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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended December 31, 2001

Commission File Number 1-10403

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

|                                                  |  |                                                   
|------------------------------------------------- |  | --------------------------------------------------
|Delaware
(State of Incorporation or Organization) |  | 76-0291058
(I.R.S. Employer Identification Number)

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:

|                                                             |  |                         
|------------------------------------------------------------ |  | ------------------------
|                                                             |  | Name of each exchange on
|Title of each class                                          |  | which registered        
|                                                             |  |                         
|Limited Partner Units representing Limited
Partner Interests |  | New York Stock Exchange 

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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    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 7, 2002, the aggregate market value of the registrants Limited
Partner Units held by non-affiliates was $1,240,803,750, which was
computed using the average of the high and low sales prices of the Limited
Partner Units on March 7, 2002.

Limited Partner Units outstanding as of March 7, 2002: 40,450,000.

Documents Incorporated by Reference: None



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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Items 1 and 2. Business and Properties                                                       
|                                                   | Item 3. Legal Proceedings                                                                    
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                           
|                                                   | Item 5. Market for Registrants Units and Related Unitholder Matters                         
|                                                   | Item 6. Selected Financial Data                                                              
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                   | Item 8. Financial Statements and Supplementary Data                                          
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                   | Item 11. Executive Compensation                                                              
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                   | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                           
|                                                   | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|Amendment to the Credit Agreement                 
|Second Amendment to Amended Credit Agreement      
|Agreement of Partnership of Jonah Gas Gathering Co
|Unanimous Written Consent of Board-TEPPCO GP, Inc.
|Computation of Ratio of Earnings to Fixed Charges 
|Subsidiaries of the Partnership                   
|Consent of KPMG LLP                               
|Powers of Attorney                                



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TABLE OF CONTENTS

|         |  |                                                                                       |  |   
|-------- |  | ------------------------------------------------------------------------------------- |  | --
|         |  | PART I                                                                                |  |   
|        
|ITEMS 1. |  | Business and Properties                                                               |  | 1 
|AND 2.   |  |                                                                                       |  |   
|ITEM 3.  |  | Legal Proceedings                                                                     |  | 18
|ITEM 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 19
|        
|         |  | PART II                                                                               |  |   
|        
|ITEM 5.  |  | Market for Registrants Units and Related Unitholder Matters                          |  | 19
|ITEM 6.  |  | Selected Financial Data                                                               |  | 20
|ITEM 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 21
|ITEM 7A. |  | Quantitative and Qualitative Disclosures About Market Risks                           |  | 37
|ITEM 8.  |  | Financial Statements and Supplementary Data                                           |  | 37
|ITEM 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 37
|        
|         |  | PART III                                                                              |  |   
|        
|ITEM 10. |  | Directors and Executive Officers of the Registrant                                    |  | 38
|ITEM 11. |  | Executive Compensation                                                                |  | 40
|ITEM 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 45
|ITEM 13. |  | Certain Relationships and Related Transactions                                        |  | 46
|        
|         |  | PART IV                                                                               |  |   
|        
|ITEM 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 48

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Items 1 and 2. Business and
Properties

General

TEPPCO Partners, L.P. (the Partnership), a Delaware limited partnership,
is a master limited partnership and was formed in March 1990. The Partnership
operates through TE Products Pipeline Company, Limited Partnership (TE
Products), TCTM, L.P. (TCTM) and TEPPCO Midstream Companies, L.P. (TEPPCO
Midstream). Collectively, TE Products, TCTM and TEPPCO Midstream are referred
to as the Operating Partnerships. Texas Eastern Products Pipeline Company,
LLC (the Company or General Partner), a Delaware limited liability company,
serves as the general partner of the Partnership. The General Partner is a
wholly-owned subsidiary of Duke Energy Field Services (DEFS), a joint venture
between Duke Energy Corporation (Duke Energy) and Phillips Petroleum Company
(Phillips). Duke Energy holds an approximate 70% interest in DEFS and
Phillips holds the remaining 30%. The Company, as general partner, performs all
management and operating functions required for the Partnership and the
Operating Partnerships, except for the management and operations of the TEPPCO
Midstream assets, which is performed by DEFS under an agreement with the
Partnership. The General Partner is reimbursed by the Partnership for all
reasonable direct and indirect expenses incurred in managing the Partnership.

On July 26, 2001, the Company restructured its general partner ownership
of the Operating Partnerships to cause them to be indirectly wholly-owned by
the Partnership. TEPPCO GP, Inc. (TEPPCO GP), a subsidiary of the
Partnership, succeeded the Company as general partner of the Operating
Partnerships. All remaining partner interests in the Operating Partnerships not
already owned by the Partnership were transferred to the Partnership. In
exchange for this contribution, the Companys interest as general partner of
the Partnership was increased to 2%. The increased percentage is the economic
equivalent of the aggregate interest that the Company had prior to the
restructuring through its combined interests in the Partnership and the
Operating Partnerships. As a result, the Partnership holds a 99.999% limited
partner interest in the Operating Partnerships and TEPPCO GP holds a 0.001%
general partner interest. This reorganization was undertaken to simplify
required financial reporting by the Operating Partnerships when guarantees of
Partnership debt are issued by the Operating Partnerships.

The Partnership operates and reports in three business segments:
transportation of refined products, liquefied petroleum gases (LPGs) and
petrochemicals (Downstream Segment); transportation and marketing of crude
oil and natural gas liquids (NGLs) (Upstream Segment); and gathering of
natural gas (Midstream Segment). The Partnerships reportable segments offer
different products and services and are managed separately because each
requires different business strategies. The Upstream Segment of the
Partnerships business was initially acquired in November 1998. The Midstream
Segment of the Partnerships business was initially acquired on September 30,
2001. The assets of the Midstream Segment are managed and operated by DEFS
under an agreement with the Partnership.

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, petrochemicals,
crude oil, NGLs and natural gas are referred to in this Report, collectively,
as petroleum products or products.

At December 31, 2001, the Partnership had outstanding 40,450,000 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 initially acquired in the Upstream Segment in 1998. The
Class B Units share in income and distributions on the same basis as 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 unitholders. The Company has the option to seek approval for the
conversion of the Class B Units into Limited Partner Units; however, if the
conversion is denied, Duke Energy, as holder of the Class B Units, will have
the right to sell them to the Partnership at 95.5% of the then current market
price of the Limited Partner Units. As a result of this option, the Class B
Units were not included in partners capital at December 31, 2001.
Collectively, the Limited Partner Units and Class B Units are referred to as
Units.

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The Partnerships strategy is to expand and 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 or to
establish new core 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 cash flow from
operations, borrowings under existing credit facilities, the issuance of debt
in the capital markets and the sale of additional units.

Downstream Segment  Transportation of Refined Products, Petrochemicals and LPGs

Operations

The Partnership conducts business in its Downstream Segment through TE
Products and its subsidiary. TE Products owns and operates properties located
in 13 states. These 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.

As an interstate common carrier, the TE Products pipeline 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 pipeline system. Substantially
all the petroleum products transported and stored in the pipeline system are
owned by TE Products 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 (including
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 TE Products pipeline system
is the only pipeline that transports LPGs to the Northeast.

The Partnerships Downstream Segment 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. 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.

The following table lists the material properties and investments of and
ownership percentages in the Downstream Segment assets as of December 31, 2001:

|                                                            |  |             |     |  
|----------------------------------------------------------- |  | ----------- | --- | -
|                                                            |  | Partnership
|                                                            |  | Ownership  
|                                                            |  |            
|Refined products and LPGs pipeline                          |  |             | 100 | %
|Mont Belvieu LPGs storage and pipeline shuttle              |  |             | 100 | %
|Mont Belvieu to Port Arthur, Texas, petrochemical pipelines |  |             | 100 | %
|Centennial Pipeline(1)                                      |  |             | 33  | %



---

|(1) |  | Accounted for as an equity investment.
|--- |  | --------------------------------------

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Centennial Pipeline Joint Venture

In August 2000, TE Products entered into agreements with CMS Energy
Corporation and Marathon Ashland Petroleum LLC to form a pipeline joint
venture, Centennial Pipeline, LLC (Centennial). Centennial owns and operates
an interstate refined petroleum products pipeline extending from the upper
Texas Gulf Coast to Illinois. Each participant owns a one-third interest in
Centennial. Centennial constructed a 74-mile, 24-inch diameter pipeline
connecting TE Products facility in Beaumont, Texas, with an existing 720-mile,
26-inch diameter pipeline extending from Longville, Louisiana, to Bourbon,
Illinois. The Centennial pipeline intersects TE Products existing mainline
pipeline near Creal Springs, Illinois, where Centennial has constructed a new
two million barrel refined petroleum products storage terminal. TE Products
interest is not subject to any encumbrances from mortgages or other secured
debt. Centennial has unsecured debt, one third of which, up to $50 million in
principal, is guaranteed by each owner, including TE Products. As of December
31, 2001, TE Products has contributed approximately $70 million for its
one-third interest in Centennial. The Partnership expects to contribute an
additional $4.9 million to Centennial in 2002. Centennial commenced operations
in the first quarter of 2002.

Refined Products and LPGs Pipeline System

TE Products is one of the largest pipeline common carriers of refined
petroleum products and LPGs in the United States. TE Products owns and operates
an approximate 4,500-mile pipeline system (together with the receiving, storage
and terminaling facilities mentioned below, the Products Pipeline System)
extending from southeast Texas through the central and midwestern United States
to the northeastern United States. The Products 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.
TE Products 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 Products Pipeline System. The Products Pipeline
System also includes three 12-inch diameter common-carrier petrochemical
pipelines between Mont Belvieu and Port Arthur, Texas, each approximately 70
miles in length.

All properties comprising the Products Pipeline System are wholly-owned by
subsidiaries of the Partnership and none are subject to any encumbrances from
mortgages or other secured debt.

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 Products Pipeline System extend to the Chicago,
Illinois; Lima, Ohio; Selkirk, New York; and Philadelphia, Pennsylvania, areas.
The Products Pipeline System east of Todhunter, Ohio, is dedicated solely to
LPGs transportation and storage services.

The Products 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 Products Pipeline System makes deliveries to customers at 53
locations including 18 owned truck racks, rail car facilities and marine
facilities. Deliveries to other pipelines occur at various facilities owned by
TE Products or by third parties.

The Products 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 Products Pipeline Systems terminal in El Dorado,
Arkansas, before continuing as a 16-inch diameter line to Seymour, Indiana. The
Products Pipeline System also has smaller diameter lines that extend laterally
from El Dorado to Helena, Arkansas, from Tyler, Texas, to El Dorado and from
McRae, Arkansas, to West Memphis, Arkansas. The line from El Dorado to Helena
has a 10-inch diameter. 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 Products Pipeline System also includes a 14-inch diameter line
from Seymour 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 Products Pipeline System has a 6-inch diameter pipeline
connection to the

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Greater Cincinnati/Northern Kentucky International Airport and an 8-inch
diameter pipeline connection to the George Bush Intercontinental Airport in
Houston. In addition, there are numerous smaller diameter lines associated with
the gathering and distribution system.

The Products 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 Products Pipeline System 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.

TE Products also owns three 12-inch diameter common-carrier petrochemical
pipelines between Mont Belvieu and Port Arthur, Texas, which were completed in
the fourth quarter of 2000. Each of these pipelines is approximately 70 miles
in length. The pipelines transport ethylene, propylene and natural gasoline.
The Partnership entered into a 20-year agreement with a major petrochemical
producer for guaranteed throughput commitments. During the year ended December
31, 2001, and the two month period ended December 31, 2000, the Partnership
recognized $10.7 million and $1.8 million, respectively, of revenue under the
throughput and deficiency contract. The Partnership began transporting product
through these pipelines in September 2001.

The Partnership believes that the Products Pipeline System is in
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 Products Pipeline System and has an
ongoing process of inspecting segments of the Products Pipeline System and
making repairs and replacements when necessary or appropriate. In addition, the
Partnership conducts periodic air patrols of the Products Pipeline System to
monitor pipeline integrity and third-party right of way encroachments.

Major Business Sector Markets

The Partnerships major operations in the Downstream Segment consist of
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 LPG operations. Product deliveries, in
millions of barrels (MMBbls) on a regional basis, over the last three years
were as follows:

|                                          |                                     |                               |  |                             |       |      |  |      |       |  |  |      |       | 
|----------------------------------------- | ----------------------------------- | ----------------------------- |  | --------------------------- | ----- | ---- |  | ---- | ----- |  |  | ---- | ----- | 
|                                          |                                     |                               |  | Product Deliveries (MMBbls)
|                                          |                                     |                               |  | Years Ended December 31,   
|                                          |                                     |                               |  |                            
|                                          |                                     |                               |  | 2001                        |       | 2000 |  | 1999
|                                          |                                     |                               |  |                             |       |      |  |     
|Refined Products Mainline Transportation: |                                     |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Central(1)                          |                               |  | 62.0                        |       |      |  | 63.4 |       |  |  | 67.7 |      
|                                          | Midwest(2)                          |                               |  | 37.4                        |       |      |  | 36.7 |       |  |  | 37.9 |      
|                                          | Ohio and Kentucky                   |                               |  | 23.5                        |       |      |  | 28.0 |       |  |  | 27.0 |      
|                                          |                                     |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                     | Subtotal                      |  |                             | 122.9 |      |  |      | 128.1 |  |  |      | 132.6 | 
|                                          |                                     |                               |  |                             |       |      |  |      |       |  |  |      |      
|LPGs Mainline Transportation:             |                                     |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Central, Midwest and Kentucky(1)(2) |                               |  | 23.8                        |       |      |  | 23.4 |       |  |  | 22.9 |      
|                                          | Ohio and Northeast(3)               |                               |  | 16.2                        |       |      |  | 16.2 |       |  |  | 14.7 |      
|                                          |                                     |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                     | Subtotal                      |  |                             | 40.0  |      |  |      | 39.6  |  |  |      | 37.6  | 
|                                          |                                     |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                     | Total Mainline Transportation |  |                             | 162.9 |      |  |      | 167.7 |  |  |      | 170.2 | 
|                                          |                                     |                               |  |                             |       |      |  |      |       |  |  |      |      
|Mont Belvieu Operations:                  |                                     |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | LPGs                                |                               |  | 23.1                        |       |      |  | 27.2 |       |  |  | 28.5 |      
|                                          |                                     |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                     | Total Product Deliveries      |  |                             | 186.0 |      |  |      | 194.9 |  |  |      | 198.7 | 
|                                          |                                     |                               |  |                             |       |      |  |      |       |  |  |      |      



---

|(1) |  | Arkansas, Louisiana, Missouri and Texas.
|--- |  | ----------------------------------------
|   
|(2) |  | Illinois and Indiana.                   
|   
|(3) |  | New York and Pennsylvania.              

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The mix of products delivered varies seasonally. Gasoline demand is
generally stronger in the spring and summer months and LPGs demand is generally
stronger in the fall and winter months. Weather and economic conditions in the
geographic areas served by the Products 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:

|                                          |                       |                               |  |                             |       |      |  |      |       |  |  |      |       | 
|----------------------------------------- | --------------------- | ----------------------------- |  | --------------------------- | ----- | ---- |  | ---- | ----- |  |  | ---- | ----- | 
|                                          |                       |                               |  | Product Deliveries (MMBbls)
|                                          |                       |                               |  | Years Ended December 31,   
|                                          |                       |                               |  |                            
|                                          |                       |                               |  | 2001                        |       | 2000 |  | 1999
|                                          |                       |                               |  |                             |       |      |  |     
|Refined Products Mainline Transportation: |                       |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Gasoline              |                               |  | 68.2                        |       |      |  | 67.8 |       |  |  | 71.6 |      
|                                          | Jet Fuels             |                               |  | 25.4                        |       |      |  | 28.1 |       |  |  | 26.9 |      
|                                          | Middle Distillates(1) |                               |  | 28.1                        |       |      |  | 26.6 |       |  |  | 28.4 |      
|                                          | MTBE(2)/Toluene       |                               |  | 1.2                         |       |      |  | 5.6  |       |  |  | 5.7  |      
|                                          |                       |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                       | Subtotal                      |  |                             | 122.9 |      |  |      | 128.1 |  |  |      | 132.6 | 
|                                          |                       |                               |  |                             |       |      |  |      |       |  |  |      |      
|LPGs Mainline Transportation:             |                       |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Propane               |                               |  | 32.8                        |       |      |  | 33.1 |       |  |  | 30.8 |      
|                                          | Butanes               |                               |  | 7.2                         |       |      |  | 6.5  |       |  |  | 6.8  |      
|                                          |                       |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                       | Subtotal                      |  |                             | 40.0  |      |  |      | 39.6  |  |  |      | 37.6  | 
|                                          |                       |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                       | Total Mainline Transportation |  |                             | 162.9 |      |  |      | 167.7 |  |  |      | 170.2 | 
|                                          |                       |                               |  |                             |       |      |  |      |       |  |  |      |      
|Mont Belvieu Operations:                  |                       |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | LPGs                  |                               |  | 23.1                        |       |      |  | 27.2 |       |  |  | 28.5 |      
|                                          |                       |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                       | Total Product Deliveries      |  |                             | 186.0 |      |  |      | 194.9 |  |  |      | 198.7 | 
|                                          |                       |                               |  |                             |       |      |  |      |       |  |  |      |      



---

|(1) |  | Primarily diesel fuel, heating oil and other middle distillates.                              
|--- |  | ----------------------------------------------------------------------------------------------
|   
|(2) |  | Methyl tertiary butyl ether, a fuels additive, the use of which has
largely been discontinued.

Refined Products Mainline Transportation

The Products 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 to terminals owned by TE Products,
connecting pipelines and customer-owned terminals. TE Products canceled its
tariff for deliveries of MTBE into the Chicago market area on July 1, 1999, and
canceled contract deliveries of MTBE at its marine terminal near Beaumont,
Texas, effective April 22, 2001. The Partnership no longer transports MTBE
through the Products Pipeline System.

The volume of refined petroleum products transported by the Products
Pipeline System is directly affected by the demand for such products in the
geographic regions the system serves. This 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 Products 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 Partnerships 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.

5



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##### Table of Contents



LPGs Mainline Transportation

The Products Pipeline System transports LPGs from the upper Texas Gulf
Coast to the Central, Midwest and Northeast regions of the United States. The
Products 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 Products 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 Partnerships ability in its Downstream Segment 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. Effective May 2001, the
Company entered into an agreement with DEFS to commit sole utilization of the
Providence terminal to DEFS. The terminal is operated by the Partnership.
During the year ended December 31, 2001, DEFS paid the Partnership $1.5 million
pursuant to this agreement.

Mont Belvieu LPGs Storage and Pipeline Shuttle

A key aspect of the Products Pipeline Systems LPGs business is its
storage and pipeline asset base in the Mont Belvieu 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 NGLs, LPGs,
petrochemicals and olefins.

The Partnerships 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 includes a Mont Belvieu
short-haul transportation shuttle system, consisting of a complex system of
pipelines and interconnects, that 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 marketing and development alliance. 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 pipeline throughput and the mix of products
handled through the existing system and establishing new receipt and delivery
connections. TE Products operates the facilities for the alliance. The
alliance is a service-oriented, fee-based venture with no commodity trading
activity. Under the alliance, Louis Dreyfus has invested $4.4 million for
expansion projects at Mont Belvieu. The Partnership is required to reimburse
this amount to Louis Dreyfus if the alliance is terminated by either Louis
Dreyfus or the Partnership.

Other Operating Revenues

The Partnerships Downstream Segment also derives revenue from terminaling
activities, other ancillary services associated with the transportation and
storage of refined petroleum products and LPGs, and the fractionation of NGLs.
From time to time, the Partnership sells excess product inventory.

Customers

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

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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, 2001, the Downstream Segment had approximately 140
customers. Transportation revenues (and percentage of total revenues)
attributable to the top 10 customers were $109 million (40)%, $102 million
(43)% and $105 million (46)%, for the years ended December 31, 2001, 2000 and
1999, respectively. During 2001, no single customer accounted for 10% or more
of the Downstream Segments revenues.

Competition

The Products 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
Products Pipeline Systems most significant competitors (other than indigenous
production in its markets) are pipelines in the areas where the Products
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 Partnership 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 Products 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 TE Products tariffs. The Partnership faces competition from rail
movements of LPGs from Sarnia, Ontario, Canada, and waterborne imports into New
Hampshire.

Upstream Segment  Transportation and Marketing of Crude Oil and NGL

Operations

The Partnership conducts business in its Upstream Segment through TCTM and
its wholly-owned subsidiaries, which gather, store, transport and market crude
oil, NGLs, lube oils and specialty chemicals, principally in Oklahoma, Texas
and the Rocky Mountain region. The Partnership commenced its Upstream Segment
business in connection with the acquisition of certain assets from DEFS in
November 1998. The Partnerships Upstream Segment utilizes its asset base to
aggregate crude oil and provide transportation and specialized services to its
regional customers. The Partnerships Upstream Segment 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.

Margins in the Upstream Segment are 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. Margins
are a more meaningful measure of financial performance than operating revenues
and operating expenses due to the significant fluctuations in revenues and
expenses caused by variations in the level of marketing activity and prices for
products marketed.

TCTM purchases crude oil and simultaneously establishes a margin by
selling crude oil for physical delivery to third party users. The Partnership
seeks to maintain a balanced marketing position until it makes physical
delivery of the crude oil, thereby minimizing or eliminating exposure to price
fluctuations occurring after

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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. The Partnership makes
limited use of commodity derivative products for the purpose of speculating on
price changes. Risk management policies have been established for the
Partnership by the Companys Risk Management Committee to monitor and control
market risks. The Risk Management Committee is comprised, in part, of senior
executives of the Company. The Partnership had no commodity derivative
contracts outstanding at December 31, 2001.

Volume information of TCTMs 100% owned pipeline systems and undivided
joint interest pipelines for the years ended December 31, 2001, 2000 and 1999,
is presented below (in thousands):

|                                         |                          |  |                          |         |      |  |       |         |  |  |       |        | 
|---------------------------------------- | ------------------------ |  | ------------------------ | ------- | ---- |  | ----- | ------- |  |  | ----- | ------ | 
|                                         |                          |  | Years Ended December 31,
|                                         |                          |  |                         
|                                         |                          |  | 2001                     |         | 2000 |  | 1999 
|                                         |                          |  |                          |         |      |  |      
|Total Barrels:                           |                          |  |                          |         |      |  |       |         |  |  |       |       
|                                         | Crude oil transportation |  |                          | 78,714  |      |  |       | 46,225  |  |  |       | 33,267 | 
|                                         | Crude oil marketing      |  |                          | 159,477 |      |  |       | 107,607 |  |  |       | 96,252 | 
|                                         | Crude oil terminaling    |  |                          | 121,932 |      |  |       | 56,473  |  |  |       |       | 
|                                         | NGL transportation       |  |                          | 21,538  |      |  |       | 5,201   |  |  |       | 4,580  | 
|Lubricants and chemicals (total gallons) |                          |  | 8,769                    |         |      |  | 7,974 |         |  |  | 8,891 |       

Properties

The major crude oil pipelines and pipeline systems of the Partnerships
Upstream Segment are set forth in the following table, which include several
pipelines owned jointly with other industry participants or producers:

|                        |  |             |                                     |          |  |                               |  |                                                                                                                          
|----------------------- |  | ----------- | ----------------------------------- | -------- |  | ----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------
|                        |  | Partnership |                                     |          |  |                              
|Crude Oil Pipeline      |  | Ownership   |                                     | Operator |  | Description                  
|                        |  |             |                                     |          |  |                              
|Red River System        |  |             | 100%                                |          |  | TEPPCO Crude
Oil (TCO)(1)   |  | 1,690 miles of pipeline; 1,484,000 barrels
storage  North Texas to South Oklahoma                                       
|                       
|South Texas
System      |  |             | 100%                                |          |  | TCO                           |  | 690 miles of pipeline; 740,000 barrels
storage  South Central Texas to Houston,
Texas area                              
|                       
|West Texas
Trunk System |  |             | 100%                                |          |  | TCO                           |  | 250 miles of smaller diameter pipeline 
connecting West Texas and Southeast New
Mexico to TCTMs Midland, Texas terminal
|                       
|Seaway                  |  |             | 50% general
partnership
interest(2) |          |  | TCO                           |  | 500-mile, 30-inch diameter pipeline  Texas
Gulf Coast to Cushing, Oklahoma                                              
|                       
|Rancho                  |  |             | 25% joint
ownership                 |          |  | Equilon Pipeline
Company, LLC |  | 400-mile, 24-inch diameter pipeline  West
Texas to Houston, Texas                                                       
|                       
|Basin                   |  |             | 13% joint
ownership                 |          |  | Equilon Pipeline
Company, LLC |  | 416-mile pipeline  Permian Basin (New Mexico
and Texas) to Cushing, Oklahoma                                            

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---

|(1) |  | TCO is a wholly-owned subsidiary of TCTM.                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | TCOs participation in revenues and expenses of Seaway vary as described below in
Partnership Interest in Seaway Crude Pipeline.

