.

         The Partnership operates in two segments - refined products and
liquefied petroleum gases ("LPGs") transportation ("Downstream Segment"); and
crude oil and natural gas liquids ("NGLs") transportation and marketing
("Upstream Segment"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 15 of the Notes to Consolidated
Financial Statements contained elsewhere herein for additional segment
information.

         At December 31, 2000, the Partnership had outstanding 32,700,000
Limited Partner Units and 3,916,547 Class B Limited Partner Units ("Class B
Units"). All of the Class B Units were issued to Duke Energy in connection with
an acquisition of assets in 1998. The Class B Units are substantially identical
to the Limited Partner Units, but they are not listed on the New York Stock
Exchange. The Class B Units may be converted into Limited Partner Units upon
approval by the Limited Partner Unitholders. The Company has the option to seek
approval for the conversion of the Class B Units into Limited Partnership Units;
however, if such conversion is denied, the holder of the Class B Units will have
the right to sell them to the Partnership at 95.5% of the market price of the
Limited Partner Units at the time of sale. As a result of such option, the Class
B Units were not included in partners' capital at December 31, 2000.
Collectively, the Limited Partner Units and Class B Units are referred to as
"Units."

         The Partnership's strategy is to improve service in its current
markets, maintain the integrity of its pipeline systems and pursue a growth
strategy that is balanced between internal projects and targeted acquisitions.
The Partnership intends to leverage the advantages inherent in its pipeline
systems to maintain its status as the incremental provider of choice in its
market area. The Partnership also intends to grow by acquiring assets, from both
third parties and affiliates, which complement existing businesses. The Company
routinely evaluates opportunities to acquire assets and businesses that will
complement existing operations with a view to increasing earnings and cash
available for distribution to Unitholders. Additional acquisitions may be funded
with borrowings under existing credit facilities, the issuance of debt in the
capital markets, the sale of additional units and cash flow from operations.


REFINED PRODUCTS AND LPGS TRANSPORTATION

      Operations

         The operations of the Downstream Segment are conducted through the
Products OLP. The Downstream Segment conducts business and owns properties
located in 13 states. Operations consist of interstate transportation, storage
and terminaling of petroleum products; short-haul shuttle transportation of LPGs
at the Mont Belvieu, Texas complex; intrastate transportation of petrochemicals;
fractionation of natural gas liquids and other ancillary services.


                                        l
<PAGE>   4





         In August 2000, the Partnership announced the execution of definitive
agreements with CMS Energy Corporation and Marathon Ashland Petroleum LLC to
form Centennial Pipeline, LLC ("Centennial"). Centennial will own and operate an
interstate refined petroleum products pipeline extending from the upper Texas
Gulf Coast to Illinois. Each participant will own a one-third interest in
Centennial.

          Centennial Pipeline will build a 74-mile, 24-inch diameter pipeline
connecting the Products OLP's facility in Beaumont, Texas, with the start of an
existing 720-mile, 26-inch diameter pipeline extending from Longville,
Louisiana, to Bourbon, Illinois. The pipeline will pass through portions of
Texas, Louisiana, Arkansas, Mississippi, Tennessee, Kentucky and Illinois. CMS
Panhandle Pipe Line Companies, which owns the existing 720-mile pipeline, has
made a filing with the Federal Energy Regulatory Commission ("FERC") to take the
line out of natural gas service as part of the regulatory process. Conversion of
the pipeline to refined products service is expected to be completed in early
2002. The Centennial Pipeline will intersect the Downstream Segment's existing
mainline near Creal Springs, Illinois, where a new two million barrel refined
petroleum products storage terminal will be built.

         The Downstream Segment is one of the largest pipeline common carriers
of refined petroleum products and LPGs in the United States. The Downstream
Segment owns and operates an approximate 4,500-mile pipeline system (together
with the receiving, storage and terminaling facilities mentioned below, the
"Pipeline System" or "Pipeline" or "System") extending from southeast Texas
through the central and midwestern United States to the northeastern United
States. The Pipeline System includes delivery terminals for outloading product
to other pipelines, tank trucks, rail cars or barges, as well as substantial
storage capacity at Mont Belvieu, Texas, the largest LPGs storage complex in the
United States, and at other locations. The Downstream Segment also owns two
marine receiving terminals, one near Beaumont, Texas, and the other at
Providence, Rhode Island. The Providence terminal is not physically connected to
the Pipeline. As an interstate common carrier, the Pipeline System offers
interstate transportation services, pursuant to tariffs filed with the FERC, to
any shipper of refined petroleum products and LPGs who requests such services,
provided that the products tendered for transportation satisfy the conditions
and specifications contained in the applicable tariff. In addition to the
revenues received by the Pipeline System from its interstate tariffs, it also
receives revenues from the shuttling of LPGs between refinery and petrochemical
facilities on the upper Texas Gulf Coast and ancillary transportation, storage
and marketing services at key points along the System. Substantially all the
petroleum products transported and stored in the Pipeline System are owned by
the Downstream Segement's customers. Petroleum products are received at
terminals located principally on the southern end of the Pipeline System,
stored, scheduled into the Pipeline in accordance with customer nominations and
shipped to delivery terminals for ultimate delivery to the final distributor
(e.g., gas stations and retail propane distribution centers) or to other
pipelines. Pipelines are generally the lowest cost method for intermediate and
long-haul overland transportation of petroleum products. The Pipeline System is
the only pipeline that transports LPGs to the Northeast.

         The Downstream Segment's business depends in large part on the level of
demand for refined petroleum products and LPGs in the geographic locations
served by it and the ability and willingness of customers having access to the
Pipeline System to supply such demand by deliveries through the System. The
Partnership cannot predict the impact of future fuel conservation measures,
alternate fuel requirements, governmental regulation, technological advances in
fuel economy and energy-generation devices, all of which could reduce the demand
for refined petroleum products and LPGs in the areas served by the Partnership.

         Products are transported in liquid form from the upper Texas Gulf Coast
through two parallel underground pipelines that extend to Seymour, Indiana. From
Seymour, segments of the Pipeline System extend to the Chicago, Illinois; Lima,
Ohio; Selkirk, New York; and Philadelphia, Pennsylvania, areas. The Pipeline
System east of Todhunter, Ohio, is dedicated solely to LPGs transportation and
storage services.

         The Pipeline System includes 30 storage facilities with an aggregate
storage capacity of 13 million barrels of refined petroleum products and 38
million barrels of LPGs, including storage capacity leased to outside parties.
The Pipeline System makes deliveries to customers at 53 locations including 18
Partnership owned truck racks, rail car facilities and marine facilities.
Deliveries to other pipelines occur at various facilities owned by the
Partnership or by third parties.

                                        2


<PAGE>   5





      Pipeline System

         The Pipeline System is comprised of a 20-inch diameter line extending
in a generally northeasterly direction from Baytown, Texas (located
approximately 30 miles east of Houston), to a point in southwest Ohio near
Lebanon and Todhunter. A second line, which also originates at Baytown, is 16
inches in diameter until it reaches Beaumont, Texas, at which point it reduces
to a 14-inch diameter line. This second line extends along the same path as the
20-inch diameter line to the Pipeline System's terminal in El Dorado, Arkansas,
before continuing as a 16-inch diameter line to Seymour, Indiana. The Pipeline
System also has smaller diameter lines that extend laterally from El Dorado to
Helena and Arkansas City, Arkansas, from Tyler, Texas, to El Dorado and from
McRae, Arkansas, to West Memphis, Arkansas. The lines from El Dorado to Helena
and Arkansas City have 10-inch diameters. The line from Tyler to El Dorado
varies in diameter from 8 inches to 10 inches. The line from McRae to West
Memphis has a 12-inch diameter. The Pipeline System also includes a 14-inch
diameter line from Seymour, Indiana, to Chicago, Illinois, and a 10-inch
diameter line running from Lebanon to Lima, Ohio. This 10-inch diameter pipeline
connects to the Buckeye Pipe Line Company system that serves, among others,
markets in Michigan and eastern Ohio. Also, the Pipeline System has a 6-inch
diameter pipeline connection to the Greater Cincinnati/Northern Kentucky
International Airport and a 8-inch diameter pipeline connection to the George
Bush Intercontinental Airport, Houston. In addition, there are numerous smaller
diameter lines associated with the gathering and distribution system.

         The Pipeline System continues eastward from Todhunter, Ohio, to
Greensburg, Pennsylvania, at which point it branches into two segments, one
ending in Selkirk, New York (near Albany), and the other ending at Marcus Hook,
Pennsylvania (near Philadelphia). The Pipeline east of Todhunter and ending in
Selkirk is an 8-inch diameter line, whereas the line starting at Greensburg and
ending at Marcus Hook varies in diameter from 6 inches to 8 inches. East of
Todhunter, Ohio, the Partnership transports only LPGs through the Pipeline.

         The Pipeline System has been constructed and is in general compliance
with applicable federal, state and local laws and regulations, and accepted
industry standards and practices. The Partnership performs regular maintenance
on all the facilities of the Pipeline System and has an ongoing process of
inspecting segments of the Pipeline System and making repairs and replacements
when necessary or appropriate. In addition, the Partnership conducts periodic
air patrols of the Pipeline System to monitor pipeline integrity and third-party
right of way encroachments.

      Major Business Sector Markets

         The Pipeline System's major operations are the transportation, storage
and terminaling of refined petroleum products and LPGs along its mainline
system, and the storage and short-haul transportation of LPGs associated with
its Mont Belvieu operations. Product deliveries, in millions of barrels (MMBbls)
on a regional basis, over the last three years were as follows:

                                        3



<PAGE>   6
<TABLE>
<CAPTION>
                                                       PRODUCT DELIVERIES(MMBbls)
                                                        YEARS ENDED DECEMBER, 31
                                                     ----------------------------
                                                     2000        1999         1998
                                                    ------      -------     -------
<S>                                                 <C>         <C>         <C>
  Refined Products Transportation:
   Central (1) .............................          63.4        67.7        71.5
   Midwest (2) .............................          36.7        37.9        34.8
   Ohio and Kentucky .......................          28.0        27.0        24.2
                                                     -----       -----       -----
         Subtotal ..........................         128.1       132.6       130.5
                                                     -----       -----       -----
LPGs Mainline Transportation:
     Central, Midwest and Kentucky (1)(2) ..          23.4        22.9        18.5
     Ohio and Northeast (3) ................          16.2        14.7        13.5
                                                     -----       -----       -----
           Subtotal ........................          39.6        37.6        32.0
                                                     -----       -----       -----
Mont Belvieu Operations:
     LPGs ..................................          27.2        28.5        25.1
                                                     -----       -----       -----
           Total Product Deliveries ........         194.9       198.7       187.6
                                                     =====       =====       =====
</TABLE>

----------

(1) Arkansas, Louisiana, Missouri and Texas.

(2) Illinois and Indiana.

(3) New York and Pennsylvania.


         The mix of products delivered varies seasonally, with gasoline demand
generally stronger in the spring and summer months and LPGs demand generally
stronger in the fall and winter months. Weather and economic conditions in the
geographic areas served by the Pipeline System also affect the demand for and
the mix of the products delivered.

         Refined products and LPGs deliveries over the last three years were as
follows:


<TABLE>
<CAPTION>
                                                      PRODUCT DELIVERIES(MMBbls)
                                                        YEARS ENDED DECEMBER, 31
                                                      --------------------------
                                                       2000      1999      1998
                                                      ------    ------    ------
<S>                                                   <C>       <C>       <C>
  Refined Products Transportation:
Gasoline .........................................      67.8      71.6      74.0
     Jet Fuels ...................................      28.1      26.9      23.8
     Middle Distillates (1) ......................      26.6      28.4      26.1
     MTBE/Toluene ................................       5.6       5.7       6.6
                                                      ------    ------    ------
           Subtotal ..............................     128.1     132.6     130.5
                                                      ------    ------    ------
LPGs Mainline Transportation:
     Propane .....................................      33.1      30.8      25.5
     Butanes .....................................       6.5       6.8       6.5
                                                      ------    ------    ------
           Subtotal ..............................      39.6      37.6      32.0
                                                      ------    ------    ------
Mont Belvieu Operations:
     LPGs ........................................      27.2      28.5      25.1
                                                      ------    ------    ------

           Total Product Deliveries ..............     194.9     198.7     187.6
                                                      ======    ======    ======
</TABLE>


----------

(1) Primarily diesel fuel, heating oil and other middle distillates.



      Refined Petroleum Products Transportation

         The Pipeline System transports refined petroleum products from the
upper Texas Gulf Coast, eastern Texas and southern Arkansas to the Central and
Midwest regions of the United States with deliveries in Texas, Louisiana,
Arkansas, Missouri, Illinois, Kentucky, Indiana and Ohio. At these points,
refined petroleum products are delivered

                                        4


<PAGE>   7





to Partnership-owned terminals, connecting pipelines and customer-owned
terminals. The Downstream Segment canceled its tariff for deliveries of methyl
tertiary butyl ether ("MTBE") into the Chicago market area on July 1, 1999, and
will cancel contract deliveries of MTBE at its marine terminal near Beaumont,
Texas, effective April 22, 2001. Governmental regulation, technological advances
in fuel economy, energy generation devices and future fuel conservation measures
could reduce the demand for refined petroleum products in the market areas we
serve.

         The volume of refined petroleum products transported by the Pipeline
System is directly affected by the demand for such products in the geographic
regions the System serves. Such market demand varies based upon the different
end uses to which the refined products deliveries are applied. Demand for
gasoline, which accounts for a substantial portion of the volume of refined
products transported through the Pipeline System, depends upon price, prevailing
economic conditions and demographic changes in the markets served. Demand for
refined products used in agricultural operations is affected by weather
conditions, government policy and crop prices. Demand for jet fuel depends upon
prevailing economic conditions and military usage.

         Market prices for refined petroleum products affect the demand in the
markets served by the Downstream Segment. Therefore, quantities and mix of
products transported may vary. Transportation tariffs of refined petroleum
products vary among specific product types. As a result, market price volatility
may affect transportation revenues from period to period.

      LPGs Mainline Transportation

         The Pipeline System transports LPGs from the upper Texas Gulf Coast to
the Central, Midwest and Northeast regions of the United States. The Pipeline
System east of Todhunter, Ohio, is devoted solely to the transportation of LPGs.
Since LPGs demand is generally stronger in the winter months, the Pipeline
System often operates at or near capacity during such time. Propane deliveries
are generally sensitive to the weather and meaningful year-to-year variations
have occurred and will likely continue to occur.

         The Downstream Segment's ability to serve markets in the Northeast is
enhanced by its propane import terminal at Providence, Rhode Island. This
facility includes a 400,000-barrel refrigerated storage tank along with ship
unloading and truck loading facilities. Although the terminal is operated by the
Downstream Segment, the utilization of the terminal is committed by contract to
a major propane marketer through April 30, 2001. In February 2001, the Company
signed an agreement with DEFS whereby propane received at the Providence
terminal will be marketed by DEFS, beginning May 2001.

      Mont Belvieu LPGs Storage and Pipeline Shuttle

         A key aspect of the Pipeline System's LPGs business is its storage and
pipeline asset base in the Mont Belvieu, Texas, complex serving the
fractionation, refining and petrochemical industries. The complex is the largest
of its kind in the United States and provides substantial capacity and
flexibility in the transportation, terminaling and storage of natural gas
liquids, LPGs, petrochemicals and olefins.

         The Downstream Segment has approximately 36 million barrels of LPGs
storage capacity, including storage capacity leased to outside parties, at the
Mont Belvieu complex. The Downstream Segment's Mont Belvieu short-haul
transportation shuttle system, consisting of a complex system of pipelines and
interconnects, ties Mont Belvieu to virtually every refinery and petrochemical
facility on the upper Texas Gulf Coast.

         In February 2000, the Partnership and Louis Dreyfus Plastics
Corporation ("Louis Dreyfus") announced a joint development alliance whereby the
Partnership's Mont Belvieu LPGs storage and transportation shuttle system
services are jointly marketed by Louis Dreyfus and the Partnership. The purpose
of the alliance is to expand services to the upper Texas Gulf Coast energy
marketplace by increasing throughput and the mix of products handled through the
existing system and establishing new receipt and delivery connections. The
Downstream Segment operates the facilities for the alliance. The alliance is a
service-oriented, fee-based venture with no commodity trading activity.

                                        5

<PAGE>   8






      Product Sales and Other

         The Downstream Segment also derives revenue from the sale of product
inventory, terminaling activities, other ancillary services associated with the
transportation and storage of refined petroleum products and LPGs, and the
fractionation of NGLs.

      Customers

         The Pipeline System's customers for the transportation of refined
petroleum products include major integrated oil companies, independent oil
companies and wholesalers. End markets for these deliveries are primarily retail
service stations, truck stops, agricultural enterprises, refineries, and
military and commercial jet fuel users.

         Propane customers include wholesalers and retailers who, in turn, sell
to commercial, industrial, agricultural and residential heating customers, as
well as utilities who use propane as a fuel source. Refineries constitute the
Partnership's major customers for butane and isobutane, which are used as a
blend stock for gasolines and as a feed stock for alkylation units,
respectively.

         At December 31, 2000, the Downstream Segment had approximately 140
customers. Transportation revenues (and percentage of total revenues)
attributable to the top 10 customers were $102 million (43%), $105 million
(46%), and $90 million (42%) for the years ended December 31, 2000, 1999 and
1998, respectively. During 2000, billings to Marathon Ashland Petroleum, LLC, a
major integrated oil company, accounted for approximately 10% of the Downstream
Segment's revenues. Loss of a business relationship with a significant customer
could have an adverse affect on the consolidated financial position, results of
operations and liquidity of the Partnership.

      Competition

         The Pipeline System conducts operations without the benefit of
exclusive franchises from government entities. Interstate common carrier
transportation services are provided through the System pursuant to tariffs
filed with the FERC.

         Because pipelines are generally the lowest cost method for intermediate
and long-haul overland movement of refined petroleum products and LPGs, the
Pipeline System's most significant competitors (other than indigenous production
in its markets) are pipelines in the areas where the Pipeline System delivers
products. Competition among common carrier pipelines is based primarily on
transportation charges, quality of customer service and proximity to end users.
The General Partner believes the Downstream Segment is competitive with other
pipelines serving the same markets; however, comparison of different pipelines
is difficult due to varying product mix and operations.

         Trucks, barges and railroads competitively deliver products in some of
the areas served by the Pipeline System. Trucking costs, however, render that
mode of transportation less competitive for longer hauls or larger volumes.
Barge fees for the transportation of refined products are generally lower than
the Partnership's tariffs. The Partnership faces competition from rail movements
of LPGs in several geographic areas. The most significant area is the Northeast,
where rail movements of propane from Sarnia, Ontario, Canada, compete with
propane moved on the Pipeline System.


CRUDE OIL AND NGLS TRANSPORTATION AND MARKETING

      Operations

         The operations of the Upstream Segment are conducted through its
wholly-owned subsidiaries (collectively "TCO"), which gather, store, transport
and market crude oil, NGLs, lube oils and specialty chemicals, principally in
Oklahoma, Texas and the Rocky Mountain region. TCO was formed by the Company in
connection with the acquisition of certain assets from DEFS on November 1, 1998.
The acquisition of assets was accounted for under the purchase method of
accounting. Accordingly, the results of the acquisition are included in the
consolidated statements of income for periods subsequent to October 31, 1998.

                                        6


<PAGE>   9





          On July 20, 2000, the Company completed an acquisition of ARCO Pipe
Line Company ("ARCO"), a wholly owned subsidiary of Atlantic Richfield Company,
for $322.6 million, which included $4.1 million of acquisition related costs.
The purchase included ARCO's 50-percent ownership interest in Seaway Crude
Pipeline Company ("Seaway"). Seaway's crude pipeline carries mostly imported
crude oil from a marine terminal at Freeport, Texas, to Cushing, Oklahoma. The
Partnership assumed ARCO's role as operator of this pipeline. The Company also
acquired ARCO's crude oil terminal facilities in Cushing and Midland, Texas,
including the line transfer and pumpover business at each location; an undivided
ownership interest in both the Rancho Pipeline, a crude oil pipeline from West
Texas to Houston, and the Basin Pipeline, a crude oil pipeline running from Jal,
New Mexico, through Midland to Cushing, both of which are operated by another
joint owner; and the receipt and delivery pipelines known as the West Texas
Trunk System, which is located around the Midland terminal. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the results
of the acquisition are included in the consolidated statements of income for
periods subsequent to July 20, 2000.

         On December 31, 2000, the Company completed an acquisition of certain
pipeline assets from DEFS for $91.7 million, which included $0.7 million of
acquisition related costs. The purchase included two natural gas liquids
pipelines in East Texas. The Panola Pipeline, a 189-mile pipeline from Carthage,
Texas, to Mont Belvieu, Texas, has a capacity of approximately 38,000 barrels
per day. The San Jacinto Pipeline, a 34-mile pipeline from Carthage to Longview,
Texas, has a capacity of approximately 11,000 barrels per day. A lease of a
34-mile condensate pipeline from Carthage to Marshall, Texas, was also assumed.
All three pipelines originate at DEFS' East Texas Plant Complex in Panola
County, Texas.

         TCO generally utilizes its asset base to aggregate crude oil and
provide transportation and specialized services to its regional customers. TCO
generally purchases crude oil at prevailing prices from producers at the
wellhead, aggregates such crude oil into its equity owned pipelines or third
party owned pipelines utilizing its truck fleet and transports the crude oil for
ultimate sale to or exchange with its customers.

         Margin of the Upstream Segment is calculated as revenues generated from
the sale of crude oil and lubrication oil, and transportation of crude oil and
NGLs, less the costs of purchases of crude oil and lubrication oil. Margin is a
more meaningful measure of financial performance than operating revenues and
operating expenses due to the significant fluctuations in revenues and expense
caused by the level of marketing activity.

         Generally, as TCO purchases crude oil, it simultaneously establishes a
margin by selling crude oil for physical delivery to third party users or by
entering into a future delivery obligation with respect to futures contracts on
the New York Mercantile Exchange ("NYMEX"). The Partnership seeks to maintain a
balanced position until it makes physical delivery of the crude oil, thereby
minimizing or eliminating exposure to price fluctuations occurring after the
initial purchase. However, certain basis risks (the risk that price
relationships between delivery points, classes of products or delivery periods
will change) cannot be completely hedged or eliminated. It is the Partnership's
policy not to acquire crude oil, futures contracts or other derivative products
for the purpose of speculating on price changes. Risk management policies have
been established by the Risk Management Committee to monitor and control these
market risks. The Risk Management Committee is comprised of senior executives of
the Partnership. Market risks associated with commodity derivatives were not
material at December 31, 2000.

          Volume information for the years ended December 31, 2000 and 1999, and
the two month period ended December 31, 1998, is presented below (in thousands):

<TABLE>
<CAPTION>
                                                                            TWO MONTHS
                                                   YEARS ENDED                ENDED
                                                  DECEMBER 31,             DECEMBER 31,
                                               --------------------       --------------
                                                 2000         1999            1998
                                               --------    --------       --------------
<S>                                            <C>         <C>            <C>
Total barrels:
     Crude oil transportation ..........        46,225       33,267           5,549
     Crude oil marketing ...............       107,607       96,252          16,969
     Crude oil terminaling .............        56,473           --              --
     NGL transportation ................         5,201        4,580             727

Lubricants and chemicals (total gallons)         7,974        8,891           1,140
</TABLE>

                                        7

<PAGE>   10





      Properties

         The Upstream Segment operates crude oil gathering and trunkline
pipelines principally in Oklahoma and Texas, NGL trunkline pipelines in South
and East Texas, owns undivided joint interests in crude trunkline pipelines in
Texas and Oklahoma, and operates the Seaway Crude Pipeline System from Freeport,
Texas to Cushing, Oklahoma. The Upstream Segment also owns crude oil terminaling
and storage facilities in Midland, Texas, and Cushing.

         The Upstream Segment's crude oil pipelines include two major systems
and various smaller systems. The Red River System, located on the Texas-Oklahoma
border, is the larger system, with 1,460 miles of pipeline and 820,000 barrels
of storage. The majority of this pipeline's crude oil is delivered to Cushing,
Oklahoma via connecting pipelines or to two local refineries. The South Texas
System, located west of Houston, consists of 690 miles of pipeline and 630,000
barrels of storage. The majority of the crude oil on this system is delivered on
a tariff basis to Houston area refineries. The West Texas Trunk System consists
of 240 miles of smaller diameter receipt and delivery pipelines which transport
crude oil from several West Texas and Southeast New Mexico gathering systems to
the Upstream Segment's terminal in Midland, Texas. Other crude oil assets,
located primarily in Texas and Louisiana, consist of 310 miles of pipeline and
295,000 barrels of storage.

         The NGL pipelines are located along the Texas Gulf Coast. The Dean NGL
Pipeline consists of 338 miles of pipeline originating in South Texas and
terminating at Mont Belvieu, Texas, and has a capacity of 20,000 barrels per
day. The Dean NGL Pipeline is currently supported by a 17,000 barrel per day
volume commitment through 2002. The Wilcox NGL Pipeline is 90 miles long, has a
capacity of 7,000 barrels per day and currently transports NGLs for DEFS from
two of their natural gas processing plants. The Wilcox NGL Pipeline is currently
supported by demand fees that are paid by DEFS through 2005.

      Joint Interest and Equity Investments

         The Partnership's undivided joint interest investments include an
approximate 13-percent joint venture interest in the Basin Pipeline System and
an approximate 25-percent joint venture interest in the Rancho Pipeline System.
Equilon Pipeline Company LLC operates both of these pipeline systems. The Basin
Pipeline System is a 416-mile, crude oil pipeline transporting Permian Basin
crude oil from Jal, New Mexico, through Midland, Texas, for ultimate delivery
into Cushing, Oklahoma. The Rancho Pipeline is a 400-mile, 24-inch diameter
crude oil pipeline from West Texas to Houston.

         Seaway is a partnership between TCO and Phillips Petroleum Company
("Phillips"). The 30-inch diameter, 500-mile pipeline transports crude oil from
the U.S. Gulf Coast to Cushing, a central crude distribution point for the
central United States and a delivery point for the NYMEX. Seaway has the
capability to provide marine terminaling and storage services for all Houston
area refineries. The Freeport, Texas, marine terminal is the origin point for
the 30-inch diameter crude pipeline. Two large diameter lines carry crude oil
from the Freeport marine terminal to the adjacent Jones Creek Tank Farm, which
has six tanks capable of handling approximately 2.6 million barrels of crude. A
crude oil marine terminal facility at Texas City, Texas, is used to supply
refineries in the Houston area. Two pipelines connect the Texas City marine
terminal to tank farms in Texas City and Galena Park, Texas, where there are
seven tanks with a combined capacity of approximately 3 million barrels.

         The Seaway partnership agreement provides for varying participation
ratios throughout the life of Seaway. From July 20, 2000, through May 2002, TCO
will receive 80% of revenue and expense of Seaway. From June 2002 until May
2006, TCO will receive 60% of revenue and expense of Seaway. Thereafter, TCO
will receive 40% of revenue and expense of Seaway.

      Line Transfers, Pumpovers and Other

         TCO provides a trade documentation service to its customers, primarily
at Cushing, Oklahoma, and Midland, Texas, whereby TCO documents the transfer of
crude oil in its terminal facilities between contracting buyers and sellers.
This service is related to the trading activity of NYMEX open-interest crude oil
contracts. This service provides a documented record of receipts, deliveries and
transactions to each customer, including

                                        8


<PAGE>   11





confirmation of trade matches, inventory management and scheduled movements.
Line transfer revenues are included as part of other operating revenues in the
consolidated statements of income.

         The line transfer services also attract physical barrels to TCO's
facilities for final delivery to the ultimate owner. A pumpover occurs when the
last title transfer is executed and the physical barrels are delivered out of
TCO's custody. TCO owns approximately 700,000 barrels of operational storage to
facilitate the pumpover business. Revenues from pumpover services are included
as part of crude oil transportation revenues in the consolidated statements of
income and represents the crude oil terminaling component of margin.

         Through Lubrication Services, L.P. ("LSI"), TCO distributes lube oils
and specialty chemicals to natural gas pipelines, gas processors, and industrial
and commercial accounts. LSI's distribution networks are located in Colorado,
Oklahoma, Southwest Kansas, East Texas, and Northwest Louisiana.

      Customers

         TCO purchases crude oil primarily from major integrated oil companies
and independent oil producers. Crude oil sales are primarily to major integrated
oil companies and independent refiners. The loss of any single customer would
not have a material adverse effect on the consolidated financial position,
results of operations and liquidity of the Partnership.

      Competition

         TCO's most significant competitors in its pipeline operations are
primarily common carrier and proprietary pipelines owned and operated by major
oil companies, large independent pipeline companies and other companies in the
areas where its pipeline systems deliver crude oil and NGLs. Competition among
common carrier pipelines is based primarily on posted tariffs, quality of
customer service, knowledge of products and markets, and proximity to refineries
and connecting pipelines. The crude oil gathering and marketing business is
characterized by thin margins and intense competition for supplies of lease
crude oil. A decline in domestic crude oil production has intensified
competition among gatherers and marketers. Within the past few years, the number
of companies involved in the gathering of crude oil in the United States has
decreased as a result of business consolidations.

      Credit

         As crude oil or lube oils are marketed, the Partnership must determine
the amount, if any, of credit to be extended to any given customer. Due to the
nature of individual sales transactions, risk of non-payment and non-performance
by customers is a major consideration in TCO's business. TCO manages its
exposure to credit risk through credit analysis, credit approvals, credit limits
and monitoring procedures. TCO utilizes letters of credit and guarantees for
certain of its receivables.

         TCO's credit standing is a major consideration for parties with whom it
does business. In connection with TCO's acquisition of this business, Duke
Capital, an affiliate of Duke Energy, agreed to provide up to $100 million of
guarantee credit to TCO through November 2001.


TITLE TO PROPERTIES

         The Partnership believes it has satisfactory title to all of its
assets. Such properties are subject to liabilities in certain cases, such as
customary interests generally contracted in connection with acquisition of the
properties, liens for taxes not yet due, easements, restrictions, and other
minor encumbrances. The Partnership believes none of these liabilities
materially affects the value of such properties or the Partnership's interest
therein or will materially interfere with their use in the operation of the
Partnership's business.

                                        9


<PAGE>   12





CAPITAL EXPENDITURES

         Capital expenditures by the Partnership totaled $68.5 million for the
year ended December 31, 2000. This amount includes capitalized interest of $4.6
million. Approximately $29.9 million was used to complete construction of three
new pipelines between the Partnership's terminal in Mont Belvieu, Texas and Port
Arthur, Texas. The project included three 12-inch diameter common-carrier
pipelines and associated facilities. Each pipeline is approximately 70 miles in
length. The new pipelines will transport ethylene, propylene and natural
gasoline. The Partnership has entered into a twenty-year agreement for
guaranteed throughput commitments that total approximately $0.9 million per
month, which began in November 2000. The cost of this project totaled
approximately $73.7 million. Of the remaining capital expenditures during 2000,
$22.0 million related to the Downstream Segment and $12.0 million related to the
Upstream Segment. Approximately $21.9 million of capital expenditures related to
life-cycle replacements and upgrading current facilities, and approximately
$12.1 million of capital expenditures related to other pipeline expansion
projects and revenue-generating projects.

         The Partnership estimates that capital expenditures, excluding
acquisitions, for 2001 will be approximately $82 million (which includes $3
million of capitalized interest). Approximately $43 million is expected to be
used to expand the Partnership's capacity to support the receipt connection
point at Beaumont, Texas, and delivery location at Creal Springs, Illinois, with
Centennial. The timing of these expenditures is dependent on the FERC ruling on
the abandonment filing by CMS Panhandle Pipe Line Company. Approximately $26
million of the remaining amount is expected to be used for the Downstream
Segment and $13 million is expected to be used for the Upstream Segment.
Approximately one-half of these expenditures are expected to be used in
revenue-generating projects, with the remaining amount to be used for life-cycle
replacements and upgrading current facilities.


REGULATION

         The Partnership's interstate common carrier pipeline operations are
subject to rate regulation by the FERC under the Interstate Commerce Act
("ICA"), the Energy Policy Act of 1992 ("Act") and rules and orders promulgated
pursuant thereto. FERC regulation requires that interstate oil pipeline rates be
posted publicly and that these rates be "just and reasonable" and
nondiscriminatory.

         Rates of interstate oil pipeline companies, like the Partnership, are
currently regulated by the FERC primarily through an index methodology, whereby
a pipeline is allowed to change its rates based on the change from year to year
in the Producer Price Index for finished goods less 1% ("PPI Index"). In the
alternative, interstate oil pipeline companies may elect to support rate filings
by using a cost-of-service methodology, competitive market showings ("Market
Based Rates") or agreements between shippers and the oil pipeline company that
the rate is acceptable ("Settlement Rates").

         On May 11, 1999, the Downstream Segment filed an application with the
FERC requesting permission to charge market-based rates for substantially all
refined products transportation tariffs. Along with its application for
market-based rates, the Downstream Segment filed a petition for waiver, pending
the FERC's determination on its application for market-based rates, of the
requirements that would otherwise have been imposed by the FERC's regulations
requiring the Downstream Segment to reduce its rates in conformity with the PPI
Index. On June 30, 1999, FERC granted the waiver stating that it was temporary
in nature and that the Downstream Segment would be required to make refunds,
with interest, of all amounts collected under rates in excess of the PPI Index
ceiling level after July 1, 1999, if the Downstream Segment's application for
market-based rates was ultimately denied. As a result of the refund obligation
potential, the Partnership has deferred all revenue recognition of rates charged
in excess of the PPI Index. As of December 31, 2000, the amount deferred for
possible rate refund, including interest totaled approximately $2.3 million.

         On July 31, 2000, the FERC issued an order granting the Downstream
Segment market-based rates in certain markets and set for hearing the Downstream
Segment's application for market-based rates in the Little Rock, Arkansas;
Shreveport-Arcadia, Louisiana; Cincinnati-Dayton, Ohio and Memphis, Tennessee,
destination markets and the Shreveport, Louisiana, origin market. The FERC also
directed the FERC trial staff to convene a conference to explore the facts and
issues regarding the Western Gulf Coast origin market. After the matter was set
for hearing, the Downstream Segment and the protesting shippers entered into a
settlement agreement resolving their respective

                                       10

<PAGE>   13





differences. On January 9, 2001, the presiding Administrative Law Judge assigned
to the hearing determined that the offer of settlement provided resolution of
issues set for hearing in the Downstream Segment pending case in a fair and
reasonable manner and in the public interest and certified the offer of
settlement and recommended it to the FERC for approval. The certification of the
settlement is currently before the FERC. The Partnership believes that the
Administrative Law Judge's decision in this matter will be upheld by the FERC.

         The settlement, if it is approved by FERC, will require the Downstream
Segment to withdraw the application for market-based rates to the Little Rock,
Arkansas, destination market and the Arcadia, Louisiana, destination in the
Shreveport-Arcadia, Louisiana, destination market. The Downstream Segment also
has agreed to recalculate rates to these destination markets to conform with the
PPI Index from July 1, 1999 and make appropriate refunds. The refund obligation
under the proposed settlement as of December 31, 2000 would be $0.8 million.

         Effective July 1, 1999, the Downstream Segment established Settlement
Rates with certain shippers of LPGs under which the rates in effect on June 30,
1999, would not be adjusted for a period of either two or three years. Other
LPGs transportation tariff rates were reduced pursuant to the PPI Index
(approximately 1.83%), effective July 1, 1999.

         In a 1995 decision involving an unrelated oil pipeline limited
partnership, the FERC partially disallowed the inclusion of income taxes in that
partnership's cost of service. In another FERC proceeding involving a different
oil pipeline limited partnership, the FERC held that the oil pipeline limited
partnership may not claim an income tax allowance for income attributable to
non-corporate limited partners, both individuals and other entities. These FERC
decisions do not affect the Partnership's current rates and rate structure
because the Partnership does not use the cost of service methodology to support
its rates. However, the FERC decisions might become relevant to the Partnership
should it (i) elect in the future to use the cost-of-service methodology or (ii)
be required to use such methodology to defend its indexed rates against a
shipper protest alleging that an indexed rate increase substantially exceeds
actual cost increases. Should such circumstances arise, there can be no
assurance with respect to the effect of such precedents on the Partnership's
rates in view of the uncertainties involved in this issue.


ENVIRONMENTAL MATTERS

         The operations of the Partnership are subject to federal, state and
local laws and regulations relating to protection of the environment. Although
the Partnership believes its operations are in material compliance with
applicable environmental regulations, risks of significant costs and liabilities
are inherent in pipeline operations, and there can be no assurance that
significant costs and liabilities will not be incurred. Moreover, it is possible
that other developments, such as increasingly strict environmental laws and
regulations and enforcement policies thereunder, and claims for damages to
property or persons resulting from its operations, could result in substantial
costs and liabilities to the Partnership.

      Water

         The Federal Water Pollution Control Act of 1972, as renamed and amended
as the Clean Water Act ("CWA"), imposes strict controls against the discharge of
oil and its derivatives into navigable waters. The CWA provides penalties for
any discharges of petroleum products in reportable quantities and imposes
substantial potential liability for the costs of removing an oil or hazardous
substance spill. State laws for the control of water pollution also provide
varying civil and criminal penalties and liabilities in the case of a release of
petroleum or its derivatives in surface waters or into the groundwater. Spill
prevention control and countermeasure requirements of federal laws require
appropriate containment berms and similar structures to help prevent the
contamination of navigable waters in the event of a petroleum tank spill,
rupture or leak.

         Contamination resulting from spills or release of refined petroleum
products is an inherent risk within the petroleum pipeline industry. To the
extent that groundwater contamination requiring remediation exists along the
Pipeline System as a result of past operations, the Partnership believes any
such contamination could be controlled or remedied without having a material
adverse effect on the financial condition of the Partnership, but such costs are
site specific, and there can be no assurance that the effect will not be
material in the aggregate.

                                       11

<PAGE>   14





         The primary federal law for oil spill liability is the Oil Pollution
Act of 1990 ("OPA"), which addresses three principal areas of oil pollution --
prevention, containment and cleanup, and liability. It applies to vessels,
offshore platforms, and onshore facilities, including terminals, pipelines and
transfer facilities. In order to handle, store or transport oil, shore
facilities are required to file oil spill response plans with the appropriate
agency being either the United States Coast Guard, the United States Department
of Transportation Office of Pipeline Safety ("OPS") or the Environmental
Protection Agency ("EPA"). Numerous states have enacted laws similar to OPA.
Under OPA and similar state laws, responsible parties for a regulated facility
from which oil is discharged may be liable for removal costs and natural
resources damages. The General Partner believes that the Partnership is in
material compliance with regulations pursuant to OPA and similar state laws.

         The EPA has adopted regulations that require the Partnership to have
permits in order to discharge certain storm water run-off. Storm water discharge
permits may also be required by certain states in which the Partnership
operates. Such permits may require the Partnership to monitor and sample the
effluent. The General Partner believes that the Partnership is in material
compliance with effluent limitations at existing facilities.

      Air Emissions

         The operations of the Partnership are subject to the federal Clean Air
Act and comparable state and local statutes. The Clean Air Act Amendments of
1990 (the "Clean Air Act") will require most industrial operations in the United
States to incur future capital expenditures in order to meet the air emission
control standards that are to be developed and implemented by the EPA and state
environmental agencies during the next decade. Pursuant to the Clean Air Act,
any Partnership facilities that emit volatile organic compounds or nitrogen
oxides and are located in ozone non-attainment areas will face increasingly
stringent regulations, including requirements that certain sources install the
reasonably available control technology. The EPA is also required to promulgate
new regulations governing the emissions of hazardous air pollutants. Some of the
Partnership's facilities are included within the categories of hazardous air
pollutant sources which will be affected by these regulations. The Partnership
does not anticipate that changes currently required by the Clean Air Act
hazardous air pollutant regulations will have a material adverse effect on the
Partnership.

         The Clean Air Act also introduced the new concept of federal operating
permits for major sources of air emissions. Under this program, one federal
operating permit (a "Title V" permit) is issued. The permit acts as an umbrella
that includes other federal, state and local preconstruction and/or operating
permit provisions, emission standards, grandfathered rates, and record keeping,
reporting, and monitoring requirements in a single document. The federal
operating permit is the tool that the public and regulatory agencies use to
review and enforce a site's compliance with all aspects of clean air regulation
at the federal, state and local level. The Partnership has completed
applications for all twelve facilities for which such regulations apply and has
received the final permit for nine facilities.

      Risk Management Plans

         The Partnership is also subject to the Environmental Protection
Agency's Risk Management Plan ("RMP") regulations at certain locations. This
regulation is intended to work with the Occupational Safety and Health Act
("OSHA") Process Safety Management regulation (see "Safety Regulation"
following) to minimize the offsite consequences of catastrophic releases. The
regulation requires a regulated source, in excess of threshold quantities,
develop and implement a risk management program that includes a five-year
accident history, an offsite consequence analyses, a prevention program, and an
emergency response program. The General Partner believes the Partnership is in
material compliance with the RMP regulations, and that the operating expenses of
the RMP regulations will not have a material adverse impact on the Partnership's
financial position or results of operations.

      Solid Waste

         The Partnership generates hazardous and non-hazardous solid wastes that
are subject to requirements of the federal Resource Conservation and Recovery
Act ("RCRA") and comparable state statutes. Amendments to RCRA require the EPA
to promulgate regulations banning the land disposal of all hazardous wastes
unless the wastes meet certain treatment standards or the land-disposal method
meets certain waste containment criteria. In 1990, the EPA issued the Toxicity
Characteristic Leaching Procedure, which substantially expanded the number of
materials

                                       12


<PAGE>   15




defined as hazardous waste. Certain wastewater and other wastes generated from
the Partnership's business activities previously classified as nonhazardous are
now classified as hazardous due to the presence of dissolved aromatic compounds.
The Partnership utilizes waste minimization and recycling processes and has
installed pre-treatment facilities to reduce the volume of its hazardous waste.
The Partnership currently has three permitted on-site waste water treatment
facilities. Operating expenses of these facilities have not had a material
adverse effect on the financial position or results of operations of the
Partnership.

      Superfund

         The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as "Superfund," imposes liability, without regard to
fault or the legality of the original act, on certain classes of persons who
contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of a facility and companies that
disposed or arranged for the disposal of the hazardous substances found at a
facility. CERCLA also authorizes the EPA and, in some instances, third parties
to take actions in response to threats to the public health or the environment
and to seek to recover from the responsible classes of persons the costs they
incur. In the course of its ordinary operations, the Pipeline System generates
wastes that may fall within CERCLA's definition of a "hazardous substance."
Should a disposal facility previously used by the Partnership require clean up
in the future, the Partnership may be responsible under CERCLA for all or part
of the costs required to clean up sites at which such wastes have been disposed.

         The Company was notified by the EPA in the fall of 1998 that it might
have potential liability for waste material allegedly disposed by the Company at
the Casmalia Disposal Site in Santa Barbara County, California. The EPA has
offered the Company a de minimus settlement offer of $0.3 million to settle
liability associated with the Company's alleged involvement. The Company
believes based on the information furnished by the EPA that it has been
erroneously named as an entity that disposed of waste material at the Casmalia
Disposal Site. The Company intends to continue to vigorously pursue dismissal
from this matter.

         In December 1999, the Company was notified by EPA of potential
liability for alleged waste disposal at Container Recycling, Inc., located in
Kansas City, Kansas. The Company was also asked to respond to an EPA Information
Request. The Company's response has been filed with the EPA Region VII office.
Based on information the Company has received from the EPA, as well as through
its internal investigations, the Company intends to pursue dismissal from this
matter.

      Other Environmental Proceedings

         The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM is expected to issue a Record of
Decision formally approving the remediation program. After the Record of
Decision has been issued, the Partnership will enter into an Agreed Order for
the continued operation and maintenance of the program. The Partnership has
accrued $0.6 million at December 31, 2000, for future costs of the remediation
program for the Seymour terminal. In the opinion of the Company, the completion
of the remediation program will not have a material adverse impact on the
Partnership's financial condition, results of operations or liquidity.

         The Partnership received a compliance order from the Louisiana
Department of Environmental Quality ("DEQ") during 1994 relative to potential
environmental contamination at the Partnership's Arcadia, Louisiana, facility,
which may be attributable to the operations of the Partnership and adjacent
petroleum terminals of other companies. The Partnership and all adjacent
terminals have been assigned to the Groundwater Division of DEQ, in which a
consolidated plan will be developed. The Partnership has finalized a negotiated
Compliance Order with DEQ that will allow the Partnership to continue with a
remediation plan similar to the one previously agreed to by DEQ and implemented
by the Company. In the opinion of the General Partner, the completion of the
remediation program being proposed by the Partnership will not have a future
material adverse impact on the Partnership.

                                       13


<PAGE>   16





SAFETY REGULATION

         The Partnership is subject to regulation by the United States
Department of Transportation ("DOT") under the Accountable Pipeline and Safety
Partnership Act of 1996, sometimes referred to as the Hazardous Liquid Pipeline
Safety Act ("HLPSA"), and comparable state statutes relating to the design,
installation, testing, construction, operation, replacement and management of
its pipeline facilities. HLPSA covers petroleum and petroleum products and
requires any entity that owns or operates pipeline facilities to comply with
such regulations, to permit access to and copying of records and to make certain
reports and provide information as required by the Secretary of Transportation.
The HLPSA is scheduled to be reauthorized in 2001. The Partnership does not
expect the legislation changes to have a material impact on its financial
condition, results of operations or liquidity.

         The Partnership is subject to the OPS regulation requiring
qualification of pipeline personnel. The regulation requires pipeline operators
to develop and maintain a written qualification program for individuals
performing covered tasks on pipeline facilities. The intent of this regulation
is to ensure a qualified work force and to reduce the probability and
consequence of incidents caused by human error. The regulation establishes
qualification requirements for individuals performing covered tasks, and amends
certain training requirements in existing regulations. A written qualification
program must be completed by April 27, 2001, and individuals performing a
covered task must be qualified by October 28, 2002.

         The Partnership is also subject to the OPS regulation for High
Consequence Areas ("HCA"). This regulation specifies how to assess, evaluate,
repair and validate the integrity of pipeline segments that could impact
populated areas, areas unusually sensitive to environmental damage and
commercially navigable waterways, in the event of a release. The pipeline
segments that could impact HCA's must be identified by December 31, 2001. The
regulation requires an integrity management program that utilizes internal
pipeline inspection, pressure testing, or other equally effective means to
assess the integrity of pipeline segments in HCA's. An integrity management
program must be completed by March 31, 2002. The initial integrity tests in
HCA's start with a seven-year cycle on March 31, 2001, with all subsequent
inspections conducted on a five-year cycle. The program requires periodic review
of pipeline segments in HCA's to ensure adequate preventative and mitigative
measures exist. Through this program the Partnership will evaluate a range of
threats to each pipeline segment's integrity by analyzing available information
about the pipeline segment and consequences of a failure in a HCA. The
regulation requires prompt action to address integrity issues raised by the
assessment and analysis. The Partnership does not anticipate that implementation
of these regulations will have a material adverse effect on the Partnership.

         The Partnership is also subject to the requirements of the federal OSHA
and comparable state statutes. The Partnership believes it is in material
compliance with OSHA and state requirements, including general industry
standards, record keeping requirements and monitoring of occupational exposures.

         The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of the federal Superfund Amendment and
Reauthorization Act, and comparable state statutes require the Partnership to
organize and disclose information about the hazardous materials used in its
operations. Certain parts of this information must be reported to employees,
state and local governmental authorities, and local citizens upon request. In
general, the Partnership expects to increase its expenditures during the next
decade to comply with higher industry and regulatory safety standards such as
those described above. Such expenditures cannot be accurately estimated at this
time, although the General Partner does not believe that they will have a future
material adverse impact on the Partnership.

         The Partnership is subject to OSHA Process Safety Management ("PSM")
regulations which are designed to prevent or minimize the consequences of
catastrophic releases of toxic, reactive, flammable or explosive chemicals.
These regulations apply to any process which involves a chemical at or above the
specified thresholds; or any process which involves a flammable liquid or gas,
as defined in the regulations, stored on-site in one location, in a quantity of
10,000 pounds or more. The Partnership utilizes certain covered processes and
maintains storage of LPGs in pressurized tanks, caverns and wells, in excess of
10,000 pounds at various locations. Flammable liquids stored in atmospheric
tanks below their normal boiling point without benefit of chilling or
refrigeration are exempt. The Partnership believes it is in material compliance
with the PSM regulations.

                                       14


<PAGE>   17





EMPLOYEES

         The Partnership does not have any employees, officers or directors. The
General Partner is responsible for the management of the Partnership and
Operating Partnerships. As of December 31, 2000, the General Partner had 798
employees.

ITEM 3.   LEGAL PROCEEDINGS


TOXIC TORT LITIGATION - SEYMOUR, INDIANA

         In the fall of 1999 and on December 1, 2000, the Company and the
Partnership were named as defendants in two separate lawsuits in Jackson County
Circuit Court, Jackson County, Indiana, in Ryan E. McCleery and Marcia S.
McCleery, et al. v. Texas Eastern Corporation, et al. (including the Company and
Partnership) and Gilbert Richards and Jean Richards v. Texas Eastern
Corporation, et. al. In both cases plaintiffs contend, among other things, that
the Company and other defendants stored and disposed of toxic and hazardous
substances and hazardous wastes in a manner that caused the materials to be
released into the air, soil and water. They further contend that the release
caused damages to the plaintiffs. In their Complaints, the plaintiffs allege
strict liability for both personal injury and property damage together with
gross negligence, continuing nuisance, trespass, criminal mischief and loss of
consortium. The plaintiffs are seeking compensatory, punitive and treble
damages. The Company has filed an Answer to both complaints, denying the
allegations, as well as various other motions. These cases are in the early
stages of discovery and are not covered by insurance. The Company is defending
itself vigorously against the lawsuits. The Partnership cannot estimate the
loss, if any, associated with these pending lawsuits.


OTHER LITIGATION

         In addition to the litigation discussed above, the Partnership has
been, in the ordinary course of business, a defendant in various lawsuits and a
party to various other legal proceedings, some of which are covered in whole or
in part by insurance. The General Partner believes that the outcome of such
lawsuits and other proceedings will not individually or in the aggregate have a
material adverse effect on the Partnership's consolidated financial condition,
results of operations or cash flows.

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

          NONE
                                       15


<PAGE>   18






                                     PART II

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

         The Limited Partner Units of the Partnership are listed and traded on
the New York Stock Exchange under the symbol TPP. The high and low trading
prices of the Limited Partner Units in 2000 and 1999, respectively, as reported
in The Wall Street Journal, were as follows:

<TABLE>
<CAPTION>
                                                                2000                            1999
                                                        ----------------------         ----------------------
QUARTER                                                   HIGH         LOW               HIGH          LOW
                                                        ---------   ----------         ---------   ----------

<S>                                                     <C>         <C>                <C>         <C>
First...........................................        $22.94        $19.00           $26.19         $22.38
Second..........................................         24.38         19.88            28.25          22.94
Third...........................................         26.75         22.75            26.44          20.00
Fourth..........................................         27.00         21.63            23.88          17.13
</TABLE>


         Based on the information received from its transfer agent and from
brokers/nominees, the Company estimates the number of beneficial Unitholders of
Limited Partner Units of the Partnership as of March 6, 2001 to be approximately
25,000.

         The quarterly cash distributions applicable to 1999 and 2000 were as
follows:


<TABLE>
<CAPTION>
                                                                                                 AMOUNT
RECORD DATE                                       PAYMENT DATE                                   PER UNIT
-----------                                       ------------                                 ------------
<S>                                               <C>                                          <C>

April 30, 1999..............................      May 7, 1999.................................   $ 0.450
July 30, 1999...............................      August 6, 1999..............................     0.475
October 29, 1999............................      November 5, 1999............................     0.475
January 31, 2000............................      February 4, 2000............................     0.475


April 28, 2000..............................      May 5, 2000.................................   $ 0.500
July 31, 2000...............................      August 4, 2000..............................     0.500
October 30, 2000............................      November 3, 2000............................     0.525
January 31, 2001............................      February 2, 2001............................     0.525
</TABLE>

         The Partnership makes quarterly cash distributions of its Available
Cash, as defined by the Partnership Agreements. Available Cash consists
generally of all cash receipts less cash disbursements and cash reserves
necessary for working capital, anticipated capital expenditures and
contingencies the General Partner deems appropriate and necessary.

         The Partnership is a publicly traded master 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.

         Distributions of cash by the Partnership to a Unitholder will not
result in taxable gain or income except to the extent the aggregate amount
distributed exceeds the tax basis of the Units held by the Unitholder.