None of these pipelines or systems is subject to any encumbrance from a
mortgage or other secured debt.

The majority of the Red River System crude oil is delivered to Cushing,
Oklahoma via connecting pipelines or to two local refineries. The majority of
the crude oil on the South Texas System is delivered on a tariff basis to
Houston area refineries. The West Texas Trunk System connects gathering systems
to TCTMs Midland, Texas terminal. Other crude oil assets, located primarily in
Texas and Louisiana, consist of 344 miles of pipeline and 295,000 barrels of
storage capacity.

The NGL pipelines of the Upstream Segment are located along the Texas Gulf
Coast. They are all wholly-owned and operated by subsidiaries of the
Partnership. Information concerning these NGL pipelines is set forth in the
following table:

|             |  |               |        |             |  |                                                               
|------------ |  | ------------- | ------ | ----------- |  | --------------------------------------------------------------
|             |  | Capacity      |        |            
|NGL Pipeline |  | (barrels/day) |        | Description
|             |  |               |        |            
|Dean         |  |               | 20,000 |             |  | 338 miles of pipeline  South Texas to Mont
Belvieu, Texas    
|            
|Panola       |  |               | 38,000 |             |  | 189 miles of pipeline  Carthage, Texas to
Mont Belvieu, Texas
|            
|San Jacinto  |  |               | 11,000 |             |  | 34 miles of pipeline  Carthage, Texas to
Longview, Texas     
|            
|Wilcox       |  |               | 7,000  |             |  | 90 miles of pipeline  Southeast Texas                        

None of these pipelines is subject to any encumbrance from a mortgage or other
secured debt.

The Wilcox NGL Pipeline transports NGLs for DEFS from two of their natural
gas processing plants. The Wilcox NGL Pipeline is currently supported by a
throughput agreement with DEFS through 2005. The Panola Pipeline and San
Jacinto Pipeline were purchased on December 31, 2000, from DEFS and originate
at DEFS East Texas Plant Complex in Panola County, Texas.

Partnership Interest in Seaway Crude Pipeline

Seaway Crude Pipeline Company (Seaway) is a partnership between TCTM and
Phillips. In July 2000, the Partnership acquired its 50-percent ownership
interest in Seaway from ARCO Pipe Line Company (ARCO), a wholly-owned
subsidiary of Atlantic Richfield Company. The Partnership assumed ARCOs role
as operator of this pipeline. 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
New York Mercantile Exchange (NYMEX). 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. Seaway has the capability to
provide marine terminaling and storage services for all Houston area
refineries.

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

Line Transfers, Pumpovers and Other

The Partnerships Upstream Segment provides trade documentation services
to its customers, primarily at Cushing and Midland. TCTM documents the
transfer of crude oil in its terminal facilities between contracting buyers and
sellers. This line transfer documentation service is related to the trading
activity by TCTMs customers of NYMEX open-interest crude oil contracts. This
service provides a documented record of receipts, deliveries and transactions
to each customer, including confirmation of trade matches, inventory management
and scheduled movements. Line transfer revenues are included as part of other
operating revenues in the Partnerships consolidated statements of income.

The line transfer services also attract physical barrels to TCTM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 TCTMs custody. TCTM owns and operates storage facilities with an
operational capacity of approximately 1.1 million barrels to facilitate the
pumpover business. Revenues from pumpover services are included as part of
crude oil transportation revenues in the Partnerships consolidated statements
of income and represents the crude oil terminaling component of margin. The
line transfer and pumpover operations were acquired from ARCO in July 2000.

Through its subsidiary, Lubrication Services, L.P. (LSI), TCTM
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, Kansas, New Mexico, Texas, and
Louisiana.

Customers

TCTM 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. During 2001, no single customer
accounted for 10% or more of the margin of the Partnerships Upstream Segment.
The Company does not believe the loss of any single customer would have a
material adverse effect on the consolidated financial position, results of
operations or cash flows of the Partnership.

Competition

The most significant competitors in pipeline operations in the
Partnerships Upstream Segment 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 crude oil at the wellhead. Declines in
domestic crude oil production has intensified competition among gatherers and
marketers.

A significant portion of the growth in the Partnerships Upstream Segment
has occurred through acquisitions of pipeline gathering systems. The
Partnerships acquisitions in this segment have provided increased efficiencies
for the gathering and transportation of crude oil and NGLs with its existing
pipeline systems as well as expansion into new market areas. The Partnership
experiences competition from other gatherers and marketers in the bidding for
potential acquisitions. 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, which may decrease the amount of potential
acquisitions of crude gathering systems available to the Partnership.

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Credit Policies and Procedures

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, particularly in
the Partnerships Upstream Segment, where transported volumes are typically
sold rather than transported for a fee. Due to the nature of individual sales
transactions, risk of non-payment and non-performance by customers is a major
consideration in the Partnerships business. The Partnership manages its
exposure to credit risk through credit analysis, credit approvals, credit
limits and monitoring procedures. The Partnership utilizes letters of credit
and guarantees for certain of its receivables. However, these procedures and
policies may not fully eliminate customer credit risk. The bankruptcy of Enron
Corp. and certain of its subsidiaries in December 2001 has made doubtful the
collection of approximately $4.3 million of transportation deficiency payments
by the Partnership. During the years ended 1999 and 2000, no reserves were
necessary to write-off uncollectible receivables of the Upstream Segment.

Midstream Segment  Natural Gas Gathering

The operations of the Partnerships Midstream Segment commenced upon the
acquisition of all of the partnership interests of Jonah Gas Gathering Company
(Jonah) from Alberta Energy Company, effective September 30, 2001, by
subsidiaries of the Partnership. The original purchase price totaled $359.8
million. An additional $7.2 million was accrued at December 31,
2001, for final
purchase adjustments related primarily to construction projects in progress at
the time of closing. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the results of operations of the acquisition
are included in the Partnerships consolidated financial statements in the
fourth quarter of 2001. The assets of Jonah are managed and operated by DEFS
under a contract arrangement. Jonah and its assets are not subject to any
encumbrances from mortgages or other secured debt.

In connection with the acquisition of Jonah, the Partnership assumed
responsibility for the completion of an ongoing expansion of the Jonah Gas
Gathering System (Jonah System) at a cost of approximately $25.0 million. The
expansion, which is expected to be completed by the end of March 2002, will
increase the capacity of the Jonah System by 62%, from approximately 450
million cubic feet per day (MMcf/day), to approximately 730 MMcf/day.

In February 2002, a producer on the Jonah System notified Alberta Energy
Company that it has a right to acquire all or a portion of the assets
comprising the Jonah System. This claim is based upon an alleged right of
first refusal contained in a gas gathering agreement between the producer and
Jonah. Subsidiaries of Alberta Energy Company have agreed to indemnify the
Partnership against losses resulting from the breach of representations
concerning the absence of third party rights in connection with the acquisition
of Jonah, the owner of the Jonah System. The Partnership believes that it has
adequate legal defenses to the producers claim and that no right of first
refusal on any of the underlying Jonah System assets has been triggered.

Revenues of the Partnerships Midstream Segment are earned primarily from
gathering fees based on the volume and pressure of natural gas gathered, and
also from sales of condensate on the Jonah System. TEPPCO Midstream has
multiple long-term contracts with producers connected to the Jonah System. The
Partnership cannot influence or control the operation or development of the gas
fields served by the Jonah System. Production levels may be affected by price
and price volatility, market demand, depletion rates of existing wells and
changes in laws and regulations. The Partnership does not take title to the
natural gas gathered on the Jonah System. Accordingly, the results of
operations of the Midstream Segment are not directly affected by changes in the
prices of natural gas or other commodities. It is expected that Midstream
Segment revenues and cash flows will increase from historical levels as the
system capacity expansion becomes operational.

Volume information for the three month period ended December 31, 2001, is
presented below:

|                                                     |  |  |      | 
|---------------------------------------------------- |  |  | ---- | 
|Gathering  natural gas (Billion cubic feet (Bcf)) |  |  | 45.5 | 
|Sales  condensate (thousand barrels)                |  |  | 16.2 | 

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The Jonah Gas Gathering System

The Jonah System consists of approximately 350 miles of pipelines ranging
in size from four to 20 inches in diameter, four compressor stations with an
aggregate of approximately 21,200 horsepower and related metering facilities.
Gas gathered on the Jonah System is collected from approximately 375 producing
wells in the Green River Basin in southwestern Wyoming, which is one of the
most prolific natural gas basins in the United States. A component of the
system is a processing facility that extracts condensate prior to delivery of
natural gas to DEFS Overland Trail Transmission system and Questar. Gas is
delivered to gas processing facilities owned by others. From these processing
facilities, the natural gas is delivered to several interstate pipeline systems
located in the region for transportation to end-use markets, throughout the
Midwest, the West Coast and the Rocky Mountain regions. Interstate pipelines
in the region include the Overland Trail Transmission system, Kern River,
Northwest, Colorado Interstate Gas and Questar.

Customers

At December 31, 2001, the Midstream Segment had approximately 10
customers. During the fourth quarter of 2001, the first quarterly period that
the Partnership owned Jonah, billings to Alberta Energy Company, BP p.l.c., and
The Williams Companies, Inc. accounted for approximately 46%, 25% and 17%,
respectively, of the revenues of the Partnerships Midstream Segment.

Competition

New supplies of natural gas are necessary to offset natural declines in
production from wells connected to the Jonah System and to increase throughput
volume. Competition is encountered in obtaining contracts to gather natural
gas supplies. Competition in natural gas gathering is based in large part on
reputation, efficiency, reliability, gathering system capacity and price
arrangements. Key competitors in the gas gathering segment include independent
gas gatherers and major integrated energy companies. Alternate gathering
facilities are available to producers served by the Partnerships Midstream
Segment, and those producers may also elect to construct proprietary gas
gathering systems. If the production delivered to the Jonah System declines,
revenues from such operations will decline.

Declines in the volumes of natural gas delivered for gathering on the
system will adversely affect revenues and could, if such declines are sustained
or substantial, have a material adverse effect on the financial position,
results of operations or cash flows.

Title to Properties

The Partnership believes it has satisfactory title to all of its assets.
The 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. In February 2002, a producer on the Jonah System notified
Alberta Energy Company that it has a right to acquire all or a portion of the
assets comprising Jonah. See Items 1 and 2. Business and Properties,
Midstream Segment  Natural Gas Gathering for a more detailed discussion of
the matter. The Partnership believes none of these liabilities materially
affects the value of its properties or the Partnerships interest therein or
will materially interfere with their use in the operation of the Partnerships
business.

Capital Expenditures

Capital expenditures, excluding acquisitions, by the Partnership totaled
$107.6 million for the year ended December 31, 2001. Revenue generating
projects include those projects which expand service into new markets or expand
capacity into current markets. Maintenance capital spending includes projects
required by regulatory agencies or required life-cycle replacements. System
upgrade projects improve operational efficiencies or reduce

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cost. The Partnership capitalizes interest costs incurred during the
period that construction is in progress. The following table identifies
capital expenditures by segment for the year ended 2001 (in millions):

|                   |       |   |            |      |             |   |          |      |             |   |       |     |  |   |     |     |  |   |      |       | 
|------------------ | ----- | - | ---------- | ---- | ----------- | - | -------- | ---- | ----------- | - | ----- | --- |  | - | --- | --- |  | - | ---- | ----- | 
|                   |       |   | Revenue    |      | Maintenance |   | System   |      | Capitalized |   |       |     | 
|                   |       |   | Generating |      | Capital     |   | Upgrades |      | Interest    |   | Total
|                   |       |   |            |      |             |   |          |      |             |   |      
|Downstream Segment |       | $ | 62.2       |      |             | $ | 12.7     |      |             | $ | 3.0   |     |  | $ | 3.5 |     |  | $ | 81.4 |      
|Upstream Segment   |       |   | 6.1        |      |             |   | 4.7      |      |             |   | 2.8   |     |  |   | 0.4 |     |  |   | 14.0 |      
|Midstream Segment  |       |   | 11.0       |      |             |   | 1.1      |      |             |   |      |     |  |   | 0.1 |     |  |   | 12.2 |      
|                   |       |   |            |      |             |   |          |      |             |   |       |     |  |   |     |     |  |   |      |      
|                   | Total |   | $          | 79.3 |             |   | $        | 18.5 |             |   | $     | 5.8 |  |   | $   | 4.0 |  |   | $    | 107.6 | 
|                   |       |   |            |      |             |   |          |      |             |   |       |     |  |   |     |     |  |   |      |      

Revenue generating capital spending by the Downstream Segment included
$35.5 million 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 and $17.4 million used to construct connections and
related facilities for the petrochemical pipelines at Mont Belvieu. Revenue
generating capital spending of the Midstream Segment related to the ongoing
expansion of the Jonah System that was assumed by the Partnership upon the
purchase on September 30, 2001.

The Partnership estimates that capital expenditures, excluding
acquisitions, for 2002 will be approximately $74 million (which includes $4
million of capitalized interest). Approximately $31 million is expected to be
used for revenue generating projects. Approximately $27 million is expected to
be used for maintenance capital spending and approximately $12 million for
system upgrade projects. Revenue generating projects will include the
completion of facilities to support the receipt and delivery locations with
Centennial, the completion of the Jonah System expansion, additional well
connections to the Jonah System and other projects to expand service
capabilities of the Partnership. Approximately $4.9 million of maintenance
capital spending is expected to be used for pipeline rehabilitation projects to
comply with regulations enacted by the United States Department of
Transportation Office of Pipeline Safety (OPS). The Partnership continually
reviews and evaluates potential capital improvements and expansions that would
be complementary to its present business segments. These expenditures can vary
greatly depending on the magnitude of these transactions by the Partnership.
Capital expenditures may be financed through internally generated funds, debt
or the issuance of additional Limited Partner Units.

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, TE Products filed an application with the FERC requesting
permission to charge Market-Based Rates for substantially all refined products
transportation tariffs. On July 31, 2000, the FERC issued an order granting TE
Products Market-Based Rates in certain markets and set for hearing TE Products
application for Market-Based Rates in certain destination markets and origin
markets. After the matter was set for hearing, TE Products and the protesting
shippers entered into a settlement agreement resolving their respective
differences. On April 25, 2001, the FERC issued an order approving the offer
of settlement. As a result of the settlement, TE Products recognized
approximately $1.7 million of previously deferred transportation revenue in the
second quarter of 2001. As a part of the settlement, TE Products withdrew the
application for Market-Based Rates to the Little Rock, Arkansas, Arcadia and
Shreveport-Arcadia, Louisiana, destination markets, which are currently subject
to the

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PPI Index. As a result, the Partnership made refunds of approximately $1.0
million in the third quarter of 2001 for those destination markets.

Effective July 1, 1999, TE Products 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 initial rates or 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.

While the FERC does not directly regulate the natural gas gathering
operations of the Jonah System, federal regulation, directly or indirectly,
influences the parties that gather natural gas on the Jonah System. The Jonah
System is exempt from FERC regulation under the Natural Gas Act of 1938 since
it is an intrastate gas gathering system rather than an interstate transmission
pipeline. However, FERC regulation still significantly affects the Midstream
Segment. In recent years, FERC has pursued pro-competition policies in its
regulation of interstate natural gas pipelines. If the FERC does not continue
the pro-competition policy as it considers pipeline rate case proposals,
revisions to rules and policies that affect shipper rights of access to
interstate natural gas transportation capacity, or proposals by natural gas
pipelines to allow natural gas pipelines to charge negotiated rates without
rate ceiling limits, such policy changes could have an adverse effect on the
gathering rates the Midstream Segment is able to charge in the future.

Environmental Matters

The operations of the Partnership are subject to federal, state and local
laws and regulations governing the discharge of materials into the environment
otherwise relating to environmental protection. Failure to comply with these
laws and regulations may result in the assessment of administrative, civil, and
criminal penalties, imposition of injunctions delaying or prohibiting certain
activities, and the need to perform investigatory and remedial activities.
Although the Partnership believes its operations are in material compliance
with applicable environmental laws and 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. The Company
does not anticipate that changes in environmental laws and regulations will
have a material adverse effect on the Partnerships financial position, results
of operations or cash flows in the near term.

Water

The Federal Water Pollution Control Act of 1972, as renamed and amended as
the Clean Water Act (CWA), and analogous state laws impose 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 petroleum or other hazardous substances. 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
navigable waters or into groundwater. Spill prevention control and
countermeasure requirements of federal laws require appropriate containment
berms and similar structures to help prevent a petroleum tank release from
impacting navigable waters.

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Contamination resulting from spills or releases of refined petroleum
products is an inherent risk within the petroleum pipeline industry. To the
extent that groundwater contamination requiring remediation exists along its
pipeline systems 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.

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. OPA 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
federal agency being either the United States Coast Guard, the United States
Department of Transportation Office of Pipeline Safety 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
resource damages.

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 storm water run-off.

Air Emissions

The operations of the Partnership are subject to the federal Clean Air Act
(the Clean Air Act) and comparable state laws. Amendments to the Clean Air
Act, as well as recent or soon to be adopted changes to state implementation
plans for controlling air emissions in regional, non-attainment areas may
require operations of the Partnership to incur future capital expenditures in
connection with the addition or modification of existing air emission control
equipment and strategies. In addition, some of the Partnerships facilities
are included within the categories of hazardous air pollutant sources, which
are subject to increasing regulation under the Clean Air Act. The Clean Air
Act requires 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 the facilities for which these
regulations apply.

Risk Management Plans

The Partnership is subject to the EPA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 Company believes the operating expenses of the RMP regulations will not
have a material adverse effect on the Partnerships financial position, results
of operations or cash flows.

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 required 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. From time to time,

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the EPA considers the adoption of stricter disposal standards for
non-hazardous wastes, including crude oil and gas wastes. The adoption of such
stricter standards for non-hazardous wastes, or any future re-designation of
non-hazardous wastes as hazardous wastes will likely increase the operating
expenses of the Partnership as well as the industry in general. The
Partnership utilizes waste minimization and recycling processes to reduce the
volume of its waste. The Partnership currently has one permitted on-site waste
water treatment facility. Operating expenses of this facility has not had a
material adverse effect on the financial position, results of operations or
cash flows 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 where a release
occurred and companies that disposed or arranged for the disposal of the
hazardous substances found at a facility. Under CERCLA, these persons may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment, for damages
to natural resources, and for the costs of certain health studies. 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. It is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by hazardous substances or
other pollutants released into the environment. In the course of its ordinary
operations, the Partnerships pipeline system generates wastes that may fall
within CERCLAs definition of a hazardous substance. In the event a disposal
facility previously used by the Partnership requires 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.

In December 1999, the Company was notified by the 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 to the information request 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 is pursuing dismissal from this matter.

Other Environmental Proceedings

In 1994, the Partnership and the Indiana Department of Environmental
Management (IDEM) entered into an Agreed Order that resulted in the
implementation of a remediation program for groundwater contamination
attributable to the Partnerships operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnerships proposed remediation
program, was approved by IDEM in 1999. IDEM is expected to issue a Record of
Decision formally approving the remediation program. After the Record of
Decision is issued, the Partnership will enter into a subsequent Agreed Order
for the continued operation and maintenance of the remediation program. The
Partnership has an accrued liability of $0.6 million at December 31, 2001, for
future remediation costs at the Seymour terminal. In the opinion of the
Company, the completion of the remediation program will not have a future
material adverse effect on the Partnerships financial condition, results of
operations or cash flows.

In 1994, the Partnership was issued a compliance order from the Louisiana
Department of Environmental Quality (LDEQ) relative to environmental
contamination at the Partnerships Arcadia, Louisiana, facility. This
contamination may be attributable to the operations of the Partnership, as well
as adjacent petroleum terminals operated by other companies. In 1999, the
Partnerships Arcadia facility and the adjacent terminals were directed by the
Remediation Services Division of the LDEQ to pursue remediation of this
containment phase. In the opinion of the Company, the completion of the
remediation program that is proposed by the Partnership will not have a future
material adverse effect on the Partnerships financial condition, results of
operations or cash flows.

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During 2001, the Partnership accrued $8.6 million to
complete environmental remediation activities at certain of the sites owned by
TCTM and its subsidiaries. In establishing this accrual, the Partnership
expensed $4.4 million for these environmental remediation costs and recorded a
receivable of $4.2 million for the remainder. The receivable is based on a
contractual indemnity obligation for specified environmental liabilities owed
by DEFS to the Partnership in connection with the Partnerships acquisition of
the Upstream Segment from DEFS in November 1998. Under this indemnity
obligation, the Partnership is responsible for the first $3.0 million in
specified environmental liabilities, with DEFS becoming responsible for those
environmental liabilities in excess of $3.0 million, up to a maximum amount of
$25.0 million. At December 31, 2001, an accrual of $6.4
million remains outstanding related to TCTM environmental remediation
activities. The majority of the indemnified costs relate to remediation
activities at the Velma crude oil site in Stephens County, Oklahoma,
attributable to operations prior to the Partnerships acquisition of the
Upstream Segment. Remediation activities at the Velma crude oil site are being
conducted according to a work plan approved by the Oklahoma Corporation
Commission. In the opinion of the Company, the completion of remediation
programs associated with this release will not have a future material adverse
effect on the Partnerships financial condition, results of operations or cash
flows.

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. The 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.
It is anticipated that the HLPSA will be reauthorized in 2002.

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 was
completed in April 2001, and individuals performing a covered task must be
qualified by October 2002.

The Partnership is also subject to the OPS Integrity Management
regulations which specifies how companies with greater than 500 miles of
pipeline should assess, evaluate, validate and maintain the integrity of
pipeline segments that, in the event of a release, could impact High
Consequence Areas (HCA). HCA are defined as highly populated areas,
unusually sensitive environmental areas and commercially navigable waterways.
The regulation requires an Integrity Management Program (IMP) be developed
that utilizes internal pipeline inspection, pressure testing, or other equally
effective means to assess the integrity of HCA pipeline segments. The
regulation also requires periodic review of HCA pipeline segments to ensure
adequate preventative and mitigative measures exist and that companies take
prompt action to address integrity issues raised by the assessment and
analysis. In compliance with these OPS regulations, the Partnership has
identified its HCA pipeline segments and will develop an IMP by March 31, 2002.
The regulations require that initial HCA baseline integrity assessments are
conducted within seven years, with all subsequent assessments conducted on a
five-year cycle. The Partnership will evaluate each pipeline segments
integrity by analyzing available information and develop a range of potential
impacts resulting from a release to a HCA. The Partnership is currently
developing cost estimates related to its baseline integrity assessments.

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

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information must be reported to employees, state and local governmental
authorities, and local citizens upon request. 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.

In general, the General Partner expects to increase the expenditures of
the Partnership during the next decade to comply with stricter industry and
regulatory safety standards such as those described above. While such
expenditures cannot be accurately estimated at this time, the Company does not
believe that they will have a future material adverse effect on the
Partnerships financial condition, results of operations or cash flows.

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, 2001, the General Partner had 919
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. (including the Company and Partnership).In both cases,
the 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 plaintiffs have not stipulated the amount of damages
they are seeking in the suit. The Partnership cannot estimate the loss, if
any, associated with these pending lawsuits.

Other Litigation

On December 21, 2001, the Partnership was named as a defendant in a
lawsuit in the 10th Judicial District, Natchitoches Parish, Louisiana in
Rebecca L. Grisham et. al. v. TE Products Pipeline Company, Limited
Partnership. In this case, the plaintiffs contend that the defendants
pipeline, which crosses the plaintiffs property, leaked toxic products onto
the plaintiffs property. The plaintiffs further contend that this leak caused
damages to the plaintiffs. The Partnership has filed an answer to the
plaintiffs petition denying the allegations. The plaintiffs have not
stipulated the amount of damages they are seeking in the suit. The Partnership
is defending itself vigorously against the lawsuit. The Partnership cannot
estimate the damages, if any, associated with this pending lawsuit, however,
this case is covered by insurance.

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 Company believes that the outcome of such lawsuits and
other proceedings will not

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individually or in the aggregate have a future 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.




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 2001 and 2000, respectively, as reported in The
Wall Street Journal, were as follows:

|        |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|        |  | 2001 |       | 2000
|        |  |      |       |     
|Quarter |  | High |       | Low  |  | High |       | Low
|        |  |      |       |      |  |      |       |    
|First   |  | $    | 27.44 |      |  | $    | 24.38 |     |  | $ | 22.94 |  |  | $ | 19.00 | 
|Second  |  |      | 30.10 |      |  |      | 25.76 |     |  |   | 24.38 |  |  |   | 19.88 | 
|Third   |  |      | 32.90 |      |  |      | 26.00 |     |  |   | 26.75 |  |  |   | 22.75 | 
|Fourth  |  |      | 36.50 |      |  |      | 28.50 |     |  |   | 27.00 |  |  |   | 21.63 | 

Based on the information received from its transfer agent and from brokers
and nominees, the Company estimates the number of beneficial unitholders of
Limited Partner Units of the Partnership as of March 7, 2002, to be
approximately 31,000.

The quarterly cash distributions applicable to 2000 and 2001 were as
follows:

|                 |  |                  |  |          |       | 
|---------------- |  | ---------------- |  | -------- | ----- | 
|                 |  |                  |  | Amount  
|Record Date      |  | Payment Date     |  | Per Unit
|                 |  |                  |  |         
|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 | 
|                
|April 30, 2001   |  | May 4, 2001      |  | $        | 0.525 | 
|July 31, 2001    |  | August 6, 2001   |  |          | 0.525 | 
|October 31, 2001 |  | November 5, 2001 |  |          | 0.575 | 
|January 31, 2002 |  | February 8, 2002 |  |          | 0.575 | 

The Partnership makes quarterly cash distributions of its Available Cash,
as defined by the Partnership Agreement. Available Cash generally consists 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 allocated 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.

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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.

|                                    |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |         |         |         |      | 
|----------------------------------- | ---------------------------------------------------------------------- | ------------------------------------------- | ------------------------ | -------------------------- | --------- | --------------------------------------- | ---- | --------- | --------- | --------- | ---- | --------- | --------- | --------- | ---- | ------- | ------- | ------- | ----- | ------- | ------- | ------- | ---- | 
|                                    |                                                                        |                                             |                          |                            |           | Years Ended December 31,               
|                                    |                                                                        |                                             |                          |                            |           |                                        
|                                    |                                                                        |                                             |                          |                            |           | 2001(1)                                 |      | 2000(2)   |           | 1999      |      | 1998(3)   |           | 1997     
|                                    |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |          
|                                    |                                                                        |                                             |                          |                            |           | (in thousands, except per Unit Amounts)
|Income Statement Data:              |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |        
|                                    | Operating revenues:                                                    |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |         |        
|                                    |                                                                        | Sales of crude oil and petroleum products   |                          | $                          | 3,219,816 |                                         |      | $         | 2,821,943 |           |      | $         | 1,692,767 |           |      | $       | 214,463 |         |       | $       |        |        
|                                    |                                                                        | Transportation  refined products           |                          |                            | 139,315   |                                         |      |           | 119,331   |           |      |           | 123,004   |           |      |         | 119,854 |         |       |         | 107,304 |        
|                                    |                                                                        | Transportation  LPGs                       |                          |                            | 77,823    |                                         |      |           | 73,896    |           |      |           | 67,701    |           |      |         | 60,902  |         |       |         | 79,371  |        
|                                    |                                                                        | Transportation  crude oil and NGLs         |                          |                            | 44,925    |                                         |      |           | 24,533    |           |      |           | 11,846    |           |      |         | 3,392   |         |       |         |        |        
|                                    |                                                                        | Gathering  natural gas                     |                          |                            | 8,824     |                                         |      |           |          |           |      |           |          |           |      |         |        |         |       |         |        |        
|                                    |                                                                        | Mont Belvieu operations                     |                          |                            | 14,116    |                                         |      |           | 13,334    |           |      |           | 12,849    |           |      |         | 10,880  |         |       |         | 12,815  |        
|                                    |                                                                        | Other                                       |                          |                            | 51,594    |                                         |      |           | 34,904    |           |      |           | 26,716    |           |      |         | 20,147  |         |       |         | 22,603  |        
|                                    |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |         |         |        
|                                    |                                                                        |                                             | Total operating revenues |                            |           | 3,556,413                               |      |           |           | 3,087,941 |      |           |           | 1,934,883 |      |         |         | 429,638 |       |         |         | 222,093 |     
|                                    | Purchases of crude oil and petroleum products                          |                                             |                          | 3,173,607                  |           |                                         |      | 2,794,604 |           |           |      | 1,666,042 |           |           |      | 212,371 |         |         |       |        |        
|                                    | Operating expenses                                                     |                                             |                          | 185,918                    |           |                                         |      | 150,149   |           |           |      | 136,095   |           |           |      | 110,363 |         |         |       | 106,771 |        
|                                    | Depreciation and amortization                                          |                                             |                          | 45,899                     |           |                                         |      | 35,163    |           |           |      | 32,656    |           |           |      | 26,938  |         |         |       | 23,772  |        
|                                    |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |         |         |        
|                                    | Operating income                                                       |                                             |                          | 150,989                    |           |                                         |      | 108,025   |           |           |      | 100,090   |           |           |      | 79,966  |         |         |       | 91,550  |        
|                                    | Interest expense  net                                                 |                                             |                          | (62,057                    | )         |                                         |      | (44,423   | )         |           |      | (29,430   | )         |           |      | (28,989 | )       |         |       | (32,229 | )      
|                                    | Equity earnings                                                        |                                             |                          | 17,398                     |           |                                         |      | 12,214    |           |           |      |          |           |           |      |        |         |         |       |        |        
|                                    | Other income  net                                                     |                                             |                          | 2,801                      |           |                                         |      | 1,560     |           |           |      | 1,460     |           |           |      | 2,364   |         |         |       | 1,979   |        
|                                    |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |         |         |        
|                                    |                                                                        | Income before extraordinary item            |                          |                            | 109,131   |                                         |      |           | 77,376    |           |      |           | 72,120    |           |      |         | 53,341  |         |       |         | 61,300  |        
|                                    | Extraordinary loss on debt extinguishment, net of
minority interest(4) |                                             |                          |                           |           |                                         |      |          |           |           |      |          |           |           |      | (72,767 | )       |         |       |        |        
|                                    |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |         |         |        
|                                    |                                                                        | Net income (loss)                           |                          | $                          | 109,131   |                                         |      | $         | 77,376    |           |      | $         | 72,120    |           |      | $       | (19,426 | )       |       | $       | 61,300  |        
|                                    |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |         |         |        
|                                    | Basic and diluted income per Unit:(5)                                  |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |         |        
|                                    |                                                                        | Before extraordinary item                   |                          | $                          | 2.18      |                                         |      | $         | 1.89      |           |      | $         | 1.91      |           |      | $       | 1.61    |         |       | $       | 1.95    |        
|                                    |                                                                        | Extraordinary
loss on debtextinguishment(4) |                          |                            |          |                                         |      |           |          |           |      |           |          |           |      |         | (2.21   | )       |       |         |        |        
|                                    |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |         |         |        
|                                    |                                                                        |                                             |                          | Net income (loss) per Unit |           | $                                       | 2.18 |           |           | $         | 1.89 |           |           | $         | 1.91 |         |         | $       | (0.60 | )       |         | $       | 1.95 | 
|                                    |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |         |         |        
|Balance Sheet Data (at period end): |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |        
|                                    | Property, plant and equipment  net                                    |                                             | $                        | 1,180,461                  |           |                                         | $    | 949,705   |           |           | $    | 720,919   |           |           | $    | 671,611 |         |         | $     | 567,681 |        
|                                    | Total assets                                                           |                                             |                          | 2,065,348                  |           |                                         |      | 1,622,810 |           |           |      | 1,041,373 |           |           |      | 916,919 |         |         |       | 673,909 |        
|                                    | Long-term debt (net of current maturities)                             |                                             |                          | 730,472                    |           |                                         |      | 835,784   |           |           |      | 455,753   |           |           |      | 427,722 |         |         |       | 309,512 |        
|                                    | Total debt                                                             |                                             |                          | 1,090,472                  |           |                                         |      | 835,784   |           |           |      | 455,753   |           |           |      | 427,722 |         |         |       | 326,512 |        
|                                    | Class B Units held by related party                                    |                                             |                          | 105,630                    |           |                                         |      | 105,411   |           |           |      | 105,859   |           |           |      | 105,036 |         |         |       |        |        
|                                    | Partners capital                                                      |                                             |                          | 543,181                    |           |                                         |      | 315,057   |           |           |      | 229,767   |           |           |      | 227,186 |         |         |       | 302,967 |        
|Cash Flow Data:                     |                                                                        |                                             |                          |                            |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |        
|                                    | Net cash provided by operating activities                              |                                             | $                        | 169,148                    |           |                                         | $    | 108,045   |           |           | $    | 103,070   |           |           | $    | 93,215  |         |         | $     | 83,604  |        
|                                    | Maintenance capital expenditures                                       |                                             |                          | (18,578                    | )         |                                         |      | (21,859   | )         |           |      | (24,890   | )         |           |      | (20,320 | )       |         |       | (18,904 | )      
|                                    | Distributions                                                          |                                             |                          | (104,412                   | )         |                                         |      | (82,231   | )         |           |      | (69,259   | )         |           |      | (56,774 | )       |         |       | (49,042 | )      
|                                    | Distributions paid per Unit                                            |                                             | $                        | 2.15                       |           |                                         | $    | 2.00      |           |           | $    | 1.85      |           |           | $    | 1.75    |         |         | $     | 1.55    |        



---

|(1) |  | Data reflects the commencement of the Midstream Segment, effective
September 30, 2001.                                   
|--- |  | -------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Data reflects the operations of the ARCO assets acquired on July 20,
2000.                                               
|   
|(3) |  | Data reflects the commencement of the Upstream Segment, effective
November 1, 1998.                                      
|   
|(4) |  | Extraordinary item reflects the loss related to the early extinguishment
of the First Mortgage Notes on January 27, 1998.

20



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|(5) |  | Per Unit calculation for all periods reflects the two-for-one split on
August 10, 1998. Per Unit calculation includes 3,916,547 Class B Units
issued on November 1, 1998; 3,700,000 Limited Partner Units issued in
2000; and 7,750,000 Limited Partner Units issued in 2001.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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 2001, 2000 and 1999 consolidated financial statements and
accompanying notes of the Partnership listed in the Index to Financial
Statements on page F-1 of this report. Accounting policies that are among the
most critical to the portrayal of the Partnerships financial condition and
results of operations are discussed under Critical Accounting Policies.
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 Considerations addresses trends, future plans and contingencies
that are reasonably likely to materially affect future liquidity or earnings.

The Partnership operates and reports in three business segments:



| |  |  | Downstream Segment  interstate transportation, storage and
terminaling of petroleum products and LPGs, intrastate
transportation of petrochemicals and the fractionation of NGLs 
conducted primarily through TE Products and its subsidiary;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Upstream Segment  transportation, aggregation and marketing
of crude oil and NGLs and the distribution of lube oils and
specialty chemicals  conducted primarily through TCTM and its
subsidiaries; and                                      
|
| |  |  | Midstream Segment  gathering of natural gas in the Green
River Basin in southwestern Wyoming  conducted primarily through
TEPPCO Midstream and its interest in Jonah.                                                                        

The Partnerships reportable segments offer different products and
services and are managed separately because each requires different business
strategies. Each of the subsidiaries of the Partnership that are limited
partnerships is managed by TEPPCO GP, a wholly-owned subsidiary of the
Partnership that acts as managing general partner with a 0.001% general partner
interest.

The Downstream Segment revenues are derived from the transportation of
refined products and LPGs, the storage and short-haul shuttle transportation of
LPGs at the Mont Belvieu complex, intrastate transportation of petrochemicals,
fractionation of NGLs, sale of product inventory and other ancillary services.
Labor and electric power costs comprise the two largest operating expense items
of the Downstream Segment. 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 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 aggregating
purchased crude oil along its pipeline systems, or from third party pipeline
systems, and arranging the necessary logistics for the ultimate sale of the
crude oil to local refineries, marketers or other end users.

On July 20, 2000, the Partnership completed an acquisition of assets from
ARCO for $322.6 million, which included $4.1 million of acquisition-related
costs other than the purchase price. An additional $11.0 million was paid in
October 2001, for final post-closing adjustments. The purchased assets included
ARCOs 50-percent voting 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, including the line transfer and
pumpover business at

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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 of accounting. The results of operations of the assets acquired
have been included in the Upstream Segment since the purchase on July 20, 2000.

The Midstream Segment commenced operations on September 30, 2001, when the
Partnership acquired Jonah from Alberta Energy Company for $359.8 million. An
additional $7.2 million was accrued December 31, 2001, for final purchase
adjustments related primarily to construction projects in progress at the time
of closing. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the results of operations of the acquisition are
included in the Partnerships consolidated financial statements in the fourth
quarter of 2001. The Jonah assets are managed and operated by DEFS under a
contract arrangement.

Critical Accounting Policies

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States 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. Changes in these estimates could materially affect
the financial condition, results of operations or cash flows.

Environmental Costs

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 balance of 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. For information concerning environmental regulation and
environmental costs and contingencies, see Item 1 and 2. Business and
Properties  Environmental Matters in this Report.

Property, Plant and Equipment

Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Ofrequires that an entity review long-lived assets, including
property, plant and equipment, whenever events occur that indicate that the
book value of an asset may not be recoverable in the future. In August 2001,
the Financial Accounting Standards Board (FASB) issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.SFAS 144
supercedes SFAS 121, but retains its fundamental provisions for reorganizing
and measuring impairment losses on long-lived assets held for use and
long-lived assets to be disposed of by sale. During the second quarter of
2001, Pennzoil-Quaker State Company (Pennzoil) sold its Shreveport,
Louisiana, refinery and canceled refined products production. Pennzoil and TE
Products negotiated a settlement of $18.9 million to terminate a long-term
transportation agreement from the Shreveport origin point on the Products
Pipeline System. Under the transportation agreement, Pennzoil had a throughput
commitment of 25,000 barrels per day. The Partnership is pursuing various
alternatives related to the reduced receipt volumes including making system
changes to allow for bi-directional product flow to make

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deliveries into the Shreveport market area. The Partnership has evaluated
the impact of the contract termination on the pipeline segment from Shreveport
to El Dorado, Arkansas, in accordance with SFAS 144. The evaluation did not
result in an impairment of the carrying value of the related transportation
assets. The termination payment was recorded as refined products transportation
revenue in 2001. However, if alternative revenue sources are not realized on
this pipeline segment, an impairment may be recorded, which could have a
material adverse effect on the Partnerships financial condition, results of
operations or cash flows.

Intangible Assets

On September 30, 2001, the Partnership completed the purchase of all of
the partnership interests of Jonah from Alberta Energy Company for $359.8
million. An additional $7.2 million was accrued at December 31, 2001, for final
purchase adjustments related primarily to construction projects in progress at
the time of closing. In connection with this acquisition, the Partnership
assumed contracts that dedicate future production from natural gas wells in the
Green River Basin in the State of Wyoming. The Partnership assigned $222.8
million of the purchase price to these production contracts based upon a fair
value appraisal at the time of closing. The value assigned to intangible assets
are amortized over the expected lives of the contracts (approximately 16 years)
in proportion to the timing of the expected contractual volumes. On an annual
basis, the Partnership will update production estimates of the natural gas
wells and reassess the remaining useful life of the contract assets. Changes
in the estimated remaining production could negatively impact the timing of
amortization expense reported for future periods.

Results of Operations

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

|                    |                           |                          |   |                          |           |      |   |           |           |  |   |           |           | 
|------------------- | ------------------------- | ------------------------ | - | ------------------------ | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                    |                           |                          |   | Years Ended December 31,
|                    |                           |                          |   |                         
|                    |                           |                          |   | 2001                     |           | 2000 |   | 1999     
|                    |                           |                          |   |                          |           |      |   |          
|Operating revenues: |                           |                          |   |                          |           |      |   |           |           |  |   |          
|                    | Downstream Segment        |                          | $ | 271,627                  |           |      | $ | 236,687   |           |  | $ | 230,270   |          
|                    | Midstream Segment         |                          |   | 9,146                    |           |      |   |          |           |  |   |          |          
|                    | Upstream Segment          |                          |   | 3,275,962                |           |      |   | 2,851,254 |           |  |   | 1,704,613 |          
|                    | Intercompany eliminations |                          |   | (322                     | )         |      |   |          |           |  |   |          |          
|                    |                           |                          |   |                          |           |      |   |           |           |  |   |           |          
|                    |                           | Total operating revenues |   |                          | 3,556,413 |      |   |           | 3,087,941 |  |   |           | 1,934,883 | 
|                    |                           |                          |   |                          |           |      |   |           |           |  |   |           |          
|Operating income:   |                           |                          |   |                          |           |      |   |           |           |  |   |          
|                    | Downstream Segment        |                          |   | 122,177                  |           |      |   | 89,999    |           |  |   | 89,393    |          
|                    | Midstream Segment         |                          |   | 3,143                    |           |      |   |          |           |  |   |          |          
|                    | Upstream Segment          |                          |   | 25,669                   |           |      |   | 18,026    |           |  |   | 10,697    |          
|                    |                           |                          |   |                          |           |      |   |           |           |  |   |           |          
|                    |                           | Total operating income   |   |                          | 150,989   |      |   |           | 108,025   |  |   |           | 100,090   | 
|                    |                           |                          |   |                          |           |      |   |           |           |  |   |           |          
|Net income:         |                           |                          |   |                          |           |      |   |           |           |  |   |          
|                    | Downstream Segment        |                          |   | 92,080                   |           |      |   | 60,695    |           |  |   | 61,227    |          
|                    | Midstream Segment         |                          |   | (418                     | )         |      |   |          |           |  |   |          |          
|                    | Upstream Segment          |                          |   | 17,469                   |           |      |   | 16,681    |           |  |   | 10,893    |          
|                    |                           |                          |   |                          |           |      |   |           |           |  |   |           |          
|                    |                           | Total net income         |   | $                        | 109,131   |      |   | $         | 77,376    |  |   | $         | 72,120    | 
|                    |                           |                          |   |                          |           |      |   |           |           |  |   |           |          

The results for the year ended 2001, reflect the addition of the Midstream
Segment for the fourth quarter of 2001, as a result of the acquisition of Jonah
on September 30, 2001. The results for the year ended 2000, reflect the
increased operations in the Upstream Segment resulting from the acquisition of
the ARCO assets in July 2000, which results were impacted in 2001 as a result
of having a full year of operations attributed to the former ARCO assets.

Following is a detailed analysis of the results of operations, discussing
the reasons for changes in results, by each operating segment of the
Partnership.

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Downstream Segment

Volume and average tariff information for 2001, 2000 and 1999 is presented
below:

|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |    |    |   
|------------------------- | ----------------------- | -------------------------------- | - | ----------------------------------------- | ------- | ------------------- | - | ------- | ------- | ---- | - | ------- | ------- |  |  | ---------- | -- | -- |  | -- | -- | --
|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  | Percentage
|                          |                         |                                  |   | Years Ended December 31,                  |         | Increase (Decrease)
|                          |                         |                                  |   |                                           |         |                    
|                          |                         |                                  |   | 2001                                      |         | 2000                |   | 1999    |         | 2001 |   | 2000   
|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |        
|                          |                         |                                  |   | (in thousands, except tariff information) |         |                     |   |         |         |      |   |        
|Volumes Delivered         |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |   
|                          | Refined products        |                                  |   | 122,947                                   |         |                     |   | 128,151 |         |      |   | 132,642 |         |  |  | (4         | )% |    |  | (3 | )%
|                          | LPGs                    |                                  |   | 39,957                                    |         |                     |   | 39,633  |         |      |   | 37,575  |         |  |  | 1          | %  |    |  | 5  | % 
|                          | Mont Belvieu operations |                                  |   | 23,122                                    |         |                     |   | 27,159  |         |      |   | 28,535  |         |  |  | (15        | )% |    |  | (5 | )%
|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |    |   
|                          |                         | Total                            |   |                                           | 186,026 |                     |   |         | 194,943 |      |   |         | 198,752 |  |  |            | (5 | )% |  |    | (2 | )%
|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |    |   
|Average Tariff per Barrel |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |   
|                          | Refined products        |                                  | $ | 0.98                                      | (1)     |                     | $ | 0.93    |         |      | $ | 0.93    |         |  |  | 5          | %  |    |  |   |   
|                          | LPGs                    |                                  |   | 1.95                                      |         |                     |   | 1.86    |         |      |   | 1.80    |         |  |  | 5          | %  |    |  | 3  | % 
|                          | Mont Belvieu operations |                                  |   | 0.18                                      |         |                     |   | 0.16    |         |      |   | 0.16    |         |  |  | 13         | %  |    |  |   |   
|                          |                         | Average system tariff per barrel |   | $                                         | 1.09    |                     |   | $       | 1.01    |      |   | $       | 0.98    |  |  |            | 8  | %  |  |    | 3  | % 
|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |    |   



---

|(1) |  | Excludes $18.9 million received from Pennzoil for canceled
transportation agreement discussed below.
|--- |  | ----------------------------------------------------------------------------------------------------

2001 Compared to 2000

For the year ended 2001, the Downstream Segment reported net income of
$92.1 million, compared with net income of $60.7 million for the year ended
2000. The $31.4 million increase in net income was primarily due to a $34.9
million increase in operating revenues and a $1.7 million decrease in interest
expense, partially offset by a $2.8 million increase in costs and expenses,
$1.1 million in losses from equity investments, a $1.0 million decrease in
capitalized interest and a $0.3 million decrease in other income  net.
Factors influencing these variances are described below.

Refined products transportation revenues increased $20.0 million for the
year ended 2001, compared with 2000, primarily due to $18.9 million of revenue
recognized on the canceled transportation agreement with Pennzoil and the
recognition of $1.7 million of previously deferred revenue related to the
approval of Market-Based Rates during the second quarter of 2001. See further
discussion regarding these factors included in Other Considerations. These
increases were partially offset by a 4% decrease in refined products volumes
delivered. Deliveries of MTBE decreased 4.3 million barrels as a result of the
expiration of contract deliveries to the Partnerships marine terminal near
Beaumont, Texas, in April 2001. As a result of the contract expiration, the
Partnership no longer transports MTBE through its Products Pipeline System.
Jet fuel volumes decreased 2.7 million barrels, or 10%, due to reduced air
travel demand in the Midwest market areas. The total refined products volume
decrease was partially offset by increased distillate demand in the
South-Central market areas and increased distillate deliveries at a third-party
terminal in Houston, Texas. The refined products average rate per barrel
increased 5% from the prior-year period primarily due to an increased
percentage of long-haul volumes delivered in 2001.

LPGs transportation revenues increased $3.9 million for the year ended
2001, compared with 2000, primarily due to increased propane deliveries in the
Midwest that resulted from favorable price differentials of Gulf Coast propane
compared with competing Midwest supply sources. Additionally, increased
feedstock demand resulted in higher deliveries of isobutane in the Chicago
market area. Short-haul deliveries of propane along the upper Texas Gulf Coast
decreased 29% from the prior year due to lower petrochemical feedstock demand
and operational problems at a petrochemical facility served by the Partnership.
The LPGs average rate per barrel

24



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increased 5% from the prior year as a result of an increased percentage of
long-haul deliveries to the upper Midwest market areas.

Revenues generated from Mont Belvieu operations increased $0.8 million
during the year ended 2001, compared with 2000, as a result of increased
loading fees, brine service revenue and butane segregation charges, partially
offset by lower contract storage revenue. Mont Belvieu shuttle deliveries
decreased 15% during the year ended 2001, compared with 2000, due to reduced
propane and butane demand for petrochemical feedstock along the upper Texas
Gulf Coast. The Mont Belvieu average rate per barrel increased in 2001 as a
result of increased non-contract deliveries, which generally carry higher
rates.

Other operating revenues increased $10.2 million during the year ended
2001, compared with 2000, primarily due to an $8.9 million increase in contract
petrochemical delivery revenue, which started during the fourth quarter of
2000, increased refined products loading fees, increased propane deliveries at
the Providence, Rhode Island, import facility and increased gains on product
sales. These increases were partially offset by losses incurred as a result of
exchanging products at different geographic points of delivery to position
product in the Midwest market area.

Costs and expenses increased $2.8 million for the year ended 2001,
compared with 2000, comprised of a $2.1 million increase in operating, general
and administrative expenses, a $1.2 million increase in operating fuel and
power expense and a $1.0 million increase in depreciation and amortization
expense, partially offset by a $1.5 million decrease in taxes  other than
income taxes. The increase in operating, general and administrative expenses
was primarily due to increased employee benefit costs, increased supplies and
services and environmental remediation expenses, partially offset by the March
2000 write-off of project evaluation costs related to the proposed pipeline
construction from Beaumont, Texas, to Little Rock, Arkansas, and decreased
product measurement losses. Operating fuel and power expense increased as a
result of higher rates charged by electric utilities and increased long-haul
volumes delivered. The increase in depreciation expense from the prior year
period resulted from assets placed in service during the fourth quarter of
2000. The decrease in taxes  other than income taxes resulted from actual
property taxes being lower than previously estimated.

Interest expense attributable to the Downstream Segment decreased $1.7
million during the year ended 2001, compared with 2000, as a result of lower
interest rates on borrowings under the variable-rate credit facilities and the
favorable impact of the fixed-to-floating interest rate swap on the TE Products
Senior Notes, effective October 4, 2001. Interest capitalized decreased $1.0
million during the year ended 2001, compared with 2000, as a result of the
completion of the petrochemical pipelines from Mont Belvieu to Port Arthur,
Texas, during the fourth quarter of 2000.

Net loss from equity investments totaled $1.1 million during the year
ended 2001 due primarily to pre-operating expenses of Centennial. Other income
 net decreased $0.3 million during the year ended 2001, compared with 2000,
due primarily to lower interest income earned on cash investments.