                                       16


<PAGE>   19





ITEM 6.   SELECTED FINANCIAL DATA

         The following tables set forth, for the periods and at the dates
indicated, selected consolidated financial and operating data for the
Partnership. The financial data was derived from the consolidated financial
statements of the Partnership and should be read in conjunction with the
Partnership's audited consolidated financial statements included in the Index to
Financial Statements on page F-1 of this report. See also Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                     --------------------------------------------------------------------------
                                                       2000 (1)         1999            1998 (2)        1997           1996
                                                     -----------    -----------       -----------    -----------    -----------
                                                                           (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S>                                                  <C>            <C>               <C>            <C>            <C>
  INCOME STATEMENT DATA:
   Operating revenues:

   Sales of crude oil and petroleum products .....   $ 2,821,943    $ 1,692,767       $   214,463    $        --    $        --
   Transportation -- refined products ............       119,331        123,004           119,854        107,304         98,641
   Transportation -- LPGs ........................        73,896         67,701            60,902         79,371         80,219
   Transportation -- crude oil and NGLs ..........        24,533         11,846             3,392             --             --
   Mont Belvieu operations .......................        13,334         12,849            10,880         12,815         11,811
   Other .........................................        34,904         26,716            20,147         22,603         25,354
                                                     -----------    -----------       -----------    -----------    -----------
     Total operating revenues ....................     3,087,941      1,934,883           429,638        222,093        216,025
 Purchases of crude oil and petroleum products ...     2,794,604      1,666,042           212,371             --             --
 Operating expenses ..............................       150,149        136,095           110,363        106,771        105,182
 Depreciation and amortization ...................        35,163         32,656            26,938         23,772         23,409
                                                     -----------    -----------       -----------    -----------    -----------
 Operating income ................................       108,025        100,090            79,966         91,550         87,434
 Interest expense - net ..........................       (44,423)       (29,430)          (28,989)       (32,229)       (33,534)
 Equity Earnings - Seaway ........................        12,214             --                --             --             --
 Other income - net ..............................         1,560          1,460             2,364          1,979          4,748
                                                     -----------    -----------       -----------    -----------    -----------
   Income before extraordinary item ..............        77,376         72,120            53,341         61,300         58,648
 Extraordinary loss on debt extinguishment, net of
     minority interest (3) .......................            --             --           (72,767)            --             --
                                                     -----------    -----------       -----------    -----------    -----------
   Net income (loss) .............................   $    77,376    $    72,120       $   (19,426)   $    61,300    $    58,648
                                                     ===========    ===========       ===========    ===========    ===========
 Basic and diluted income per Unit: (4)

   Before extraordinary item .....................   $      1.89    $      1.91       $      1.61    $      1.95    $      1.89
   Extraordinary loss on debt extinguishment (3) .            --             --             (2.21)            --             --
                                                     -----------    -----------       -----------    -----------    -----------

      Net income (loss) per Unit .................   $      1.89    $      1.91       $     (0.60)   $      1.95    $      1.89
                                                     ===========    ===========       ===========    ===========    ===========
BALANCE SHEET DATA (AT PERIOD END):

 Property, plant and equipment - net .............   $   949,705    $   720,919       $   671,611    $   567,681    $   561,068
 Total assets ....................................     1,622,810      1,041,373           916,919        673,909        671,241
 Long-term debt (net of current maturities) ......       835,784        455,753           427,722        309,512        326,512
 Class B Units ...................................       105,411        105,859           105,036             --             --
 Partners' capital ...............................       315,057        229,767           227,186        302,967        290,311
CASH FLOW DATA:

 Net cash from operations ........................   $   108,045    $   103,070       $    93,215    $    83,604    $    86,121
 Asset purchases .................................      (422,148)        (2,250)          (41,989)            --             --
 Capital expenditures ............................       (68,481)       (77,431)          (23,432)       (32,931)       (51,264)
 Distributions ...................................       (82,231)       (69,259)          (56,774)       (49,042)       (45,174)
</TABLE>

----------
(1)      Data reflects the operations of the ARCO assets acquired on July 20,
         2000.

(2)      Data reflects the operations of the fractionator assets effective March
         31, 1998, and the operations of the crude oil and NGL assets purchased
         effective November 1, 1998.

(3)      Extraordinary item reflects the loss related to the early
         extinguishment of the First Mortgage Notes on January 27, 1998.

(4)      Per Unit calculation for all periods reflects the two-for-one split on
         August 1, 1998. Per Unit calculation includes 3,916,547 Class B Units
         issued on November 1, 1998, and 3,700,000 Limited Partner Units issued
         on October 25, 2000.

                                       17


<PAGE>   20





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


GENERAL

         The following information is provided to facilitate increased
understanding of the 2000, 1999 and 1998 consolidated financial statements and
accompanying notes of the Partnership included in the Index to Financial
Statements on page F-1 of this report. Material period-to-period variances in
the consolidated statements of income are discussed under "Results of
Operations." The "Financial Condition and Liquidity" section analyzes cash flows
and financial position. Discussion included in "Other Matters" addresses key
trends, future plans and contingencies. Throughout these discussions, management
addresses items that are reasonably likely to materially affect future liquidity
or earnings.

         Through its ownership of the Downstream Segment and the Upstream
Segment, the Partnership operates in two segments, respectively: refined
products and LPGs transportation, and crude oil and NGLs transportation and
marketing. The Partnership's reportable segments offer different products and
services and are managed separately because each requires different business
strategies.

         The Downstream Segment is involved in the transportation, storage and
terminaling of petroleum products and LPGs, intrastate transportation of
petrochemicals and the fractionation of NGLs. Revenues are derived from the
transportation of refined products and LPGs, the storage and short-haul shuttle
transportation of LPGs at the Mont Belvieu, Texas, complex, sale of product
inventory and other ancillary services. Labor and electric power costs comprise
the two largest operating expense items of the Downstream Segment. Higher
natural gas prices increase the cost of electricity used to power pump stations
on the Pipeline System. Operations are somewhat seasonal with higher revenues
generally realized during the first and fourth quarters of each year. Refined
products volumes are generally higher during the second and third quarters
because of greater demand for gasolines during the spring and summer driving
seasons. LPGs volumes are generally higher from November through March due to
higher demand in the Northeast for propane, a major fuel for residential
heating.

          The Upstream Segment is involved in the transportation, aggregation
and marketing of crude oil and NGLs; and the distribution of lube oils and
specialty chemicals. Revenues are earned from the gathering, storage,
transportation and marketing of crude oil and NGLs; and the distribution of lube
oils and specialty chemicals principally in Oklahoma, Texas and the Rocky
Mountain region. Marketing operations consist primarily of purchasing and
aggregating crude oil along its own and third party gathering and pipeline
systems and arranging the necessary logistics for the ultimate sale of crude oil
to local refineries, marketers or other end users. Operations of this segment
are included from November 1, 1998, the date of its acquisition from DEFS.

          On July 20, 2000, the Company completed its acquisition of ARCO, for
$322.6 million, which included $4.1 million of acquisition related costs. The
purchase included ARCO's 50-percent ownership interest in Seaway. The
Partnership assumed ARCO's role as operator of this pipeline. The Company also
acquired ARCO's crude oil terminal facilities in Cushing and Midland, Texas,
including the line transfer and pumpover business at each location, an undivided
ownership interest in both the Rancho Pipeline and the Basin Pipeline, both of
which are operated by another joint owner and the receipt and delivery pipelines
known as the West Texas Trunk System, located around the Midland terminal. The
transaction was accounted for under the purchase method for accounting purposes.
The results of operations of assets acquired have been included in the Upstream
Segment since the purchase on July 20, 2000.

                                       18



<PAGE>   21





RESULTS OF OPERATIONS

         Summarized below is financial data by business segment (in thousands):

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                               ------------------------------------
                                                   2000         1999         1998
                                               ----------    ----------    --------
<S>                                            <C>           <C>           <C>
Operating revenues:
  Downstream Segment ......................    $  236,687    $  230,270    $211,783
  Upstream Segment ........................     2,851,254     1,704,613     217,855
                                               ----------    ----------    --------
     Total operating revenues .............     3,087,941     1,934,883     429,638
                                               ----------    ----------    --------

Operating income:
  Downstream Segment ......................        89,999        89,393      78,641
  Upstream Segment ........................        18,026        10,697       1,325
                                               ----------     ---------    --------
     Total operating income ...............       108,025       100,090      79,966
                                               ----------     ---------    --------

Income before extraordinary item:
  Downstream Segment ......................        60,695        61,227      52,002
  Upstream Segment ........................        16,681        10,893       1,339
                                               ----------    ----------    --------
     Total income before extraordinary item    $   77,376    $   72,120    $ 53,341
                                               ==========    ==========    ========
</TABLE>


         For the year ended December 31, 2000, the Partnership reported net
income of $77.4 million, compared with $72.1 million for the year ended December
31, 1999. The $5.3 million increase in income resulted from a $5.8 million
increase in income provided by the Upstream Segment, which included $4.7 million
of net income attributable to the acquired ARCO assets. The increase in income
provided by the Upstream Segment was comprised of a $13.3 million increase in
margin, a $4.8 million increase in other operating revenues and $12.2 million of
equity earnings of Seaway, partially offset by a $10.8 million increase in costs
and expenses (excluding purchases of crude oil and petroleum products) and a
$13.6 million increase in interest expense. Net income of the Downstream Segment
decreased $0.5 million from the prior year primarily due to a $5.8 million
increase in costs and expenses and a $1.4 million increase in interest expense
(net of capitalized interest), partially offset by a $6.4 million increase in
operating revenues.

         For the year ended December 31, 1999, the Partnership reported net
income of $72.1 million, compared with a net loss of $19.4 million for year
ended December 31, 1998. The net loss in 1998 included an extraordinary charge
of $72.8 million for early extinguishment of debt, net of $0.7 million allocated
to minority interest. Excluding the extraordinary loss, net income would have
been $53.3 million for year ended December 31, 1998. The $18.8 million increase
in income before the loss on debt extinguishment resulted from a $9.6 million
increase in income provided by the Upstream Segment, which was acquired
effective November 1, 1998, and a $9.2 million increase in income provided by
the Downstream Segment. The increase in income provided by the Downstream
Segment resulted primarily from a $18.5 million increase in operating revenues,
partially offset by a $7.7 million increase in costs and expenses and a $1.2
million decrease in other income - net.

                                       19



<PAGE>   22






DOWNSTREAM SEGMENT

         Volume and average tariff information for 2000, 1999 and 1998 is
presented below:

<TABLE>
<CAPTION>
                                                                                               PERCENTAGE
                                                                                                INCREASE
                                                    YEARS ENDED DECEMBER 31,                   (DECREASE)
                                            ---------------------------------------   ---------------------------
                                               2000          1999          1998          2000            1999
                                            -----------   -----------   -----------   -----------     -----------
                                           (IN THOUSANDS, EXCEPT TARIFF INFORMATION)
<S>                                         <C>           <C>           <C>           <C>              <C>

Volumes Delivered
    Refined products ....................       128,151       132,642       130,467            (3)%             2%
    LPGs ................................        39,633        37,575        32,048             5%             17%
    Mont Belvieu operations .............        27,159        28,535        25,072            (5)%            14%
                                            -----------   -----------   -----------   -----------     -----------
      Total .............................       194,943       198,752       187,587            (2)%             6%
                                            ===========   ===========   ===========   ===========     ===========
Average Tariff per Barrel

    Refined products ....................   $      0.93   $      0.93   $      0.92            --               1%
    LPGs ................................          1.86          1.80          1.90             3%             (5)%
    Mont Belvieu operations .............          0.16          0.16          0.16            --              --

      Average system tariff per barrel ..   $      1.01   $      0.98   $      0.98             3%             --
                                            ===========   ===========   ===========   ===========     ===========
</TABLE>

      2000 Compared to 1999

         Operating revenues for the year ended 2000 increased 3% to $236.7
million from $230.3 million for the year ended 1999. This $6.4 million increase
resulted from a $6.2 million increase in LPGs transportation revenues, a $3.4
million increase in other operating revenues and a $0.5 million increase in
revenues generated from Mont Belvieu operations. These increases were partially
offset by a $3.7 million decrease in refined products transportation revenues.

         Refined products transportation revenues decreased $3.7 million for the
year ended December 31, 2000, compared with the prior year, as a result of a 3%
decrease in total refined products volumes delivered. Motor fuel volumes
delivered decreased by 2.5 million barrels and distillate volumes delivered
decreased by 1.8 million barrels due primarily to a local refinery expansion in
the West Memphis market and unfavorable price differentials in the Midwest
market area. Natural gasoline volumes delivered declined 1.3 million barrels due
primarily to the expiration of a contract in late 1999 for deliveries to the
Chicago area, along with unfavorable processing and blending economics in the
Chicago market area. These decreases were primarily offset by a 1.2 million
barrel increase in jet fuel volumes delivered due to continued strong demand in
the Chicago market area and at the Cincinnati airport that is supplied by the
Partnership. The Partnership deferred recognition of approximately $1.5 million
of revenue during the year ended December 31, 2000, with respect to potential
refund obligations for rates charged in excess of the PPI Index while its
application for Market Based Rates is under review by FERC. See further
discussion regarding Market Based Rates included in "Other Matters - Market and
Regulatory Environment."

         LPGs transportation revenues increased $6.2 million for the year ended
December 31, 2000, compared with the prior year, due to a 5% increase in volumes
delivered and a 3% increase in the average LPGs tariff per barrel. Colder winter
weather during the first and fourth quarters of 2000, coupled with lower
customer storage levels contributed to a 1.2 million barrel increase in propane
volumes delivered in the Northeast market area and a 0.9 million barrel increase
in propane volumes delivered in the Midwest market area. Increased refinery
demand in the Northeast market area resulted in a 0.2 million barrel increase in
butane volumes delivered. The larger percentage of long-haul deliveries during
2000 resulted in a 3% increase in the average LPGs tariff per barrel.

         Revenues generated from Mont Belvieu operations increased $0.5 million
for the year ended December 31, 2000, compared with the prior year, primarily
due to increased brine handling fees and higher storage revenue.

                                       20


<PAGE>   23





         Other operating revenues increased $3.4 million during the year ended
December 31, 2000, compared with 1999, primarily due to $1.8 million of
deficiency revenue recognized in the fourth quarter of 2000 related to the
beginning of a 20-year contract for petrochemical deliveries at Port Arthur,
Texas, and a $0.5 million increase in gains on the sale of product inventory
attributable to higher market prices in 2000. The additional increases resulted
from increased refined products terminaling revenue and increased custody
transfer services at Mont Belvieu facilities.

         Costs and expenses increased $5.8 million during the year ended
December 31, 2000, compared with the prior year, due to a $2.9 million increase
in operating, general and administrative expenses, a $2.3 million increase in
operating fuel and power expense and a $0.6 million increase in depreciation and
amortization charges. The increase in operating, general and administrative
expenses was primarily attributable to $0.9 million of expense recognized in the
first quarter of 2000 to write-off project evaluation costs, a $2.3 million
increase in general and administrative supplies and services, a $1.5 million
increase in legal services, a $1.0 million increase in pipeline operations and
maintenance expenses, a $0.7 million increase in labor related expenses and a
$0.3 million increase in product measurement losses. The write-off of project
evaluation costs resulted from the announcement in March 2000 of the
Partnership's abandonment of its plan to construct a pipeline from Beaumont,
Texas, to Little Rock, Arkansas, in favor of participation in the Centennial
joint venture. These increases in operating, general and administrative expenses
were partially offset by a $3.9 million decrease in expenses associated with
Year 2000 activities incurred in 1999. The increase in operating fuel and power
expense from the prior year resulted primarily from higher fuel prices charged
by electric utilities in 2000. Depreciation and amortization expense increased
as a result of $0.3 million in depreciation expense related to the completion of
the petrochemical pipelines and other capital additions placed in service
throughout 2000.

         Interest expense increased $3.8 million during the year ended December
31, 2000, compared with 1999, as a result of borrowings under a term loan to
finance construction of the petrochemical pipelines between Mont Belvieu and
Port Arthur, Texas. Additionally, amortization of debt issue costs increased
$0.8 million during the year ended December 31, 2000. The increase in interest
expense was offset by increased interest capitalized of $2.4 million during the
year ended December 31, 2000, as a result of higher balances associated with
construction of the petrochemical pipelines.

         Other income - net increased $0.2 million during the year ended
December 31, 2000, compared with the prior year, as a result of gains on the
sale of right-of-way easements during the second quarter of 2000, coupled with
increased interest income earned on cash investments in 2000.

      1999 Compared to 1998

         Operating revenues for the year ended 1999 increased 9% to $230.3
million from $211.8 million for the year ended 1998. This $18.5 million increase
resulted from an $3.1 million increase in refined products transportation
revenues, a $6.8 million increase in LPGs transportation revenues, a $2.0
million increase in revenues generated from Mont Belvieu operations and a $6.6
million increase in other operating revenues.

         Refined products transportation revenues increased $3.1 million for the
year ended December 31, 1999, compared with the prior year, as a result of a 2%
increase in total refined products volumes delivered and a 1% increase in the
refined products average tariff per barrel. Strong economic demand coupled with
lower refinery production resulted in a 3.1 million barrel increase in jet fuel
volumes delivered and a 2.3 million barrel increase in distillate volumes
delivered. Jet fuel volumes delivered also benefited as a result of new military
supply agreements that became effective in the fourth quarter of 1998. These
increases were partially offset by a 1.8 million barrel decrease in motor fuel
volumes delivered due to unfavorable Midwest price differentials and reduced
refinery production received into the Ark-La-Tex system and a 0.6 million barrel
decrease in natural gasoline volumes delivered attributable to lower feedstock
and blending demand. Additionally, MTBE volumes delivered decreased 0.9 million
barrels as a result of the Partnership canceling its tariffs to Midwest
destinations, effective July 1, 1999. This action was taken with the consent of
MTBE shippers as a result of lower demand for MTBE transportation caused by
changing blending economics, and resulted in increased pipeline capacity and
tankage available for other products. The 1% increase in the refined products
average tariff per barrel was primarily attributable to a higher percentage of
long-haul distillate volumes delivered in the Midwest, partially offset by the
1.83% general tariff reduction pursuant to the PPI Index, effective July 1,
1999. The Partnership deferred recognition of approximately

                                       21


<PAGE>   24





$0.8 million of revenue in 1999, with respect to potential refund obligations
for rates charged in excess of the PPI Index while its application for Market
Based Rates is under review by FERC.

         LPGs transportation revenues increased $6.8 million for the year ended
December 31, 1999, compared with the prior year due to a 17% increase in volumes
delivered, partially offset by a 5% decrease in the average LPGs tariff per
barrel. Propane volumes delivered in the Northeast increased 14% from the prior
year primarily due to colder winter weather during the first and fourth quarters
of 1999. Propane deliveries in the Midwest market area and the upper Texas Gulf
Coast increased 19% and 44%, respectively, from the prior year primarily due to
increased petrochemical feedstock demand. The 5% decrease in the average LPGs
tariff per barrel resulted from the larger percentage of short-haul barrels
during 1999, coupled with the reduction in tariffs rates pursuant to the PPI
Index, effective July 1, 1999.

         Revenues generated from Mont Belvieu operations increased $2.0 million
for the year ended December 31, 1999, compared with the prior year, primarily
due to higher storage revenue and increased petrochemical and refinery demand
for shuttle deliveries of LPGs along the upper Texas Gulf Coast.

         Other operating revenues increased $6.6 million during the year ended
December 31, 1999, compared with 1998, primarily due to a $3.6 million increase
in gains on the sale of product inventory, a $1.8 million increase in operating
revenues from the fractionator facilities acquired on March 31, 1998, and lower
exchange losses incurred to position product in the Midwest market area.

         Costs and expenses increased $7.7 million during the year ended
December 31, 1999, compared with the prior year, due to a $3.4 million increase
in operating, general and administrative expenses, a $2.7 million increase in
operating fuel and power expense, a $1.1 million increase in depreciation and
amortization charges, and a $0.5 million increase in taxes - other than income.
The increase in operating, general and administrative expenses was primarily
attributable to a $2.8 million increase in expenses associated with Year 2000
activities; a $1.5 million increase in rental fees from higher volume through
the connection from Colonial Pipeline at Beaumont; a $1.5 million increase in
labor related expenses attributable to merit increases and increased incentive
compensation accruals, partially offset by lower post retirement benefit
accruals; and increased outside services for pipeline maintenance. These
increases in operating, general and administrative expenses were partially
offset by $3.4 million of expense recorded in 1998 to write down the book-value
of product inventory to market-value, and lower product measurement losses. The
increase in operating fuel and power expense from the prior year resulted from
increased pipeline throughput. Depreciation and amortization expense increased
as a result of amortization of the value assigned to the Fractionation Agreement
beginning on March 31, 1998, and capital additions placed in service. The
increase in taxes - other than income was primarily due to a higher property
base in 1999 and credits recorded during 1998 for the over accrual of previous
years' property taxes.

         Interest expense increased $1.6 million during the year ended December
31, 1999, compared with 1998. Approximately $0.6 million of the increase was
attributable to a full year of interest expense in 1999 on the $38 million
term-loan used to finance the purchase of the fractionation assets on March 31,
1998. The remaining increase resulted from $25 million of borrowings during the
second quarter of 1999 under a term loan to finance construction of the
pipelines between Mont Belvieu and Port Arthur, Texas. Capitalized interest
increased during 1999, compared with 1998, as a result of higher balances
associated with construction-in-progress of the new pipelines between Mont
Belvieu and Port Arthur.

         Other income - net decreased $1.2 million during the year ended
December 31, 1999, compared with the prior year, as a result of a $0.4 million
gain on the sale of non-carrier assets in June 1998, and lower interest income
earned on cash investments in 1999.

                                       22



<PAGE>   25
UPSTREAM SEGMENT

         Margin of the Upstream Segment is calculated as revenues generated from
the sale of crude oil and lubrication oil, and transportation of crude oil and
NGLs, less the costs of purchases of crude oil and lubrication oil. Margin is a
more meaningful measure of financial performance than operating revenues and
operating expenses due to the significant fluctuations in revenues and expense
caused by the level of marketing activity. Margin and volume information for the
years ended December 31, 2000 and 1999, and the two month period ended December
31, 1998, is presented below (in thousands, except per barrel and per gallon
amounts):

<TABLE>
<CAPTION>
                                                                            TWO MONTHS
                                                      YEAR ENDED              ENDED
                                                     DECEMBER 31,          DECEMBER 31,
                                               -------------------------   -----------
                                                  2000          1999          1998
                                               -----------   -----------   -----------
<S>                                            <C>           <C>           <C>
Margins:
   Crude oil transportation ................   $    23,486   $    17,873   $     2,787
   Crude oil marketing .....................        13,320        12,065         1,253
   Crude oil terminaling ...................         4,554            --            --
   NGL transportation ......................         7,009         6,123         1,062
   Lubrication oil sales ...................         3,503         2,510           382
                                               -----------   -----------   -----------
        Total margin .......................   $    51,872   $    38,571   $     5,484
                                               ===========   ===========   ===========
Total barrels:
   Crude oil transportation ................        46,225        33,267         5,549
   Crude oil marketing .....................       107,607        96,252        16,969
   Crude oil terminaling ...................        56,473            --            --
   NGL transportation ......................         5,201         4,580           727

Lubrication oil volume (total gallons): ....         7,974         8,891         1,140

Margin per barrel:
   Crude oil transportation ................   $     0.508   $     0.537   $     0.504
   Crude oil marketing .....................   $     0.124   $     0.125   $     0.071
   Crude oil terminaling ...................   $     0.081            --            --
   NGL transportation ......................   $     1.348   $     1.337   $     1.515

Lubrication oil margin (per gallon): .......   $     0.439   $     0.282   $     0.335
</TABLE>

      2000 Compared to 1999

         Margin increased $13.3 million for the year ended December 31, 2000,
compared with the prior year. The increase was comprised of a $5.6 million
increase in crude oil transportation; a $4.6 million increase in crude oil
terminaling attributable to pumpover fees charged at Midland, Texas, and
Cushing, Oklahoma, related to the ARCO assets acquired in July 2000; a $1.3
million increase in crude oil marketing activity; a $1.0 million increase in
lubrication oil sales; and a $0.9 million increase in NGL transportation. The
increase in crude oil transportation margin was primarily attributable to $3.3
million contributed by the ARCO assets acquired and $2.3 million from increased
volume and higher transportation rates on the South Texas and Red River systems,
which benefited from higher crude oil market prices. The increase in crude oil
marketing margin resulted from an increase in volumes marketed and higher sales
prices on volumes in third party pipeline systems. Total lubrication oil volumes
decreased 10% from the prior year due primarily to the discontinuation of low
margin fuel oil sales, effective April 2000. The increase in NGL transportation
margin was attributable to increased volumes and higher prices on loss allowance
barrels received on the Dean Pipeline.

                                       23


<PAGE>   26





          Other operating revenue of the Upstream Segment included $4.8 million
of revenue related to documentation and other services to support customer's
trading activity at Midland, Texas, and Cushing, Oklahoma. Such revenues were
added to the Partnership's business on July 20, 2000, with the acquired ARCO
assets.

          Costs and expenses, excluding expenses associated with purchases of
crude oil and petroleum products, increased $10.8 million for the year ended
December 31, 2000, compared with the prior year, attributable primarily to $6.9
million in costs and expenses from the acquired ARCO assets and a $3.9 million
increase in other operating, general and administrative expenses. The costs and
expenses associated with the acquired ARCO assets included $4.3 million in
operating, general and administrative expenses, $1.3 million in depreciation and
amortization charges, $1.1 million in operating fuel and power and $0.2 million
in taxes - other than income taxes. The remaining increase in operating, general
and administrative expenses of the Upstream Segment resulted primarily from
pipeline system maintenance on the South Texas System in the third quarter,
increased labor related costs, additional operating costs associated with asset
acquisitions in North Texas and increased general and administrative expenses
for telecommunications and contract labor charges.

         Net income of the Upstream Segment included $12.2 million of equity
earnings in Seaway Crude Pipeline. Equity earnings in Seaway Crude Pipeline were
added to the Partnership's business on July 20, 2000, with the acquired ARCO
assets.

          Interest expense increased $13.6 million for the year ended December
31, 2000, compared with the prior year, primarily due to interest expense on the
term loan and revolving credit facilities used to finance the acquisition of
ARCO assets.

      Year Ended December 31, 1999

         Net income contributed by the crude oil transportation and marketing
segment totaled $10.9 million for the year ended December 31, 1999, comprised of
$38.6 million of gross margin and $0.5 million of other income (primarily
consists of interest income earned on cash investments), partially offset by
$21.6 million of operating, general and administrative expenses (including
operating fuel and power), $5.6 million of depreciation and amortization
charges, $0.7 million of taxes - other than income and $0.2 million of interest
expense.

         For the year ended December 31, 1999, crude oil transportation and NGL
transportation contributed 46% and 16% of the margin, respectively, while crude
oil marketing operations accounted for 31% of the margin. Operations of
Lubrication Services L.P. ("LSI") contributed $2.5 million, or 7%, of the margin
for the year ended December 31, 1999. Operating, general and administrative
expenses (including operating fuel and power) totaled $21.6 million, or 56% of
the margin, during the year ended December 31, 1999. Depreciation and
amortization expenses and taxes - other than income totaled $6.3 million, or 16%
of the margin.


FINANCIAL CONDITION AND LIQUIDITY

         Net cash from operations for the year ended December 31, 2000, totaled
$108.0 million, comprised of $112.5 million of income before charges for
depreciation and amortization, partially offset by $4.5 million of cash used for
working capital changes. Net cash from operations for the year ended December
31, 1999, totaled $103.1 million, comprised of $104.8 million of income before
charges for depreciation and amortization, partially offset by $1.7 million of
cash used for working capital changes. Net cash from operations for the year
ended December 31, 1998, totaled $93.2 million, comprised of $80.3 million of
income before the extraordinary loss on early extinguishment of debt and charges
for depreciation and amortization, and $12.9 million of cash provided from
working capital changes. Net cash from operations for the year ended December
31, 2000, 1999, and 1998 included interest payments of $36.8 million, $28.6
million, and $26.2 million, respectively.