The Downstream Segment is dependent in large part on the demand for
refined petroleum products in the markets served by its pipelines. Reductions
in that demand adversely affect the pipeline business of the Downstream
Segment. Market demand varies based upon the different end uses of the refined
products shipped in the Downstream Segment. Demand for gasoline, which has in
recent years accounted for approximately one-half of the Downstream Segments
refined products transportation revenues, depends upon price, prevailing
economic conditions and demographic changes in the markets served in the
Downstream Segment. Weather conditions, governmental policy and crop prices
affect the demand for refined products used in agricultural operations. Demand
for jet fuel, which has in recent years accounted for almost one-quarter of the
Downstream Segments refined products revenues, depends on prevailing economic
conditions and military usage. Propane deliveries are generally sensitive to
the weather and meaningful year-to-year variances have occurred and will likely
continue to occur.

2000 Compared to 1999

For the year ended 2000, net income of the Downstream Segment decreased
$0.5 million compared with 1999 primarily due to a $5.8 million increase in
costs and expenses and a $3.8 million increase in interest expense,

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partially offset by a $6.4 million increase in operating revenues and a
$2.4 million increase in capitalized interest. Factors influencing these
variances are described below.

Refined products transportation revenues decreased $3.7 million for the
year ended 2000, compared with 1999, 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 2000, with respect to potential refund obligations for
rates charged in excess of the PPI Index while its application for Market-Based
Rates was under review by the FERC.

LPGs transportation revenues increased $6.2 million for the year ended
2000, compared with 1999, 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 2000, compared with 1999, primarily due to increased brine handling
fees and higher storage revenue.

Other operating revenues increased $3.4 million during the year ended
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, 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 of the Downstream Segment increased $5.8 million during
the year ended 2000, compared with 1999, 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 to Little Rock 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 attributable to the Downstream Segment increased $3.8
million during the year ended 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. Additionally, amortization of
debt issue costs increased $0.8 million during the year ended 2000. The
increase in interest expense was offset by increased interest capitalized of
$2.4 million during the year ended 2000, as a result of higher balances
associated with construction of the petrochemical pipelines.

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Other income  net increased $0.2 million during the year ended 2000,
compared with 1999, 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.

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 expenses
caused by variations in the level of marketing activity and prices for products
marketed. Margin and volume information for the years ended 2001, 2000 and
1999 is presented below (in thousands, except per barrel and per gallon
amounts):

|                                        |                          |              |       |                          |        |      |       |         |        |   |       |        |        | 
|--------------------------------------- | ------------------------ | ------------ | ----- | ------------------------ | ------ | ---- | ----- | ------- | ------ | - | ----- | ------ | ------ | 
|                                        |                          |              |       | Years Ended December 31,
|                                        |                          |              |       |                         
|                                        |                          |              |       | 2001                     |        | 2000 |       | 1999   
|                                        |                          |              |       |                          |        |      |       |        
|Margins:                                |                          |              |       |                          |        |      |       |         |        |   |       |       
|                                        | Crude oil transportation |              | $     | 34,316                   |        |      | $     | 23,486  |        |   | $     | 17,873 |       
|                                        | Crude oil marketing      |              |       | 21,664                   |        |      |       | 13,320  |        |   |       | 12,065 |       
|                                        | Crude oil terminaling    |              |       | 9,769                    |        |      |       | 4,554   |        |   |       |       |       
|                                        | NGL transportation       |              |       | 20,935                   |        |      |       | 7,009   |        |   |       | 6,123  |       
|                                        | Lubrication oil sales    |              |       | 4,127                    |        |      |       | 3,503   |        |   |       | 2,510  |       
|                                        |                          |              |       |                          |        |      |       |         |        |   |       |        |       
|                                        |                          | Total margin |       | $                        | 90,811 |      |       | $       | 51,872 |   |       | $      | 38,571 | 
|                                        |                          |              |       |                          |        |      |       |         |        |   |       |        |       
|Total barrels:                          |                          |              |       |                          |        |      |       |         |        |   |       |       
|                                        | Crude oil transportation |              |       | 78,714                   |        |      |       | 46,225  |        |   |       | 33,267 |       
|                                        | Crude oil marketing      |              |       | 159,477                  |        |      |       | 107,607 |        |   |       | 96,252 |       
|                                        | Crude oil terminaling    |              |       | 121,932                  |        |      |       | 56,473  |        |   |       |       |       
|                                        | NGL transportation       |              |       | 21,538                   |        |      |       | 5,201   |        |   |       | 4,580  |       
|Lubrication oil volume (total gallons): |                          |              | 8,769 |                          |        |      | 7,974 |         |        |   | 8,891 |       
|Margin per barrel:                      |                          |              |       |                          |        |      |       |         |        |   |       |       
|                                        | Crude oil transportation |              | $     | 0.436                    |        |      | $     | 0.508   |        |   | $     | 0.537  |       
|                                        | Crude oil marketing      |              | $     | 0.136                    |        |      | $     | 0.124   |        |   | $     | 0.125  |       
|                                        | Crude oil terminaling    |              | $     | 0.080                    |        |      | $     | 0.081   |        |   |       |       |       
|                                        | NGL transportation       |              | $     | 0.972                    |        |      | $     | 1.348   |        |   | $     | 1.337  |       
|Lubrication oil margin (per gallon):    |                          | $            | 0.471 |                          |        | $    | 0.439 |         |        | $ | 0.282 |       

2001 Compared to 2000

For the year ended 2001, the Upstream Segment reported net income of $17.5
million, compared with net income of $16.7 million for the year ended 2000. The
$0.8 million increase in net income was primarily due to a $38.9 million
increase in margin, a $6.4 million increase in other operating revenues, a $6.3
million increase in equity earnings of Seaway, and a $1.5 million increase in
other income  net. These increases were partially offset by a $37.7 million
increase in costs and expenses (excluding purchases of crude oil and petroleum
products) and a $14.7 million increase in interest expense (net of capitalized
interest). Factors influencing these variances are described below.

Margin increased $38.9 million during the year ended 2001, compared with
2000. NGL transportation margin increased $13.9 million primarily due to the
acquisition of the Panola system on December 31, 2000, and was partially offset
by decreased volumes on the Dean pipeline system in South Texas. Crude oil
transportation margin increased $10.8 million primarily due to a full year
benefit from the ARCO assets acquired in July 2000 and higher volume on the Red
River and South Texas systems, which benefited from increased regional crude
oil production and pipeline assets acquired from Valero Energy Corp. (formerly
Ultramar Diamond Shamrock) (UDS), in March 2001. Crude oil marketing margin
increased $8.3 million primarily due to volumes transported by Seaway on behalf
of the Upstream Segment. The transportation revenues associated with these
volumes resulted

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in $10.1 million included as a component of crude oil marketing margin
when consolidating the Upstream Segments equity ownership in Seaway. Lower
margins on other crude oil volumes marketed partially offset the increase in crude oil
marketing margin. Crude oil terminaling margin increased $5.2 million as a
result of pumpover volumes at Midland and Cushing, related to the ARCO assets
acquired in July 2000. Margin contributed from lubrication oil sales increased
$0.6 million primarily due to increased volumes and increased rates on the
margin realized per gallon.

Costs and expenses of the Upstream Segment, excluding expenses associated
with purchases of crude oil and petroleum products, increased $37.7 million
during the year ended 2001, compared with 2000. The increase was comprised of
a $26.9 million increase in operating, general and administrative expenses, a
$5.2 million increase in depreciation and amortization expense, a $4.9 million
increase in taxes  other than income taxes, and a $0.7 million increase in
operating fuel and power expense. The increase in operating, general and
administrative expenses was primarily attributable to operating expenses of the
acquired assets from ARCO, DEFS and UDS, a $4.4 million expense recorded in
2001 for environmental remediation, a $4.3 million reserve for a doubtful
receivable balance under a transportation contract with an Enron Corp.
subsidiary, increased labor related costs and increased general and
administrative supplies and services expense. The increases in depreciation
and amortization expense, taxes  other than income taxes, and operating fuel
and power expense were primarily attributable to assets acquired.

Equity earnings in Seaway increased $6.3 million for the year ended 2001,
compared with 2000, due to the full year contribution to earnings during 2001.
Equity earnings in Seaway will be affected in 2002 as a result of the reduction
of the sharing percentages of TCTM under the Seaway partnership agreement.
Beginning in June 2002, the Partnership participation in Seaway will decrease
from 80% of revenue and expense of Seaway to 60%. See Items 1 and 2. Business
and Properties, Upstream Segment  Transportation and Marketing of Crude Oil
and NGL for a more detailed discussion.

Other operating revenue of the Upstream Segment increased $6.4 million for
the year ended 2001, compared with 2000, attributable to revenue from
documentation and other services to support customer trading activity at
Midland and Cushing. These revenues were added to the Partnerships business
on July 20, 2000, with the acquired ARCO assets.

Interest expense attributable to the Upstream Segment increased $15.1
million for the year ended 2001, compared with 2000, primarily due to interest
expense on the term loan and revolving credit facilities used to finance the
acquisition of acquired assets in the segment. Interest costs capitalized
increased $0.4 million for the year ended 2001, compared with 2000, due to
increased balances on construction projects in progress.

2000 Compared to 1999

For the year ended 2000, the Upstream Segment reported net income of $16.7
million, compared with net income of $10.9 million for the year ended 1999. The
$5.8 million increase in net income 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. Factors influencing
these variances are described below.

Margin increased $13.3 million for the year ended 2000, compared with
1999. 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 and Cushing, 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

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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.

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

Costs and expenses of the Upstream Segment, excluding expenses associated
with purchases of crude oil and petroleum products, increased $10.8 million for
the year ended 2000, compared with 1999, 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, which were added to the Partnerships business on July 20,
2000, with the acquired ARCO assets.

Interest expense attributable to the Upstream Segment increased $13.6
million for the year ended 2000, compared with 1999, primarily due to interest
expense on the term loan and revolving credit facilities used to finance the
acquisition of the ARCO assets.

Midstream Segment

Three Months Ended December 31, 2001

The Midstream Segment was added to the Partnerships operations with the
purchase of Jonah, effective September 30, 2001. The acquisition was accounted
for under the purchase method of accounting. Accordingly, results of
operations of the acquisition are only included in the fourth quarter of 2001.

During the three months ended December 31, 2001, net loss of the Midstream
Segment totaled $0.4 million. Natural gas gathering revenues totaled $8.8
million from volumes delivered of 45.5 billion cubic feet. An additional $0.3
million was generated from the sale of 16,180 barrels of condensate liquid to
an Upstream Segment marketing affiliate. Costs and expenses of the Midstream
Segment, which totaled $6.0 million were comprised of $4.5 million of
depreciation and amortization expense, $1.4 million of operating, general and
administrative expense and $0.1 million of taxes  other than income taxes.
Interest expense attributable to the Midstream Segment totaled $3.7 million,
partially offset by $0.1 million of interest costs capitalized.

Financial Condition and Liquidity

Net cash from operations for the year ended 2001 totaled $169.2 million,
and was comprised of $155.0 million of income before charges for depreciation
and amortization, and $14.2 million of cash provided by working capital
changes. Net cash from operations for the year ended 2000 totaled $108.0
million, and was 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 1999
totaled $103.1 million, and was 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 years
ended 2001, 2000, and 1999 included interest payments of $61.5 million, $36.8
million, and $28.6 million, respectively.

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Cash flows used in investing activities totaled $557.9 million during the
year ended 2001, and was comprised of $359.8 million for the purchase of Jonah
on September 30, 2001, $107.6 million of capital expenditures, $65.0 million of
cash contributions for the Partnerships interest in the Centennial joint
venture, $20.0 million for the purchase of crude oil assets from UDS on March
1, 2001, and $11.0 million paid in October 2001, for the final purchase price
settlement related to the previously acquired ARCO assets. These uses of cash
were partially offset by $4.2 million received on matured cash investments and
$1.3 million of cash received from the sale of vehicles. Cash flows used in
investing activities totaled $494.1 million during the year ended 2000, and was
comprised of $322.6 million for the purchase of the ARCO assets, $99.5 million
for NGL and crude oil systems purchased in East Texas and North Texas, $68.5
million of capital expenditures, $5.0 million of cash contributions for the
Partnerships interest in the Centennial joint venture, and $2.0 million of
cash investments. These uses of cash were partially offset by $3.5 million
received from matured cash investments. Cash flows used in investing
activities totaled $76.6 million for the year ended 1999, and included $77.4
million of capital expenditures and $2.3 million for the purchase of a 125-mile
crude oil system in Southeast Texas, offset by net proceeds from cash
investments of $3.0 million. Capital expenditures during the years ended 2000
and 1999 included $29.9 million and $43.8 million, respectively, of spending
for construction of the petrochemical pipelines between the Partnerships
terminal in Mont Belvieu and Port Arthur.

In August 2000, TE Products entered into agreements with CMS Energy
Corporation and Marathon Ashland Petroleum LLC to form Centennial. TE Products
has contributed approximately $65.0 million and $5.0 million during the years
ended 2001 and 2000, respectively, for its one-third interest in Centennial.
The Partnership expects to contribute an additional $4.9 million to Centennial
in 2002. Centennial commenced operations in the first quarter of 2002.

Centennial has entered into credit facilities totaling $150 million. The
proceeds were used to fund construction and conversion costs of its pipeline
system. As of December 31, 2001, Centennial had borrowed $128 million under
its credit facility. TE Products has guaranteed one-third of the debt of
Centennial up to a maximum amount of $50 million.

Credit Facilities and Interest Rate Swap Agreements

In July 2000, the Partnership entered into a $75 million term loan and a
$475 million revolving credit facility (Three Year Facility) and borrowed $75
million and $340 million, respectively, to finance the acquisition of the ARCO
assets and to refinance existing bank credit facilities. The term loan was
repaid from proceeds received from the issuance of additional Limited Partner
Units on October 25, 2000. In April 2001, the Three Year Facility was amended
to provide for revolving borrowings of up to $500 million including the
issuance of letters of credit of up to $20 million. The term of the revised
Three Year Facility was extended to April 6, 2004. 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
agreement for the Three Year 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.

In April 2001, the Partnership entered into a 364-day, $200 million
revolving credit agreement (Short-term Revolver). 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
agreement contains restrictive financial covenants that require the Partnership
to maintain a minimum level of partners capital as well as maximum
debt-to-EBITDA and minimum fixed charge coverage ratios. The Partnership has
requested an extension of the Short-term Revolver for an additional period of
364 days, commencing on the current termination date in April 2002. Extension
of the Short-term Revolver is expected prior to the termination date.

On September 28, 2001, the Three Year Facility and the Short-term Revolver
were amended to extend to December 31, 2001, the time period for the maximum
debt-to-EBITDA ratio covenant to allow for the additional debt incurred for the
acquisition of Jonah. On November 13, 2001, the Three Year Facility and the
Short-term Revolver were further amended to require prepayment of outstanding
borrowings only upon the receipt of net cash proceeds from asset dispositions
or from insurance proceeds in accordance with the terms of the respective

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agreements. At such time, certain lenders under the agreements elected to
withdraw from the facilities, and the available borrowing capacities were
reduced to $411 million and $164 million, respectively. At December 31, 2001
and 2000, $340.7 million and $446 million was outstanding under the Three Year
Facility at a weighted average interest rate of 2.9% and 8.23%, respectively,
and no letters of credit were outstanding. At December 31, 2001, $160 million,
included in current liabilities, was outstanding under the Short-term Revolver
at a weighted average interest rate of 2.9%. As of December 31, 2001, the
Partnership was in compliance with the covenants contained in the agreements.
On January 16, 2002, an additional $25 million was drawn down on the Three Year
Facility. On February 20, 2002, the Partnership repaid $115.7 million of the
then outstanding balance of the Three Year Facility and all of the then
outstanding balance of the Short-term Revolver with proceeds from the issuance
by the Partnership of the 7.625% Senior Notes, discussed below.

On September 28, 2001, the Partnership entered into a $400 million credit
facility with SunTrust Bank (Bridge Facility). The Partnership borrowed $360
million under the Bridge Facility for the acquisition of the Jonah assets.
During the fourth quarter of 2001, $160 million of the outstanding principal
was repaid from the proceeds received from the issuance of the Limited Partner
Units in November 2001. 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. At December 31, 2001, $200 million was
outstanding under the Bridge Facility at an interest rate of 3.2%. As of
December 31, 2001, the Partnership was in compliance with the covenants
contained in this credit agreement. On February 5, 2002, an additional $15
million was drawn down on the Bridge Facility. On February 20, 2002, the
Partnership repaid the then outstanding balance of the Bridge Facility of $215
million, with proceeds from the issuance by the Partnership of its 7.625%
Senior Notes, discussed below, and canceled the remaining commitment.

On February 20, 2002, the Partnership received $494.6 million in net
proceeds from the issuance of $500 million principal amount of its 7.625%
Senior Notes due 2012. The proceeds from the offering were used to reduce the
outstanding balances of the credit facilities, described above, including those
issued in connection with the acquisition of Jonah. The Senior Notes may be
redeemed at any time at the option of the Partnership with the payment of
accrued interest and a make-whole premium determined by discounting remaining
interest and principal payments using a discount rate equal to the rate of the
United States Treasury securities of comparable remaining maturity plus 35
basis points.

In 2001 and 2000, the Partnership entered into interest rate hedge
agreements with notional amounts and expirations related to particular
indebtedness, as more fully described in Item 7A, Quantitative and Qualitative
Disclosures About Market Risk.

On March 1, 2002, the Partnership completed the acquisition of the
Chaparral and Quanah pipelines from Diamond-Koch II, L.P. and Diamond-Koch III,
L.P. for approximately $132 million. This purchase was funded by a drawdown on
the Three Year Facility. The Chaparral system is an 800-mile pipeline that
extends from West Texas and New Mexico to Mont Belvieu. The pipeline delivers
NGLs to fractionators and existing Partnership storage in Mont Belvieu. The
approximately 170-mile Quanah Pipeline is an NGL gathering system located in
West Texas. The Quanah Pipeline begins in Sutton County, Texas and connects to
the Chaparral Pipeline near Midland. The pipelines are connected to 27 gas
plants in West Texas and have approximately 28,000 horsepower of pumping
capacity at 14 stations. These systems will be managed and operated by DEFS
under a contract arrangement.

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The following table summarizes the credit facilities of the Partnership as
of December 31, 2001, and March 7, 2002 (in millions):

|                    |  |                         |        |                     |  |          |       |             |  |              |  |              |  |   |       |  |  |             
|------------------- |  | ----------------------- | ------ | ------------------- |  | -------- | ----- | ----------- |  | ------------ |  | ------------ |  | - | ----- |  |  | ------------
|                    |  | As of December 31, 2001 |        | As of March 7, 2002
|                    |  |                         |        |                    
|                    |  |                         |        |                     |  | Unused   |       |             |  |              |  | Unused       |  |  
|                    |  | Outstanding             |        | Borrowing           |  | Maturity |       | Outstanding |  | Borrowing    |  | Maturity    
|Description:        |  | Principal               |        | Capacity            |  | Date     |       | Principal   |  | Capacity     |  | Date        
|                    |  |                         |        |                     |  |          |       |             |  |              |  |             
|Short-term Revolver |  |                         | $160.0 |                     |  | $        | 4.0   |             |  | April 2002   |  | $           |  | $ | 164.0 |  |  | April 2002  
|Three Year Facility |  |                         | 340.7  |                     |  |          | 70.3  |             |  | April 2004   |  | 382.0        |  |   | 29.0  |  |  | April 2004  
|Bridge Facility     |  |                         | 200.0  |                     |  |          | 200.0 |             |  | June 2002    |  |             |  |   |      |  |  | (1)        
|6.45% Senior Notes  |  |                         | 180.0  |                     |  |          |      |             |  | January 2008 |  | 180.0        |  |   |      |  |  | January 2008
|7.51% Senior Notes  |  |                         | 210.0  |                     |  |          |      |             |  | January 2028 |  | 210.0        |  |   |      |  |  | January 2028
|7.625% Senior Notes |  |                         |       |                     |  |          |      |             |  |             |  | 500.0        |  |   |      |  |  | January 2012



---

|(1) |  | The remaining commitment under the Bridge Facility was canceled in February
2002.
|--- |  | ---------------------------------------------------------------------------------

Distributions and Issuance of Additional Limited Partner Units

The Partnership paid cash distributions of $104.4 million ($2.15 per
Unit), $82.2 million ($2.00 per Unit) and $69.3 million ($1.85 per Unit), for
each of the years ended 2001, 2000 and 1999, respectively. Additionally, on
January 18, 2002, the Partnership declared a cash distribution of $0.575 per
Limited Partner Unit and Class B Unit for the quarter ended December 31, 2001.
The distribution of $33.5 million was paid on February 8, 2002, to unitholders
of record on January 31, 2002.

On November 20, 2001, the Partnership completed the issuance by public
offering of 5.5 million Limited Partner Units at $34.25 per Unit. The net
proceeds from the offering totaled approximately $180.1 million and were used
to repay $160.0 million under the Bridge Facility that was used to fund the
Jonah acquisition. The remaining proceeds were used to finance contributions
to Centennial and for other capital expenditures.

On February 6, 2001, the Partnership completed the issuance by public
offering 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 Three Year 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-allotment totaled $6.1 million and were used for general Partnership
purposes.

On October 25, 2000, the Partnership completed the issuance by public
offering 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 portion of the Three Year
Facility.

Future Capital Needs and Commitments

Capital expenditures for the year ended December 31, 2001, and estimated
capital expenditures, excluding acquisitions, for 2002 are described in Items 1
and 2, Business and Properties under the caption Capital Expenditures. The
Partnership continually reviews and evaluates potential acquisitions, capital
improvements and expansions and, to a more limited extent, joint venture
opportunities that would be complementary to its present business segments.
Should the Partnership elect to pursue any of these transactions, the
Partnership will likely need additional capital to fund the purchase price and
other capital improvements. These expenditures can vary greatly depending on
the magnitude of these transactions by the Partnership. In March 2002, the
Partnership completed the acquisition of the Chaparral and Quanah pipelines for
approximately $132 million. The purchase was funded by a drawdown on the Three
Year Facility.

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The Partnerships debt repayment obligations consist of payments for
principal and interest on (i) outstanding principal amounts under the Three
Year Facility due in April 2004 ($382 million at March 7, 2002), (ii) the TE
Products Senior Notes, $180 million principal amount due January 15, 2008, and
$210 million principal amount due January 15, 2028, and (iii) the Partnerships
$500 million 7.625% Senior Notes due February 15, 2012. Repayment of the
long-term, senior unsecured obligations and bank debt is expected to be repaid
through issuance of additional long-term senior unsecured debt at the time the
2008, 2012 and 2028 debt matures, issuance of additional equity, proceeds from
dispositions of assets, or any combination of the above items.

TE Products is also contingently liable as guarantor for the lesser of
one-third or $50 million principal amount (plus interest) of the joint venture
borrowings of Centennial. The Partnership expects to contribute an additional
$4.9 million to Centennial in 2002. The Partnership does not rely on
off-balance sheet borrowings to fund its acquisitions. Other than the limited
guarantee of Centennial debt and leases covering assets utilized in several
areas of its operations, the Partnership has no off-balance sheet commitments
for indebtedness.

The following table summarizes the material contractual obligations of the
Partnership as of December 31, 2001, after giving pro forma effect to the
issuance and application of net proceeds of the Partnerships 7.625% Senior
Notes due 2012 in February 2002 and additional borrowings in March 2002 to fund
the purchase of the Chaparral and Quanah pipelines (in millions).

|                                |       |   |                                            |         |        |   |           |       |           |   |       |       |  |   |      |      |         |   |       |       | 
|------------------------------- | ----- | - | ------------------------------------------ | ------- | ------ | - | --------- | ----- | --------- | - | ----- | ----- |  | - | ---- | ---- | ------- | - | ----- | ----- | 
|                                |       |   | Amount of Commitment Expiration Per Period
|                                |       |   |                                           
|                                |       |   |                                            |         |        |   | Less than |       |           |   |       |       |  |   |      |      | After 5
|                                |       |   | Total                                      |         | 1 Year |   | 2-3 Years |       | 4-5 Years |   | Years
|                                |       |   |                                            |         |        |   |           |       |           |   |      
|Short-term Revolver(1)          |       | $ | 160.0                                      |         |        | $ | 160.0     |       |           | $ |      |       |  | $ |     |      |         | $ |      |      
|Three Year Facility(2)          |       |   | 340.7                                      |         |        |   |          |       |           |   | 340.7 |       |  |   |     |      |         |   |      |      
|Bridge Facility                 |       |   | 200.0                                      |         |        |   | 200.0     |       |           |   |      |       |  |   |     |      |         |   |      |      
|6.45% Senior Notes due 2008(3)  |       |   | 180.0                                      |         |        |   |          |       |           |   |      |       |  |   |     |      |         |   | 180.0 |      
|7.51% Senior Notes due 2028(3)  |       |   | 210.0                                      |         |        |   |          |       |           |   |      |       |  |   |     |      |         |   | 210.0 |      
|7.625% Senior Notes due 2012(4) |       |   | 500.0                                      |         |        |   |          |       |           |   |      |       |  |   |     |      |         |   | 500.0 |      
|Centennial cash contributions   |       |   | 4.9                                        |         |        |   | 4.9       |       |           |   |      |       |  |   |     |      |         |   |      |      
|Operating leases                |       |   | 36.0                                       |         |        |   | 8.8       |       |           |   | 14.8  |       |  |   | 11.0 |      |         |   | 1.4   |      
|                                |       |   |                                            |         |        |   |           |       |           |   |       |       |  |   |      |      |         |   |       |      
|                                | Total |   | $                                          | 1,631.6 |        |   | $         | 373.7 |           |   | $     | 355.5 |  |   | $    | 11.0 |         |   | $     | 891.4 | 
|                                |       |   |                                            |         |        |   |           |       |           |   |       |       |  |   |      |      |         |   |       |      



---

|(1) |  | Approximately $160 million was paid down in February 2002 from net
proceeds from the offering of the Partnerships 7.625% Senior Notes due
2012.                                                                                                                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Approximately $115.7 million was paid down in February 2002 from net
proceeds from the offering of the Partnerships 7.625% Senior Notes due
2012. Approximately $132 million was subsequently drawn down in March
2002 to fund the purchase of the Chaparral and Quanah pipelines.
|   
|(3) |  | Obligations of TE Products.                                                                                                                                                                                                                                                        
|   
|(4) |  | Issued by the Partnership in February 2002.                                                                                                                                                                                                                                        

Sources of Future Capital

Historically, the Partnership has funded its capital commitments from
operating cash flow and borrowings under bank credit facilities or bridge
loans. These loans were repaid in part by the issuance of long term debt in
capital markets and the public offering of Limited Partner Units. The Company
expects future capital needs would be similarly funded to the extent not
otherwise available from excess cash flow from operations after payment of
distributions on Limited Partner Units.

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As of March 7, 2002, and after giving effect to borrowings required to
fund the acquisition of the Chaparral and Quanah pipelines, the Partnership has
approximately $193.0 million in combined available borrowing capacity under the
Three Year Facility and the Short-term Revolver.

The Company expects that the Partnerships cash flow from operating
activities will be adequate to fund cash distributions and capital additions
necessary to maintain existing operations. However, expansionary capital
projects and acquisitions may require funding through proceeds from the sale of
additional debt or equity capital markets offerings.

On February 11, 2002, Moodys Investors Service assigned the Partnership a
senior unsecured debt rating, including the rating on its 7.625% Senior Notes,
of Baa2 and confirmed the Baa2 senior unsecured rating of the subsidiary, TE
Products. These ratings were given with negative outlooks due primarily to
Moodys concerns about current debt levels resulting from financing of the
Partnerships recent acquisitions. Moodys indicated they may lower the
Partnerships ratings if the Partnership is not successful in reducing its debt
to target levels where the Partnerships debt-to-EBITDA ratio would be below 4
to 1. The Company is evaluating alternatives to lowering its debt-to-EBITDA
ratio. Reductions in the Partnerships credit ratings could increase the debt
financing costs or possibly reduce the availability of financing. A rating
reflects only the view of a rating agency and is not a recommendation to buy,
sell or hold any indebtedness. Any rating can be revised upward or downward or
withdrawn at any time by a rating agency if it decides that the circumstances
warrant such a change.

Other Considerations

Credit Risks

Risks of nonpayment and nonperformance by customers are a major
consideration in the Partnerships businesses. The credit procedures and
policies of the Partnership may not fully eliminate customer credit risk. The
bankruptcy of Enron Corp. and certain of its subsidiaries in December 2001 has
made collection by the Partnership of a receivable for transportation fees of
approximately $4.3 million, or approximately $0.09 per limited partner and
Class B Units at December 31, 2001, doubtful.

Terrorist Threats

On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scale. Since the September 11 attacks, the United
States government has issued warnings that energy assets, specifically the
nations pipeline infrastructure, could be a future target of terrorist
organizations. These developments have subjected the Partnerships operations
to increased risks. Any terrorist attack on the Partnerships facilities,
customers facilities and, in some cases, those of other pipelines, could have
a material adverse effect on the Partnerships business. The Partnership has
increased security initiatives and is working with various governmental
agencies to minimize risks associated with additional terrorist attacks.

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 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.

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In 1994, the Partnership and the IDEM entered into an Agreed Order that
resulted in the implementation of a remediation program for groundwater
contamination attributable to the Partnerships operations at the Seymour,
Indiana, terminal. A Feasibility Study, which includes the Partnerships
proposed remediation program, was approved by IDEM in 1999. IDEM is expected
to issue a Record of Decision formally approving the remediation program.
After the Record of Decision is issued, the Partnership will enter into a
subsequent Agreed Order for the continued operation and maintenance of the
remediation program. The Partnership has an accrued liability of $0.6 million
on December 31, 2001, for future remediation costs at the Seymour terminal. In
the opinion of the Company, the completion of the remediation program will not
have a future material adverse effect on the Partnerships financial condition,
results of operations or cash flows.

In 1994, the
Partnership was issued a compliance order from the LDEQ
relative to environmental contamination at the Partnerships Arcadia,
Louisiana, facility. This contamination may be attributable to the operations
of the Partnership, as well as adjacent petroleum terminals operated by other
companies. In 1999, the Partnership's Arcadia facility and adjacent
terminals were directed by
the Remediation Services Division of the LDEQ to pursue remediation
of this containment phase. In the opinion of the Company,
the completion of the remediation program that is proposed by the Partnership
will not have a future material adverse effect on the Partnerships financial
position, results of operations or cash flows.

During 2001, the Partnership accrued $8.6 million to
complete environmental remediation activities at certain of the sites owned by
TCTM and its subsidiaries. In establishing this accrual, the Partnership
expensed $4.4 million for these environmental remediation costs and recorded a
receivable of $4.2 million for the remainder. The receivable is based on a
contractual indemnity obligation for specified environmental liabilities owed
by DEFS to the Partnership in connection with the Partnerships acquisition of
the Upstream Segment from DEFS in November 1998. Under this indemnity
obligation, the Partnership is responsible for the first $3.0 million in
specified environmental liabilities, with DEFS becoming responsible for those
environmental liabilities in excess of $3.0 million, up to a maximum amount of
$25.0 million. At December 31, 2001, an accrual of
$6.4 million remains outstanding related to TCTM environmental
remediation activities. The majority of the indemnified costs relate to remediation
activities at the Velma crude oil site in Stephens County, Oklahoma,
attributable to operations prior to the Partnerships acquisition of the
Upstream Segment. Remediation activities at the Velma crude oil site are being
conducted according to a work plan approved by the Oklahoma Corporation
Commission. In the opinion of the Company, the completion of remediation
programs associated with this release will not have a future material adverse
effect on the Partnerships financial condition, results of operations or cash
flows.

Market-Based Rates

On May 11, 1999, TE Products filed an application with the FERC requesting
permission to charge Market-Based Rates for substantially all refined products
transportation tariffs. On July 31, 2000, the FERC issued an order granting TE
Products Market-Based Rates in certain markets and set for hearing TE Products
application for Market-Based Rates in certain destination markets and origin
markets. After the matter was set for hearing, TE Products and the protesting
shippers entered into a settlement agreement resolving their respective
differences. On April 25, 2001, the FERC issued an order approving the offer
of settlement. As a result of the settlement, TE Products recognized
approximately $1.7 million of previously deferred transportation revenue in the
second quarter of 2001. As a part of the settlement, TE Products withdrew the
application for Market-Based Rates to the Little Rock, Arkansas, Arcadia and
Shreveport-Arcadia, Louisiana, destination markets, which are currently subject
to the PPI Index. As a result, the Partnership made refunds of approximately
$1.0 million in the third quarter of 2001 for those destination markets.

New Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires that the
purchase method of accounting be used for all business combinations and
specifies that certain acquired intangible assets be reported apart from
goodwill. SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. SFAS 142 requires that intangible assets with
definite useful lives be amortized over

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their respective estimated useful lives. The Partnership adopted SFAS 141
during 2001, and SFAS 142 effective January 1, 2002. At the date of this
report, the Partnership is evaluating the impact of adopting SFAS 142,
including whether any transitional impairment losses will be required to be
recognized as the cumulative effect of a change in accounting principle. At
December 31, 2001, the Partnership had $14.7 million of unamortized goodwill.
Amortization expense related to goodwill was $0.9 million and $0.1 million for
the years ended December 31, 2001 and 2000, respectively. The goodwill
associated with the acquisition of Jonah, which was completed on September 30,
2001, is not being amortized due to the adoption of certain
provisions of SFAS 142.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 requires the Partnership to record the fair
value of an asset retirement obligation as a liability in the period in which
it incurs a legal obligation associated with the retirement of tangible
long-lived assets that results from the acquisition, construction, development
and/or normal use of the assets. The Partnership also records a corresponding
asset, which is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation will be
adjusted at the end of each period to reflect the passage of time and changes
in the estimated future cash flows underlying the obligation. The Partnership
is required to adopt SFAS 143 effective January 1, 2003.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS No. 121,
Accounting for Long-Lived Assets and For Long-Lived Assets to be Disposed Of,
but retains its fundamental provisions for reorganizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale. The Partnership was required to adopt SFAS 144 effective
January 1, 2002. The adoption of SFAS 144 did not have a material effect on
the financial position, results of operations or cash flows of the Partnership.

Disclosures About Effects of Transactions with Related Parties

The Partnership has no employees and is managed by the Company, a
wholly-owned subsidiary of DEFS. Duke Energy holds an approximate 70% interest
in DEFS and Phillips holds the remaining 30%. See Item 10, Directors and
Executive Officers of the Registrant and Item 13, Certain Relationships and
Related Transactions for discussion regarding transactions between the
Partnership and DEFS, Duke Energy and Phillips.

Forward-Looking Statements

The matters discussed in this Report 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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 for the
Partnership by the Companys Risk Management Committee to monitor and control
these market risks. The Risk Management Committee is comprised, in part, of
senior executives of the Company.

The Partnership has utilized and expects to continue to utilize derivative
financial instruments with respect to a portion of its interest rate and fair
value risks and its crude oil marketing activities. These transactions
generally are swaps and forwards and are entered into with major financial
institutions or commodities trading institutions. The derivative financial
instrument related to the Partnerships interest rate risk is intended to
reduce the Partnerships exposure to increases in the benchmark interest rates
underlying the Partnerships variable rate revolving credit facility. The
derivative financial instrument related to the Partnerships fair value risks
is intended to reduce the Partnerships exposure to changes in the fair value
of the fixed rate Senior Notes resulting from changes in interest rates. The
Partnerships Upstream Segment uses derivative financial instruments to reduce
the Partnerships exposure to fluctuations in the market price of crude oil.
Gains and losses from financial instruments used in the Partnerships Upstream
Segment have been recognized in revenues for the periods to which the
derivative financial instruments relate, and gains and losses from its interest
rate financial instruments have been recognized in interest expense for the
periods to which the derivative financial instrument relate. As of December 31,
2001, the Upstream Segment had no open positions on derivative financial
contracts.

At December 31, 2001, TE Products had outstanding $180 million principal
amount of 6.45% Senior Notes due 2008. At December 31, 2001, the estimated
fair value was approximately $172 million.

As of December 31, 2001, TE Products had in place an interest rate swap
agreement to hedge its exposure to changes in the fair value of its fixed rate
7.51% Senior Notes due 2028. The swap agreement has a notional amount of $210
million and matures in January 2028 to match the principal and maturity of the
Senior Notes. Under the swap agreement, TE Products pays a floating rate based
on a three month U.S. Dollar LIBOR rate, plus a spread, and receives a fixed
rate of interest of 7.51%. During the year ended December 31, 2001, the
Partnership recognized a gain of $1.8 million, included as a component of
interest expense, on the interest rate swap. No gain or loss from
ineffectiveness was required to be recognized.

As of December 31, 2001, the Partnership had in place an interest rate
swap agreement to hedge its exposure to increases in the benchmark interest
rate underlying its variable rate revolving credit facilities. The swap
agreement is based on a notional amount of $250 million. Under the swap
agreement, the Partnership pays a fixed rate of interest of 6.955% and receives
a floating rate based on a three month U.S. Dollar LIBOR rate. The interest
rate swap is designated as a cash flow hedge, therefore, the changes in fair
value, to the extent the swap is effective, are recognized in other
comprehensive income until the hedged interest costs are recognized in
earnings. During the year ended December 31, 2001, the Partnership recognized
$6.8 million in losses, included in interest expense, on the interest rate swap
attributable to interest costs occurring in 2001. No gain or loss from
ineffectiveness was required to be recognized. The fair value of the interest
rate swap agreement was a loss of approximately $20.3 million at December 31,
2001. Approximately $11.7 million of such amount is anticipated to be
transferred into earnings over the next twelve months.




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

None.

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PART III




Item 10. Directors and Executive Officers of the Registrant

The Partnership does not have directors or officers. The General Partner
manages the Partnership. Officers and directors of the General Partner have
management responsibilities with respect to the Partnership. 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. None of the
officers of the General Partner serve as officers or employees of DEFS or any
other parent-affiliated company.

William L. Thacker, age 56, was elected a director of the General Partner
in 1992 and Chairman of the Board in October 1997. Mr. Thacker was elected
Chief Executive Officer in January 1994. Mr. Thacker served as President and
Chief Operating Officer from September 1992 until February 2001. Prior to
joining the Company, Mr. Thacker was president of Unocal Pipeline Company from
1986 until 1992.

Jim W. Mogg, age 53, 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, having been named to these positions in December 1999. Mr.
Mogg also serves as Senior Vice President  Field Services of Duke Energy.
Mr. Mogg was previously president of Centana Energy Corporation, a subsidiary
of a predecessor of Duke Energy, from 1992 to 1999. Mr. Mogg joined Duke Energy
in 1973 in the gas supply department of Panhandle Eastern Pipe Line Company.

Mark A. Borer, age 47, was elected a director of the General Partner in
April 2000. Mr. Borer is senior vice president for the Southern Division of
DEFS and is also responsible for DEFSs natural gas liquids marketing
organization. He was named to his current position in 1999 when Union Pacific
Fuels, Inc. was acquired by DEFS. Before joining DEFS, he was vice president
of natural gas marketing for Union Pacific Fuels, Inc. from 1992 until 1999.

Milton Carroll, age 51, 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, Inc., Reliant Resources, Inc., Ocean Energy Inc.,
and Health Care Service Corporation.

Carl D. Clay, age 69, 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 of service during
which he served as director of transportation and logistics and president of
Marathon Pipe Line Company.

Derrill Cody, age 63, 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, DEFS and the
Partnership in certain matters. He is also an advisor to DEFS pursuant to a
personal contract. Mr. Cody served as chief executive officer of Texas Eastern
Gas Pipeline Company from 1987 to 1989.

John P. DesBarres, age 62, 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 and Penn Virginia G.P., L.L.C., an indirect
wholly-owned subsidiary of Penn Virginia Corporation, which is the
general partner of Penn Virginia Resource Partners, L.P.

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Fred J. Fowler,age 56, 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 Corp., a predecessor of Duke Energy, in 1985 and
served in a variety of positions in marketing, transportation and exchange. He
was appointed group vice president of PanEnergy in 1996. PanEnergy and Duke
Power Company merged to form Duke Energy in 1997.

William W. Slaughter, age 54, 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 corporate strategic planning for PanEnergy and
president of PanEnergy International Development Corporation from 1994 to 1997.

Barry R. Pearl, age 52, 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 53, 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 54, 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 61, 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 54, 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. Mr. Langley will retire effective March 31, 2002, from the General
Partner, after 32 years of service.

J. Michael Cockrell, age 55, 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 TEPPCO Crude Oil, L.P. 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.

Leonard W. Mallett, age 45, 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 50, 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 52, is Vice President, Human Resources of the General
Partner, having joined the Company in February 2001. He was previously
northern division human resources manager of DEFS from May

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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.

John N. Goodpasture,age 53, is Vice President, Corporate Development of
the General Partner, having joined the Company in November 2001. Mr.
Goodpasture was previously Vice President of Business Development for Enron
Transportation Services from June 1999 until he joined the Company. Prior to
his employment at Enron Transportation Services, Mr. Goodpasture had spent 19
years in various executive positions at Seagull Energy Corporation (now Ocean
Energy, Inc.), a large independent oil and gas company. At Seagull Energy, Mr.
Goodpasture had most recently served for over ten years as Senior Vice
President, Pipelines and Marketing.

Barbara A. Carroll,age 47, is Vice President, Environmental, Health and
Safety, having been elected in February 2002. Ms. Carroll joined ExxonMobil in
1990 and served in a variety of management positions, including Procurement
Services Manager, Materials and Service Manager and Baytown Area Public Affairs
Manager until she joined the Company in February 2002. Prior to ExxonMobil,
Ms. Carroll was General Manager, Corporate Environmental Protection and
Compliance with Panhandle Eastern Corporation. Ms. Carroll is not related to
Milton Carroll.

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, 2001, except for reports covering certain transactions that were
filed late by Messrs. Thacker, Carroll, Mallett, Mogg and Owen.




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 $18,000 per annum, $1,000 for
attendance at each meeting of the Board of Directors, $1,000 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 then current 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 in
cash to the director according to 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, 2001, 2000 and 1999, with
respect to its Chief Executive Officer and the four most highly compensated
executive officers (collectively, the Named Executive Officers).

40



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##### Table of Contents



SUMMARY COMPENSATION TABLE

|                      |                     |                           |      |                     |      |        |         |              |         |           |         |              |         |         |        |              |        |  |         |   |         |  |        |   |        | 
|--------------------- | ------------------- | ------------------------- | ---- | ------------------- | ---- | ------ | ------- | ------------ | ------- | --------- | ------- | ------------ | ------- | ------- | ------ | ------------ | ------ |  | ------- | - | ------- |  | ------ | - | ------ | 
|                      |                     |                           |      | Annual Compensation |      | Other  |         | Long Term    |         |           |         |             
|                      |                     |                           |      |                     |      | Annual |         | Compensation |         | All Other
|Name and              |                     |                           |      |                     |      |        |         |              |         | Bonus     |         | Compensation |         | Payouts |        | Compensation
|Principal Position    |                     | Year                      |      | Salary ($)          |      | ($)(3) |         | ($)(4)       |         | ($)(5)    |         | ($)(6)      
|                      |                     |                           |      |                     |      |        |         |              |         |           |         |             
|William L. Thacker(1) |                     |                           | 2001 |                     |      |        | 288,488 |              |         |           | 204,000 |              |         |         | 35,260 |              |        |  | 431,780 |   |         |  | 27,119 |  
|                      |                     | Chairman and              |      |                     | 2000 |        |         |              | 269,434 |           |         |              | 149,400 |         |        |              | 15,200 |  |         |   | 188,335 |  |        |   | 25,039 | 
|                      |                     | Chief Executive Officer   |      |                     | 1999 |        |         |              | 261,321 |           |         |              | 106,100 |         |        |              | 57,809 |  |         |   | 133,124 |  |        |   | 22,924 | 
|                     
|Barry R. Pearl(2)     |                     |                           | 2001 |                     |      |        | 190,385 |              |         |           | 131,900 |              |         |         | 7,800  |              |        |  |        |   |         |  | 78,423 |  
|                      | President and Chief |                           |      | 2000                |      |        |         |             |         |           |         |             |         |         |        |             |        |  |         |  |         |  |        |  |       
|                      | Operating Officer   |                           |      | 1999                |      |        |         |             |         |           |         |             |         |         |        |             |        |  |         |  |         |  |        |  |       
|                     
|J. Michael Cockrell   |                     |                           | 2001 |                     |      |        | 189,504 |              |         |           | 100,500 |              |         |         | 32,250 |              |        |  |        |   |         |  | 10,722 |  
|                      |                     | Vice President            |      |                     | 2000 |        |         |              | 182,021 |           |         |              | 78,000  |         |        |              | 30,000 |  |         |   |        |  |        |   | 14,853 | 
|                      |                     |                           | 1999 |                     |      |        | 179,393 |              |         |           | 51,000  |              |         |         | 27,750 |              |        |  |        |   |         |  | 14,064 |  
|                     
|Charles H. Leonard    |                     |                           | 2001 |                     |      |        | 170,404 |              |         |           | 106,700 |              |         |         | 11,395 |              |        |  | 46,581  |   |         |  | 8,347  |  
|                      |                     | Senior Vice President,    |      |                     | 2000 |        |         |              | 155,965 |           |         |              | 83,400  |         |        |              | 5,000  |  |         |   | 52,354  |  |        |   | 13,818 | 
|                      |                     | Chief Financial Officer   |      |                     | 1999 |        |         |              | 153,507 |           |         |              | 62,200  |         |        |              |       |  |         |   | 98,679  |  |        |   | 12,687 | 
|                      |                     | and Treasurer            
|                     
|James C. Ruth         |                     |                           | 2001 |                     |      |        | 169,942 |              |         |           | 103,300 |              |         |         | 11,395 |              |        |  | 23,411  |   |         |  | 6,156  |  
|                      |                     | Senior Vice President and |      |                     | 2000 |        |         |              | 147,899 |           |         |              | 76,400  |         |        |              | 5,000  |  |         |   | 40,182  |  |        |   | 13,013 | 
|                      |                     | General Counsel           |      |                     | 1999 |        |         |              | 142,344 |           |         |              | 57,600  |         |        |              | 28,904 |  |         |   | 60,741  |  |        |   | 11,738 | 



---

|(1) |  | Mr. Thacker served as President until February 2001.                                                                                                                                                                                                                                                                                                                            
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Mr. Pearl was elected to his position in February 2001.                                                                                                                                                                                                                                                                                                                         
|   
|(3) |  | Amounts represent bonuses accrued during the year under the Management
Incentive Compensation Plan (MICP). Payments under the MICP are made in
the subsequent year. Annual compensation does not include awards under
long-term incentive plans, which are described in the table on page 43.                                                                                 
|   
|(4) |  | 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).                                                                                                                                          
|   
|(5) |  | 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.                                                                                                                                                                                            
|   
|(6) |  | 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. Amount for Mr. Pearl also includes $74,302 of
relocation expenses.

41



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##### Table of Contents



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. Mr. Thacker participates in other Company sponsored
benefit plans on the same basis as other senior executives of the Company.

The Company has entered into employment agreements with the executive
officers identified in Item 10. Directors and Executive Officers of the
Registrant. 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, the executive is entitled only to base salary earned through the date of
termination. In the event of termination for any other reason, the 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, the 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 Committee Interlocks and Insider Participation

During 2001, Jim W. Mogg, a director of the General Partner and chairman,
president and chief executive officer of DEFS, was chairman of the Compensation
Committee of the General Partner and participated in deliberations concerning
the General Partners executive officer compensation. The other four members
of the Compensation Committee of the General Partner, Milton Carroll, Carl D.
Clay, Derrill Cody and John P. DesBarres, are non-employee directors of the
General Partner and are not officers or directors of DEFS or its parent
companies, Phillips or Duke Energy.

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 target awards may
range from 10% to 56% of a participants base salary. Maximum payout under the
MICP is 125% of a participants target award. Awards are paid as soon as
practicable following approval by the Committee after the close of a year.

1994 Long Term Incentive Plan

The 1994 LTIP authorized incentive awards to key employees whereby a
participant was granted an option to purchase Units together with a stipulated
number of Performance Units, which provides for cash credits to participants
accounts when annual earnings exceed specified levels. No awards have been
made under the 1994 LTIP since 1999, and none are expected to be made in the
future.

The following table provides information concerning the Unit options
exercised under the 1994 LTIP by each of the Named Executive Officers during
2001 and the value of unexercised Unit options under the 1994 LTIP to the Named
Executive Officers as of December 31, 2001. 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, 2001. 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 2001. In assessing the value,

42



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##### Table of Contents



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 EXERCISES IN YEAR ENDED DECEMBER 31, 2001 AND
OPTION VALUES AT DECEMBER 31, 2001

|            |  |             |        |          |  |                  |         |                   |  |                        |               |              |  |             |                 | 
|----------- |  | ----------- | ------ | -------- |  | ---------------- | ------- | ----------------- |  | ---------------------- | ------------- | ------------ |  | ----------- | --------------- | 
|            |  |             |        |          |  |                  |         |                   |  |                        |               |              |  | Value of   
|            |  |             |        |          |  |                  |         |                   |  |                        |               |              |  | Unexercised
|            |  |             |        |          |  |                  |         |                   |  | Number of Securities   |               | In-the Money
|            |  |             |        |          |  |                  |         |                   |  | Underlying Unexercised |               | Options     
|            |  | Shares      |        |          |  |                  |         | Options at FY-end |  | at FY-end             
|            |  | Acquired on |        | Value    |  | Exercisable/     |         | Exercisable/     
|Name        |  | Exercise    |        | Realized |  | Unexercisable(1) |         | Unexercisable    
|            |  |             |        |          |  |                  |         |                  
|Mr. Thacker |  |             | 52,819 |          |  | $                | 342,687 |                   |  |                        | 39,096/16,667 |              |  | $           | 249,536/$79,585 | 
|Mr. Leonard |  |             | 6,000  |          |  |                  | 34,821  |                   |  |                        | 16,995/5,333  |              |  |             | 82,278/25,465   | 
|Mr. Ruth    |  |             | 659    |          |  |                  | 11,650  |                   |  |                        | 30,065/5,333  |              |  |             | 222,925/25,465  | 



---

|(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 (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 the participant is then still an employee of the General
Partner, the participant will 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 (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.