         Cash flows used in investing activities during the year ended December
31, 2000, were comprised of $322.6 million for the purchase of ARCO assets,
$99.5 million for NGL and crude oil systems purchased in East Texas and North
Texas, $68.5 million of capital expenditures, and $5.0 million of cash
contributions for the Partnership's interest in the Centennial joint venture.
Cash flows used in investing activities for the year ended December 31, 1999,
included $77.4 million of capital expenditures and $2.3 million for the purchase
of a 125-mile

                                       24


<PAGE>   27





crude oil system in Southeast Texas. Capital expenditures during the years ended
December 31, 2000 and 1999, included $29.9 million and $43.8 million,
respectively, of spending for construction of three new petrochemical pipelines
between the Partnership's terminal in Mont Belvieu, Texas, and Port Arthur,
Texas. Cash flows used in investing activities for the year ended December 31,
1998 included $40.0 million for the purchase price of the fractionation assets
and related intangible assets, $23.4 million of capital expenditures and $2.0
million related to the acquisition of the crude oil assets, partially offset by
$0.5 million received from the sale of non-carrier assets.

         On January 27, 1998, the Downstream Segment completed the issuance of
$180 million principal amount of 6.45% Senior Notes due 2008, and $210 million
principal amount of 7.51% Senior Notes due 2028 (collectively the "Senior
Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption prior to
January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at any time
after January 15, 2008, at the option of the Downstream Segment, in whole or in
part, at a premium. Net proceeds from the issuance of the Senior Notes totaled
approximately $386 million and was used to repay in full the $61.0 million
principal amount of the 9.60% Series A First Mortgage Notes, due 2000, and the
$265.5 million principal amount of the 10.20% Series B First Mortgage Notes, due
2010. The premium for the early redemption of the First Mortgage Notes totaled
$70.1 million. The Partnership recorded an extraordinary charge of $73.5 million
during the first quarter of 1998 (including $0.7 million allocated to minority
interest), which represents the redemption premium of $70.1 million and
unamortized debt issue costs related to the First Mortgage Notes of $3.4
million.

         The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year. The Senior Notes are unsecured obligations of the Downstream Segment
and will rank on a parity with all other unsecured and unsubordinated
indebtedness of the Downstream Segment. The indenture governing the Senior Notes
contains covenants, including, but not limited to, covenants limiting (i) the
creation of liens securing indebtedness and (ii) sale and leaseback
transactions. However, the indenture does not limit the Partnership's ability to
incur additional indebtedness.

         On July 14, 2000, the Partnership entered into a $75 million term loan
and a $475 million revolving credit facility. On July 21, 2000, the Partnership
borrowed $75 million under the term loan and $340 million under the revolving
credit facility. The funds were used to finance the acquisition of the ARCO
assets and to repay principal and interest on existing credit facilities, other
than the Senior Notes. The term loan was repaid from proceeds received from the
issuance of additional Limited Partner Units on October 25, 2000. The revolving
credit facility has a three year maturity. The interest rate is based on the
Partnership's option of either the lender's base rate plus a spread, or LIBOR
plus a spread in effect at the time of the borrowings. The revolving credit
facility contains restrictive financial covenants that require the Partnership
to maintain a minimum level of partners' capital as well as maximum
debt-to-EBITDA (earnings before interest expense, income tax expense and
depreciation and amortization expense) and minimum fixed charge coverage ratios.
At December 31, 2000, $446 million was outstanding under the revolving credit
facility at a weighted average interest rate of 8.23%.

         On July 21, 2000, the Partnership entered into a three year swap
agreement to hedge its exposure on the variable rate credit facilities. The swap
agreement is based on a notional amount of $250 million. Under the swap
agreement, the Partnership will pay a fixed rate of interest of 7.17% and will
receive a floating rate based on a three month USD LIBOR rate.

         The Partnership paid cash distributions of $82.2 million ($2.00 per
Unit), $69.3 million ($1.85 per Unit), and $56.8 million ($1.75 per Unit) for
each of the years ended December 31, 2000, 1999, and 1998, respectively.
Additionally, on January 18, 2001, the Partnership declared a cash distribution
of $0.525 per Limited Partner Unit and Class B Unit for the quarter ended
December 31, 2000. The distribution of $24.0 million was paid on February 2,
2001, to Unitholders of record on January 31, 2001.

          On October 25, 2000, the Partnership completed the issuance of 3.7
million Limited Partner Units at $25.06 per Unit. The net proceeds from the
offering totaled approximately $88.5 million and was used to repay the $75
million principal amount of the term loan and $11 million of the outstanding
principal amount of the revolving credit facility. On February 6, 2001, the
Partnership completed the issuance of 2.0 million Limited Partner Units at
$25.50 per Unit. The net proceeds from the offering totaled approximately $48.5
million and was used to reduce borrowings under the revolving credit facility.
On March 6, 2001, 250,000 Units were issued in connection with the
over-allotment provision of the offering on February 6, 2001. Proceeds from the
Units issued from the over-

                                       25



<PAGE>   28



allotment totaled $6.1 million. The offerings bring the total number of Limited
Partner and Class B Units outstanding to 38.9 million as of March 6, 2001.


OTHER MATTERS

      Regulatory and Environmental

         The operations of the Partnership are subject to federal, state and
local laws and regulations relating to protection of the environment. Although
the Partnership believes the operations of the Pipeline System are in material
compliance with applicable environmental regulations, risks of significant costs
and liabilities are inherent in pipeline operations, and there can be no
assurance that significant costs and liabilities will not be incurred. Moreover,
it is possible that other developments, such as increasingly strict
environmental laws and regulations and enforcement policies thereunder, and
claims for damages to property or persons resulting from the operations of the
Pipeline System, could result in substantial costs and liabilities to the
Partnership. The Partnership does not anticipate that changes in environmental
laws and regulations will have a material adverse effect on its financial
position, results of operations or cash flows in the near term.

         The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM is expected to issue a Record of
Decision formally approving the remediation program. After the Record of
Decision has been issued, the Partnership will enter into an Agreed Order for
the continued operation and maintenance of the program. The Partnership has
accrued $0.6 million at December 31, 2000, for future costs of the remediation
program for the Seymour terminal. In the opinion of the Company, the completion
of the remediation program will not have a material adverse impact on the
Partnership's financial condition, results of operations or liquidity.

         The Partnership received a compliance order from the Louisiana
Department of Environmental Quality ("DEQ") during 1994 relative to potential
environmental contamination at the Partnership's Arcadia, Louisiana, facility,
which may be attributable to the operations of the Partnership and adjacent
petroleum terminals of other companies. The Partnership and all adjacent
terminals have been assigned to the Groundwater Division of DEQ, in which a
consolidated plan will be developed. The Partnership has finalized a negotiated
Compliance Order with DEQ that will allow the Partnership to continue with a
remediation plan similar to the one previously agreed to by DEQ and implemented
by the Company. In the opinion of the General Partner, the completion of the
remediation program being proposed by the Partnership will not have a future
material adverse impact on the Partnership.

      Market and Regulatory Environment

         Rates of interstate oil pipeline companies are currently regulated by
the FERC, primarily through an index methodology, whereby a pipeline company is
allowed to change its rates based on the change from year to year in the
Producer Price Index for finished goods less 1% ("PPI Index"). In the
alternative, interstate oil pipeline companies may elect to support rate filings
by using a cost-of-service methodology, competitive market showings ("Market
Based Rates") or agreements between shippers and the oil pipeline company that
the rate is acceptable ("Settlement Rates").

         On May 11, 1999, the Downstream Segment filed an application with the
FERC requesting permission to charge market-based rates for substantially all
refined products transportation tariffs. Along with its application for
market-based rates, the Downstream Segment filed a petition for waiver pending
the FERC's determination on its application for market-based rates, of the
requirements that would otherwise have been imposed by the FERC's regulations
requiring the Downstream Segment to reduce its rates in conformity with the PPI
Index. On June 30, 1999, the FERC granted the waiver stating that it was
temporary in nature and that the Downstream Segment would be required to make
refunds, with interest, of all amounts collected under rates in excess of the
PPI Index ceiling level after July 1, 1999, if the Downstream Segment's
application for market-based rates was ultimately denied. As a result of the
refund obligation potential, the Partnership has deferred all revenue
recognition of rates charged in


                                       26

<PAGE>   29



excess of the PPI Index. On December 31, 2000, the amount deferred for possible
rate refund, including interest totaled approximately $2.3 million.

         On July 31, 2000, the FERC issued an order granting the Downstream
Segment market-based rates in certain markets and set for hearing the Downstream
Segment's application for market-based rates in the Little Rock, Arkansas;
Shreveport-Arcadia, Louisiana; Cincinnati-Dayton, Ohio; and Memphis, Tennessee,
destination markets and the Shreveport, Louisiana, origin market. The FERC also
directed the FERC trial staff to convene a conference to explore the facts and
issues regarding the Western Gulf Coast origin market. After the matter was set
for hearing, the Downstream Segment and the protesting shippers entered into a
settlement agreement resolving their respective differences. On January 9, 2001,
the presiding Administrative Law Judge assigned to the hearing determined that
the offer of settlement provided resolution of issues set for hearing in the
Downstream Segment pending case in a fair and reasonable manner and in the
public interest and certified the offer of settlement and recommended it to the
FERC for approval. The certification of the settlement is currently before the
FERC. The Partnership believes that the Administrative Law Judge's decision in
this matter will be upheld by the FERC.

         The settlement, if it is approved by FERC, will require the Downstream
Segment to withdraw the application for market-based rates to the Little Rock,
Arkansas, destination market and the Arcadia, Louisiana, destination in the
Shreveport-Arcadia, Louisiana, destination market. The Downstream Segment also
has agreed to recalculate rates to these destination markets to conform with the
PPI Index from July 1, 1999, and make appropriate refunds. The refund obligation
under the proposed settlement as of December 31, 2000, would be $0.8 million.

         Effective July 1, 1999, the Downstream Segment established Settlement
Rates with certain shippers of LPGs under which the rates in effect on June 30,
1999, would not be adjusted for a period of either two or three years. Other
LPGs transportation tariff rates were reduced pursuant to the PPI Index
(approximately 1.83%), effective July 1, 1999. Effective July 1, 1999, the
Downstream Segment canceled its tariff for deliveries of MTBE into the Chicago
market area reflecting reduced demand for transportation of MTBE into such area.
The MTBE tariffs were canceled with the consent of MTBE shippers and resulted in
increased pipeline capacity and tankage available for other products.

         On October 16, 2000, the Partnership received a settlement notice from
ARCO for payment of a net aggregate amount of approximately $12.9 million in
post-closing adjustments related to the purchase of the ARCO assets. A large
portion of the requested adjustment relates to ARCO's indemnity for payment of
accrued income taxes. The Partnership is disputing a substantial portion of the
adjustments. The Partnership does not believe that payment of any amount
ultimately determined would have a material adverse impact on the Partnership's
financial condition and results of operations.

         The matters discussed herein include "forward-looking statements"
within the meaning of various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this document that address activities, events or
developments that the Partnership expects or anticipates will or may occur in
the future, including such things as estimated future capital expenditures
(including the amount and nature thereof), business strategy and measures to
implement strategy, competitive strengths, goals, expansion and growth of the
Partnership's business and operations, plans, references to future success,
references to intentions as to future matters and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Partnership in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate under the
circumstances. However, whether actual results and developments will conform
with the Partnership's expectations and predictions is subject to a number of
risks and uncertainties, including general economic, market or business
conditions, the opportunities (or lack thereof) that may be presented to and
pursued by the Partnership, competitive actions by other pipeline companies,
changes in laws or regulations, and other factors, many of which are beyond the
control of the Partnership. Consequently, all of the forward-looking statements
made in this document are qualified by these cautionary statements and there can
be no assurance that actual results or developments anticipated by the
Partnership will be realized or, even if substantially realized, that they will
have the expected consequences to or effect on the Partnership or its business
or operations.


                                       27

<PAGE>   30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

         The Partnership may be exposed to market risk through changes in
commodity prices and interest rates as discussed below. The Partnership has no
foreign exchange risks. Risk management policies have been established by the
Risk Management Committee to monitor and control these market risks. The Risk
Management Committee is comprised of senior executives of the Company.

         The Partnership mitigates exposure to commodity price fluctuations by
maintaining a balanced position between crude oil purchases and sales. As a
hedging strategy to manage crude oil price fluctuations, the Partnership enters
into futures contracts on the New York Mercantile Exchange, and makes limited
use of other derivative instruments. It is the Partnership's general policy not
to acquire crude oil futures contracts or other derivative products for the
purpose of speculating on price changes, however, the Partnership may take
limited speculative positions to capitalize on crude oil price fluctuations. Any
contracts held for trading purposes or speculative positions are accounted for
using the mark-to-market method. Under this methodology, contracts are adjusted
to market value, and the gains and losses are recognized in current period
income. Market risks associated with commodity derivatives were not material at
December 31, 2000.

         At December 31, 2000, the Downstream Segment had outstanding $180
million principal amount of 6.45% Senior Notes due 2008, and $210 million
principal amount of 7.51% Senior Notes due 2028 (collectively the "Senior
Notes"). At December 31, 2000 and 1999, the estimated fair value of the Senior
Notes was approximately $385 million and $356 million, respectively.

         At December 31, 2000, the Partnership had $446 million outstanding
under a variable interest rate revolving credit agreement. The interest rate is
based on the Partnership's option of either the lender's base rate plus a spread
or LIBOR plus a spread in effect at the time of the borrowings and is adjusted
monthly, bimonthly, quarterly or semi-annually. Utilizing the balances of
variable interest rate debt outstanding at December 31, 2000, and assuming
market interest rates increase 100 basis points, the potential annual increase
in interest expense is approximately $4.5 million.

         On July 21, 2000, the Partnership entered into a three-year swap
agreement to partially hedge its exposure on the new variable rate credit
facilities. The swap agreement is based on the notional amount of $250 million.
Under the swap agreement, the Partnership will pay a fixed rate of interest of
7.17% and will receive a floating rate based on the three month USD LIBOR rate.
At December 31, 2000, the estimated fair value of the swap agreement was a loss
of approximately $10 million.

         Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133 Accounting for Derivative Instruments and
Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133. These statements establish accounting and reporting standards requiring
that derivative instruments, including certain derivative instruments embedded
in other contracts, be recorded on the balance sheet at fair value as either
assets or liabilities. The accounting for changes in the fair value of a
derivative instrument depends on the intended use and designation of the
derivative at its inception. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results of the hedged item in
the statement of income, and requires the Company to formally document,
designate and assess the effectiveness of the hedge transaction to receive hedge
accounting. For derivatives designated as cash flow hedges, changes in fair
value, to the extent the hedge is effective, are recognized in other
comprehensive income until the hedged item is recognized in earnings. Overall
hedge effectiveness is measured at least quarterly. Any changes in the fair
value of the derivative instrument resulting from hedge ineffectiveness, as
defined by SFAS 133 and measured based on the cumulative changes in the fair
value of the derivative instrument and the cumulative changes in the estimated
future cash flows of the hedged item, are recognized immediately in earnings.
The Company has designated its swap agreement as a cash flow hedge.

       Adoption of SFAS 133 resulted in the recognition of approximately $10
million of derivative liabilities on the Partnership's balance sheet and $10
million of hedging losses included in accumulated other comprehensive income,
which is a component of Partners' capital, as the cumulative effect of a change
in accounting principle as of January 1, 2001. Amounts were determined as of
January 1, 2001 based on the market quote of the Partnership's interest rate
swap agreement.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements of the Partnership, together with
the independent auditors' report thereon of KPMG LLP, begin on page F-1 of this
report.

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

         Not Applicable


                                       28
<PAGE>   31



                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Partnership does not have directors or officers. Set forth below is
certain information concerning the directors and executive officers of the
General Partner. All directors of the General Partner are elected annually by
DEFS. All officers serve at the discretion of the directors.

         William L. Thacker, age 55, was elected a director of the General
Partner in 1992 and Chairman of the Board in October 1997. Mr. Thacker was
elected President and Chief Operating Officer in September 1992 and Chief
Executive Officer in January 1994. Prior to joining the Company, Mr. Thacker was
president of Unocal Pipeline Company from 1986 until 1992.

         Jim W. Mogg, age 52, was elected a director of the General Partner in
October 1997 and Vice Chairman of the Board and Chairman of the Compensation
Committee in April 2000. Mr. Mogg is chairman, president and chief executive
officer of DEFS. Mr. Mogg was previously president of Centana Energy Corporation
and senior vice president for Panhandle Eastern Pipe Line Company. Mr. Mogg
joined Panhandle Eastern Pipe Line Company in 1973.

         Mark A. Borer, age 46, was elected a director of the General Partner in
April 2000. Mr. Borer is senior vice president for the Southern Division of
DEFS, having joined DEFS in 1999, and in addition to the Southern Division, he
is also responsible for DEFS's natural gas liquids marketing organization.
Before joining DEFS he was vice president of natural gas marketing for Union
Pacific Fuels, Inc. from 1992 until 1999.

         Milton Carroll, age 50, was elected a director of the General Partner
in November 1997, is a member of the Compensation Committee and is Chairman of
the Audit Committee. Mr. Carroll is the founder, and has been president and
chief executive officer of Instrument Products, Inc., a manufacturer of oil
field equipment and other precision products, since 1977. Mr. Carroll is a
director of Reliant Energy, Ocean Energy Inc., and Blue Cross Blue Shield of
Texas.

         Carl D. Clay, age 68, is a director of the General Partner and a member
of the Compensation and Audit Committees. He was elected in January 1995. Mr.
Clay retired from Marathon Oil Company in 1994 after 33 years during which he
served as director of transportation and logistics and president of Marathon
Pipe Line Company.

         Derrill Cody, age 62, is a director of the General Partner having been
elected in 1989. He serves on the Compensation Committee and was Chairman of the
Audit Committee until April 2000. Mr. Cody is currently of counsel to McKinney
and Stringer, P. C., which represents Duke Energy in certain matters. He is also
an advisor to Duke Energy pursuant to a personal contract. Mr. Cody served as
chief executive officer of Texas Eastern Gas Pipeline Company from 1987 to 1989.
Mr. Cody is also a director of Barrett Resources Corporation.

         John P. DesBarres, age 61, is a director of the General Partner, having
been elected in May 1995. He is a member of the Compensation and Audit
Committees. Mr. DesBarres was formerly chairman, president and chief executive
officer of Transco Energy Company from 1992 to 1995. He joined Transco in 1991
as president and chief executive officer. Prior to joining Transco, Mr.
DesBarres served as chairman, president and chief executive officer for Santa Fe
Pacific Pipelines, Inc. from 1988 to 1991. Mr. DesBarres is a director of
American Electric Power.

         Fred J. Fowler, age 55, was elected a director in November 1998 and
served as Vice Chairman of the Board and Chairman of the Compensation Committee
until April 2000. Mr. Fowler is group president, energy transmission of Duke
Energy. Mr. Fowler joined PanEnergy in 1985 and served in a variety of positions
in marketing, transportation and exchange. He was appointed group vice president
of PanEnergy in 1996.

         William W. Slaughter, age 53, was elected a director of the General
Partner in April 2000. Mr. Slaughter is executive vice president of DEFS. He has
been advisor to the chief executive officer of DEFS since January 1999. Mr.
Slaughter was vice president of energy services for Duke Energy from 1997 until
1998, and was vice president of


                                       29

<PAGE>   32



corporate strategic planning for PanEnergy and president of PanEnergy
International Development Corporation from 1994 to 1997.

         Barry R. Pearl, age 51, was elected President and Chief Operating
Officer in February 2001. Prior to joining the Company, Mr. Pearl was vice
president - finance and administration, treasurer, secretary and chief financial
officer of Maverick Tube Corporation since June 1998. Mr. Pearl was senior vice
president and chief financial officer of Santa Fe Pacific Pipeline Partners,
L.P. from 1995 until 1998, and senior vice president, business development from
1992 to 1995.

         Charles H. Leonard, age 52, is Senior Vice President, Chief Financial
Officer and Treasurer of the General Partner. Mr. Leonard joined the Company in
1988 as Vice President and Controller. In November 1989, he was elected Vice
President and Chief Financial Officer. He was elected Senior Vice President in
March 1990, and Treasurer in October 1996.

         James C. Ruth, age 53, is Senior Vice President, General Counsel and
Secretary of the General Partner, having been elected in February 2001. Mr. Ruth
was previously Vice President, General Counsel and Secretary from 1998 until
February 2001, and Vice President, General Counsel from 1991 until 1998.

         Thomas R. Harper, age 60, is Vice President, Commercial Downstream of
the General Partner, having been elected in September 2000. Mr. Harper was
previously Vice President, Product Transportation and Refined Products Marketing
from 1988 until September 2000. Mr. Harper joined the Company in 1987 as
Director of Product Transportation.

         David L. Langley, age 53, is Senior Vice President, Corporate
Development of the General Partner, having been elected in February 2001. Mr.
Langley was previously Vice President, Corporate Development since September
2000, and Vice President, Business Development and LPG Services from 1990 until
September 2000. Mr. Langley has been with the Company in various managerial
positions since 1975.

         Ernest P. Hagan, age 56, is Vice President, Centennial, of the General
Partner, having been elected in September 2000. Mr. Hagan was previously Vice
President, Operations, from 1996 until September 2000, and Director of
Engineering and Right-of-Way from 1994 until October 1996. From 1986 until 1994
he was Region Manager of the Southwest Region. Mr. Hagan will retire from the
General Partner, effective March 31, 2001.

         Sharon S. Stratton, age 62, is Vice President, Human Resources of the
General Partner, having been elected in January 1999. Ms. Stratton served as
Director, Human Resources of the General Partner from 1992 to 1998. She
previously served in a variety of human resource positions with PanEnergy. Ms.
Stratton will retire from the General Partner, effective March 31, 2001.

         J. Michael Cockrell, age 54, is Vice President, Commercial Upstream of
the General Partner, having been elected in September 2000. Mr. Cockrell was
elected Vice President of the General Partner in January 1999 and also serves as
President of TCO. He joined PanEnergy in 1987 and served in a variety of
positions in supply and development, including president of Duke Energy
Transport and Trading Company ("DETTCO").

         Leonard W. Mallett, age 44, is Vice President, Operations of the
General Partner, having been elected in September 2000. Mr. Mallett was
previously Region Manager of the Southwest Region of the Company from 1994 until
1999 and Director, Engineering, from 1992 until 1994. Mr. Mallett joined the
Company in 1979 as an engineer.

         Stephen W. Russell, age 49, is Vice President, Support Services of the
General Partner, having been elected in September 2000. Mr. Russell was
previously Region Manager of the Southwest Region from July 1999 until September
2000, and Technical Operations Superintendent of the Southwest Region from 1994
until 1999. Mr. Russell joined the Company in 1988 as Project Manager in
Engineering.

         David E. Owen, age 51, was elected Vice President of the General
Partner in February 2001. Mr. Owen will become Vice President, Human Resources
effective April 1, 2001. He was previously northern division human


                                       30

<PAGE>   33



resources manager of DEFS from May 2000 until he joined the Company. Prior to
DEFS, Mr. Owen held positions with ARCO International Oil and Gas Company from
October 1996 until January 2000 .

         Based on information furnished to the Company and written
representation that no other reports were required, to the Company's knowledge,
all applicable Section 16(a) filing requirements were complied with during the
year ended December 31, 2000 except for reports covering certain transactions
that were filed late by Messrs. Carroll, Harper, Mallett, Mogg and Thacker.

ITEM 11.  EXECUTIVE COMPENSATION

         The officers of the General Partner manage and operate the
Partnership's business. The Partnership does not directly employ any of the
persons responsible for managing or operating the Partnership's operations, but
instead reimburses the General Partner for the services of such persons. See
Note 4 of the Notes to Consolidated Financial Statements contained elsewhere
herein for additional information.

         Directors of the General Partner who are neither officers nor employees
of either the Company or DEFS receive a stipend of $15,000 per annum, $750 for
attendance at each meeting of the Board of Directors, $750 for attendance at
each meeting of a committee of the Board of Directors and reimbursement of
expenses incurred in connection with attendance at a meeting of the Board of
Directors or a committee of the Board of Directors. Each non-employee director
who serves as chairman of a committee of the Board of Directors receives an
additional stipend of $2,000 per annum. Effective September 1, 1999,
non-employee directors may elect to defer payment of retainer and attendance
fees until termination of service on the Board of Directors. Such deferral may
be either 50% or 100% in either a fixed income investment account that is
credited with annual interest (currently 7%) or an investment account based upon
the market value of Limited Partner Units.

         Effective April 1, 1999, each quarter that a non-employee director
continues to serve on the Board of Directors, such director will be credited
with an amount equal to the market value of 62.5 Limited Partner Units and
distribution equivalents on previously awarded amounts. In general, such amounts
will not become distributable until the non-employee director terminates service
on the Board of Directors. When a non-employee director terminates service on
the Board of Directors, payment will be distributed to the director on the basis
of the distribution schedule chosen by such director.

         Messrs. Thacker, Mogg, Borer, Fowler and Slaughter were not compensated
for their services as directors, and it is not anticipated that any compensation
for service as a director will be paid in the future to directors who are either
officers or full-time employees of Duke Energy, DEFS, the General Partner or any
of their affiliates.

         The following table reflects cash compensation paid or accrued by the
General Partner for the years ended December 31, 2000, 1999 and 1998, with
respect to its Chief Executive Officer and the four most highly compensated
executive officers (collectively, the "Named Executive Officers").


                                       31

<PAGE>   34



                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                               LONG TERM COMPENSATION
                                    ANNUAL COMPENSATION            OTHER       -----------------------
                               -----------------------------       ANNUAL          LTIP                       ALL OTHER
          NAME AND                                    BONUS      COMPENSATION    AWARDS (#)    PAYOUTS      COMPENSATION
     PRINCIPAL POSITION        YEAR    SALARY ($)    ($) (2)       ($) (3)        (4) (5)      ($)(6)         ($) (7)
     ------------------        ----    ----------    -------    -------------  ------------  ---------      ------------
<S>                            <C>     <C>           <C>         <C>             <C>           <C>          <C>
William L. Thacker........     2000      269,434     149,400         15,200        7,500       188,335          25,039
     Chairman, President and   1999      261,321     106,100         57,809       50,000       133,124          22,924
    Chief Executive Officer    1998      250,000      86,400         77,114       39,000       148,858          24,666

J. Michael Cockrell (1)...     2000      182,021      78,000         30,000           --            --          14,853
    Vice President             1999      179,393      51,000         27,750       15,000            --          14,064

Charles H. Leonard........     2000      155,965      83,400          5,000        2,500        52,354          13,818
    Senior Vice President,     1999      153,507      62,200             --       16,000        98,679          12,687
    Chief Financial Officer    1998      149,333      39,200         14,820       12,000        95,331          13,406
    and Treasurer

James C. Ruth.............     2000      147,899      76,400          5,000        2,500        40,182          13,013
    Senior Vice President and  1999      142,344      57,600         28,904       16,000        60,741          11,738
    General Counsel            1998      138,333      36,200         38,557       12,000        41,095          15,079

David L. Langley..........     2000      140,804      76,400          5,000        2,500        18,690          12,230
     Senior Vice President     1999      138,359      52,300         17,343       16,000        17,970          11,380
                               1998      134,800      34,800         23,134       12,000        50,516          12,968
</TABLE>

(1)      Mr. Cockrell was elected to his position in January 1999. He was
         previously employed by DETTCO prior to the acquisition by the
         Partnership in November 1999.