The performance period applicable to awards granted in 2001 is the
three-year period that commenced on January 1, 2001, and ends on December 31,
2003. 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 $48,160,000 (which represents the Economic Value
Added for the three-year period immediately preceding the performance period)
and (C) is 0.000007877. Thus, no amounts will be payable under the 2000 LTIP
unless Economic Value Added for the performance period exceeds $48,160,000.

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,

43



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##### Table of Contents



plant and equipment, plusproducts linefill, crude linefill, goodwill,
maintenance capital and expansion capital, minusretired 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 the participant been the
owner of the number of Limited Partner Units equal to the number of phantom
Limited Partner Units granted to the participant under this award.

The following table provides information concerning awards under the 2000
LTIP to each of the Named Executive Officers during 2001.

|            |  |         |       |             |  |                             |  |        |   |         |  |  |        |  |  |    
|----------- |  | ------- | ----- | ----------- |  | --------------------------- |  | ------ | - | ------- |  |  | ------ |  |  | ---
|            |  | Number  |       |             |  | Estimated Future Payouts(1)
|            |  | of      |       |             |  |                            
|            |  | Phantom |       | Performance |  | Threshold                   |  | Target |   | Maximum
|Name        |  | Units   |       | Period      |  | (#)(2)                      |  | (#)(3) |   | (#)(4) 
|            |  |         |       |             |  |                             |  |        |   |        
|Mr. Thacker |  |         | 8,800 |             |  | 3 years                     |  |        | 0 |         |  |  | 13,024 |  |  | N/A
|Mr. Pearl   |  |         | 4,800 |             |  | 3 years                     |  |        | 0 |         |  |  | 7,104  |  |  | N/A
|Mr. Leonard |  |         | 2,800 |             |  | 3 years                     |  |        | 0 |         |  |  | 4,144  |  |  | N/A
|Mr. Ruth    |  |         | 2,800 |             |  | 3 years                     |  |        | 0 |         |  |  | 4,144  |  |  | N/A



---

|(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 $48,160,000.                                                                                                                                                                                                                                                                                      
|   
|(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 39 percent increase in Economic Value Added
for 2001 as compared with 2000 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.                                                                                                                                                                                                                                                                                                                                        

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 Plan 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 on March 31, 2000, the
Company is no longer responsible for the funding of the 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 (TEPPCO RCBP) and the TEPPCO Supplemental Benefit Plan (TEPPCO
SBP). The benefits and provisions of these plans

44



---



##### Table of Contents



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 TEPPCO RCBP, 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:

|                 |  |             |   |  
|---------------- |  | ----------- | - | -
|                 |  | Monthly Pay
|                 |  | Credit     
|Age plus Service |  | Percentage 
|                 |  |            
|34 or less       |  |             | 4 | %
|35 to 49         |  |             | 5 | %
|50 to 64         |  |             | 6 | %
|65 or more       |  |             | 7 | %

The above monthly pay credit is increased by an additional 4% of any
portion of eligible pay above the Social Security taxable wage base ($84,900
for 2002). 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.

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 TEPPCO RCBP and the TEPPCO SBP)
attributable to such salaries would be as follows: William L. Thacker,
$165,772; Barry R. Pearl, $55,328; J. Michael Cockrell, $44,441; Charles H.
Leonard, $105,907; and James C. Ruth, $182,676. 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 $84,900.




Item 12. Security Ownership of Certain Beneficial Owners and Management

(a) Security Ownership of Certain Beneficial Owners

As of March 7, 2002, Duke Energy, through its ownership of the Company and
other subsidiaries, owns 2,500,000 Limited Partner Units, representing 6.2% of
the Limited Partner Units outstanding; and 3,916,547 Class B Units,
representing 100% of the Class B Units, or 8.8% of the two classes of Units
combined. No other person is known by the Partnership to own more than 5% of
the outstanding Units of the Partnership.

(b) Security Ownership of Management

The following table sets forth certain information, as of March 7, 2002,
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 7, 2002, more than 1% of the 40.5 million Limited
Partner Units outstanding at that date.

45Table of Contents

|                                                                                  |  |           |         | 
|--------------------------------------------------------------------------------- |  | --------- | ------- | 
|                                                                                  |  | Number of
|Name                                                                              |  | Units(1) 
|                                                                                  |  |          
|Mark A. Borer                                                                     |  |           | 1,000   | 
|Milton Carroll                                                                    |  |           | 542     | 
|Carl D. Clay(2)                                                                   |  |           | 3,200   | 
|J. Michael Cockrell                                                               |  |           | 5,000   | 
|Derrill Cody                                                                      |  |           | 13,000  | 
|John P. DesBarres                                                                 |  |           | 20,000  | 
|Fred J. Fowler(3)                                                                 |  |           | 3,100   | 
|Charles H. Leonard                                                                |  |           | 406     | 
|Jim W. Mogg(4)                                                                    |  |           | 3,449   | 
|Barry R. Pearl                                                                    |  |           | 5,000   | 
|James C. Ruth                                                                     |  |           | 3,643   | 
|William W. Slaughter                                                              |  |           | 8,000   | 
|William L. Thacker                                                                |  |           | 37,987  | 
|All directors and officers (consisting of 23 people, including those named above) |  |           | 133,239 | 



---

|(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.                                                                                                                                      




Item 13. Certain Relationships and Related Transactions

Management of the Partnership

The Partnership has no employees and is managed by the Company, a
wholly-owned subsidiary of DEFS. Duke Energy holds an approximate 70% interest
in DEFS and Phillips holds the remaining 30%. According to the Partnership
Agreements, the Company is entitled to reimbursement of all direct and indirect
expenses related to business activities of the Partnership.

For the years ended December 31, 2001, 2000, and 1999, direct expenses
incurred by the Company in the amount of $68.2 million, $50.4 million, and
$49.6 million, respectively, were charged to the Partnership. Substantially all
such costs were related to payroll and payroll related expenses. For the years
ended December 31, 2001, 2000, and 1999, expenses for administrative service
and overhead allocated to the Partnership by Duke Energy and its affiliates
amounted to $0.6 million, $0.8 million, and $2.1 million, respectively.

Transactions with DEFS

Effective with the purchase of the fractionation facilities on March 31,
1998, TE Products and DEFS entered into a 20-year Fractionation Agreement,
under which TE Products receives a variable fee for all fractionated volumes
delivered to DEFS. Revenues recognized from the fractionation facilities
totaled $7.4 million, $7.5 million and $7.3 million for the years ended
December 31, 2001, 2000 and 1999, respectively. TE Products and DEFS also
entered into an Operation and Maintenance Agreement, whereby DEFS operates and
maintains the fractionation facilities. For these services, TE Products 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, $0.9 million and $0.8 million for the years ended December 31, 2001,
2000 and 1999, respectively.

46



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##### Table of Contents



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 a throughput agreement with
DEFS through 2005. The fees on the agreement totaled $1.2 million, $1.1
million and $1.1 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

Effective May 2001, the Company entered into an agreement with DEFS to
commit sole utilization of the Providence terminal to DEFS. The terminal is
operated by the Partnership. During the year ended December 31, 2001, DEFS paid
the Partnership $1.5 million pursuant to this agreement.

On September 30, 2001, the Partnership completed the acquisition of Jonah.
The Jonah assets are managed and operated by DEFS under a contractual
arrangement under which DEFS is reimbursed for its actual costs. Certain
employees of DEFS also act as officers of TEPPCO GP in order to facilitate
management of the Jonah assets by DEFS. These DEFS employees receive no
additional compensation from the Partnership for these activities. During the
year ended 2001, the Partnership recognized $0.6 million of expense related to
the management of the Jonah assets by DEFS.

On March 1, 2002, the Partnership completed the acquisition of the Chaparral and
Quanah pipelines from Diamond-Koch II, L.P. and Diamond-Koch III, L.P. for approximately $132 million. This purchase was funded
by a drawdown on the Three Year Facility. The Chaparral system is an 800-mile pipeline that extends from West Texas and New
Mexico to Mont Belvieu. The pipeline delivers NGLs to fractionators and existing Partnership storage in Mont
Belvieu. The approximately 170-mile Quanah Pipeline is an NGL gathering system located in West Texas. The Quanah Pipeline
 begins in Sutton County, Texas and connects to the Chaparral Pipeline near Midland. The pipelines are connected to 27 gas plants in West
Texas and have approximately 28,000 horsepower of pumping capacity at 14 stations. These systems will be managed
and operated by DEFS under a contract arrangement.

Interest in Seaway

On July 20, 2000, the Partnership, through TCTM, acquired a 50-percent
ownership interest in Seaway. Phillips owns the remaining 50% interest in
Seaway. The Partnership is the operator of this pipeline. During the years
ended 2001 and 2000, the Partnership billed to Seaway $7.0 million and $2.9
million, respectively, for direct payroll and payroll related expenses for
operating Seaway. Additionally, during the years ended 2001 and 2000, the
Partnership billed to Seaway $2.1 million and $0.9 million, respectively, for
indirect management fees for operating Seaway.

Interest of the General Partner in the Partnership

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. According to the Partnership Agreement, the Company receives
incremental incentive cash distributions on the portion that cash distributions
on a per Unit basis exceed certain target thresholds as follows:

|                                      |                                                                     |  |             |    |         |  |         |    |  
|------------------------------------- | ------------------------------------------------------------------- |  | ----------- | -- | ------- |  | ------- | -- | -
|                                      |                                                                     |  |             |    |         |  | General
|                                      |                                                                     |  | Unitholders |    | Partner
|                                      |                                                                     |  |             |    |        
|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 | %

During 2001, incentive distributions paid to the General Partner
totaled $20.3 million.

Interests of Duke Energy in the Partnership

In addition to its indirect ownership of the General Partner through its
approximately 70% interest in DEFS, Duke Energy also holds, through
wholly-owned subsidiaries, Limited Partner Units of the Partnership.

In connection with the formation of the Partnership in 1990, the Company
received 2,500,000 Deferred Partnership Interests (DPIs). Effective April 1,
1994, all DPIs began participating in distributions of cash and allocations of
profit and loss in a manner identical to Limited Partner Units and were
converted into an equal number of Limited Partner Units. These Limited Partner
Units were assigned to Duke Energy when ownership of the Company was
transferred from Duke Energy to DEFS in 2000. Pursuant to its Partnership
Agreement, the

47



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Partnership has registered the resale by Duke Energy of such Limited
Partner Units with the Securities and Exchange Commission. As of December 31,
2001, no such Limited Partner Units had been sold by Duke Energy.

At December 31, 2001, Duke Energy also held 3,916,547 Class B Units. The
Class B Units share in income and distributions on the same
basis as 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
unitholders. The Company has the option to seek approval for
the conversion of the Class B Units into Limited Partner Units; however, if the
conversion is denied, Duke Energy, as holder of the Class B Units, will have
the right to sell them to the Partnership at 95.5% of the then current market
price of the Limited Partner Units.




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.                                                                                                                                



|(a) |  | Exhibits:
|--- |  | ---------

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.1     |  | Certificate of Limited Partnership of TEPPCO Partners, L.P.
(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     |  | Third Amended and Restated Agreement of Limited Partnership of
TEPPCO Partners, L.P., dated September 21, 2001 (Filed as
Exhibit 3.7 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended September 30, 2001 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).                                                                                                                                                                                                                                                        
|4.4     |  | Form of Indenture between TEPPCO Partners, L.P., as issuer, TE
Products Pipeline Company, Limited Partnership, TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering
Company, as subsidiary guarantors, and First Union National
Bank, NA, as trustee, dated as of February 20, 2002 (Filed as
Exhibit 99.2 to Form 8-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) dated as of February 20, 2002 and
incorporated herein by reference).          
|4.5     |  | First Supplemental Indenture between TEPPCO Partners, L.P., as
issuer, TE Products Pipeline Company, Limited Partnership,
TCTM, L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas
Gathering Company, as subsidiary guarantors, and First Union
National Bank, NA, as trustee, dated as of February 20, 2002
(Filed as Exhibit 99.3 to Form 8-K of TEPPCO Partners, L.P
(Commission File No. 1-10403) dated as of February 20, 2002
and incorporated herein by reference).
|10.1+   |  | 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.                                                                                                                                                                                                                                                                                                      

48



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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  | (Commission File No. 1-10403) for the quarter ended September
30, 1997 and incorporated herein by reference).                                                                                                                                                                                                                                                                                         
|10.2+  |  | 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).                                                                                                                      
|10.3+  |  | 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).                                                                                                                     
|10.4+  |  | 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).                                                                                                                                    
|10.5+  |  | 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).                                                                                                                                                                                        
|10.6+  |  | 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).                                                                                                                                                                                   
|10.7+  |  | 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).                                                                                                                                                                          
|10.8+  |  | 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).                                                                                                                                                                            
|10.9+  |  | 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).                                                                                                                                
|10.10+ |  | 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).                                                                                                                 
|10.11  |  | 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).                                                                                                              
|10.12  |  | 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).                                                                                                    
|10.13  |  | 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).                                                                       
|10.14  |  | 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).                                                                   
|10.15+ |  | Form of Employment Agreement between the Company and Thomas R.
Harper, David L. Langley, Charles H. Leonard, James C. Ruth,
John N. Goodpasture, Leonard W. Mallett, Stephen W. Russell,
David E. Owen, and Barbara A. Carroll (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).

49



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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16  |  | 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).                                                                  
|10.17  |  | 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).
|10.18  |  | 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).                                                                                                                                                                              
|10.19+ |  | 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).                                                                                                                   
|10.20+ |  | Form of Employment and Non-Compete Agreement between the
Company and J. Michael Cockrell 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).                                                                                                     
|10.21+ |  | 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).                                                                                                         
|10.22+ |  | 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).                                                                                                  
|10.23+ |  | 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).                                                                                                                         
|10.24  |  | 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).                                                                                                                     
|10.25  |  | Amended and Restated Purchase Agreement By and Between
Atlantic Richfield Company and Texas Eastern Products Pipeline
Company With Respect to the Sale of ARCO Pipe Line 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).                  
|10.26+ |  | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Amendment and Restatement, effective January
1, 2000 (Filed as Exhibit 10.28 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 2000 and incorporated herein by reference).                                                                                           
|10.27+ |  | TEPPCO Supplemental Benefit Plan, effective April 1, 2000
(Filed as Exhibit 10.29 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31,
2000 and incorporated herein by reference).                                                                                                                                                                  
|10.28+ |  | Employment Agreement with Barry R. Pearl (Filed as Exhibit
10.30 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 2001 and
incorporated herein by reference).                                                                                                                                                                                   
|10.29  |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L. P. as Borrower, SunTrust Bank as Administrative Agent and
LC Issuing Bank, and Certain Lenders, dated as of April 6,
2001 ($500,000,000 Revolving Facility) (Filed as Exhibit 10.31
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 2001 and incorporated
herein by reference).

50



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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.30  |  | Credit Agreement among TEPPCO Partners, L. P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders,
dated as of April 6, 2001 ($200,000,000 Revolving Facility)
(Filed as Exhibit 10.32 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March 31,
2001 and incorporated herein by reference).                                                                                                 
|10.31  |  | Purchase and Sale Agreement By and Among Green River Pipeline,
LLC and McMurry Oil Company, Sellers, and TEPPCO Partners,
L.P., Buyer, dated as of September 7, 2000. Filed as Exhibit
3.6 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended June 30, 2001 and incorporated
herein by reference).                                                                                                                  
|10.32  |  | Credit Agreement Among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders,
dated as of September 28, 2001 ($400,000,000 Term Facility)
(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, 2001 and incorporated herein by reference).                                                                                              
|10.33  |  | Amendment 1, dated as of September 28, 2001, to the Amended
and Restated Credit Agreement among TEPPCO Partners, L. P. as
Borrower, SunTrust Bank as Administrative Agent and LC Issuing
Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.33 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2001 and
incorporated herein by reference).
|10.34  |  | Amendment 1, dated as of September 28, 2001, to the Credit
Agreement among TEPPCO Partners, L. P. as Borrower, SunTrust
Bank as Administrative Agent, and Certain Lenders, dated as of
April 6, 2001 ($200,000,000 Revolving Facility) (Filed as
Exhibit 10.34 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended September
30, 2001 and incorporated herein by reference).                                         
|10.35* |  | Amendment and Restatement, dated as of November 13, 2001, to
the Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders,
dated as of April 6, 2001 ($200,000,000 Revolving Facility).                                                                                                                                                                                                        
|10.36* |  | Second Amendment and Restatement, dated as of November 13,
2001, to the Amended and Restated Credit Agreement amount
TEPPCO Partners, L.P. as Borrower, SunTrust Bank as
Administrative Agent and LC Issuing Bank, and Certain Lenders,
dated as of April 6, 2001 ($500,000,000 Revolving Facility).                                                                                                                                                       
|10.37  |  | Second Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership, dated
September 21, 2001 (Filed as Exhibit 3.8 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                                      
|10.38  |  | Amended and Restated Agreement of Limited Partnership of TCTM,
L.P., dated September 21, 2001 (Filed as Exhibit 3.9 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended September 30, 2001 and incorporated
herein by reference).                                                                                                                                                                                    
|10.39  |  | Agreement of Limited Partnership of TEPPCO Midstream
Companies, L.P., dated September 24, 2001 (Filed as Exhibit
3.10 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 2001 and
incorporated herein by reference).                                                                                                                                                                                  
|10.40* |  | Agreement of Partnership of Jonah Gas Gathering Company dated
June 20, 1996 as amended by that certain Assignment of
Partnership Interests dated September 28, 2001.                                                                                                                                                                                                                                                                                       
|10.41* |  | Unanimous Written Consent of the Board of Directors of
TEPPCO GP, Inc. dated February 13, 2002.                                                                                                                                                                                                                                                                                                                                                            
|12.1*  |  | Statement of Computation of Ratio of Earnings to Fixed
Charges.                                                                                                                                                                                                                                                                                                                                                                                            
|21*    |  | Subsidiaries of the Partnership.                                                                                                                                                                                                                                                                                                                                                                                                                           
|23*    |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|24*    |  | Powers of Attorney.                                                                                                                                                                                                                                                                                                                                                                                                                                        

51



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---

|* |  | Filed herewith.                                           
|- |  | ----------------------------------------------------------
| 
|+ |  | A management contract or compensation plan or arrangement.



|(b) |  | Reports on Form 8-K filed during the quarter ended December
31, 2001:
|--- |  | ---------------------------------------------------------------------



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Reports on Form 8-K were filed on October 15, 2001, November
9, 2001, November 13, 2001, November 19, 2001, and November
30, 2001.

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. THACKERWilliam L. Thacker,
Chairman and Chief Executive Officer                        
|
| | By:  /s/ CHARLES H. LEONARDCharles H. Leonard,
Senior Vice President, Chief Financial
Officer and Treasurer

Dated: March 14, 2002

52



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##### Table of Contents



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.

|                                                |  |                                                                                                                                                           |  |                   
|----------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|SignatureWILLIAM L. THACKER*
William L. Thacker |  | TitleChairman of the Board and Chief Executive
Officer of Texas Eastern Products Pipeline Company, LLC                                                    |  | DateMarch 14, 2002
|                                               
|CHARLES H. LEONARDCharles H. Leonard            |  | Senior Vice President, Chief Financial Officer and
Treasurer of Texas Eastern Products Pipeline Company, LLC
(Principal Accounting and Financial Officer) |  | March 14, 2002    
|                                               
|JIM W. MOGG*Jim W. Mogg                         |  | Vice Chairman of the Board of Texas
Eastern Products Pipeline Company, LLC                                                                                |  | March 14, 2002    
|                                               
|MARK A. BORER *Mark A. Borer                    |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                                  |  | March 14, 2002    
|                                               
|MILTON CARROLL*Milton Carroll                   |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                                  |  | March 14, 2002    
|                                               
|CARL D. CLAY*Carl D. Clay                       |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                                  |  | March 14, 2002    
|                                               
|DERRILL CODY*Derrill Cody                       |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                                  |  | March 14, 2002    
|                                               
|JOHN P. DESBARRES*John P. DesBarres             |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                                  |  | March 14, 2002    
|                                               
|FRED J. FOWLER*Fred J. Fowler                   |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                                  |  | March 14, 2002    
|                                               
|WILLIAM W. SLAUGHTER*William W. Slaughter       |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                                  |  | March 14, 2002    

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

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

53



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CONSOLIDATED FINANCIAL STATEMENTS
OF TEPPCO PARTNERS, L.P.

INDEX TO FINANCIAL STATEMENTS

|                                                                                                  |  |      |     | 
|------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                  |  | Page
|                                                                                                  |  |     
|Independent Auditors Report                                                                      |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2001 and 2000                                      |  |      | F-3 | 
|Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999            |  |      | F-4 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999        |  |      | F-5 | 
|Consolidated Statements of Partners Capital for the years ended December 31, 2001,
2000 and 1999 |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                        |  |      | F-7 | 

F-1



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##### Table of Contents



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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the results
of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.

As described in
Note 2 to the consolidated financial statements, as of
January 1, 2001, the Partnership changed its method of
accounting for derivative instruments and hedging activities and,
effective July 1, 2001, adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and certain provisions of SFAS
No. 142, Goodwill and Other Intangible Assets.

KPMG LLP

Houston, Texas
January 17, 2002

F-2



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##### Table of Contents



TEPPCO PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |         |  |         |           | 
|------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | --------------------------------- | ------------------------- | --------------------------------------- | - | ------------ | --------- | ------- |  | ------- | --------- | 
|                                                                                                                   |                                          |                                   |                           |                                         |   | December 31,
|                                                                                                                   |                                          |                                   |                           |                                         |   |             
|                                                                                                                   |                                          |                                   |                           |                                         |   | 2001         |           | 2000   
|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |        
|                                                                                                                   |                                          |                                   |                           | ASSETS                                  |   |              |           |         |  |         |           | 
|Current assets:                                                                                                    |                                          |                                   |                           |                                         |   |              |           |        
|                                                                                                                   | Cash and cash equivalents                |                                   | $                         | 25,479                                  |   |              | $         | 27,096  | 
|                                                                                                                   | Accounts receivable, trade               |                                   |                           | 221,541                                 |   |              |           | 303,394 | 
|                                                                                                                   | Accounts receivable, related party       |                                   |                           | 4,310                                   |   |              |           |        | 
|                                                                                                                   | Inventories                              |                                   |                           | 17,243                                  |   |              |           | 24,784  | 
|                                                                                                                   | Other                                    |                                   |                           | 14,907                                  |   |              |           | 8,123   | 
|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |         | 
|                                                                                                                   |                                          |                                   |                           | Total current assets                    |   |              | 283,480   |         |  |         | 363,397   | 
|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |         | 
|Property, plant and equipment, at cost (Net of
accumulated depreciation and amortization of
$290,248 and $251,165) |                                          |                                   | 1,180,461                 |                                         |   |              | 949,705   |        
|Equity investments                                                                                                 |                                          |                                   | 292,224                   |                                         |   |              | 241,648   |        
|Intangible assets                                                                                                  |                                          |                                   | 253,413                   |                                         |   |              | 34,174    |        
|Goodwill                                                                                                           |                                          |                                   | 14,743                    |                                         |   |              | 4,214     |        
|Other assets                                                                                                       |                                          |                                   | 41,027                    |                                         |   |              | 29,672    |        
|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |         | 
|                                                                                                                   |                                          |                                   |                           | Total assets                            |   | $            | 2,065,348 |         |  | $       | 1,622,810 | 
|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |         | 
|                                                                                                                   |                                          | LIABILITIES AND PARTNERS CAPITAL |                           |                                         |   |              |           |         |  |        
|Current liabilities:                                                                                               |                                          |                                   |                           |                                         |   |              |           |        
|                                                                                                                   | Notes payable                            |                                   | $                         | 360,000                                 |   |              | $         |        | 
|                                                                                                                   | Accounts payable and accrued liabilities |                                   |                           | 228,075                                 |   |              |           | 293,720 | 
|                                                                                                                   | Accounts payable, general partner        |                                   |                           | 22,680                                  |   |              |           | 6,637   | 
|                                                                                                                   | Accrued interest                         |                                   |                           | 15,649                                  |   |              |           | 18,633  | 
|                                                                                                                   | Other accrued taxes                      |                                   |                           | 8,888                                   |   |              |           | 10,501  | 
|                                                                                                                   | Other                                    |                                   |                           | 33,550                                  |   |              |           | 28,780  | 
|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |         | 
|                                                                                                                   |                                          |                                   | Total current liabilities |                                         |   | 668,842      |           |         |  | 358,271 |          
|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |         | 
|Senior Notes                                                                                                       |                                          |                                   | 389,814                   |                                         |   |              | 389,784   |        
|Other long-term debt                                                                                               |                                          |                                   | 340,658                   |                                         |   |              | 446,000   |        
|Other liabilities and deferred credits                                                                             |                                          |                                   | 17,223                    |                                         |   |              | 3,991     |        
|Minority interest                                                                                                  |                                          |                                   |                          |                                         |   |              | 4,296     |        
|Redeemable Class B Units held by related party                                                                     |                                          |                                   | 105,630                   |                                         |   |              | 105,411   |        
|Commitments and contingencies
Partners capital:                                                                   |                                          |                                   |                           |                                         |   |              |           |        
|                                                                                                                   | Accumulated other comprehensive loss     |                                   |                           | (20,324                                 | ) |              |           |        | 
|                                                                                                                   | General partners interest               |                                   |                           | 13,190                                  |   |              |           | 1,824   | 
|                                                                                                                   | Limited partners interests              |                                   |                           | 550,315                                 |   |              |           | 313,233 | 
|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |         | 
|                                                                                                                   |                                          |                                   |                           | Total partners capital                 |   |              | 543,181   |         |  |         | 315,057   | 
|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |         | 
|                                                                                                                   |                                          |                                   |                           | Total liabilities and partners capital |   | $            | 2,065,348 |         |  | $       | 1,622,810 | 
|                                                                                                                   |                                          |                                   |                           |                                         |   |              |           |         | 

See accompanying Notes to Consolidated Financial Statements.

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TEPPCO PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per Unit amounts)

|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |           | 
|----------------------------------------------------------------- | --------------------------------------------- | ------------------------------- | ------- | ------------------------ | --------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                                  |                                               |                                 |         | Years Ended December 31,
|                                                                  |                                               |                                 |         |                         
|                                                                  |                                               |                                 |         | 2001                     |           | 2000 |         | 1999     
|                                                                  |                                               |                                 |         |                          |           |      |         |          
|Operating revenues:                                               |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|                                                                  | Sales of crude oil and petroleum products     |                                 | $       | 3,219,816                |           |      | $       | 2,821,943 |           |   | $       | 1,692,767 |          
|                                                                  | Transportation  refined products             |                                 |         | 139,315                  |           |      |         | 119,331   |           |   |         | 123,004   |          
|                                                                  | Transportation  LPGs                         |                                 |         | 77,823                   |           |      |         | 73,896    |           |   |         | 67,701    |          
|                                                                  | Transportation  crude oil and NGLs           |                                 |         | 44,925                   |           |      |         | 24,533    |           |   |         | 11,846    |          
|                                                                  | Gathering  natural gas                       |                                 |         | 8,824                    |           |      |         |          |           |   |         |          |          
|                                                                  | Mont Belvieu operations                       |                                 |         | 14,116                   |           |      |         | 13,334    |           |   |         | 12,849    |          
|                                                                  | Other                                         |                                 |         | 51,594                   |           |      |         | 34,904    |           |   |         | 26,716    |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Total operating revenues        |         |                          | 3,556,413 |      |         |           | 3,087,941 |   |         |           | 1,934,883 | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|Costs and expenses:                                               |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|                                                                  | Purchases of crude oil and petroleum products |                                 |         | 3,173,607                |           |      |         | 2,794,604 |           |   |         | 1,666,042 |          
|                                                                  | Operating, general and administrative         |                                 |         | 135,253                  |           |      |         | 104,918   |           |   |         | 94,340    |          
|                                                                  | Operating fuel and power                      |                                 |         | 36,575                   |           |      |         | 34,655    |           |   |         | 31,265    |          
|                                                                  | Depreciation and amortization                 |                                 |         | 45,899                   |           |      |         | 35,163    |           |   |         | 32,656    |          
|                                                                  | Taxes  other than income taxes               |                                 |         | 14,090                   |           |      |         | 10,576    |           |   |         | 10,490    |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Total costs and expenses        |         |                          | 3,405,424 |      |         |           | 2,979,916 |   |         |           | 1,834,793 | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Operating income                |         |                          | 150,989   |      |         |           | 108,025   |   |         |           | 100,090   | 
|Interest expense                                                  |                                               |                                 | (66,057 | )                        |           |      | (48,982 | )         |           |   | (31,563 | )        
|Interest capitalized                                              |                                               |                                 | 4,000   |                          |           |      | 4,559   |           |           |   | 2,133   |          
|Equity earnings                                                   |                                               |                                 | 17,398  |                          |           |      | 12,214  |           |           |   |        |          
|Other income  net                                                |                                               |                                 | 3,601   |                          |           |      | 2,349   |           |           |   | 2,196   |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Income before minority interest |         |                          | 109,931   |      |         |           | 78,165    |   |         |           | 72,856    | 
|Minority interest                                                 |                                               |                                 | (800    | )                        |           |      | (789    | )         |           |   | (736    | )        
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Net income                      |         | $                        | 109,131   |      |         | $         | 77,376    |   |         | $         | 72,120    | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|Net income allocated to Limited Partner Unitholders               |                                               |                                 | 76,986  |                          |           |      | 56,091  |           |           |   | 55,349  |          
|Net income allocated to Class B Unitholder                        |                                               |                                 | 8,642   |                          |           |      | 7,385   |           |           |   | 7,475   |          
|Net income allocated to General Partner                           |                                               |                                 | 23,503  |                          |           |      | 13,900  |           |           |   | 9,296   |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Total net income allocated      |         | $                        | 109,131   |      |         | $         | 77,376    |   |         | $         | 72,120    | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|Basic and diluted net income per Limited
Partner and Class B Unit |                                               | $                               | 2.18    |                          |           | $    | 1.89    |           |           | $ | 1.91    |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|Weighted average Limited Partner and Class B
Units outstanding    |                                               |                                 | 39,258  |                          |           |      | 33,594  |           |           |   | 32,917  |          

See accompanying Notes to Consolidated Financial Statements.

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TEPPCO PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |         |         |  
|------------------------------------------------ | ----------------------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------------------------- | -------- | ------------------------ | -------- | ------ | -------- | ------- | -------- | ------- | ------- | ------- | ------- | -
|                                                 |                                                                               |                                                              |                                                     |          | Years Ended December 31,
|                                                 |                                                                               |                                                              |                                                     |          |                         
|                                                 |                                                                               |                                                              |                                                     |          | 2001                     |          | 2000   |          | 1999   
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |        
|Cash flows from operating activities:            |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |        
|                                                 | Net income                                                                    |                                                              | $                                                   | 109,131  |                          |          | $      | 77,376   |         |          | $       | 72,120  |        
|                                                 | Adjustments to reconcile net income to cash provided by
operating activities: |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|                                                 |                                                                               | Depreciation and amortization                                |                                                     |          | 45,899                   |          |        |          | 35,163  |          |         |         | 32,656  |        
|                                                 |                                                                               | Equity in earnings, net of distributions                     |                                                     |          | 14,377                   |          |        |          | (10,084 | )        |         |         | 393     |        
|                                                 |                                                                               | Non-cash portion of interest expense                         |                                                     |          | 4,053                    |          |        |          | 2,218   |          |         |         | 337     |        
|                                                 |                                                                               | Decrease (increase) in accounts receivable                   |                                                     |          | 81,190                   |          |        |          | (90,006 | )        |         |         | (92,225 | )      
|                                                 |                                                                               | Decrease (increase) in inventories                           |                                                     |          | 7,541                    |          |        |          | (7,567  | )        |         |         | 1,037   |        
|                                                 |                                                                               | Decrease (increase) in other current assets                  |                                                     |          | (8,082                   | )        |        |          | 1,165   |          |         |         | (2,500  | )      
|                                                 |                                                                               | Increase (decrease) in accounts payable and accrued expenses |                                                     |          | (71,757                  | )        |        |          | 106,662 |          |         |         | 93,317  |        
|                                                 |                                                                               | Other                                                        |                                                     |          | (13,204                  | )        |        |          | (6,882  | )        |         |         | (2,065  | )      
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|                                                 |                                                                               |                                                              | Net cash provided by operating activities           |          |                          | 169,148  |        |          |         | 108,045  |         |         |         | 103,070 |  
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|Cash flows from investing activities:            |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |        
|                                                 | Proceeds from cash investments                                                |                                                              |                                                     | 4,236    |                          |          |        | 3,475    |         |          |         | 6,275   |        
|                                                 | Purchases of cash investments                                                 |                                                              |                                                     |         |                          |          |        | (2,000   | )       |          |         | (3,235  | )      
|                                                 | Purchase of ARCO assets                                                       |                                                              |                                                     | (11,000  | )                        |          |        | (322,640 | )       |          |         |        |        
|                                                 | Purchase of Jonah Gas Gathering Company                                       |                                                              |                                                     | (359,834 | )                        |          |        |         |         |          |         |        |        
|                                                 | Purchase of crude oil assets and NGL system                                   |                                                              |                                                     | (20,000  | )                        |          |        | (99,508  | )       |          |         | (2,250  | )      
|                                                 | Proceeds from the sale of assets                                              |                                                              |                                                     | 1,300    |                          |          |        |         |         |          |         |        |        
|                                                 | Investment in Centennial Pipeline, LLC                                        |                                                              |                                                     | (64,953  | )                        |          |        | (5,040   | )       |          |         |        |        
|                                                 | Capital expenditures                                                          |                                                              |                                                     | (107,614 | )                        |          |        | (68,481  | )       |          |         | (77,431 | )      
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|                                                 |                                                                               |                                                              | Net cash used in investing activities               |          |                          | (557,865 | )      |          |         | (494,194 | )       |         |         | (76,641 | )
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|Cash flows from financing activities:            |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |        
|                                                 | Proceeds from term and revolving credit facilities                            |                                                              |                                                     | 546,148  |                          |          |        | 552,000  |         |          |         | 33,000  |        
|                                                 | Repayments on term and revolving credit facilities                            |                                                              |                                                     | (291,490 | )                        |          |        | (172,000 | )       |          |         | (5,000  | )      
|                                                 | Debt issuance cost                                                            |                                                              |                                                     | (2,601   | )                        |          |        | (7,074   | )       |          |         |        |        
|                                                 | Issuance of Limited Partner Units, net                                        |                                                              |                                                     | 234,660  |                          |          |        | 88,158   |         |          |         |        |        
|                                                 | General partners contributions                                               |                                                              |                                                     | 4,795    |                          |          |        | 1,799    |         |          |         |        |        
|                                                 | Distributions                                                                 |                                                              |                                                     | (104,412 | )                        |          |        | (82,231  | )       |          |         | (69,259 | )      
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|                                                 |                                                                               |                                                              | Net cash provided by (used in) financing activities |          |                          | 387,100  |        |          |         | 380,652  |         |         |         | (41,259 | )
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|Net decrease in cash and cash equivalents        |                                                                               |                                                              | (1,617                                              | )        |                          |          | (5,497 | )        |         |          | (14,830 | )      
|Cash and cash equivalents at beginning of period |                                                                               |                                                              | 27,096                                              |          |                          |          | 32,593 |          |         |          | 47,423  |        
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|Cash and cash equivalents at end of period       |                                                                               | $                                                            | 25,479                                              |          |                          | $        | 27,096 |          |         | $        | 32,593  |        
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|Supplemental disclosure of cash flows:           |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |        
|                                                 | Interest paid during the year (net of capitalized interest)                   |                                                              | $                                                   | 61,458   |                          |          | $      | 36,793   |         |          | $       | 28,625  |        

See accompanying Notes to Consolidated Financial Statements.

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##### Table of Contents



TEPPCO PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
(in thousands)

|                                                 |                                           |   |           |         |           |   |               |         |       |   |             |         |   |   |         |         |  
|------------------------------------------------ | ----------------------------------------- | - | --------- | ------- | --------- | - | ------------- | ------- | ----- | - | ----------- | ------- | - | - | ------- | ------- | -
|                                                 |                                           |   |           |         |           |   |               |         |       |   | Accumulated |         |   |   |        
|                                                 |                                           |   | General   |         | Limited   |   | Other         |         |       |   |            
|                                                 |                                           |   | Partner's |         | Partners' |   | Comprehensive |         |       |   |            
|                                                 |                                           |   | Interest  |         | Interests |   | Loss          |         | Total
|                                                 |                                           |   |           |         |           |   |               |         |      
|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 |        
|                                                 | Capital contributions                     |   |           | 4,795   |           |   |               |        |       |   |             |        |   |   |         | 4,795   |  
|                                                 | Issuance of Limited Partner Units, net    |   |           |        |           |   |               | 234,660 |       |   |             |        |   |   |         | 234,660 |  
|                                                 | Minority interest restructured            |   |           | 4,598   |           |   |               |        |       |   |             |        |   |   |         | 4,598   |  
|                                                 | Cumulative effect of accounting change    |   |           |        |           |   |               |        |       |   |             | (10,103 | ) |   |         | (10,103 | )
|                                                 | Net loss on cash flow hedges              |   |           |        |           |   |               |        |       |   |             | (10,221 | ) |   |         | (10,221 | )
|                                                 | 2001 net income allocation                |   |           | 23,503  |           |   |               | 76,986  |       |   |             |        |   |   |         | 100,489 |  
|                                                 | 2001 cash distributions                   |   |           | (21,530 | )         |   |               | (73,961 | )     |   |             |        |   |   |         | (95,491 | )
|                                                 | Option exercises, net of Unit repurchases |   |           |        |           |   |               | (603    | )     |   |             |        |   |   |         | (603    | )
|                                                 |                                           |   |           |         |           |   |               |         |       |   |             |         |   |   |         |        
|Partners capital at December 31, 2001           |                                           | $ | 13,190    |         |           | $ | 550,315       |         |       | $ | (20,324     | )       |   | $ | 543,181 |        
|                                                 |                                           |   |           |         |           |   |               |         |       |   |             |         |   |   |         |        

See accompanying Notes to Consolidated Financial Statements.

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##### Table of Contents



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. PARTNERSHIP ORGANIZATION

TEPPCO Partners, L.P. (the Partnership), a Delaware limited partnership,
is a master limited partnership and was formed in March 1990. The Partnership
operates through TE Products Pipeline Company, Limited Partnership (TE
Products), TCTM, L.P. (TCTM) and TEPPCO Midstream Companies, L.P. (TEPPCO
Midstream). Collectively, TE Products, TCTM and TEPPCO Midstream are referred
to as the Operating Partnerships. Texas Eastern Products Pipeline Company,
LLC (the Company or General Partner), a Delaware limited liability company,
serves as the general partner of the Partnership. The General Partner is a
wholly-owned subsidiary of Duke Energy Field Services (DEFS), a joint venture
between Duke Energy Corporation (Duke Energy) and Phillips Petroleum Company
(Phillips). Duke Energy holds an approximate 70% interest in DEFS and
Phillips holds the remaining 30%. The Company, as general partner, performs all
management and operating functions required for the Partnership and the
Operating Partnerships, except for the management and operations of the TEPPCO
Midstream assets, which is performed by DEFS under an agreement with the
Partnership. The General Partner is reimbursed by the Partnership for all
reasonable direct and indirect expenses incurred in managing the Partnership.

On July 26, 2001, the Company restructured its general partner ownership
of the Operating Partnerships to cause them to be indirectly wholly-owned by
the Partnership. TEPPCO GP, Inc. (TEPPCO GP), a subsidiary of the
Partnership, succeeded the Company as general partner of the Operating
Partnerships. All remaining partner interests in the Operating Partnerships not
already owned by the Partnership were transferred to the Partnership. In
exchange for this contribution, the Companys interest as general partner of
the Partnership was increased to 2%. The increased percentage is the economic
equivalent of the aggregate interest that the Company had prior to the
restructuring through its combined interests in the Partnership and the
Operating Partnerships. As a result, the Partnership holds a 99.999% limited
partner interest in the Operating Partnerships and TEPPCO GP holds a 0.001%
general partner interest. This reorganization was undertaken to simplify
required financial reporting by the Operating Partnerships when guarantees of
Partnership debt are issued by the Operating Partnerships.

At formation in 1990, 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 and are treated as Limited Partner Units for
purposes of this Report. The Partnership has registered the resale of such
Limited Partner Units with the Securities and Exchange Commission. As of
December 31, 2001, no such Limited Partner Units had been sold by Duke Energy.

At December 31, 2001 and 2000, the Partnership had outstanding 40,450,000
and 32,700,000 Limited Partner Units and 3,916,547 and 3,916,547 Class B
Limited Partner Units (Class B Units), respectively. All of the Class B
Units were issued to Duke Energy in connection with an acquisition of assets
initially acquired in the Upstream Segment in 1998. The Class B Units share in
income and distributions on the same basis as 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 unitholders. The
Company has the option to seek approval for the conversion of the Class B Units
into Limited Partner Units; however, if the conversion is denied, Duke Energy,
as holder of the Class B Units, will have the right to sell them to the
Partnership at 95.5% of the then current market price of the Limited Partner
Units. As a result of this option, the Class B Units were not included in
partners capital at December 31, 2001 and 2000. Collectively, the Limited
Partner Units and Class B Units are referred to as Units.

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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 Operating
Partnerships, prior to July 26, 2001, 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 in the United States 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 balance of 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 reports and operates in three business segments:
transportation of refined products, liquefied petroleum gases (LPGs) and
petrochemicals (Downstream Segment); transportation and marketing of crude
oil and natural gas liquids (NGLs) (Upstream Segment); and gathering of
natural gas (Midstream Segment). The Partnerships reportable segments offer
different products and services and are managed separately because each
requires different business strategies. The Upstream Segment of the
Partnerships business was initially acquired in November 1998. The Midstream
Segment of the Partnerships business was initially acquired on September 30,
2001. The assets of the Midstream Segment are managed and operated by DEFS
under an agreement with the Partnership.

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, petrochemicals,
crude oil, NGLs and natural gas are referred to herein, collectively, as
petroleum products or products.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Revenue Recognition

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 in Colorado, Oklahoma, Kansas, New Mexico,
Texas and Louisiana. 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., which typically occurs upon receipt of the
product by the Partnership. Revenues related to trade documentation and
pumpover services are recognized as completed.

Revenues of the Midstream Segment are derived from the gathering of
natural gas in the Green River Basin in southwestern Wyoming. Revenues are
recognized as natural gas is delivered to customers. Revenues are earned from
gathering fees based upon the volume and pressure of natural gas gathered on
the Jonah Gas Gathering System (Jonah System). Revenues are also earned from
the sale of condensate liquid extracted from the natural gas stream to an
Upstream marketing affiliate. The Partnership does not take title to the
natural gas gathered on the Jonah System, therefore, the results of the Jonah
System are not directly affected by changes in the prices of natural gas or
other commodities.

Except for crude oil purchased from time to time as inventory, the
Partnership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 the Partnership 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, the Partnership 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

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 of the derivative and the
resulting designation, which is established at the inception of a derivative.
Special accounting for derivatives qualifying as fair value hedges allows a
derivatives gains and losses to offset related results on the hedged item in
the statement of income. For derivative instruments designated as cash flow
hedges, changes in fair value, to the extent the
F-9Table of Contents

TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

hedge is effective, are recognized in other comprehensive income until the
hedged item is recognized in earnings. Hedge effectiveness is measured at
least quarterly based on the relative cumulative changes in fair value between
the derivative contract and the hedged item over time. Any change in fair
value resulting from ineffectiveness, as defined by SFAS 133, is recognized
immediately in earnings.

Adoption of SFAS 133 at January 1, 2001, resulted in the recognition of
approximately $10.1 million of derivative liabilities, $4.1 million of which
were current liabilities and $6.0 million of which were noncurrent liabilities,
and $10.1 million of hedging losses included in accumulated other comprehensive
income, a component of Partners capital, as the cumulative effect of the
change in accounting. The hedging losses included in accumulated other
comprehensive loss are being transferred to earnings as the forecasted
transactions actually occur. Amounts were determined as of January 1, 2001,
based on the market quote of the Partnerships interest swap agreement in place
at the time of adoption.

The Partnership has utilized and expects to continue to utilize derivative
financial instruments with respect to a portion of its interest rate and fair
value risks and its crude oil marketing activities, as each is explained below.
The derivative financial instrument related to the Partnerships interest rate
risk is intended to reduce the Partnerships exposure to increases in the
benchmark interest rates underlying the Partnerships variable rate revolving
credit facility. The derivative financial instrument related to the
Partnerships fair value risks is intended to reduce the Partnerships exposure
to changes in the fair value of the fixed rate Senior Notes resulting from
changes in interest rates. The Partnerships Upstream Segment uses derivative
financial instruments to reduce the Partnerships exposure to fluctuations in
the market price of crude oil. By using derivative financial instruments to
hedge exposures to changes in interest rates, fair value of fixed rate Senior
Notes and crude oil prices, the Partnership exposes itself to credit risk and
market risk. Credit risk is the failure of the counterparty to perform under
the terms of the derivative contract. When the fair value of a derivative
contract is positive, the counterparty owes the Partnership, which creates
credit risk for the Partnership. When the fair value of a derivative contract
is negative, the Partnership owes the counterparty and, therefore, it does not
possess credit risk. The Partnership minimizes the credit risk in derivative
instruments by entering into transactions with major financial institutions or
commodities trading institutions. These derivative financial instruments
generally take the form of swaps and forward contracts. Market risk is the
adverse effect on the value of a financial instrument that results from a
change in interest rates or commodity prices. The market risk associated with
interest-rate and commodity-price contracts is managed by establishing and
monitoring parameters that limit the type and degree of market risk that may be
undertaken.

At December 31, 2001, the Upstream Segment had no open positions on
derivative financial contracts.

As of December 31, 2001, the Partnership had in place an interest rate
swap agreement to hedge its exposure to increases in the benchmark interest
rate underlying its variable rate revolving credit facilities. The Partnership
has designated this swap agreement, which hedges exposure to variability in
expected future cash flows attributed to changes in interest rates, as a cash
flow hedge. The swap agreement is based on a notional amount of $250 million.
Under the swap agreement, the Partnership pays a fixed rate of interest of
6.955% and receives a floating rate based on a three month U.S. Dollar LIBOR
rate. Since this swap is designated as a cash flow hedge, the changes in fair
value, to the extent the swap is effective, are recognized in other
comprehensive income until the hedged interest costs are recognized in
earnings. During the year ended December 31, 2001, the Partnership recognized
$6.8 million in losses, included in interest expense, on the interest rate swap
attributable to interest costs occurring in 2001. No gain or loss from
ineffectiveness was required to be recognized. The fair value of the interest
rate swap agreement was a loss of approximately $20.3 million at December 31,
2001. Approximately $11.7 million of such amount is anticipated to be
transferred into earnings over the next twelve months.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

As of December 31, 2001, TE Products also had in place an interest rate
swap agreement to hedge its exposure to changes in the fair value of its fixed
rate 7.51% Senior Notes due 2028. The Partnership has designated this swap
agreement, which hedges exposure to changes in the fair value of the TE
Products Senior Notes, as a fair value hedge. The swap agreement has a
notional amount of $210 million and matures in January 2028 to match the
principal and maturity of the TE Products Senior Notes. Under the swap
agreement, TE Products pays a floating rate based on a three month U.S. Dollar
LIBOR rate, plus a spread, and receives a fixed rate of interest of 7.51%.
Since this swap is designated as a fair value hedge, the changes in fair value
are recognized in current earnings. During the year ended December 31, 2001,
the Partnership recognized a gain of $1.8 million, included as a component of
interest expense, on the interest rate swap. No gain or loss from
ineffectiveness was required to be recognized.

During 2001, the Partnership entered into treasury rate lock agreements
with a combined notional amount of $400 million to hedge its exposure to
increases in the treasury rate that was to be used to establish the fixed
interest rate for an anticipated debt offering planned to occur in the fourth
quarter of 2001. The debt offering did not occur in 2001. Under the treasury
rate lock agreements, the Partnership would pay a fixed rate of interest, and
would receive a floating rate based on the three month treasury rate. The
treasury rate locks were designated as cash flow hedges. As a result, the
changes in fair value, to the extent the treasury rate locks were effective,
would be recognized in other comprehensive income until the actual debt
offering occurred. Upon completion of the debt offering, the realized gain or
loss on the treasury rate locks would be amortized out of accumulated other
comprehensive income into interest expense over the life of the debt
obligation. During April 2001, a treasury lock with a notional amount of $200
million was terminated and a gain of $1.1 million was realized. The realized
gain was recorded as a component of accumulated other comprehensive income.
During December 2001, the remaining treasury lock with a notional amount of
$200 million was terminated resulting in a realized loss of $1.1 million. The
realized loss was recorded as a component of interest expense. The realized
gain recorded in April 2001 to accumulated other comprehensive income was
reclassified to interest expense in December, upon termination of the treasury
lock agreement.