(2)      Amounts represent bonuses accrued during the year under the Management
         Incentive Compensation Plan ("MICP"). Payments under the MICP are made
         in the subsequent year.

(3)      Amounts represent quarterly distribution equivalents under the terms of
         the Company's 2000 Long Term Incentive Plan ("2000 LTIP"), Long Term
         Incentive Compensation Plan ("LTICP") and Retention Incentive
         Compensation Plan ("RICP").

(4)      Amounts for Mr. Thacker, Mr. Leonard, Mr. Ruth and Mr. Langley
         represent awards in 1998 and 1999 pursuant to the Texas Eastern
         Products Pipeline Company 1994 Long Term Incentive Plan ("1994 LTIP")
         and awards in 2000 pursuant to the 2000 LTIP.

(5)      Amount for Mr. Cockrell represents award pursuant to the RICP.

(6)      Amounts represent the value of redemptions under the 1996 amendment to
         the LTICP and credits earned to Performance Unit accounts and options
         exercised under the terms of 1994 LTIP.

(7)      Includes (i) Company matching contributions under funded, qualified,
         defined contribution retirement plans; (ii) Company matching
         contribution credits under unfunded, non qualified plans; and (iii) the
         imputed value of premiums paid by the Company for insurance on the
         Named Executive Officers' lives.


                                       32

<PAGE>   35



EXECUTIVE EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS

         On September 1, 1992, William L. Thacker, Jr. and the Company entered
into an employment agreement, which set a minimum base salary of $190,000 per
year. The Company may terminate the employment agreement for cause, death or
disability. In addition, the Company or Mr. Thacker may terminate the agreement
upon written notice. Additionally, the Company granted 16,000 phantom units with
distribution equivalents to Mr. Thacker pursuant to the LTICP discussed below.
Mr. Thacker participates in other Company sponsored benefit plans on the same
basis as other senior executives of the Company.

         On December 1, 1998, the Company entered into employment agreements
with Ernest P. Hagan, Thomas R. Harper, David L. Langley, Charles H. Leonard and
James C. Ruth. Additionally, effective January 1, 1999, the Company entered into
employment agreements with J. Michael Cockrell and Sharon S. Stratton. The
agreements may be terminated for death, disability or by the Company with or
without cause. In the event one of the named executives' employment is
terminated due to death or disability or by the Company for cause, such
executive is entitled only to base salary earned through the date of
termination. In the event of termination for any other reason, such executive is
entitled to base salary earned through the date of termination plus a lump sum
severance payment equal to two times such executive's base annual salary and two
times the current target bonus approved under the MICP by the Compensation
Committee. In the event that an executive is involuntarily terminated following
a change in control, such executive is entitled to a lump sum severance payment
equal to two times his base annual salary plus two times his current target
bonus.


COMPENSATION PURSUANT TO GENERAL PARTNER PLANS

      Management Incentive Compensation Plan

         The General Partner has established the MICP, which provides for the
payment of additional cash compensation to participants if certain Partnership
performance and personal objectives are met each year. The Compensation
Committee of the General Partner (the "Committee") determines at the beginning
of each year which employees are eligible to become participants in the MICP.
Each participant is assigned a target award by the Committee. Such target award
determines the additional compensation to be paid if all Partnership performance
and personal objectives are met and all Minimum Quarterly Distributions have
been made for the year. The amount of the awards may range from 10% to 56% of a
participant's base salary. Awards are paid as soon as practicable following
approval by the Committee after the close of a year.

      Long Term Incentive Compensation Plan

         The LTICP provides key employees with an incentive award based upon the
grant of phantom units. The LTICP is administered by the Committee, which has
sole and absolute discretion to determine the amount of an award. The credit of
phantom units under the terms of the LTICP is contingent upon minimum quarterly
cash distributions ($0.275 per Unit) being made to the Unit holders and the
General Partner. The Committee may also establish performance targets for
crediting of phantom units. The award consists of phantom units with a total
market value, as of the date of the award, that may not exceed 100% of the base
salary of a participant. The phantom units are credited to each participant at
the rate of 10% per year beginning on the first anniversary date of the award. A
final credit of 60% of the phantom units awarded will occur on the fifth
anniversary date of the award. The phantom units may be redeemed by a
participant at any time following credit to a participant in accordance with
terms and conditions prescribed by the Committee. The redemption price of the
phantom units is based on the market value of a Limited Partner Unit as of the
date of redemption. In the event of a change of control, all phantom units
awarded to a participant will be redeemed. Each participant also receives a
quarterly distribution equivalent in cash based upon a percentage of the
distributions to the General Partner for such quarter. In 1995, the LTICP was
amended to require annual redemptions, effective January 1, 1996, of 20% of the
phantom units previously credited to each participant. No awards were made under
the LTICP in 2000. On January 4, 2000, all remaining outstanding phantom units
were redeemed. See Item 13, "Certain Relationships and Related Transactions."


                                       33

<PAGE>   36



      1994 Long Term Incentive Plan

         The 1994 LTIP provides key employees with an incentive award whereby a
participant is granted an option to purchase Units together with a stipulated
number of Performance Units. Each Performance Unit creates a credit to a
participant's Performance Unit account when earnings exceed a threshold, which
was $1.00, $1.25 and $1.875 per Limited Partner Unit for the awards made in
1994, 1995, and 1997, respectively. When earnings for a calendar year (exclusive
of certain special items) exceed the threshold, the excess amount is credited to
the participant's Performance Unit account. The balance in the account may be
used to exercise Unit options granted in connection with the Performance Units
or may be withdrawn two years after the underlying options expire, usually 10
years from the date of grant. Under the agreement for such Unit options, the
options become exercisable in equal installments over periods of one, two, and
three years from the date of the grant. Options may also be exercised by normal
means once vesting requirements are met. No awards were made under the 1994 LTIP
in 2000.

         The following table provides information concerning the Unit options
exercised under the 1994 LTIP by each of the Named Executive Officers during
2000 and the value of unexercised Unit options under the 1994 LTIP to the Named
Executive Officers as of December 31, 2000. The value assigned to each
unexercised, "in the money" option is based on the positive spread between the
exercise price of such option and the fair market value of a Limited Partner
Unit on December 31, 2000. The fair market value is the average of the high and
low prices of a Limited Partner Unit as reported in The Wall Street Journal on
the last business day in 2000. In assessing the value, it should be kept in mind
that no matter what theoretical value is placed on an option on a particular
date, its ultimate value will be dependent on the market value of the
Partnership's Limited Partner Unit price at a future date. The future value will
depend in part on the efforts of the Named Executive Officers to foster the
future success of the Partnership for the benefit of all Unitholders.

            AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
                        FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                                                                 VALUE OF
                                                                                                UNEXERCISED
                                                                     NUMBER OF SECURITIES       IN-THE MONEY
                                                                    UNDERLYING UNEXERCISED      OPTIONS/SARS
                                        SHARES                      OPTIONS/SARS AT FY-END      AT FY-END ($)
                                      ACQUIRED ON       VALUE          (#) EXERCISABLE/         EXERCISABLE/
NAME                                  EXERCISE (#)   REALIZED($)       UNEXERCISABLE (1)        UNEXERCISABLE
----                                  ------------   -----------    ----------------------     ---------------
<S>                                   <C>            <C>            <C>                         <C>
Mr. Thacker.................              5,076      $42,462             62,249/46,333          $134,530/$0
Mr. Leonard.................              3,000      $33,873             13,661/14,667          $  3,506/$0
Mr. Ruth....................                669      $ 5,952             21,390/14,667          $ 86,109/$0
Mr. Langley.................                 --           --             19,333/14,667          $ 64,125/$0
</TABLE>

(1)      Future exercisability of currently unexercisable options depends on the
         grantee remaining employed by the Company throughout the vesting period
         of the options, subject to provisions applicable at retirement, death,
         or total disability.

      2000 Long Term Incentive Plan

         Effective January 1, 2000, the General Partner established the Texas
Eastern Products Pipeline Company, LLC 2000 Long Term Incentive Plan (the "2000
LTIP") to provide key employees incentives to achieve improvements in the
Partnership's financial performance. Generally, upon the close of a three-year
performance period, if he is then still an employee of the General Partner, a
participant in the 2000 LTIP will be entitled to receive a cash payment in an
amount equal to (1) the applicable performance percentage specified in the award
multiplied by (2) the number of phantom Limited Partner Units granted under the
award multiplied by (3) the average of the closing prices of a Limited Partner
Unit over the ten consecutive trading days immediately preceding the last day of
the performance period. Generally, a participant's performance percentage is
based upon the improvement of the Partnership's Economic Value Added (as defined
below) during a three-year performance period over the economic value added
during the three-year period immediately preceding the performance period. If a
participant incurs a separation from service during the performance period due
to death, disability or retirement


                                       34

<PAGE>   37



(as such terms are defined in the 2000 LTIP), the participant will be entitled
to receive a cash payment in an amount equal to the amount computed as described
above multiplied by a fraction, the numerator of which is the number of days
that have elapsed during the performance period prior to the participant's
separation from service and the denominator of which is the number of days in
the performance period.

         During 2000, Mr. Thacker, Mr. Leonard, Mr. Ruth and Mr. Langley were
granted awards under the 2000 LTIP of 7,500, 2,500, 2,500 and 2,500 phantom
Limited Partner Units, respectively. The performance period applicable to such
awards is the three-year period that commenced on January 1, 2000 and ends on
December 31, 2002. Each participant's performance percentage is the result of
[(A) minus (B)] multiplied by (C) where (A) is the Economic Value Added for the
performance period, (B) is $47,088,000 (which represents the Economic Value
Added for the three-year period immediately preceding the performance period)
and (C) is .0000001219. Thus, no amounts will be payable under the 2000 LTIP
unless Economic Value Added for the performance period exceeds $47,088,000.

         Economic Value Added means the Partnership's average annual EBITDA for
the performance period minus the product of the Partnership's average asset base
and the Partnership's cost of capital for the performance period. For purposes
of the 2000 LTIP, EBITDA means the Partnership's earnings before interest income
and expense, income taxes, depreciation and amortization as presented in the
Partnership's financial statements prepared in accordance with generally
accepted accounting principles, except that in its discretion the Compensation
Committee of the General Partner may exclude gains or losses from extraordinary,
unusual or non-recurring items. Average asset base means the quarterly average,
during the performance period, of the Partnership's gross property, plant and
equipment, plus products linefill, crude linefill, goodwill, maintenance capital
and expansion capital, minus retired capital. The Partnership's cost of capital
is the weighted average cost of the Partnership's accumulated long and
short-term debt for the performance period.

         In addition to the payment described above, during the performance
period, for so long as the participant is an employee of the General Partner,
the General Partner will pay to the Participant the amount of cash distributions
the Partnership would have paid to the participant had he been the owner of the
number of Limited Partner Units equal to the number of phantom Limited Partner
Units granted to the participant under his award.

         The following table provides information concerning awards under the
2000 LTIP to each of the Named Executive Officers during 2000.

<TABLE>
<CAPTION>
                                     NUMBER                 ESTIMATED FUTURE PAYOUTS (1)
                                      OF        -------------------------------------------------
                                    PHANTOM     PERFORMANCE    THRESHOLD    TARGET       MAXIMUM
        NAME                         UNITS         PERIOD       (#) (2)     (#) (3)      (#) (4)
        ----                        -------     -----------    ---------    -------      --------
<S>                                 <C>         <C>            <C>          <C>         <C>
        Mr. Thacker..............      7,500      3 years         0          8,022          N/A
        Mr. Leonard..............      2,500      3 years         0          2,674          N/A
        Mr. Ruth.................      2,500      3 years         0          2,674          N/A
        Mr. Langley..............      2,500      3 years         0          2,674          N/A
</TABLE>

(1)      Phantom units will be settled in cash based upon the then-market price
         of the Units at the end of the performance period as described above.

(2)      No amounts will be payable under the 2000 LTIP unless Economic Value
         Added for the performance period exceeds $47,088,000.

(3)      In number of phantom units. Pursuant to Instruction 5 to Regulation
         402(e) of the Securities and Exchange Commission, these amounts assume
         that the 18.6 percent increase in Economic Value Added for 2000 as
         compared with 1999 is maintained for each of the three years in the
         performance period. There can be no assurance that any specific amount
         of Economic Value Added will be attained for such period.

(4)      There is no maximum limitation on potential payouts under the 2000
         LTIP.

                                       35

<PAGE>   38



      Retention Incentive Compensation Plan

         Effective January 1, 1999, the General Partner established the
Retention Incentive Compensation Plan ("RICP") to provide key employees with an
incentive award based upon the grant of phantom units. The RICP is administered
by the Committee, which has sole and absolute discretion to determine the amount
of an award. The Committee may also establish performance targets for crediting
of phantom units. The phantom units are credited to each participant at the rate
of 25% per year beginning on the first anniversary date of the award. The
phantom units may be redeemed by a participant at any time following credit to a
participant in accordance with terms and conditions prescribed by the Committee.
The redemption price of the phantom units is based on the market value of a
Limited Partner Unit as of the date of redemption. Each participant also
receives a quarterly distribution equivalent on all phantom units awarded, until
redemption of such phantom units. No awards were made under the RICP in 2000.


PENSION PLAN

         Prior to the transfer of the General Partner interest from Duke Energy
to DEFS on April 1, 2000, the Company's employees participated in the Duke
Energy Retirement Cash Balance Plan, which is a noncontributory,
trustee-administered pension plan. Effective January 1, 1999 the benefit formula
for all eligible employees was a cash balance formula. Under a cash balance
formula, a plan participant accumulates a retirement benefit based upon pay
credits and current interest credits. The pay credits are based on a
participant's salary, age, and service. In addition, the Named Executive
Officers participate in the Duke Energy Executive Cash Balance Plan, which is a
noncontributory, nonqualified, defined benefit retirement plan. The Duke Energy
Executive Cash Balance Plan was established to restore benefit reductions caused
by the maximum benefit limitations that apply to qualified plans.

         Benefits under the Duke Energy Retirement Cash Balance Plan and the
Duke Energy Executive Cash Balance were based on eligible pay, generally
consisting of base pay, short term incentive pay, and lump-sum merit increases.
The Duke Energy Retirement Cash Balance Plan excludes deferred compensation,
other than deferrals pursuant to Sections 401(k) and 125 of the Internal Revenue
Code. As part of the change in ownership, the Company is no longer responsible
for liabilities associated with the Duke Energy Retirement Cash Balance Plan or
the Duke Energy Executive Cash Balance Plan.

         Effective April 1, 2000, the Company adopted the TEPPCO Retirement Cash
Balance Plan ("Retirement Cash Balance Plan") and the TEPPCO Supplemental
Benefit Plan ("Supplemental Benefit Plan"). The benefits and provisions of these
plans are substantially identical to the Duke Energy Retirement Cash Balance
Plan and the Duke Energy Executive Cash Balance Plan previously in effect prior
to April 1, 2000.

         Under the cash balance benefit accrual formula that applies in
determining benefits under the Retirement Cash Balance Plan, an eligible
employee's plan account receives a pay credit at the end of each month in which
the employee remains eligible and receives eligible pay for services. The
monthly pay credit is equal to a percentage of the employee's monthly eligible
pay. The percentage depends on age added to completed years of services at the
beginning of the year, as shown below:

<TABLE>
<CAPTION>
                                                                        MONTHLY PAY
                                                                          CREDIT
              AGE AND SERVICE                                           PERCENTAGE
              ---------------                                           ----------
<S>                                                                     <C>
              34 or less.........................................           4%
              35 to 49...........................................           5%
              50 to 64...........................................           6%
              65 or more.........................................           7%
</TABLE>

         The above monthly pay credit is increased by an additional 4% of any
portion of eligible pay above the Social Security taxable wage base ($80,400 for
2001). Employee accounts also receive monthly interest credits on their
balances. The rate of the interest credit is adjusted quarterly and is derived
from the average annual yield on 30-year U.S. Treasury Bonds during the third
week of the last month of the previous quarter, subject to a minimum rate of 4%
per year and a maximum rate of 9% per year.

                                       36

<PAGE>   39



         Assuming that the Named Executive Officers continue in their present
positions at their present salaries until retirement at age 65, their estimated
annual pensions in a single life annuity form under the applicable pension
plan(s) (including the Duke Energy Retirement Cash Balance Plan, the Duke Energy
Executive Cash Balance Plan, the Retirement Cash Balance Plan and the
Supplemental Benefit Plan) attributable to such salaries would be as follows:
William L. Thacker, $157,678; J. Michael Cockrell, $41,690; Charles H. Leonard,
$105,297; James C. Ruth, $187,197; and David L. Langley, $174,794. Such
estimates were calculated assuming interest credits at a rate of 7% per annum
and using a future Social Security taxable wage base equal to $80,400.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      (a) Security Ownership of Certain Beneficial Owners

         As of March 6, 2001, Duke Energy, through its ownership of the Company
and other subsidiaries, owns 2,500,000 Limited Partner Units, representing 7.15%
of the Limited Partner Units outstanding; and 3,916,547 Class B Units,
representing 100% of the Class B Units, or 16.51% of the two classes of Units
combined.

      (b) Security Ownership of Management

The following table sets forth certain information, as of March 6, 2001,
concerning the beneficial ownership of Limited Partner Units by each director
and Named Executive Officer of the General Partner and by all directors and
officers of the General Partner as a group. Such information is based on data
furnished by the persons named. Based on information furnished to the General
Partner by such persons, no director or officer of the General Partner owned
beneficially, as of March 6, 2001, more than 1% of the 35.0 million Limited
Partner Units outstanding at that date.

<TABLE>
<CAPTION>
                                                                                                          NUMBER OF
NAME                                                                                                      UNITS (1)
----                                                                                                      ---------
<S>                                                                                                       <C>
Mark A. Borer.............................................................................                      500
Milton Carroll............................................................................                      532
Carl D. Clay (2)..........................................................................                    3,200
J. Michael Cockrell.......................................................................                    4,000
Derrill Cody..............................................................................                   13,000
John P. DesBarres.........................................................................                   20,000
Fred J. Fowler (3)........................................................................                    3,100
David L. Langley..........................................................................                   22,000
Charles H. Leonard........................................................................                      406
Jim W. Mogg (4)...........................................................................                    3,427
James C. Ruth.............................................................................                    3,643
William W. Slaughter......................................................................                    8,000
William L. Thacker........................................................................                   37,987
All directors and officers (consisting of 22 people, including those named above).........                  139,608
</TABLE>

(1)      Unless otherwise indicated, the persons named above have sole voting
         and investment power over the Units reported. Includes Units that the
         named person has the right to acquire within 60 days.

(2)      Includes 1,800 Units in wife's name.

(3)      Includes 200 Units owned by son.

(4)      Includes 2,227 Units held in trust accounts for daughters.

                                       37

<PAGE>   40



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Partnership is managed and controlled by the General Partner
pursuant to the Partnership Agreements. Under the Partnership Agreements, the
General Partner is reimbursed for all direct and indirect expenses it incurs or
payments it makes on behalf of the Partnership. These expenses include salaries,
fees and other compensation and benefit expenses of employees, officers and
directors, insurance, other administrative or overhead expenses and all other
expenses necessary or appropriate to conduct the Partnership's business. The
costs allocated to the Partnership by the General Partner for administrative
services and overhead totaled $0.8 million in 2000.

         The Partnership Agreements provide for incentive distributions payable
to the General Partner out of the Partnership's Available Cash (as defined in
the Partnership Agreements) in the event quarterly distributions to Unitholders
exceed certain specified targets. In general, subject to certain limitations, if
a quarterly distribution exceeds a target of $0.275 per Limited Partner Unit,
the General Partner will receive incentive distributions equal to (i) 15% of
that portion of the distribution per Limited Partner Unit which exceeds the
minimum quarterly distribution amount of $0.275 but is not more than $0.325,
plus (ii) 25% of that portion of the quarterly distribution per Limited Partner
Unit which exceeds $0.325 but is not more than $0.45, plus (iii) 50% of that
portion of the quarterly distribution per Limited Partner Unit which exceeds
$0.45. During 2000, incentive distributions paid to the General Partner totaled
$12.9 million.

         In connection with the formation of the Partnership in 1990, the
Company received 2,500,000 Deferred Partnership Interests ("DPIs"). Effective
April 1, 1994, the DPIs began participating in distributions of cash and
allocations of profit and loss. As of December 31, 2000, 94% of the DPIs have
been converted into an equal number of Limited Partner Units, and the balance of
such DPIs may be converted immediately prior to the sale of the DPIs by the
Company. Pursuant to its Partnership Agreement, the Partnership has registered
the resale of such Limited Partner Units with the Securities and Exchange
Commission. Such Limited Partner Units may be sold from time to time on the New
York Stock Exchange or otherwise at prices and terms then prevailing or in
negotiated transactions. As of December 31, 2000, no such Limited Partner Units
had been sold by the Company.


                                     PART IV

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

(a)      The following documents are filed as a part of this Report:

         (1)      Financial Statements: See Index to Financial Statements on
                  page F-1 of this report for financial statements filed as part
                  of this report.

         (2)      Financial Statement Schedules: None

         (3)      Exhibits.


         Exhibit
         Number                               Description

         3.1      Certificate of Limited Partnership of the Partnership (Filed
                  as Exhibit 3.2 to the Registration Statement of TEPPCO
                  Partners, L.P. (Commission File No. 33-32203) and incorporated
                  herein by reference).

         3.2      Certificate of Formation of TEPPCO Colorado, LLC (Filed as
                  Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the quarter ended March 31, 1998 and
                  incorporated herein by reference).

         3.3      Second Amended and Restated Agreement of Limited Partnership
                  of TEPPCO Partners, L.P., dated November 30, 1998 (Filed as
                  Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the year ended December 31, 1998 and
                  incorporated herein by reference).

                                       38

<PAGE>   41



         3.4      Amended and Restated Agreement of Limited Partnership of TE
                  Products Pipeline Company, Limited Partnership, effective July
                  21, 1998 (Filed as Exhibit 3.2 to Form 8-K of TEPPCO Partners,
                  L.P. (Commission File No. 1-10403) dated July 21, 1998 and
                  incorporated herein by reference).

         3.5      Agreement of Limited Partnership of TCTM, L.P., dated November
                  30, 1998 (Filed as Exhibit 3.5 to Form 10-K of TEPPCO
                  Partners, L.P. (Commission File No. 1-10403) for the year
                  ended December 31, 1998 and incorporated herein by reference).

         4.1      Form of Certificate representing Limited Partner Units (Filed
                  as Exhibit 4.1 to the Registration Statement of TEPPCO
                  Partners, L.P. (Commission File No. 33-32203) and incorporated
                  herein by reference).

         4.2      Form of Indenture between TE Products Pipeline Company,
                  Limited Partnership and The Bank of New York, as Trustee,
                  dated as of January 27, 1998 (Filed as Exhibit 4.3 to TE
                  Products Pipeline Company, Limited Partnership's Registration
                  Statement on Form S-3 (Commission File No. 333-38473) and
                  incorporated herein by reference).

         4.3      Form of Certificate representing Class B Units (Filed as
                  Exhibit 4.3 to Form 10-K of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the year ended December 31, 1998 and
                  incorporated herein by reference).

         10.1     Assignment and Assumption Agreement, dated March 24, 1988,
                  between Texas Eastern Transmission Corporation and the Company
                  (Filed as Exhibit 10.8 to the Registration Statement of TEPPCO
                  Partners, L.P. (Commission File No. 33-32203) and incorporated
                  herein by reference).

        +10.2     Texas Eastern Products Pipeline Company 1997 Employee
                  Incentive Compensation Plan executed on July 14, 1997 (Filed
                  as Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended September
                  30, 1997 and incorporated herein by reference).

         10.3     Agreement Regarding Environmental Indemnities and Certain
                  Assets (Filed as Exhibit 10.5 to Form 10-K of TEPPCO Partners,
                  L.P. (Commission File No. 1-10403) for the year ended December
                  31, 1990 and incorporated herein by reference).

        +10.4     Texas Eastern Products Pipeline Company Management Incentive
                  Compensation Plan executed on January 30, 1992 (Filed as
                  Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the quarter ended March 31, 1992 and
                  incorporated herein by reference).

        +10.5     Texas Eastern Products Pipeline Company Long-Term Incentive
                  Compensation Plan executed on October 31, 1990 (Filed as
                  Exhibit 10.9 to Form 10-K of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the year ended December 31, 1990 and
                  incorporated herein by reference).

        +10.6     Form of Amendment to Texas Eastern Products Pipeline Company
                  Long-Term Incentive Compensation Plan (Filed as Exhibit 10.7
                  to the Partnership's Form 10-K (Commission File No. 1-10403)
                  for the year ended December 31, 1995 and incorporated herein
                  by reference).

        +10.7     Duke Energy Corporation Executive Savings Plan (Filed as
                  Exhibit 10.7 to the Partnership's Form 10-K (Commission File
                  No. 1-10403) for the year ended December 31, 1999 and
                  incorporated herein by reference).

        +10.8     Duke Energy Corporation Executive Cash Balance Plan (Filed as
                  Exhibit 10.8 to the Partnership's Form 10-K (Commission File
                  No. 1-10403) for the year ended December 31, 1999 and
                  incorporated herein by reference).

        +10.9     Duke Energy Corporation Retirement Benefit Equalization Plan
                  (Filed as Exhibit 10.9 to the Partnership's Form 10-K
                  (Commission File No. 1-10403) for the year ended December 31,
                  1999 and incorporated herein by reference).

        +10.10    Employment Agreement with William L. Thacker, Jr. (Filed as
                  Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the quarter ended September 30, 1992 and
                  incorporated herein by reference).

        +10.11    Texas Eastern Products Pipeline Company 1994 Long Term
                  Incentive Plan executed on March 8, 1994 (Filed as Exhibit
                  10.1 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
                  No. 1-10403) for the quarter ended March 31, 1994 and
                  incorporated herein by reference).


                                       39

<PAGE>   42



        +10.12    Texas Eastern Products Pipeline Company 1994 Long Term
                  Incentive Plan, Amendment 1, effective January 16, 1995 (Filed
                  as Exhibit 10.12 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended June 30,
                  1999 and incorporated herein by reference).

         10.13    Asset Purchase Agreement between Duke Energy Field Services,
                  Inc. and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as
                  Exhibit 10.14 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended March 31,
                  1998 and incorporated herein by reference).

         10.14    Contribution Agreement between Duke Energy Transport and
                  Trading Company and TEPPCO Partners, L.P., dated October 15,
                  1998 (Filed as Exhibit 10.16 to Form 10-K of TEPPCO Partners,
                  L.P. (Commission File No. 1-10403) for the year ended December
                  31, 1998 and incorporated herein by reference).

         10.15    Guaranty Agreement by Duke Energy Natural Gas Corporation for
                  the benefit of TEPPCO Partners, L.P., dated November 30, 1998,
                  effective November 1, 1998 (Filed as Exhibit 10.17 to Form
                  10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
                  for the year ended December 31, 1998 and incorporated herein
                  by reference).

         10.16    Letter Agreement regarding Payment Guarantees of Certain
                  Obligations of TCTM, L.P. between Duke Capital Corporation and
                  TCTM, L.P., dated November 30, 1998 (Filed as Exhibit 10.19 to
                  Form 10-K of TEPPCO Partners, L.P. (Commission File No.
                  1-10403) for the year ended December 31, 1998 and incorporated
                  herein by reference).

        +10.17    Form of Employment Agreement between the Company and Ernest P.
                  Hagan, Thomas R. Harper, David L. Langley, Charles H. Leonard
                  and James C. Ruth, dated December 1, 1998 (Filed as Exhibit
                  10.20 to Form 10-K of TEPPCO Partners, L.P. (Commission File
                  No. 1-10403) for the year ended December 31, 1998 and
                  incorporated herein by reference).

         10.18    Agreement Between Owner and Contractor between TE Products
                  Pipeline Company, Limited Partnership and Eagleton Engineering
                  Company, dated February 4, 1999 (Filed as Exhibit 10.21 to
                  Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
                  1-10403) for the quarter ended March 31, 1999 and incorporated
                  herein by reference).

         10.19    Services and Transportation Agreement between TE Products
                  Pipeline Company, Limited Partnership and Fina Oil and
                  Chemical Company, BASF Corporation and BASF Fina Petrochemical
                  Limited Partnership, dated February 9, 1999 (Filed as Exhibit
                  10.22 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
                  No. 1-10403) for the quarter ended March 31, 1999 and
                  incorporated herein by reference).

         10.20    Call Option Agreement, dated February 9, 1999 (Filed as
                  Exhibit 10.23 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended March 31,
                  1999 and incorporated herein by reference).

        +10.21    Texas Eastern Products Pipeline Company Retention Incentive
                  Compensation Plan, effective January 1, 1999 (Filed as Exhibit
                  10.24 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
                  No. 1-10403) for the quarter ended March 31, 1999 and
                  incorporated herein by reference).

        +10.22    Form of Employment and Non-Compete Agreement between the
                  Company and Samuel N. Brown, J. Michael Cockrell, and Sharon
                  S. Stratton effective January 1, 1999 (Filed as Exhibit 10.29
                  to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
                  1-10403) for the quarter ended September 30, 1999 and
                  incorporated herein by reference).

        +10.23    Texas Eastern Products Pipeline Company Non-employee Directors
                  Unit Accumulation Plan, effective April 1, 1999 (Filed as
                  Exhibit 10.30 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended September
                  30, 1999 and incorporated herein by reference).

        +10.24    Texas Eastern Products Pipeline Company Non-employee Directors
                  Deferred Compensation Plan, effective November 1, 1999 (Filed
                  as Exhibit 10.31 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended September
                  30, 1999 and incorporated herein by reference).

        +10.25    Texas Eastern Products Pipeline Company Phantom Unit Retention
                  Plan, effective August 25, 1999 (Filed as Exhibit 10.32 to
                  Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
                  1-10403) for the quarter ended September 30, 1999 and
                  incorporated herein by reference).

                                       40

<PAGE>   43

         10.26    Credit Agreement between TEPPCO Partners, L.P., SunTrust Bank,
                  and Certain Lenders, dated July 14, 2000 (Filed as Exhibit
                  10.31 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
                  No. 1-10403) for the quarter ended June 30, 2000 and
                  incorporated herein by reference).

         10.27    Amended and Restated Purchase Agreement By and Between
                  Atlantic Richfield Company and Texas Eastern Products Pipeline
                  Company With Respect to the Sale of ARCO Pipeline Company,
                  dated as of May 10, 2000. (Filed as Exhibit 2.1 to Form 10-Q
                  of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
                  quarter ended March 31, 2000 and incorporated herein by
                  reference).

       +*10.28    Texas Eastern Products Pipeline Company, LLC 2000 Long Term
                  Incentive Plan, Amendment and Restatement, Effective
                  January 1, 2000.

       +*10.29    TEPPCO Supplemental Benefits Plan, effective April 1, 2000.

        *12.1     Statement of Computation of Ratio of Earnings to Fixed
                  Charges.

         22.1     Subsidiaries of the Partnership (Filed as Exhibit 22.1 to the
                  Registration Statement of TEPPCO Partners, L.P. (Commission
                  File No. 33-32203) and incorporated herein by reference).

        *23       Consent of KPMG LLP.

        *24       Powers of Attorney.

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

         * Filed herewith.

         + A management contract or compensation plan or arrangement.

(b)      Reports on Form 8-K filed during the quarter ended December 31, 2000:

                  Report dated July 21, 2000, on Form 8-K/A was filed on October
                  3, 2000, pursuant to Item 2. and Item 7. of such form.

                  Report dated October 19, 2000, on Form 8-K was filed on
                  October 23, 2000, pursuant to Item 5. and Item 7. of such
                  form.

                                   SIGNATURES

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


                                               TEPPCO Partners, L.P.
                                               ---------------------
                                                   (Registrant)
                                         (A Delaware Limited Partnership)

                                   By: Texas Eastern Products Pipeline
                                       Company, LLC, as General Partner

                                   By: /s/ WILLIAM L. THACKER
                                      ------------------------------------------
                                                 William L. Thacker,
                                        Chairman and Chief Executive Officer

                                   By: /s/ CHARLES H. LEONARD
                                      ------------------------------------------
                                                 Charles H. Leonard,
                                       Senior Vice President, Chief Financial
                                                Officer and Treasurer


Dated: March 9, 2001


                                       41

<PAGE>   44



         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
               SIGNATURE                                             TITLE                                     DATE
               ---------                                             -----                                     ----
<S>                                        <C>                                                               <C>
          WILLIAM L. THACKER*                      Chairman of the Board and Chief Executive                 March 9, 2001
      ----------------------------         Officer of Texas Eastern Products Pipeline Company, LLC
          William L. Thacker

          CHARLES H. LEONARD                  Senior Vice President, Chief Financial Officer and             March 9, 2001
      ----------------------------        Treasurer of Texas Eastern Products Pipeline Company, LLC
          Charles H. Leonard                     (Principal Accounting and Financial Officer)

             JIM W. MOGG*                             Vice Chairman of the Board of Texas                    March 9, 2001
      ----------------------------                  Eastern Products Pipeline Company, LLC
             Jim W. Mogg

            MARK A. BORER *                                Director of Texas Eastern                         March 9, 2001
      ----------------------------                      Products Pipeline Company, LLC
            Mark A. Borer

            MILTON CARROLL*                                Director of Texas Eastern                         March 9, 2001
      ----------------------------                      Products Pipeline Company, LLC
            Milton Carroll

             CARL D. CLAY*                                 Director of Texas Eastern                         March 9, 2001
      ----------------------------                      Products Pipeline Company, LLC
             Carl D. Clay

             DERRILL CODY*                                 Director of Texas Eastern                         March 9, 2001
      ----------------------------                      Products Pipeline Company, LLC
             Derrill Cody

          JOHN P. DESBARRES*                               Director of Texas Eastern                         March 9, 2001
      ----------------------------                      Products Pipeline Company, LLC
          John P. DesBarres

            FRED J. FOWLER*                                Director of Texas Eastern                         March 9, 2001
      ----------------------------                      Products Pipeline Company, LLC
            Fred J. Fowler

         WILLIAM W. SLAUGHTER*                             Director of Texas Eastern                         March 9, 2001
      ----------------------------                      Products Pipeline Company, LLC
         William W. Slaughter
</TABLE>

         * Signed on behalf of the Registrant and each of these persons:


By: /s/ CHARLES H. LEONARD
   ---------------------------------------
    (Charles H. Leonard, Attorney-in-Fact)


                                       42

<PAGE>   45



                        CONSOLIDATED FINANCIAL STATEMENTS
                            OF TEPPCO PARTNERS, L.P.

                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                  PAGE
                                                                                                  ----
<S>                                                                                               <C>
Independent Auditors' Report...................................................................   F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999...................................   F-3
Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998.........   F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.....   F-5
Consolidated Statements of Partners' Capital for the years ended December 31, 2000,
   1999 and 1998...............................................................................   F-6
Notes to Consolidated Financial Statements.....................................................   F-7
</TABLE>


                                       F-1

<PAGE>   46



                          INDEPENDENT AUDITORS' REPORT

To the Partners of TEPPCO Partners, L.P.:

         We have audited the accompanying consolidated balance sheets of TEPPCO
Partners, L.P. as of December 31, 2000 and 1999, and the related consolidated
statements of income, partners' capital, and cash flows for each of the years in
the three-year period ended December 31, 2000. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TEPPCO
Partners, L.P. as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.


                                                           KPMG LLP


Houston, Texas
January 18, 2001


                                       F-2

<PAGE>   47



                              TEPPCO PARTNERS, L.P.

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                      ---------------------------
                                                                                        2000              1999
                                                                                      ----------       ----------
                                     ASSETS
<S>                                                                                   <C>              <C>
Current assets:
  Cash and cash equivalents................................................           $   27,096       $   32,593
  Accounts receivable, trade...............................................              303,394          205,766
  Inventories..............................................................               24,784           16,766
  Other ...................................................................                8,123            7,884
                                                                                      ----------       ----------
        Total current assets...............................................              363,397          263,009
                                                                                      ----------       ----------
Property, plant and equipment, at cost (Net of accumulated depreciation
  and amortization of $251,165 and $220,467)...............................              949,705          720,919
Equity investments.........................................................              241,648               --
Intangible assets..........................................................               38,388           34,926
Other assets...............................................................               29,672           22,519
                                                                                      ----------       ----------
        Total assets.......................................................           $1,622,810       $1,041,373
                                                                                      ==========       ==========

                        LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
  Accounts payable and accrued liabilities.................................           $  293,720       $  201,660
  Accounts payable, general partner........................................                6,637            4,741
  Accrued interest.........................................................               18,633           13,297
  Other accrued taxes......................................................               10,501            8,822
  Other ...................................................................               28,780           14,972
                                                                                      ----------       ----------
        Total current liabilities..........................................              358,271          243,492
                                                                                      ----------       ----------
Senior Notes...............................................................              389,784          389,753
Other long-term debt.......................................................              446,000           66,000
Other liabilities and deferred credits.....................................                3,991            3,073
Minority interest..........................................................                4,296            3,429
Redeemable Class B Units held by related party.............................              105,411          105,859
Partners' capital:
  General partner's interest...............................................                1,824              657
  Limited partners' interests..............................................              313,233          229,110
                                                                                      ----------       ----------
        Total partners' capital............................................              315,057          229,767
                                                                                      ----------       ----------
Commitments and contingencies
        Total liabilities and partners' capital............................           $1,622,810       $1,041,373
                                                                                      ==========       ==========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       F-3

<PAGE>   48



                              TEPPCO PARTNERS, L.P.

                        CONSOLIDATED STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                                      -------------------------------------------
                                                                         2000            1999             1998
                                                                      -----------     -----------     -----------
<S>                                                                   <C>             <C>             <C>
Operating revenues:
  Sales of crude oil and petroleum products ......................    $ 2,821,943     $ 1,692,767     $   214,463
  Transportation -- refined products .............................        119,331         123,004         119,854
  Transportation -- LPGs .........................................         73,896          67,701          60,902
  Transportation -- crude oil and NGLs ...........................         24,533          11,846           3,392
  Mont Belvieu operations ........................................         13,334          12,849          10,880
  Other ..........................................................         34,904          26,716          20,147
                                                                      -----------     -----------     -----------
        Total operating revenues .................................      3,087,941       1,934,883         429,638
                                                                      -----------     -----------     -----------

Costs and expenses:
  Purchases of crude oil and petroleum products ..................      2,794,604       1,666,042         212,371
  Operating, general and administrative ..........................        104,918          94,340          73,850
  Operating fuel and power .......................................         34,655          31,265          27,131
  Depreciation and amortization ..................................         35,163          32,656          26,938
  Taxes -- other than income taxes ...............................         10,576          10,490           9,382
                                                                      -----------     -----------     -----------
        Total costs and expenses .................................      2,979,916       1,834,793         349,672
                                                                      -----------     -----------     -----------
        Operating income .........................................        108,025         100,090          79,966
Interest expense .................................................        (48,982)        (31,563)        (29,784)
Interest capitalized .............................................          4,559           2,133             795
Equity earnings -- Seaway Crude Pipeline Company ...............           12,214            --              --
Other income -- net ..............................................          2,349           2,196           2,908
                                                                      -----------     -----------     -----------
        Income before minority interest and extraordinary loss on
        debt extinguishment .......................................        78,165          72,856          53,885
Minority interest ................................................           (789)           (736)           (544)
                                                                      -----------     -----------     -----------
        Income before extraordinary loss on debt extinguishment ..         77,376          72,120          53,341
Extraordinary loss on debt extinguishment, net of minority interest          --              --           (72,767)
                                                                      -----------     -----------     -----------
        Net income (loss) ........................................    $    77,376     $    72,120     $   (19,426)
                                                                      ===========     ===========     ===========
Net income (loss) allocated to Limited Partner Unitholders .......         56,091          55,349         (18,722)
Net income allocated to Class B Unitholder .......................          7,385           7,475           1,036
Net income (loss) allocated to General Partner ...................         13,900           9,296          (1,740)
                                                                      -----------     -----------     -----------
        Total net income (loss) allocated ........................    $    77,376     $    72,120     $   (19,426)
                                                                      ===========     ===========     ===========
BASIC AND DILUTED INCOME (LOSS) PER LIMITED
  PARTNER AND CLASS B UNIT:
        Income before extraordinary loss on debt extinguishment ..    $      1.89     $      1.91     $      1.61
        Extraordinary loss on debt extinguishment ................           --              --             (2.21)
                                                                      -----------     -----------     -----------
           Net income (loss) .....................................    $      1.89     $      1.91     $     (0.60)
                                                                      ===========     ===========     ===========
Weighted average Limited Partner and Class B Units outstanding:            33,594          32,917          29,655
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       F-4

<PAGE>   49



                              TEPPCO PARTNERS, L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                        -----------------------------------------
                                                                           2000           1999           1998
                                                                        -----------    -----------    -----------
<S>                                                                     <C>            <C>            <C>
Cash flows from operating activities:
  Net income (loss) .................................................   $    77,376    $    72,120    $   (19,426)
  Adjustments to reconcile net income to cash provided by operating
  activities:
    Depreciation and amortization ...................................        35,163         32,656         26,938
    Extraordinary loss on early extinguishment of debt ..............            --             --         72,767
    Gain on sale of property, plant and equipment ...................            --             --           (356)
    Equity in (income) loss of affiliate ............................       (10,084)           393            189
    Non-cash portion of interest expense ............................         2,218            337            270
    Increase in accounts receivable .................................       (90,006)       (92,225)       (93,715)
    Decrease (increase) in inventories ..............................        (7,567)         1,037            493
    Decrease (increase) in other current assets .....................         1,165         (2,500)           264
    Increase in accounts payable and accrued expenses ...............       106,662         93,317        106,350
    Other ...........................................................        (6,882)        (2,065)          (559)
                                                                        -----------    -----------    -----------
         Net cash provided by operating activities ..................       108,045        103,070         93,215
                                                                        -----------    -----------    -----------
Cash flows from investing activities:
  Proceeds from cash investments ....................................         3,475          6,275          3,105
  Purchases of cash investments .....................................        (2,000)        (3,235)          (748)
  Purchase of ARCO assets ...........................................      (322,640)            --             --
  Purchase of fractionator assets and related intangible assets .....            --             --        (40,000)
  Purchase of crude oil assets and NGL system .......................       (99,508)        (2,250)        (1,989)
  Proceeds from the sale of property, plant and equipment ...........            --             --            525
  Investment in Centennial Pipeline Company .........................        (5,040)            --             --
  Capital expenditures ..............................................       (68,481)       (77,431)       (23,432)
                                                                        -----------    -----------    -----------
         Net cash used in investing activities ......................      (494,194)       (76,641)       (62,539)
                                                                        -----------    -----------    -----------
Cash flows from financing activities:
  Principal payment, First Mortgage Notes ...........................            --             --       (326,512)
  Prepayment premium, First Mortgage Notes ..........................            --             --        (70,093)
  Issuance of Senior Notes ..........................................            --             --        389,694
  Debt issuance cost ................................................        (7,074)            --         (3,651)
  Proceeds from term and revolving credit facilities ................       552,000         33,000         38,000
  Repayments on term and revolving credit facilities ................      (172,000)        (5,000)            --
  Issuance of Limited Partner Units, net ............................        88,158             --             --
  General partner's contributions ...................................         1,799             --          2,122
  Distributions .....................................................       (82,231)       (69,259)       (56,774)
                                                                        -----------    -----------    -----------
         Net cash provided by (used in) financing activities ........       380,652        (41,259)       (27,214)
                                                                        -----------    -----------    -----------
Net increase (decrease) in cash and cash equivalents ................        (5,497)       (14,830)         3,462
Cash and cash equivalents at beginning of period ....................        32,593         47,423         43,961
                                                                        -----------    -----------    -----------
Cash and cash equivalents at end of period ..........................   $    27,096    $    32,593    $    47,423
                                                                        ===========    ===========    ===========

Non cash investing and financing activities:
   Fair value of crude oil and NGL systems purchased ................   $        --    $        --    $   109,000
   Liabilities assumed ..............................................            --             --         (5,000)
   Issuance of Class B Units ........................................            --             --        104,000
Supplemental disclosure of cash flows:
   Interest paid during the year (net of capitalized interest) ......   $    36,793    $    28,625    $    26,179
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       F-5

<PAGE>   50
                              TEPPCO PARTNERS, L.P.

                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                           GENERAL          LIMITED
                                                           PARTNER'S       PARTNERS'
                                                           INTEREST        INTERESTS         TOTAL
                                                         ------------    ------------    ------------
<S>                                                      <C>             <C>             <C>
Partners' capital at December 31, 1997 ...............   $      5,760    $    297,207    $    302,967
  Capital contributions ..............................          1,051              --           1,051
  1998 net loss allocation ...........................         (1,740)        (18,722)        (20,462)
  1998 cash distributions ............................         (5,451)        (50,750)        (56,201)
  Option exercises, net of Unit repurchases ..........             --            (169)           (169)
                                                         ------------    ------------    ------------
Partners' capital (deficit) at December 31, 1998 .....           (380)        227,566         227,186
  1999 net income allocation .........................          9,296          55,349          64,645
  1999 cash distributions ............................         (8,259)        (53,650)        (61,909)
  Option exercises, net of Unit repurchases ..........             --            (155)           (155)
                                                         ------------    ------------    ------------
Partners' capital at December 31, 1999 ...............            657         229,110         229,767
  Capital contributions ..............................            890              --             890
  Issuance of Limited Partner Units, net .............             --          88,158          88,158
  2000 net income allocation .........................         13,900          56,091          69,991
  2000 cash distributions ............................        (13,623)        (59,943)        (73,566)
  Option exercises, net of Unit repurchases ..........             --            (183)           (183)
                                                         ------------    ------------    ------------
Partners' capital at December 31, 2000 ...............   $      1,824    $    313,233    $    315,057
                                                         ============    ============    ============
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       F-6

<PAGE>   51



                              TEPPCO PARTNERS, L.P.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.

         TEPPCO Partners, L.P. (the "Partnership"), a Delaware limited
partnership, was formed in March 1990. The Partnership operates through TE
Products Pipeline Company, Limited Partnership (the "Downstream Segment") and
TCTM, L.P. (the "Upstream Segment"). Collectively the Downstream Segment and the
Upstream Segment are referred to as "the Operating Partnerships." The
Partnership owns a 99% interest as the sole limited partner interest in both the
Downstream Segment and Upstream Segment.

         On March 31, 2000, Texas Eastern Products Pipeline Company, a Delaware
corporation and general partner of the Partnership and the Operating
Partnerships, was converted into Texas Eastern Products Pipeline Company, LLC
(the "Company" or "General Partner"), a Delaware limited liability company.
Additionally on March 31, 2000, Duke Energy Corporation ("Duke Energy"),
contributed its ownership of the General Partner to Duke Energy Field Services,
LP ("DEFS"). DEFS is a joint venture between Duke Energy and Phillips Petroleum
Company. Duke Energy holds a majority interest in DEFS.

         The Company owns a 1% general partner interest in the Partnership and
a 1% general partner interest in each Operating Partnership. The Company, as
general partner, performs all management and operating functions required for
the Partnership pursuant to the Agreements of Limited Partnership of TEPPCO
Partners, L.P., TE Products Pipeline Company, Limited Partnership and TCTM, L.P.
(the "Partnership Agreements"). The General Partner is reimbursed by the
Partnership for all reasonable direct and indirect expenses incurred in managing
the Partnership.

         At formation, the Partnership completed an initial public offering of
26,500,000 Units representing Limited Partner Interests ("Limited Partner
Units") at $10 per Unit. In connection with the formation of the Partnership,
the Company received 2,500,000 Deferred Participation Interests ("DPIs").
Effective April 1, 1994, the DPIs began participating in distributions of cash
and allocations of profit and loss. As of December 31, 2000, 94% of the DPIs
have been converted into an equal number of Limited Partner Units, and the
balance of such DPIs may be converted immediately prior to the sale of the DPIs
by the Company. Pursuant to its Partnership Agreement, the Partnership has
registered the resale of such Limited Partner Units with the Securities and
Exchange Commission. Such Limited Partner Units may be sold from time to time on
the New York Stock Exchange or otherwise at prices and terms then prevailing or
in negotiated transactions. As of December 31, 2000, no such Limited Partner
Units had been sold by the Company.

         At December 31, 2000, the Partnership had outstanding 32,700,000
Limited Partner Units and 3,916,547 Class B Limited Partner Units ("Class B
Units"). All of the Class B Units were issued to Duke Energy in connection with
an acquisition of assets in 1998. The Class B Units are substantially identical
to the Limited Partner Units, but they are not listed on the New York Stock
Exchange. The Class B Units may be converted into Limited Partner Units upon
approval by the Limited Partner Unitholders. The Company has the option to seek
approval for the conversion of the Class B Units into Limited Partner Units;
however, if such conversion is denied, the holder of the Class B Units will have
the right to sell them to the Partnership at 95.5% of the market price of the
Limited Partner Units at the time of sale. As a result of such option, the Class
B Units were not included in partners' capital at December 31, 2000.
Collectively, the Limited Partner Units and Class B Units are referred to as
"Units."


                                       F-7

<PAGE>   52



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

         The financial statements include the accounts of the Partnership on a
consolidated basis. The Company's 1% general partner interest in the Downstream
Segment and the Upstream Segment, is accounted for as a minority interest. All
significant intercompany items have been eliminated in consolidation. Certain
amounts from prior years have been reclassified to conform to current
presentation.

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

ENVIRONMENTAL EXPENDITURES

         The Partnership accrues for environmental costs that relate to existing
conditions caused by past operations. Environmental costs include initial site
surveys and environmental studies of potentially contaminated sites, costs for
remediation and restoration of sites determined to be contaminated and ongoing
monitoring costs, as well as fines, damages and other costs, when estimable. The
Partnership's accrued undiscounted environmental liabilities are monitored on a
regular basis by management. Liabilities for environmental costs at a specific
site are initially recorded when the Partnership's liability for such costs,
including direct internal and legal costs, is probable and a reasonable estimate
of the associated costs can be made. Adjustments to initial estimates are
recorded, from time to time, to reflect changing circumstances and estimates
based upon additional information developed in subsequent periods. Estimates of
the Partnership's ultimate liabilities associated with environmental costs are
particularly difficult to make with certainty due to the number of variables
involved, including the early stage of investigation at certain sites, the
lengthy time frames required to complete remediation alternatives available and
the evolving nature of environmental laws and regulations.

BUSINESS SEGMENTS

         The Partnership operates in two segments: refined products and
liquefied petroleum gases ("LPGs") transportation (Downstream Segment); and
crude oil and natural gas liquids ("NGLs") transportation and marketing
(Upstream Segment). The Partnership's reportable segments offer different
products and services and are managed separately because each requires different
business strategies.

         The Upstream Segment was acquired as a unit in November 1998, and the
management at the time of the acquisition was retained. The Partnership's
interstate transportation operations, including rates charged to customers, are
subject to regulations prescribed by the Federal Energy Regulatory Commission
("FERC"). Refined products, LPGs, crude oil and NGLs are referred to herein,
collectively, as "petroleum products" or "products."


                                       F-8

<PAGE>   53
                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


REVENUE RECOGNITION

         Substantially all revenues of the Downstream Segment are derived from
interstate and intrastate transportation of petroleum products, storage and
terminaling of petroleum products, intrastate transportation of petrochemicals,
fractionation of natural gas liquids and other ancillary services.
Transportation revenues are recognized as products are delivered to customers.
Storage revenues are recognized upon receipt of products into storage and upon
performance of storage services. Terminaling revenues are recognized as products
are out-loaded. Revenues from the sale of product inventory are recognized when
the products are sold. Fractionation revenues are recognized ratably over the
contract year as products are delivered to DEFS.

         Revenues of the Upstream Segment are derived from the gathering,
storage, transportation and marketing of crude oil and NGLs; and the
distribution of lube oils and specialty chemicals principally in Oklahoma, Texas
and the Rocky Mountain region. Revenues are also generated from trade
documentation and pumpover services, primarily at Cushing, Oklahoma, and
Midland, Texas (effective July 20, 2000). Revenues are accrued at the time
title to the product sold transfers to the purchaser, which typically occurs
upon receipt of the product by the purchaser, and purchases are accrued at the
time title to the product purchased transfers to the Partnership's crude oil
marketing company, TEPPCO Crude Oil, L.P. ("TCO"), which typically occurs upon
receipt of the product by TCO. Revenues related to trade documentation and
pumpover services are recognized as completed.

         Except for crude oil purchased from time to time as inventory, TCO's
policy is to purchase only crude oil for which it has a market to sell and to
structure sales contracts so that crude oil price fluctuations do not materially
affect the margin received. As TCO purchases crude oil, it establishes a margin
by selling crude oil for physical delivery to third party users or by entering
into a future delivery obligation either physically or a futures contract on the
New York Mercantile Exchange ("NYMEX"). Through these transactions, TCO seeks to
maintain a position that is balanced between crude oil purchases and sales and
future delivery obligations. However, certain basis risks (the risk that price
relationships between delivery points, classes of products or delivery periods
will change) cannot be completely hedged.

USE OF DERIVATIVES

         The Partnership may use derivative instruments, such as futures, swaps
and options, to manage its exposure to commodity price risk and interest rate
risk. For derivative contracts to qualify as a hedge, the price movements in the
derivative instrument must be highly correlated with the underlying hedged
commodity or obligation. Contracts that qualify as hedges and held for
non-trading purposes are accounted for using the deferral method of accounting.
Under this method, gains and losses are not recognized until the underlying
physical transaction occurs. Deferred gains and losses related to futures are
reported in the consolidated balance sheet as current assets or current
liabilities. Deferred gains and losses related to swaps and options are carried
off-balance sheet until instruments are settled. It is the Partnership's general
policy not to acquire crude oil futures contracts or other derivative products
for the purpose of speculating on price changes, however, the Partnership may
take limited speculative positions to capitalize on crude oil price
fluctuations. Contracts held for trading purposes are accounted for using the
mark-to-market method. Under this methodology, contracts are adjusted to market
value, and the gains and losses are recognized in current period income. The
Partnership monitors open derivative positions with policies which limit its
exposure to market risk and require reporting to management of potential
financial exposure. At December 31, 2000 and 1999, outstanding commodity
derivative contracts held for trading purposes were not material. Net payments
or receipts under the Partnership's interest swap agreements are recorded as
adjustments to interest expense.


                                       F-9

<PAGE>   54



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


INVENTORIES

         Inventories consist primarily of petroleum products and crude oil which
are valued at the lower of cost (weighted average cost method) or market. The
Downstream Segment acquires and disposes of various products under exchange
agreements. Receivables and payables arising from these transactions are usually
satisfied with products rather than cash. The net balances of exchange
receivables and payables are valued at weighted average cost and included in
inventories.

PROPERTY, PLANT AND EQUIPMENT

         Additions to property, plant and equipment, including major
replacements or betterments, are recorded at cost. Replacements and renewals of
minor items of property are charged to maintenance expense. Depreciation expense
is computed on the straight-line method using rates based upon expected useful
lives of various classes of assets (ranging from 2% to 20% per annum). Upon sale
or retirement of properties regulated by the FERC, cost less salvage is normally
charged to accumulated depreciation, and no gain or loss is recognized.

CAPITALIZATION OF INTEREST

         The Partnership capitalizes interest on borrowed funds related to
capital projects only for periods that activities are in progress to bring these
projects to their intended use. The weighted average rate used to capitalize
interest on borrowed funds was 7.45%, 7.01% and 7.02% for 2000, 1999 and 1998,
respectively.

INCOME TAXES

         The Partnership is a limited partnership. As a result, the
Partnership's income or loss for federal income tax purposes is included in the
tax return of the individual partners, and may vary substantially from income or
loss reported for financial reporting purposes. Accordingly, no recognition has
been given to federal income taxes for the Partnership's operations. At December
31, 2000 and 1999, the Partnership's reported amount of net assets for financial
reporting purposes exceeded its tax basis by approximately $318 million and $293
million, respectively.

CASH FLOWS

         For purposes of reporting cash flows, all liquid investments with
maturities at date of purchase of 90-days or less are considered cash
equivalents.

NET INCOME PER UNIT

         Basic net income per Unit is computed by dividing net income, after
deduction of the general partner's interest, by the weighted average number of
Limited Partner and Class B Units outstanding (a total of 33.6 million Units for
2000, 32.9 million Units for 1999, and 29.7 million Units for 1998). The general
partner's percentage interest in net income is based on its percentage of cash
distributions from Available Cash for each year (see Note 10). The general
partner was allocated $13.9 million (representing 17.96%) of net income for the
year ended December 31, 2000, $9.3 million (representing 12.89%) of net income
for the year ended December 31, 1999, and $1.7 million (representing 8.96%) of
the net loss for the year ended December 31, 1998.


                                      F-10

<PAGE>   55
                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         Diluted net income per Unit is similar to the computation of basic net
income per Unit above, except that the denominator was increased to include the
dilutive effect of outstanding Unit options by application of the treasury stock
method. For the years ended December 31, 2000, 1999 and 1998 the denominator was
increased by 20,926 Units, 12,141 Units and 45,278 Units, respectively.

UNIT OPTION PLAN

         The Partnership follows the intrinsic value based method of accounting
for its stock-based compensation plans (see Note 11). Under this method, the
Partnership records no compensation expense for unit options granted when the
exercise price of options granted is equal to the fair market value of the Units
on the date of grant.

COMPREHENSIVE INCOME

         Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" requires certain items such as foreign currency
translation adjustments, minimum pension liability adjustments and unrealized
gains and losses on certain investments to be reported in a financial statement.
For the years ended December 31, 2000, 1999, and 1998, the Partnership's
comprehensive income (loss) equaled its reported net income (loss).

NEW ACCOUNTING PRONOUNCEMENTS

         Effective January 1, 2001, the Partnership adopted Statement of
Financial Accounting Standards ("SFAS") No. 133 Accounting for Derivative
Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment of FASB
Statement No. 133. These statements establish accounting and reporting standards
requiring that derivative instruments, including certain derivative instruments
embedded in other contracts, be recorded on the balance sheet at fair value as
either assets or liabilities. The accounting for changes in the fair value of a
derivative instrument depends on the intended use and designation of the
derivative at its inception. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results of the hedged item in
the statement of income, and requires the Partnership to formally document,
designate and assess the effectiveness of the hedge transaction to receive hedge
accounting. For derivatives designated as cash flow hedges, changes in fair
value, to the extent the hedge is effective, are recognized in other
comprehensive income until the hedged item is recognized in earnings. Overall
hedge effectiveness is measured at least quarterly. Any changes in the fair
value of the derivative instrument resulting from hedge ineffectiveness, as
defined by SFAS 133 and measured based on the cumulative changes in the fair
value of the derivative instrument and the cumulative changes in the estimated
future cash flows of the hedged item, are recognized immediately in earnings.
The Partnership has designated its swap agreement as a cash flow hedge.

         Adoption of SFAS 133 resulted in the recognition of approximately $10
million of derivative liabilities on the Partnership's balance sheet and $10
million of hedging losses included in accumulated other comprehensive income,
which is a component of Partners' capital, as the cumulative effect of a change
in accounting principle as of January 1, 2001. Amounts were determined as of
January 1, 2001 based on the market quote of the Partnership's interest swap
agreement.

NOTE 3. ACQUISITIONS

         On July 20, 2000, the Company completed an acquisition of ARCO Pipe
Line Company ("ARCO"), a wholly owned subsidiary of Atlantic Richfield Company,
for $322.6 million, which included $4.1 million of acquisition related costs.
The purchase included ARCO's 50-percent ownership interest in Seaway Crude
Pipeline Company ("Seaway"), which owns a pipeline that carries mostly imported
crude oil from a marine terminal at Freeport, Texas, to Cushing, Oklahoma. The
Partnership assumed ARCO's role as operator of this pipeline. The Company also
acquired: (i) ARCO's crude oil terminal facilities in Cushing and Midland,
Texas, including the line transfer and pumpover business at each location; (ii)
an undivided ownership interest in both the Rancho Pipeline, a crude oil
pipeline from West Texas to Houston, and the Basin Pipeline, a crude oil
pipeline running from Jal, New Mexico, through Midland to Cushing, both of which
are operated by another joint owner; and (iii) the receipt and delivery
pipelines known as the West Texas Trunk System, which is located around the
Midland terminal. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the results of the acquisition are included in the
consolidated statements of income from July 20, 2000.


                                      F-11

<PAGE>   56



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         The following table presents the unaudited pro forma results of the
Partnership as though the acquisition of ARCO occurred at the beginning of the
respective year (in thousands, except per Unit amounts).

<TABLE>
<CAPTION>
                                            YEARS ENDED DECEMBER 31,
                                            ------------------------
                                               2000         1999
                                            ----------   -----------
<S>                                         <C>          <C>
Revenues ................................   $3,104,177   $1,959,863
Operating income ........................      110,138      101,637
Net Income ..............................       75,821       71,650
Basic and diluted net income per Unit ...   $     1.85   $     1.90
</TABLE>

         On December 31, 2000, the Company completed an acquisition of certain
pipeline assets from DEFS for $91.7 million, which included $0.7 million of
acquisition related costs. The purchase included two natural gas liquids
pipelines in East Texas. The Panola Pipeline, a pipeline from Carthage, Texas,
to Mont Belvieu, Texas, and the San Jacinto Pipeline, a pipeline from Carthage
to Longview, Texas. A lease of a condensate pipeline from Carthage to Marshall,
Texas, was also assumed. All three pipelines originate at DEFS' East Texas Plant
Complex in Panola County, Texas. The acquisition of assets was accounted for
under the purchase method of accounting.

NOTE 4. RELATED PARTY TRANSACTIONS

         The Partnership has no employees and is managed by the Company.
Pursuant to the Partnership Agreements, the Company is entitled to reimbursement
of all direct and indirect expenses related to business activities of the
Partnership (see Note 1).

         For the years ended December 31, 2000, 1999 and 1998, direct expenses
incurred by the general partner in the amount of $50.4 million, $49.6 million
and $38.8 million, respectively, were charged to the Partnership. Substantially
all such costs related to payroll and payroll related expenses, which included
$3.2 million, $2.9 million and $1.0 million of expense for incentive
compensation plans, respectively.

         For the years ended December 31, 2000, 1999 and 1998, expenses for
administrative service and overhead allocated to the Partnership by the general
partner (including Duke Energy and its affiliates) amounted to $0.8 million,
$2.1 million and $2.7 million, respectively. Such costs incurred by the general
partner included general and administrative costs related to business activities
of the Partnership.

         Effective with the purchase of the fractionation facilities on March
31, 1998, TEPPCO Colorado, LLC ("TEPPCO Colorado"), a wholly owned subsidiary of
the Downstream Segment, and DEFS entered into a twenty-year Fractionation
Agreement, under which TEPPCO Colorado receives a variable fee for all
fractionated volumes delivered to DEFS. Revenues recognized from the
fractionation facilities totaled $7.5 and $7.3 million for the years ended
December 31, 2000 and 1999, respectively, and $5.5 million for the period from
April 1, 1998 through December 31, 1998. TEPPCO Colorado and DEFS also entered
into a Operation and Maintenance Agreement, whereby DEFS operates and maintains
the fractionation facilities. For these services, TEPPCO Colorado pays DEFS a
set volumetric rate for all fractionated volumes delivered to DEFS. Expenses
related to the Operation and Maintenance Agreement totaled $0.9 million and $0.8
million for the years ended December 31, 2000 and 1999, respectively, and $0.7
million for the period from April 1, 1998 through December 31, 1998.

         Included with certain crude oil assets purchased from DEFS effective
November 1, 1998 was the Wilcox NGL Pipeline located along the Texas Gulf Coast.
The Wilcox NGL Pipeline transports NGLs for DEFS from two of their processing
plants and is currently supported by demand fees that are paid by DEFS through
2005. Such fees totaled $1.1 million for each of the years ended December 31,
2000 and 1999, and $0.2 million for the two months ended December 31, 1998.


                                      F-12

<PAGE>   57



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


NOTE 5. EQUITY INVESTMENTS

         Seaway is a partnership between the Upstream Segment and Phillips
Petroleum Company ("Phillips"). The Upstream Segment purchased its 50-percent
ownership interest in Seaway on July 20, 2000 (see Note 3). The Seaway Crude
Pipeline Company Partnership Agreement provides for varying participation ratios
throughout the life of the Seaway Partnership. From July 20, 2000, through May
2002, the Upstream Segment receives 80% of revenue and expense of Seaway. From
June 2002 until May 2006, the Upstream Segment receives 60% of revenue and
expense of Seaway. Thereafter, the sharing ratio becomes 40% of revenue and
expense to the Upstream Segment.

         The Partnership uses the equity method of accounting for its investment
in Seaway. Summarized financial information for Seaway as of December 31, 2000
and for the period from July 20, 2000 through December 31, 2000, is presented
below (in thousands):

<TABLE>
<S>                                                                  <C>
         Current assets ...........................................  $ 36,883
         Noncurrent assets ........................................   288,191
         Current liabilities ......................................     9,220
         Partners capital .........................................   325,072
         Revenues .................................................    31,989
         Net income ...............................................    12,449
</TABLE>

         The Partnership's investment in Seaway at December 31, 2000, includes
an excess investment amount of $26.4 million, net of accumulated amortization of
$0.7 million. Such excess investment relates to the Partnership's allocation of
the purchase price on July 20, 2000, in excess of its proportionate share of the
net assets of Seaway. The excess investment is being amortized using the
straight-line method over 20 years.

         In August 2000, the Partnership announced the execution of definitive
agreements with CMS Energy Corporation and Marathon Ashland Petroleum LLC to
form Centennial Pipeline, LLC ("Centennial"). Centennial will own and operate an
interstate refined petroleum products pipeline extending from the upper Texas
Gulf Coast to Illinois. Each participant will own a one-third interest in
Centennial. During 2000, the Partnership contributed approximately $5.0 million
for its investment in Centennial. Such amount is included in the equity
investment balance at December 31, 2000.


                                      F-13

<PAGE>   58



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


NOTE 6. INVENTORIES

         Inventories are valued at the lower of cost (based on weighted average
cost method) or market. The major components of inventories were as follows:

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                  -----------------------
                                                    2000          1999
                                                  ---------      --------
                                                     (IN THOUSANDS)
<S>                                               <C>            <C>
         Crude oil .............................  $ 14,635       $  6,627
         Gasolines .............................     3,795          3,270
         Propane ...............................        --            223
         Butanes ...............................       267            605
         Fuel oil ..............................        82            386
         Other products ........................     2,693          2,301
         Materials and supplies ................     3,312          3,354
                                                  --------       --------
           Total ...............................  $ 24,784       $ 16,766
                                                  ========       ========
</TABLE>

         The costs of inventories did not exceed market values at December 31,
2000 and 1999.

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

         Major categories of property, plant and equipment were as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                          -----------------------
                                                             2000         1999
                                                          ----------   ----------
                                                               (IN THOUSANDS)
<S>                                                       <C>          <C>
Land and right of way .................................   $   77,798   $   54,240
Line pipe and fittings ................................      739,372      521,688
Storage tanks .........................................      125,890      112,132
Buildings and improvements ............................       13,127        8,253
Machinery and equipment ...............................      178,227      155,933
Construction work in progress .........................       66,456       89,140
                                                          ----------   ----------
  Total property, plant and equipment .................   $1,200,870   $  941,386
  Less accumulated depreciation and amortization ......      251,165      220,467
                                                          ----------   ----------
    Net property, plant and equipment .................   $  949,705   $  720,919
                                                          ==========   ==========
</TABLE>

         Depreciation expense on property, plant and equipment was $33.0
million, $30.7 million and $25.5 million for the years ended December 31, 2000,
1999 and 1998, respectively.

NOTE 8. LONG TERM DEBT

SENIOR NOTES

         On January 27, 1998, the Downstream Segment completed the issuance of
$180 million principal amount of 6.45% Senior Notes due 2008, and $210 million
principal amount of 7.51% Senior Notes due 2028 (collectively the "Senior
Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption prior to
January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at any time
after January 15, 2008, at the option of the Downstream Segment, in whole or in
part, at a premium. Net proceeds from


                                      F-14

<PAGE>   59



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


the issuance of the Senior Notes totaled approximately $386 million and was used
to repay in full the $61.0 million principal amount of the 9.60% Series A First
Mortgage Notes, due 2000, and the $265.5 million principal amount of the 10.20%
Series B First Mortgage Notes, due 2010. The premium for the early redemption of
the First Mortgage Notes totaled $70.1 million. The Partnership recorded an
extraordinary charge of $73.5 million during the first quarter of 1998
(including $0.7 million allocated to minority interest), which represents the
redemption premium of $70.1 million and unamortized debt issue costs related to
the First Mortgage Notes of $3.4 million.

         The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year. The Senior Notes are unsecured obligations of the Downstream Segment
and will rank on a parity with all other unsecured and unsubordinated
indebtedness of the Downstream Segment. The indenture governing the Senior Notes
contains covenants, including, but not limited to, covenants limiting the
creation of liens securing indebtedness and sale and leaseback transactions.
However, the indenture does not limit the Partnership's ability to incur
additional indebtedness.

         At December 31, 2000 and 1999, the estimated fair value of the Senior
Notes was approximately $385 million and $356 million, respectively. Market
prices for recent transactions and rates currently available to the Partnership
for debt with similar terms and maturities were used to estimate fair value.

OTHER LONG TERM DEBT AND CREDIT FACILITIES

         In connection with the purchase of fractionation assets from DEFS as of
March 31, 1998, TEPPCO Colorado received a $38 million bank loan. The interest
rate on this loan was 6.53%, which was payable quarterly. The original maturity
date was April 21, 2001. This loan was refinanced by the Partnership on July 21,
2000, through the credit facility discussed below.

           On May 17, 1999, the Downstream Segment entered into a five-year $75
million term loan agreement to finance construction of three new pipelines
between the Partnership's terminal in Mont Belvieu, Texas and Port Arthur,
Texas. This loan was refinanced by the Partnership on July 21, 2000, through the
credit facility discussed below.

           On May 17, 1999, the Downstream Segment entered into a five-year $25
million revolving credit agreement and the Upstream Segment entered into a
three-year $30 million revolving credit agreement. Both of the credit facilities
were terminated in connection with the refinancing on July 21, 2000 discussed
below. The Downstream Segment did not make any borrowings under this revolving
credit facility. The Upstream Segment had a $3 million principal amount
outstanding under its revolving credit agreement as of July 21, 2000.

           On July 14, 2000, the Partnership entered into a $75 million term
loan and a $475 million revolving credit facility. On July 21, 2000, the
Partnership borrowed $75 million under the term loan and $340 million under the
revolving credit facility. The funds were used to finance the acquisition of the
ARCO assets (see Note 3) and to refinance existing credit facilities, other than
the Senior Notes. The term loan was repaid from proceeds received from the
issuance of additional Limited Partner Units on October 25, 2000. The revolving
facility has a three year maturity. The interest rate is based on the
Partnership's option of either the lender's base rate plus a spread, or LIBOR
plus a spread in effect at the time of the borrowings. The credit agreements
contain restrictive financial covenants that require the Partnership to maintain
a minimum level of partners' capital as well as maximum debt-to-EBITDA (earnings
before interest expense, income tax expense and depreciation and amortization
expense) and minimum fixed charge coverage ratios. At December 31, 2000, $446
million was outstanding under the revolving credit facility at a weighted
average interest rate of 8.23%. At December 31, 2000, the carrying value of the
revolving credit facility approximated its fair value.


                                      F-15

<PAGE>   60



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         On July 21, 2000, the Partnership entered into a three year swap
agreement to hedge its exposure on the variable rate credit facilities. The swap
agreement is based on a notional amount of $250 million. Under the swap
agreement, the Partnership will pay a fixed rate of interest of 7.17% and will
receive a floating rate based on a three month USD LIBOR rate. At December 31,
2000, the estimated fair value of the swap agreement was a loss of approximately
$10 million.

NOTE 9. CONCENTRATIONS OF CREDIT RISK

         The Partnership's primary market areas are located in the Northeast,
Midwest and Southwest regions of the United States. The Partnership has a
concentration of trade receivable balances due from major integrated oil
companies, independent oil companies and other pipelines and wholesalers. These
concentrations of customers may affect the Partnership's overall credit risk in
that the customers may be similarly affected by changes in economic, regulatory
or other factors. The Partnership's customers' historical and future credit
positions are thoroughly analyzed prior to extending credit. The Partnership
manages its exposure to credit risk through credit analysis, credit approvals,
credit limits and monitoring procedures, and for certain transactions may
utilize letters of credit, prepayments and guarantees.

NOTE 10. 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 cash reserves established by the general
partner in its sole discretion. Pursuant to the Partnership Agreements, the
Company receives incremental incentive cash distributions on the portion that
cash distributions on a per Unit basis exceed certain target thresholds as
follows:

<TABLE>
<CAPTION>
                                                                                           GENERAL
                                                                            UNITHOLDERS    PARTNER
                                                                            -----------    -------
<S>                                                                         <C>            <C>
Quarterly Cash Distribution per Unit:
  Up to Minimum Quarterly Distribution ($0.275 per Unit) .................      98%           2%
  First Target - $0.276 per Unit up to $0.325 per Unit ...................      85%          15%
  Second Target - $0.326 per Unit up to $0.45 per Unit ...................      75%          25%
  Over Second Target - Cash distributions greater than $0.45 per Unit ....      50%          50%
</TABLE>

         The following table reflects the allocation of total distributions paid
for the years ended December 31, 2000, 1999 and 1998 (in thousands, except per
Unit amounts).

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                  ---------------------------------
                                                    2000        1999        1998
                                                  ---------   ---------   ---------
<S>                                               <C>         <C>         <C>
Limited Partner Units .........................   $  59,943   $  53,650   $  50,750
1% General Partner Interest ...................         685         609         513
General Partner Incentive .....................      12,938       7,650       4,938
                                                  ---------   ---------   ---------
  Total Partners' Capital Cash Distributions ..      73,566      61,909      56,201
Class B Units .................................       7,833       6,651          --
Minority Interest .............................         832         699         573
                                                  ---------   ---------   ---------
  Total Cash Distributions Paid ...............   $  82,231   $  69,259   $  56,774
                                                  =========   =========   =========

Total Cash Distributions Paid Per Unit ........   $    2.00   $    1.85   $    1.75
                                                  =========   =========   =========
</TABLE>

         On February 2, 2001, the Partnership paid a cash distribution of $0.525
per Limited Partner Unit and Class B Unit for the quarter ended December 31,
2000. The fourth quarter 2000 cash distribution totaled $24.0 million.


                                      F-16

<PAGE>   61



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


NOTE 11. UNIT OPTION PLAN

         During 1994, the Company adopted the Texas Eastern Products Pipeline
Company 1994 Long Term Incentive Plan ("1994 LTIP"). The 1994 LTIP provides key
employees with an incentive award whereby a participant is granted an option to
purchase Limited Partner Units together with a stipulated number of Performance
Units. Under the provisions of the 1994 LTIP, no more than one million options
and two million Performance Units may be granted. Each Performance Unit creates
a credit to a participant's Performance Unit account when earnings exceed a
threshold. When earnings for a calendar year (exclusive of certain special
items) exceed the threshold, the excess amount is credited to the participant's
Performance Unit account. The balance in the account may be used to exercise
Limited Partner Unit options granted in connection with the Performance Units or
may be withdrawn two years after the underlying options expire, usually 10 years
from the date of grant. Under the agreement for such Limited Partner Unit
options, the options become exercisable in equal installments over periods of
one, two, and three years from the date of the grant. Options may also be
exercised by normal means once vesting requirements are met. A summary of
Performance Units and Limited Partner Unit options granted under the terms of
the 1994 LTIP is presented below:

<TABLE>
<CAPTION>
                                                    PERFORMANCE        EARNINGS        EXPIRATION
                                                       UNITS           THRESHOLD          YEAR
                                                    -----------        ---------       -----------
<S>                                                 <C>                <C>             <C>
Performance Unit Grants:
  1994 ...........................................    80,000            $  1.00           2006
  1995 ...........................................    70,000            $  1.25           2007
  1997 ...........................................    11,000            $ 1.875           2009
</TABLE>

<TABLE>
<CAPTION>
                                                     OPTIONS        OPTIONS         EXERCISE
                                                   OUTSTANDING    EXERCISABLE         RANGE
                                                   -----------    ------------    ---------------
<S>                                                <C>            <C>             <C>
Limited Partner Unit Options:
  Outstanding at December 31, 1997 ..............      92,528          58,098     $13.81 - $14.34
    Granted .....................................     111,000              --              $25.69
    Became exercisable ..........................          --          26,993     $13.81 - $21.66
    Exercised ...................................     (12,732)        (12,732)    $13.81 - $14.34
                                                    ---------       ---------
  Outstanding at December 31, 1998 ..............     190,796          72,359     $13.81 - $21.66
    Granted .....................................     162,000              --              $25.25
    Became exercisable ..........................          --          40,737     $21.66 - $25.69
    Exercised ...................................     (14,000)        (14,000)    $13.81 - $14.34
                                                    ---------       ---------
  Outstanding at December 31, 1999 ..............     338,796          99,096     $13.81 - $25.69
    Forfeited ...................................     (28,000)         (4,000)    $25.25 - $25.69
    Became exercisable ..........................          --          85,365     $21.66 - $25.69
    Exercised ...................................     (19,932)        (19,932)    $13.81 - $14.34
                                                    ---------       ---------
  Outstanding at December 31, 2000 ..............     290,864         160,529     $13.81 - $25.69
                                                    =========       =========
</TABLE>

         As discussed in Note 2, the Partnership uses the intrinsic value method
for recognizing stock-based compensation expense. The exercise price of all
options awarded under the 1994 LTIP equaled the market price of the
Partnership's Limited Partner Units on the date of grant. Accordingly, no
compensation was recognized at the date of grant. Had compensation expense been
determined consistent with SFAS No. 123 "Accounting for Stock-Based
Compensation," compensation expense related to option grants would have totaled
$93,771, $226,152 and $202,634 during 1998, 1999 and 2000, respectively. The
disclosures as required by SFAS 123 are not representative of the effects on
proforma net income for future years as options vest over several years and
additional awards may be granted in subsequent years.


                                      F-17

<PAGE>   62



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         For purposes of determining compensation costs using the provisions of
SFAS 123, the fair value of 1999 and 1998 option grants were determined using
the Black-Scholes option-valuation model. The key input variables used in
valuing the options were:

<TABLE>
<CAPTION>
                                                        1999           1998
                                                       -------        -------
<S>                                                    <C>            <C>
       Risk-free interest rate ......................     4.7%           5.5%
       Dividend yield ...............................     7.6%           7.8%
       Unit price volatility ........................      23%            18%
       Expected option lives ........................  6 years        6 years
</TABLE>

NOTE 12. LEASES

         The Partnership utilizes leased assets in several areas of its
operations. Total rental expense during 2000, 1999 and 1998 was $10.4 million,
$8.7 million and $4.8 million, respectively. The minimum rental payments under
the Partnership's various operating leases for the years 2001 through 2005 are
$8.7 million, $7.0 million, $6.3 million, $5.6 million and $5.4 million,
respectively. Thereafter, payments aggregate $4.6 million through 2007.

NOTE 13. EMPLOYEE BENEFITS

RETIREMENT PLANS

         Prior to the transfer of the General Partner interest from Duke Energy
to DEFS on April 1, 2000, the Company's employees participated in the Duke
Energy Retirement Cash Balance Plan, which is a noncontributory,
trustee-administered pension plan. Effective January 1, 1999 the benefit formula
for all eligible employees was a cash balance formula. Under a cash balance
formula, a plan participant accumulates a retirement benefit based upon pay
credits and current interest credits. The pay credits are based on a
participant's salary, age, and service. Prior to January 1, 1999, the benefit
formula for all eligible employees was a final average pay formula. In addition,
certain executive officers participated in the Duke Energy Executive Cash
Balance Plan, which is a noncontributory, nonqualified, defined benefit
retirement plan. The Duke Energy Executive Cash Balance Plan was established to
restore benefit reductions caused by the maximum benefit limitations that apply
to qualified plans.

         Effective April 1, 2000, the Company adopted the TEPPCO Retirement Cash
Balance Plan ("Retirement Cash Balance Plan") and the TEPPCO Supplemental
Benefit Plan ("Supplemental Benefit Plan"). The benefits and provisions of
these plans are substantially identical to the Duke Energy Retirement Cash
Balance Plan and the Duke Energy Executive Cash Balance Plan previously in
effect prior to April 1, 2000.

         The components of net pension benefits costs for the years ended
December 31, 2000, 1999 and 1998 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                       2000         1999         1998
                                                     -------      -------      -------
<S>                                                  <C>          <C>          <C>
Service cost benefit earned during the year ....     $ 2,054      $ 1,651      $ 1,699
Interest cost on projected benefit obligation ..         782        2,666        2,041
Expected return on plan assets .................        (663)      (2,243)      (1,555)
Amortization of prior service cost .............          --            2          (27)
Amortization of net transition (asset) liability           4           15           (5)
Recognized net actuarial loss ..................          --          285           --
Settlement gain ................................          --           --         (554)
                                                     -------      -------      -------
  Net pension benefits costs ...................     $ 2,177      $ 2,376      $ 1,599
                                                     =======      =======      =======
</TABLE>


                                      F-18

<PAGE>   63



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         The assumptions affecting pension expense include:

<TABLE>
<CAPTION>
                                                       2000         1999         1998
                                                      -------      -------      -------
<S>                                                    <C>          <C>          <C>
Discount rate ......................................   7.50%        7.50%        6.75%
Salary increase ....................................   4.50%        4.50%        4.67%
Expected long-term rate of return on plan assets....   9.25%        9.25%        9.25%
</TABLE>

         Duke Energy also sponsors an employee savings plan which covers
substantially all employees. Plan contributions on behalf of the Company of $2.2
million, $2.2 million and $1.4 million were expensed in 2000, 1999 and 1998,
respectively.

OTHER POSTRETIREMENT BENEFITS

         Prior to April 1, 2000, the Company's employees were provided with
certain health care and life insurance benefits for retired employees on a
contributory and non-contributory basis. Employees became eligible for these
benefits if they had met certain age and service requirements at retirement, as
defined in the plans. As part of the change in ownership, the Company is no
longer responsible for the liability associated with these plans. The
components of net postretirement benefits cost for the years ended December 31,
2000, 1999 and 1998 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                   2000       1999        1998
                                                                   -----      -----      -------
<S>                                                                <C>        <C>        <C>
Service cost benefit earned during the year ..................     $  39      $ 172      $   439
Interest cost on accumulated postretirement benefit obligation       134        500          796
Expected return on plan assets ...............................       (85)      (299)        (240)
Amortization of prior service cost ...........................       (96)      (384)           3
Amortization of net transition liability .....................        54        217          202
Recognized net actuarial loss ................................        --         --          173
                                                                   -----      -----      -------
  Net postretirement benefits costs ..........................     $  46      $ 206      $ 1,373
                                                                   =====      =====      =======
</TABLE>

The assumptions affecting postretirement benefits expense include:

<TABLE>
<CAPTION>
                                                         2000         1999         1998
                                                        -------      -------      -------
<S>                                                     <C>          <C>          <C>
Discount rate ......................................      7.50%        7.50%        6.75%
Salary increase ....................................      4.50%        4.50%        4.67%
Expected long-term rate of return on 401(h) assets..      9.25%        9.25%        9.25%
Expected long-term rate of return on RLR assets ....      6.75%        6.75%        6.75%
Expected long-term rate of return on VEBA assets ...      9.25%        9.25%        9.25%
Assumed tax rate ...................................     39.60%       39.60%       39.60%
</TABLE>

NOTE 14. CONTINGENCIES

TOXIC TORT LITIGATION - SEYMOUR, INDIANA

         In the fall of 1999 and on December 1, 2000, the Company and the
Partnership were named as defendants in two separate lawsuits in Jackson County
Circuit Court, Jackson County, Indiana, in Ryan E. McCleery and Marcia S.
McCleery, et al. v. Texas Eastern Corporation, et al. (including the Company and


                                      F-19

<PAGE>   64



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


Partnership) and Gilbert Richards and Jean Richards v. Texas Eastern
Corporation, et. al. In both cases plaintiffs contend, among other things, that
the Company and other defendants stored and disposed of toxic and hazardous
substances and hazardous wastes in a manner that caused the materials to be
released into the air, soil and water. They further contend that the release
caused damages to the plaintiffs. In their Complaints, the plaintiffs allege
strict liability for both personal injury and property damage together with
gross negligence, continuing nuisance, trespass, criminal mischief and loss of
consortium. The plaintiffs are seeking compensatory, punitive and treble
damages. The Company has filed an Answer to both complaints, denying the
allegations, as well as various other motions. These cases are in the early
stages of discovery and are not covered by insurance. The Company is defending
itself vigorously against the lawsuits. The Partnership cannot estimate the
loss, if any, associated with these pending lawsuits.

         The Partnership is involved in various other claims and legal
proceedings incidental to its business. In the opinion of management, these
claims and legal proceedings will not have a material adverse effect on the
Partnership's consolidated financial position, results of operations or cash
flows.

         The operations of the Partnership are subject to federal, state and
local laws and regulations relating to protection of the environment. Although
the Partnership believes its operations are in material compliance with
applicable environmental regulations, risks of significant costs and liabilities
are inherent in pipeline operations, and there can be no assurance that
significant costs and liabilities will not be incurred. Moreover, it is possible
that other developments, such as increasingly strict environmental laws and
regulations and enforcement policies thereunder, and claims for damages to
property or persons resulting from the operations of the pipeline system, could
result in substantial costs and liabilities to the Partnership. The Partnership
does not anticipate that changes in environmental laws and regulations will have
a material adverse effect on its financial position, results of operations or
cash flows in the near term.

         The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM is expected to issue a Record of
Decision formally approving the remediation program. After the Record of
Decision has been issued, the Partnership will enter into an Agreed Order for
the continued operation and maintenance of the program. The Partnership has
accrued $0.6 million at December 31, 2000 for future costs of the remediation
program for the Seymour terminal. In the opinion of the Company, the completion
of the remediation program will not have a material adverse impact on the
Partnership's financial condition, results of operations or liquidity.

         The Partnership received a compliance order from the Louisiana
Department of Environmental Quality ("DEQ") during 1994 relative to potential
environmental contamination at the Partnership's Arcadia, Louisiana facility,
which may be attributable to the operations of the Partnership and adjacent
petroleum terminals of other companies. The Partnership and all adjacent
terminals have been assigned to the Groundwater Division of DEQ, in which a
consolidated plan will be developed. The Partnership has finalized a negotiated
Compliance Order with DEQ that will allow the Partnership to continue with a
remediation plan similar to the one previously agreed to by DEQ and implemented
by the Company. In the opinion of the General Partner, the completion of the
remediation program being proposed by the Partnership will not have a future
material adverse impact on the Partnership.

         Rates of interstate oil pipeline companies are currently regulated by
the FERC, primarily through an index methodology, whereby a pipeline company is
allowed to change its rates based on the change from year to year in the
Producer Price Index for finished goods less 1% ("PPI Index"). In the
alternative, interstate oil pipeline companies may elect to support rate filings
by using a cost-of-service methodology, competitive market showings ("Market
Based Rates") or agreements between shippers and the oil pipeline company that
the rate is acceptable ("Settlement Rates").


                                      F-20

<PAGE>   65



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         On May 11, 1999, the Downstream Segment filed an application with the
FERC requesting permission to charge market-based rates for substantially all
refined products transportation tariffs. Along with its application for
market-based rates, the Downstream Segment filed a petition for waiver pending
the FERC's determination on its application for market-based rates, of the
requirements that would otherwise have been imposed by the FERC's regulations
requiring the Downstream Segment to reduce its rates in conformity with the PPI
Index. On June 30, 1999, the FERC granted the waiver stating that it was
temporary in nature and that the Downstream Segment would be required to make
refunds, with interest, of all amounts collected under rates in excess of the
PPI Index ceiling level after July 1, 1999, if the Downstream Segment's
application for market-based rates was ultimately denied. As a result of the
refund obligation potential, the Partnership has deferred all revenue
recognition of rates charged in excess of the PPI Index. On December 31, 2000,
the amount deferred for possible rate refund, including interest totaled
approximately $2.3 million.

         On July 31, 2000, the FERC issued an order granting the Downstream
Segment market-based rates in certain markets and set for hearing the Downstream
Segment's application for market-based rates in the Little Rock, Arkansas;
Shreveport-Arcadia, Louisiana; Cincinnati-Dayton, Ohio and Memphis, Tennessee
destination markets and the Shreveport, Louisiana origin market. The FERC also
directed the FERC trial staff to convene a conference to explore the facts and
issues regarding the Western Gulf Coast origin market. After the matter was set
for hearing, the Downstream Segment and the protesting shippers entered into a
settlement agreement resolving their respective differences. On January 9, 2001,
the presiding Administrative Law Judge assigned to the hearing determined that
the offer of settlement provided resolution of issues set for hearing in the
Downstream Segment pending case in a fair and reasonable manner and in the
public interest and certified the offer of settlement and recommended it to the
FERC for approval. The certification of the settlement is currently before the
FERC. The Partnership believes that the Administrative Law Judge's decision in
this matter will be upheld by the FERC.

         The settlement, if it is approved by FERC, will require the Downstream
Segment to withdraw the application for market-based rates to the Little Rock,
Arkansas destination market and the Arcadia, Louisiana destination in the
Shreveport-Arcadia, Louisiana destination market. The Downstream Segment also
has agreed to recalculate rates to these destination markets to conform with the
PPI Index from July 1, 1999 and make appropriate refunds. The refund obligation
under the proposed settlement as of December 31, 2000 would be $0.8 million.

         On October 16, 2000 the Partnership received a settlement notice from
ARCO for payment of a net aggregate amount of approximately $12.9 million in
post-closing adjustments related to the purchase of the ARCO assets. A large
portion of the requested adjustment relates to ARCO's indemnity for payment of
accrued income taxes. The Partnership is disputing a substantial portion of the
adjustments. The Partnership does not believe that payment of any amount
ultimately determined would have a material adverse impact on the Partnership's
financial condition and results of operations.

         Substantially all of the petroleum products transported and stored by
the Partnership are owned by the Partnership's customers. At December 31, 2000,
the Partnership had approximately 16.4 million barrels of products in its
custody owned by customers. The Partnership is obligated for the transportation,
storage and delivery of such products on behalf of its customers. The
Partnership maintains insurance adequate to cover product losses through
circumstances beyond its control.

NOTE 15. SEGMENT DATA

         The Partnership operates in two segments: refined products and LPGs
transportation, which operates through the Downstream Segment; and crude oil and
NGLs transportation and marketing, which operates through the Upstream Segment.


                                      F-21

<PAGE>   66



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         Operations of the Downstream Segment consist of interstate
transportation, storage and terminaling of petroleum products; short-haul
shuttle transportation of LPGs at the Mont Belvieu, Texas complex; sale of
product inventory; fractionation of natural gas liquids and other ancillary
services. The Downstream Segment is one of the largest pipeline common carriers
of refined petroleum products and LPGs in the United States. The Partnership
owns and operates a pipeline system extending from southeast Texas through the
central and midwestern United States to the northeastern United States.

         The Upstream Segment gathers, stores, transports and markets crude oil
principally in Oklahoma, Texas and the Rocky Mountain region; operates two
trunkline NGL pipelines in South Texas; and distributes lube oils and specialty
chemicals to industrial and commercial accounts. Effective with the purchase of
assets from ARCO (see Note 3), the operations of the Upstream Segment also
include the Partnership's 50% ownership interest in Seaway, other crude oil
transportation pipelines in West Texas, undivided joint interest ownership of
two crude oil pipelines systems in Texas and Oklahoma, and other terminaling and
documentation services.

         The accounting policies of the segments are the same as those described
in the summary of significant accounting policies discussed above (see Note 2).
The crude oil and NGLs transportation and marketing segment was added by
acquisition, effective November 1, 1998. The acquisition was accounted for under
the purchase method of accounting.

         The below table includes financial information by business segment for
the years ended December 31, 2000, 1999 and 1998.

<TABLE>
<CAPTION>
                                                DOWNSTREAM       UPSTREAM
                                                 SEGMENT          SEGMENT       CONSOLIDATED
                                              -------------    -------------    -------------
2000                                                           (IN THOUSANDS)
----
<S>                                           <C>              <C>              <C>
Unaffiliated revenues .....................   $     236,687    $   2,851,254    $   3,087,941
Operating expenses, including power .......         118,945        2,825,808        2,944,753
Depreciation and amortization expense .....          27,743            7,420           35,163
                                              -------------    -------------    -------------
  Operating income ........................          89,999           18,026          108,025
Interest expense, net .....................         (30,573)         (13,850)         (44,423)
Equity earnings -- Seaway .................              --           12,214           12,214
Other income, net .........................           1,269              291            1,560
                                              -------------    -------------    -------------
Net income ................................   $      60,695    $      16,681    $      77,376
                                              =============    =============    =============

Total assets ..............................   $     755,508    $     867,302    $   1,622,810
Accounts receivable, trade ................          26,182          277,212          303,394
Accounts payable and accrued liabilities ..   $      12,177    $     281,543    $     293,720
</TABLE>

<TABLE>
<CAPTION>
                                                DOWNSTREAM       UPSTREAM
                                                 SEGMENT          SEGMENT       CONSOLIDATED
                                              -------------    -------------    -------------
1999                                                          (IN THOUSANDS)
----
<S>                                           <C>              <C>              <C>
Unaffiliated revenues .....................   $     230,270    $   1,704,613    $   1,934,883
Operating expenses, including power .......         113,768        1,688,369        1,802,137
Depreciation and amortization expense .....          27,109            5,547           32,656
                                              -------------    -------------    -------------
  Operating income ........................          89,393           10,697          100,090
Interest expense, net .....................         (29,212)            (218)         (29,430)
Other income, net .........................           1,046              414            1,460
                                              -------------    -------------    -------------
Net income ................................   $      61,227    $      10,893    $      72,120
                                              =============    =============    =============

Total assets ..............................   $     721,797    $     319,576    $   1,041,373
Accounts receivable, trade ................          22,358          183,408          205,766
Accounts payable and accrued liabilities ..   $       7,412    $     194,248    $     201,660
</TABLE>

                                      F-22

<PAGE>   67



                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


<TABLE>
<CAPTION>
                                               DOWNSTREAM        UPSTREAM
                                                 SEGMENT          SEGMENT       CONSOLIDATED
                                              -------------    -------------    -------------
1998                                                           (IN THOUSANDS)
----
<S>                                           <C>              <C>              <C>
Unaffiliated revenues .....................   $     211,783    $     217,855    $     429,638
Operating expenses, including power .......         107,102          215,632          322,734
Depreciation and amortization expense .....          26,040              898           26,938
                                              -------------    -------------    -------------
  Operating income ........................          78,641            1,325           79,966
Interest expense, net .....................         (28,982)              (7)         (28,989)
Other income, net .........................           2,343               21            2,364
                                              -------------    -------------    -------------
  Income before extraordinary item ........          52,002            1,339           53,341
                                              =============    =============    =============

Total assets ..............................   $     694,636    $     222,283    $     916,919
Accounts receivable, trade ................          17,740           95,801          113,541
Accounts payable and accrued liabilities ..   $       8,513    $     109,420    $     117,933
</TABLE>

NOTE 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                           FIRST        SECOND         THIRD         FOURTH
                                                          QUARTER       QUARTER        QUARTER       QUARTER
                                                         ---------     ---------      ---------     ---------
                                                                (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S>                                                      <C>           <C>            <C>           <C>
2000  (1)
----
Operating revenues ..................................    $ 750,692     $ 747,704      $ 749,898     $ 839,647
Operating income ....................................       30,767        20,151         21,907        35,200
Net income ..........................................    $  23,881     $  13,570      $  17,189     $  22,736
Basic and diluted income per Limited Partner and
 Class B Unit  (1) ..................................    $    0.60     $    0.35      $    0.41     $    0.53

1999
Operating revenues ..................................    $ 286,090     $ 455,351      $ 554,368     $ 639,074
Operating income ....................................       30,469        21,016         20,406        28,199
Net income ..........................................       23,372        14,029         13,370        21,349
Basic and diluted income per Limited Partner
 and Class B Unit ...................................    $    0.64     $    0.38      $    0.32     $    0.57
</TABLE>


----------
(1) Per Unit calculation includes 3,700,000 Limited Partner Units issued on
    October 25, 2000.


                                      F-23

<PAGE>   68
                                Index To Exhibits

<TABLE>
<CAPTION>
         Exhibit
         Number                    Description
         -------                   -----------
<S>               <C>
         3.1      Certificate of Limited Partnership of the Partnership (Filed
                  as Exhibit 3.2 to the Registration Statement of TEPPCO
                  Partners, L.P. (Commission File No. 33-32203) and incorporated
                  herein by reference).

         3.2      Certificate of Formation of TEPPCO Colorado, LLC (Filed as
                  Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the quarter ended March 31, 1998 and
                  incorporated herein by reference).

         3.3      Second Amended and Restated Agreement of Limited Partnership
                  of TEPPCO Partners, L.P., dated November 30, 1998 (Filed as
                  Exhibit 3.3 to Form 10-K of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the year ended December 31, 1998 and
                  incorporated herein by reference).

         3.4      Amended and Restated Agreement of Limited Partnership of TE
                  Products Pipeline Company, Limited Partnership, effective July
                  21, 1998 (Filed as Exhibit 3.2 to Form 8-K of TEPPCO Partners,
                  L.P. (Commission File No. 1-10403) dated July 21, 1998 and
                  incorporated herein by reference).

         3.5      Agreement of Limited Partnership of TCTM, L.P., dated November
                  30, 1998 (Filed as Exhibit 3.5 to Form 10-K of TEPPCO
                  Partners, L.P. (Commission File No. 1-10403) for the year
                  ended December 31, 1998 and incorporated herein by reference).

         4.1      Form of Certificate representing Limited Partner Units (Filed
                  as Exhibit 4.1 to the Registration Statement of TEPPCO
                  Partners, L.P. (Commission File No. 33-32203) and incorporated
                  herein by reference).

         4.2      Form of Indenture between TE Products Pipeline Company,
                  Limited Partnership and The Bank of New York, as Trustee,
                  dated as of January 27, 1998 (Filed as Exhibit 4.3 to TE
                  Products Pipeline Company, Limited Partnership's Registration
                  Statement on Form S-3 (Commission File No. 333-38473) and
                  incorporated herein by reference).

         4.3      Form of Certificate representing Class B Units (Filed as
                  Exhibit 4.3 to Form 10-K of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the year ended December 31, 1998 and
                  incorporated herein by reference).

         10.1     Assignment and Assumption Agreement, dated March 24, 1988,
                  between Texas Eastern Transmission Corporation and the Company
                  (Filed as Exhibit 10.8 to the Registration Statement of TEPPCO
                  Partners, L.P. (Commission File No. 33-32203) and incorporated
                  herein by reference).

        +10.2     Texas Eastern Products Pipeline Company 1997 Employee
                  Incentive Compensation Plan executed on July 14, 1997 (Filed
                  as Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended September
                  30, 1997 and incorporated herein by reference).

         10.3     Agreement Regarding Environmental Indemnities and Certain
                  Assets (Filed as Exhibit 10.5 to Form 10-K of TEPPCO Partners,
                  L.P. (Commission File No. 1-10403) for the year ended December
                  31, 1990 and incorporated herein by reference).

        +10.4     Texas Eastern Products Pipeline Company Management Incentive
                  Compensation Plan executed on January 30, 1992 (Filed as
                  Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the quarter ended March 31, 1992 and
                  incorporated herein by reference).

        +10.5     Texas Eastern Products Pipeline Company Long-Term Incentive
                  Compensation Plan executed on October 31, 1990 (Filed as
                  Exhibit 10.9 to Form 10-K of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the year ended December 31, 1990 and
                  incorporated herein by reference).

        +10.6     Form of Amendment to Texas Eastern Products Pipeline Company
                  Long-Term Incentive Compensation Plan (Filed as Exhibit 10.7
                  to the Partnership's Form 10-K (Commission File No. 1-10403)
                  for the year ended December 31, 1995 and incorporated herein
                  by reference).

        +10.7     Duke Energy Corporation Executive Savings Plan (Filed as
                  Exhibit 10.7 to the Partnership's Form 10-K (Commission File
                  No. 1-10403) for the year ended December 31, 1999 and
                  incorporated herein by reference).

        +10.8     Duke Energy Corporation Executive Cash Balance Plan (Filed as
                  Exhibit 10.8 to the Partnership's Form 10-K (Commission File
                  No. 1-10403) for the year ended December 31, 1999 and
                  incorporated herein by reference).

        +10.9     Duke Energy Corporation Retirement Benefit Equalization Plan
                  (Filed as Exhibit 10.9 to the Partnership's Form 10-K
                  (Commission File No. 1-10403) for the year ended December 31,
                  1999 and incorporated herein by reference).

        +10.10    Employment Agreement with William L. Thacker, Jr. (Filed as
                  Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission
                  File No. 1-10403) for the quarter ended September 30, 1992 and
                  incorporated herein by reference).

        +10.11    Texas Eastern Products Pipeline Company 1994 Long Term
                  Incentive Plan executed on March 8, 1994 (Filed as Exhibit
                  10.1 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
                  No. 1-10403) for the quarter ended March 31, 1994 and
                  incorporated herein by reference).
</TABLE>
<PAGE>   69
<TABLE>
<CAPTION>
        Exhibit
        Number                           Description
        -------                          -----------

<S>               <C>
        +10.12    Texas Eastern Products Pipeline Company 1994 Long Term
                  Incentive Plan, Amendment 1, effective January 16, 1995 (Filed
                  as Exhibit 10.12 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended June 30,
                  1999 and incorporated herein by reference).

         10.13    Asset Purchase Agreement between Duke Energy Field Services,
                  Inc. and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as
                  Exhibit 10.14 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended March 31,
                  1998 and incorporated herein by reference).

         10.14    Contribution Agreement between Duke Energy Transport and
                  Trading Company and TEPPCO Partners, L.P., dated October 15,
                  1998 (Filed as Exhibit 10.16 to Form 10-K of TEPPCO Partners,
                  L.P. (Commission File No. 1-10403) for the year ended December
                  31, 1998 and incorporated herein by reference).

         10.15    Guaranty Agreement by Duke Energy Natural Gas Corporation for
                  the benefit of TEPPCO Partners, L.P., dated November 30, 1998,
                  effective November 1, 1998 (Filed as Exhibit 10.17 to Form
                  10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
                  for the year ended December 31, 1998 and incorporated herein
                  by reference).

         10.16    Letter Agreement regarding Payment Guarantees of Certain
                  Obligations of TCTM, L.P. between Duke Capital Corporation and
                  TCTM, L.P., dated November 30, 1998 (Filed as Exhibit 10.19 to
                  Form 10-K of TEPPCO Partners, L.P. (Commission File No.
                  1-10403) for the year ended December 31, 1998 and incorporated
                  herein by reference).

        +10.17    Form of Employment Agreement between the Company and Ernest P.
                  Hagan, Thomas R. Harper, David L. Langley, Charles H. Leonard
                  and James C. Ruth, dated December 1, 1998 (Filed as Exhibit
                  10.20 to Form 10-K of TEPPCO Partners, L.P. (Commission File
                  No. 1-10403) for the year ended December 31, 1998 and
                  incorporated herein by reference).

         10.18    Agreement Between Owner and Contractor between TE Products
                  Pipeline Company, Limited Partnership and Eagleton Engineering
                  Company, dated February 4, 1999 (Filed as Exhibit 10.21 to
                  Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
                  1-10403) for the quarter ended March 31, 1999 and incorporated
                  herein by reference).

         10.19    Services and Transportation Agreement between TE Products
                  Pipeline Company, Limited Partnership and Fina Oil and
                  Chemical Company, BASF Corporation and BASF Fina Petrochemical
                  Limited Partnership, dated February 9, 1999 (Filed as Exhibit
                  10.22 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
                  No. 1-10403) for the quarter ended March 31, 1999 and
                  incorporated herein by reference).

         10.20    Call Option Agreement, dated February 9, 1999 (Filed as
                  Exhibit 10.23 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended March 31,
                  1999 and incorporated herein by reference).

        +10.21    Texas Eastern Products Pipeline Company Retention Incentive
                  Compensation Plan, effective January 1, 1999 (Filed as Exhibit
                  10.24 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
                  No. 1-10403) for the quarter ended March 31, 1999 and
                  incorporated herein by reference).

        +10.22    Form of Employment and Non-Compete Agreement between the
                  Company and Samuel N. Brown, J. Michael Cockrell, and Sharon
                  S. Stratton effective January 1, 1999 (Filed as Exhibit 10.29
                  to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
                  1-10403) for the quarter ended September 30, 1999 and
                  incorporated herein by reference).

        +10.23    Texas Eastern Products Pipeline Company Non-employee Directors
                  Unit Accumulation Plan, effective April 1, 1999 (Filed as
                  Exhibit 10.30 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended September
                  30, 1999 and incorporated herein by reference).

        +10.24    Texas Eastern Products Pipeline Company Non-employee Directors
                  Deferred Compensation Plan, effective November 1, 1999 (Filed
                  as Exhibit 10.31 to Form 10-Q of TEPPCO Partners, L.P.
                  (Commission File No. 1-10403) for the quarter ended September
                  30, 1999 and incorporated herein by reference).

        +10.25    Texas Eastern Products Pipeline Company Phantom Unit Retention
                  Plan, effective August 25, 1999 (Filed as Exhibit 10.32 to
                  Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
                  1-10403) for the quarter ended September 30, 1999 and
                  incorporated herein by reference).
</TABLE>

<PAGE>   70
<TABLE>
<CAPTION>
         Exhibit
         Number                           Description
         -------                          -----------
<S>               <C>
         10.26    Credit Agreement between TEPPCO Partners, L.P., SunTrust Bank,
                  and Certain Lenders, dated July 14, 2000 (Filed as Exhibit
                  10.31 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
                  No. 1-10403) for the quarter ended June 30, 2000 and
                  incorporated herein by reference).

         10.27    Amended and Restated Purchase Agreement By and Between
                  Atlantic Richfield Company and Texas Eastern Products Pipeline
                  Company With Respect to the Sale of ARCO Pipeline Company,
                  dated as of May 10, 2000. (Filed as Exhibit 2.1 to Form 10-Q
                  of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
                  quarter ended March 31, 2000 and incorporated herein by
                  reference).

       +*10.28    Texas Eastern Products Pipeline Company, LLC 2000 Long Term
                  Incentive Plan, Amendment and Restatement, Effective
                  January 1, 2000.

       +*10.29    TEPPCO Supplemental Benefits Plan, effective April 1, 2000.

        *12.1     Statement of Computation of Ratio of Earnings to Fixed
                  Charges.

         22.1     Subsidiaries of the Partnership (Filed as Exhibit 22.1 to the
                  Registration Statement of TEPPCO Partners, L.P. (Commission
                  File No. 33-32203) and incorporated herein by reference).

        *23       Consent of KPMG LLP.

        *24       Powers of Attorney.
</TABLE>

-------------------
                * Filed herewith.

                + A management contract or compensation plan or arrangement.