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.

Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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 6.46%, 7.45% and 7.01% for 2001, 2000 and 1999,
respectively. During the years ended December 31, 2001, 2000 and 1999, the
amount of interest capitalized was $4.0 million, $4.6 million and $2.1 million,
respectively.

Intangible Assets

Intangible assets at December 31, 2001, consist primarily of production
contracts assumed in the acquisition of Jonah Gas Gathering Company (Jonah)
on September 30, 2001, and the fractionation agreement with DEFS. In
connection with the acquisition of Jonah, the Partnership assumed contracts
that dedicate future production from natural gas wells in the Green River Basin
in the State of Wyoming (see Note 3. Acquisitions). The value assigned to
intangible assets relates to contracts with customers that are for either a
fixed term or which dedicate total future lease production. The value assigned
to intangible assets are amortized over the expected lives of the contracts
(approximately 16 years) in proportion to the timing of the expected
contractual volumes. At December 31, 2001, the unamortized balance of these
production contracts was $219.5 million.

The fractionation agreement with DEFS was entered into in 1998 and is
being amortized over a period of 20 years. At December 31, 2001, the
unamortized balance of this agreement was $30.9 million. (See Note 4. Related
Party Transactions.)

Goodwill

Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 20 years. Goodwill is presented on the
consolidated balance sheets net of accumulated amortization. At December 31,
2001 and 2000, the Partnership had $14.7 million and $4.2 million,
respectively, of unamortized goodwill. Amortization expense related to
goodwill was $0.9 million and $0.1 million for the years ended December 31,
2001 and 2000, respectively.

In July 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually. SFAS 142
requires that intangible assets with definite useful lives be amortized over
their respective estimated useful lives. The Partnership adopted SFAS 142
effective January 1, 2002. At the date of this report, the Partnership is
evaluating the impact of adopting SFAS 142, including whether any transitional
impairment losses will be required to be recognized as the cumulative effect of
a change in accounting principle. Beginning January 1, 2002, effective with
the adoption of SFAS 142, the Partnership will no longer record amortization
expense related to goodwill. The goodwill associated with the acquisition of
Jonah, which was completed on September 30, 2001, is not being amortized due to
the adoption of certain provisions of SFAS 142 (see Note 2. New Accounting Pronouncements).

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
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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

from income or loss reported for financial reporting purposes.
Accordingly, no recognition has been given to federal income taxes for the
Partnerships operations.

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 39.3 million Units
for 2001, 33.6 million Units for 2000 and 32.9 million Units for 1999). 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. Quarterly
Distributions of Available Cash). The general partner was allocated $23.5
million (representing 21.54%) of net income for the year ended December 31,
2001, $13.9 million (representing 17.96%) of net income for the year ended
December 31, 2000, and $9.3 million (representing 12.89%) of net income for the
year ended December 31, 1999.

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, 2001, 2000 and 1999, the
denominator was increased by 41,864 Units, 20,926 Units and 12,141 Units,
respectively.

Unit Option Plan

The Partnership follows the intrinsic value based method of accounting for
its stock-based compensation plans (see Note 11. Unit Option Plan). 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.

New Accounting Pronouncements

In July 2001, the FASB issued SFAS No. In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS
141 requires that the purchase method of accounting be used for all business
combinations and specifies that certain acquired intangible assets be reported
apart from goodwill. The Partnership adopted SFAS 141 during 2001.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 requires the Partnership to record the fair
value of an asset retirement obligation as a liability in the period in which
it incurs a legal obligation associated with the retirement of tangible
long-lived assets that results from the acquisition, construction, development
and/or normal use of the assets. The Partnership also records a corresponding
asset, which is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation will be
adjusted at the end of each period to reflect the passage of time and changes
in the estimated future cash flows underlying the obligation. The Partnership
is required to adopt SFAS 143 effective January 1, 2003.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS No. 121,
Accounting for Long-Lived Assets and For Long-Lived Assets to be Disposed Of,
but retains its fundamental provisions for reorganizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale. The

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Partnership was required to adopt SFAS 144 effective January 1, 2002. The
adoption of SFAS 144 did not have a material effect on the financial position,
results of operations or cash flows of the Partnership.

NOTE 3. ACQUISITIONS

On July 20, 2000, the Partnership 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
other than the purchase price. The purchased assets 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, and from a marine terminal at Texas
City, Texas, to refineries in the Texas City and Houston areas. 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 financial statements from July 20, 2000.

In October 2000, the Partnership received a settlement notice from
Atlantic Richfield Company for payment of a net aggregate amount of
approximately $12.9 million in post-closing adjustments related to the purchase
of ARCO. A large portion of the requested adjustment related to an indemnity
for payment of accrued income taxes. In August 2001, the Partnership and
Atlantic Richfield Company reached a settlement of $11.0 million for the
post-closing adjustments. The Partnership recorded the settlement as an
increase to the purchase price of ARCO. The Partnership paid the settlement
amount to Atlantic Richfield Company on October 15, 2001.

On September 30, 2001, subsidiaries of the Partnership completed the
purchase of Jonah from Alberta Energy Company for $359.8 million. The
acquisition serves as an entry into the natural gas gathering industry for the
Partnership. Goodwill recognized in the purchase amounted to approximately $2.4
million. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the results of the acquisition are included in the
consolidated financial statements from September 30, 2001. An additional
$7.2 million was accrued at December 31, 2001, for final purchase adjustments
related primarily to construction projects in progress at the time of closing.

The following table allocates the estimated fair value of Jonah assets
acquired on September 30, 2001, and includes the additional purchase adjustment
paid in February 2002 (in thousands):

|                                                           |                     |   |         |         | 
|---------------------------------------------------------- | ------------------- | - | ------- | ------- | 
|Property, plant and equipment                              |                     | $ | 141,835 |        
|Intangible assets (primarily gas transportation contracts) |                     |   | 222,800 |        
|Goodwill                                                   |                     |   | 2,486   |        
|                                                           |                     |   |         |        
|                                                           | Total assets        |   |         | 367,121 | 
|                                                           |                     |   |         |        
|Total liabilities assumed                                  |                     |   | (489    | )      
|                                                           |                     |   |         |        
|                                                           | Net assets acquired |   | $       | 366,632 | 
|                                                           |                     |   |         |        

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The value assigned to intangible assets relates to contracts with
customers that are for either a fixed term or which dedicate total future lease
production. The value assigned to intangible assets will be amortized over the
expected lives of the contracts (approximately 16 years) in proportion to the
timing of expected contractual volumes.

The following table presents the unaudited pro forma results of the
Partnership as though the acquisitions of the ARCO and Jonah businesses
occurred at the beginning of the respective periods (in thousands, except per
Unit amounts). The pro forma results do not include operating efficiencies or
revenue growth from historical results.

|                                                                  |  |                          |           |      |  |   |           | 
|----------------------------------------------------------------- |  | ------------------------ | --------- | ---- |  | - | --------- | 
|                                                                  |  | Years Ended December 31,
|                                                                  |  |                         
|                                                                  |  | 2001                     |           | 2000
|                                                                  |  |                          |           |     
|Revenues                                                          |  | $                        | 3,579,684 |      |  | $ | 3,128,612 | 
|Operating income                                                  |  |                          | 141,720   |      |  |   | 107,916   | 
|Net income                                                        |  |                          | 88,124    |      |  |   | 61,255    | 
|Basic and diluted net income per Limited
Partner and Class B Unit |  | $                        | 1.76      |      |  | $ | 1.50      | 

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 the 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, a
wholly-owned subsidiary of DEFS. Duke Energy holds an approximate 70% interest
in DEFS and Phillips holds the remaining 30%. According 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.
Partnership Organization).

For the years ended December 31, 2001, 2000, and 1999, direct expenses
incurred by the Company in the amount of $68.2 million, $50.4 million, and
$49.6 million, respectively, were charged to the Partnership. Substantially all
such costs were related to payroll and payroll related expenses. For the years
ended December 31, 2001, 2000, and 1999, expenses for administrative service
and overhead allocated to the Partnership by Duke Energy and its affiliates
amounted to $0.6 million, $0.8 million, and $2.1 million, respectively.

Effective with the purchase of the fractionation facilities on March 31,
1998, TE Products and DEFS entered into a 20-year Fractionation Agreement,
under which TE Products receives a variable fee for all fractionated volumes
delivered to DEFS. Revenues recognized from the fractionation facilities
totaled $7.4 million, $7.5 million and $7.3 million for the years ended
December 31, 2001, 2000 and 1999, respectively. TE Products and DEFS also
entered into an Operation and Maintenance Agreement, whereby DEFS operates and
maintains the fractionation facilities. For these services, TE Products 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, $0.9 million and $0.8 million for the years ended December 31, 2001,
2000 and 1999, respectively.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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 a throughput agreement with
DEFS through 2005. The fees on the agreement totaled $1.2 million, $1.1
million and $1.1 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

On July 20, 2000, the Partnership, through TCTM, acquired a 50-percent
ownership interest in Seaway. Phillips owns the remaining 50% interest in
Seaway. The Partnership is the operator of this pipeline. During the years
ended 2001 and 2000, the Partnership billed to Seaway $7.0 million and $2.9
million, respectively, for direct payroll and payroll related expenses for
operating Seaway. Additionally, during the years ended December 31, 2001 and
2000, the Partnership billed to Seaway $2.1 million and $0.9 million,
respectively, for indirect management fees for operating Seaway.

Effective May 2001, the Company entered into an agreement with DEFS to
commit sole utilization of the Providence terminal to DEFS. The terminal is
operated by the Partnership. During the year ended December 31, 2001, DEFS
paid the Partnership $1.5 million pursuant to this agreement.

On September 30, 2001, the Partnership completed the acquisition of Jonah.
The Jonah assets are managed and operated by employees of DEFS under a
contractual arrangement under which DEFS is reimbursed for its actual costs.
Certain employees of DEFS also act as officers of TEPPCO GP in order to
facilitate management of the Jonah assets by DEFS. These DEFS employees
receive no additional compensation from the Partnership for these activities.
During the year ended December 31, 2001, the Partnership recognized $0.6
million of expense related to the management of the Jonah assets by DEFS.

NOTE 5. EQUITY INVESTMENTS

Seaway is a partnership between TCTM and Phillips. TCTM purchased its
50-percent ownership interest in Seaway on July 20, 2000 (see Note 3.
Acquisitions). 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, TCTM receives 80% of revenue
and expense of Seaway. From June 2002 until May 2006, TCTM receives 60% of
revenue and expense of Seaway. Thereafter, the sharing ratio becomes 40% of
revenue and expense to TCTM.

In August 2000, the Partnership entered into agreements with CMS Energy
Corporation and Marathon Ashland Petroleum LLC to form Centennial Pipeline, LLC
(Centennial). Centennial owns and operates an interstate refined petroleum
products pipeline extending from the upper Texas Gulf Coast to Illinois. Each
participant owns a one-third interest in Centennial. During 2001 and 2000, the
Partnership contributed approximately $65.0 million and $5.0 million,
respectively, for its investment in Centennial. Such amounts are included in
the equity investment balance at December 31, 2001 and 2000.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The Partnership uses the equity method of accounting for its investments
in Seaway and Centennial. Summarized combined financial information for Seaway
as of and for the year ended December 31, 2001, and as of December 31, 2000,
and for the period from July 20, 2000, through December 31, 2000, and for
Centennial as of and for the year ended December 31, 2001, is presented below
(in thousands):

|                    |  |      |         |      |  |   |         | 
|------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                    |  | 2001 |         | 2000
|                    |  |      |         |     
|Current assets      |  | $    | 57,368  |      |  | $ | 36,883  | 
|Noncurrent assets   |  |      | 528,835 |      |  |   | 288,191 | 
|Current liabilities |  |      | 31,308  |      |  |   | 9,220   | 
|Long-term debt      |  |      | 128,000 |      |  |   |        | 
|Partners capital   |  |      | 426,895 |      |  |   | 315,854 | 
|Revenues            |  |      | 72,026  |      |  |   | 31,989  | 
|Net income          |  |      | 30,294  |      |  |   | 12,449  | 

The Partnerships investment in Seaway at December 31, 2001 and 2000,
includes an excess investment amount of $25.5 million and $26.4 million, net of
accumulated amortization of $1.6 million and $0.7 million, respectively. This
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.

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 (in
thousands):

|                       |       |   |              |        |      |   |        |        | 
|---------------------- | ----- | - | ------------ | ------ | ---- | - | ------ | ------ | 
|                       |       |   | December 31,
|                       |       |   |             
|                       |       |   | 2001         |        | 2000
|                       |       |   |              |        |     
|Crude oil              |       | $ | 3,783        |        |      | $ | 14,635 |       
|Gasolines              |       |   | 4,548        |        |      |   | 3,795  |       
|Propane                |       |   | 1,096        |        |      |   |       |       
|Butanes                |       |   | 1,431        |        |      |   | 267    |       
|Other products         |       |   | 2,866        |        |      |   | 2,775  |       
|Materials and supplies |       |   | 3,519        |        |      |   | 3,312  |       
|                       |       |   |              |        |      |   |        |       
|                       | Total |   | $            | 17,243 |      |   | $      | 24,784 | 
|                       |       |   |              |        |      |   |        |       

The costs of inventories did not exceed market values at December 31, 2001
and 2000.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

Major categories of property, plant and equipment were as follows (in
thousands):

|                              |                                                |                                   |         |              |           |      |         |           |         | 
|----------------------------- | ---------------------------------------------- | --------------------------------- | ------- | ------------ | --------- | ---- | ------- | --------- | ------- | 
|                              |                                                |                                   |         | December 31,
|                              |                                                |                                   |         |             
|                              |                                                |                                   |         | 2001         |           | 2000
|                              |                                                |                                   |         |              |           |     
|Land and right of way         |                                                | $                                 | 92,664  |              |           | $    | 77,798  |          
|Line pipe and fittings        |                                                |                                   | 822,332 |              |           |      | 739,372 |          
|Storage tanks                 |                                                |                                   | 130,461 |              |           |      | 125,890 |          
|Buildings and improvements    |                                                |                                   | 15,131  |              |           |      | 13,127  |          
|Machinery and equipment       |                                                |                                   | 252,393 |              |           |      | 178,227 |          
|Construction work in progress |                                                |                                   | 157,728 |              |           |      | 66,456  |          
|                              |                                                |                                   |         |              |           |      |         |          
|                              | Total property, plant and equipment            |                                   | $       | 1,470,709    |           |      | $       | 1,200,870 |        
|                              | Less accumulated depreciation and amortization |                                   |         | 290,248      |           |      |         | 251,165   |        
|                              |                                                |                                   |         |              |           |      |         |          
|                              |                                                | Net property, plant and equipment |         | $            | 1,180,461 |      |         | $         | 949,705 | 
|                              |                                                |                                   |         |              |           |      |         |          

Depreciation expense on property, plant and equipment was $39.5 million,
$33.0 million and $30.7 million for the years ended December 31, 2001, 2000 and
1999, respectively.

NOTE 8. LONG TERM DEBT

Senior Notes

On January 27, 1998, TE Products 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 were issued at a discount and are being accreted to their
face value over the term of the 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, issued at par, may be redeemed at any time after January 15, 2008, at the
option of TE Products, in whole or in part, at a premium.

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 TE Products and rank
on a parity with all other unsecured and unsubordinated indebtedness of TE
Products. 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. As of December 31, 2001, TE Products was in compliance with the
covenants of the Senior Notes.

On October 4, 2001, TE Products entered into an interest rate swap
agreement to hedge its exposure to changes in the fair value of its $210
million principal amount of 7.51% fixed rate Senior Notes. The swap agreement
has a notional amount of $210 million and matures in January 2028 to match the
principal and maturity of the Senior Notes. Under the swap agreement, TE
Products pays a floating rate based on a three month U.S. Dollar LIBOR rate,
plus a spread, and receives a fixed rate of interest of 7.51%.

At December 31, 2001 and 2000, the estimated fair value of the Senior
Notes was approximately $362 million and $385 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.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Other Long Term Debt and Credit Facilities

In connection with the purchase of fractionation assets from DEFS as of
March 31, 1998, TEPPCO Colorado, a subsidiary of TE Products, 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, TE Products entered into a five-year $75 million term
loan agreement to finance construction of three new pipelines between TE
Products 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, TE Products entered into a five-year $25 million
revolving credit agreement, and TCTM 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. TE Products
did not make any borrowings under this revolving credit facility. TCTM 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 (Three Year Facility). On July 21,
2000, the Partnership borrowed $75 million under the term loan and $340 million
under the Three Year Facility. The funds were used to finance the acquisition
of the ARCO assets (see Note 3. Acquisitions) and to refinance existing bank
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.

On April 6, 2001, the Partnerships Three Year Facility was amended to
provide for revolving borrowings of up to $500 million including the issuance
of letters of credit of up to $20 million. The term of the revised Three Year
Facility was extended to April 6, 2004. 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 agreement
for the Three Year 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. On September 28, 2001, the Three Year Facility was amended to
extend to December 31, 2001, the time period for the maximum debt-to-EBITDA
ratio covenant to allow for the additional debt incurred for the acquisition of
Jonah. On November 13, 2001, the Three Year Facility was further amended to
require prepayment of outstanding borrowings only upon the receipt of net cash
proceeds from asset dispositions or from insurance proceeds in accordance with
the terms of the agreement. At such time, certain lenders under the agreement
elected to withdraw from the facility, and the available borrowing capacity was
reduced to $411 million. As of December 31, 2001, the Partnership was in
compliance with the covenants contained in this credit agreement. At December
31, 2001 and 2000, $340.7 million and $446 million was outstanding under the
Three Year Facility at a weighted average interest rate of 2.9% and 8.23%,
respectively. At December 31, 2001 and 2000, the carrying value of the
revolving credit facility approximated its fair value.

On July 21, 2000, the Partnership entered into a three year swap agreement
to hedge its exposure to increases in the benchmark interest rate underlying
its variable rate revolving credit facilities. On April 6, 2001, the swap
agreement was extended until April 6, 2004, to match the maturity of the
variable rate credit facility. The swap agreement is based on a notional
amount of $250 million. Under the swap agreement, the Partnership pays a fixed
rate of interest of 6.955% and receives a floating rate based on a three month
U.S. Dollar LIBOR rate. At December 31, 2001 and 2000, the estimated fair
value of the swap agreement was a loss of approximately $20.3 million and $10
million, respectively (see Note 2. Use of Derivatives).

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Short Term Credit Facilities

On April 6, 2001, the Partnership entered into a 364-day, $200 million
revolving credit agreement (Short-term Revolver). 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
agreement contains restrictive financial covenants that require the Partnership
to maintain a minimum level of partners capital as well as maximum
debt-to-EBITDA and minimum fixed charge coverage ratios. On September 28,
2001, the Short-term Revolver was amended to extend to December 31, 2001, the
time period for the maximum debt-to-EBITDA ratio covenant to allow for the
additional debt incurred for the acquisition of Jonah. On November 13, 2001,
the Short-term Revolver was further amended to require prepayment of
outstanding borrowings only upon the receipt of net cash proceeds from asset
dispositions or from insurance proceeds in accordance with the terms of the
agreement. At such time, certain lenders under the agreement elected to
withdraw from the facility, and the available borrowing capacity was reduced to
$164 million. At December 31, 2001, $160 million, included in current
liabilities, was outstanding under the Short-term Revolver at a weighted
average interest rate of 2.9%. As of December 31, 2001, the Partnership was in
compliance with the covenants contained in this credit agreement.

On September 28, 2001, the Partnership entered into a $400 million credit
facility with SunTrust Bank (Bridge Facility). The Partnership borrowed $360
million under the Bridge Facility for the acquisition of the Jonah assets (see
Note 3. Acquisitions). The Bridge Facility is payable in June 2002. During
the fourth quarter of 2001, $160 million of the outstanding principal was
repaid from the proceeds received from the issuance of the Limited Partner
Units in November 2001. 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 and minimum fixed charge
coverage ratios. At December 31, 2001, $200 million was outstanding under the
Bridge Facility at an interest rate of 3.2%. As of December 31, 2001, the
Partnership was in compliance with the covenants contained in this credit
agreement.

The following table summarizes the principal outstanding under the credit
facilities of the Partnership as of December 31, 2001 and 2000 (in thousands):

|                              |                                      |                                    |   |         |         |      |   |         |         | 
|----------------------------- | ------------------------------------ | ---------------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | 
|                              |                                      |                                    |   | 2001    |         | 2000
|                              |                                      |                                    |   |         |         |     
|Short Term Credit Facilities: |                                      |                                    |   |         |         |      |   |        
|                              | Short-term Revolver, due April 2002  |                                    | $ | 160,000 |         |      | $ |        |        
|                              | Bridge Facility, due June 2002       |                                    |   | 200,000 |         |      |   |        |        
|                              |                                      |                                    |   |         |         |      |   |        
|                              |                                      | Total Short Term Credit Facilities |   | $       | 360,000 |      |   | $       |        | 
|                              |                                      |                                    |   |         |         |      |   |        
|Long Term Credit Facilities:  |                                      |                                    |   |         |         |      |   |        
|                              | Three Year Facility, due April 2004  |                                    | $ | 340,658 |         |      | $ | 446,000 |        
|                              | 6.45% Senior Notes, due January 2008 |                                    |   | 179,814 |         |      |   | 179,784 |        
|                              | 7.51% Senior Notes, due January 2028 |                                    |   | 210,000 |         |      |   | 210,000 |        
|                              |                                      |                                    |   |         |         |      |   |        
|                              |                                      | Total Long Term Credit Facilities  |   | $       | 730,472 |      |   | $       | 835,784 | 
|                              |                                      |                                    |   |         |         |      |   |        

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

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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.

The carrying amount of cash and cash equivalents, accounts receivable,
trade, inventories, other current assets, accounts payable and accrued
liabilities, other current liabilities and notes payable approximates their
fair value due to their short-term nature.

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. According to the Partnership Agreement, the Company receives
incremental incentive cash distributions on the portion that cash distributions
on a per Unit basis exceed certain target thresholds as follows:

|                                      |                                                                     |  |             |    |         |  |         |    |  
|------------------------------------- | ------------------------------------------------------------------- |  | ----------- | -- | ------- |  | ------- | -- | -
|                                      |                                                                     |  |             |    |         |  | General
|                                      |                                                                     |  | Unitholders |    | Partner
|                                      |                                                                     |  |             |    |        
|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 | %

The following table reflects the allocation of total distributions paid
for the years ended December 31, 2001, 2000 and 1999 (in thousands, except per
Unit amounts).

|                                       |                                            |   |                          |         |      |   |        |        |  |   |        |        | 
|-------------------------------------- | ------------------------------------------ | - | ------------------------ | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                       |                                            |   | Years Ended December 31,
|                                       |                                            |   |                         
|                                       |                                            |   | 2001                     |         | 2000 |   | 1999  
|                                       |                                            |   |                          |         |      |   |       
|Limited Partner Units                  |                                            | $ | 73,961                   |         |      | $ | 59,943 |        |  | $ | 53,650 |       
|General Partner Ownership Interest     |                                            |   | 1,273                    |         |      |   | 685    |        |  |   | 609    |       
|General Partner Incentive              |                                            |   | 20,257                   |         |      |   | 12,938 |        |  |   | 7,650  |       
|                                       |                                            |   |                          |         |      |   |        |        |  |   |        |       
|                                       | Total Partners Capital Cash Distributions |   |                          | 95,491  |      |   |        | 73,566 |  |   |        | 61,909 | 
|Class B Units                          |                                            |   | 8,421                    |         |      |   | 7,833  |        |  |   | 6,651  |       
|Minority Interest                      |                                            |   | 500                      |         |      |   | 832    |        |  |   | 699    |       
|                                       |                                            |   |                          |         |      |   |        |        |  |   |        |       
|                                       | Total Cash Distributions Paid              |   | $                        | 104,412 |      |   | $      | 82,231 |  |   | $      | 69,259 | 
|                                       |                                            |   |                          |         |      |   |        |        |  |   |        |       
|Total Cash Distributions Paid Per Unit |                                            | $ | 2.15                     |         |      | $ | 2.00   |        |  | $ | 1.85   |       
|                                       |                                            |   |                          |         |      |   |        |        |  |   |        |       

On February 8, 2002, the Partnership paid a cash distribution of $0.575
per Limited Partner Unit and Class B Unit for the quarter ended December 31,
2001. The fourth quarter 2001 cash distribution totaled $33.5 million.

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

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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:

|                         |  |             |        |           |  |            |       |  |  |  |      | 
|------------------------ |  | ----------- | ------ | --------- |  | ---------- | ----- |  |  |  | ---- | 
|                         |  | Performance |        | Earnings  |  | Expiration
|                         |  | Units       |        | Threshold |  | Year      
|                         |  |             |        |           |  |           
|Performance Unit Grants: |  |             |        |           |  |            |       |  |  |  |      | 
|1994                     |  |             | 80,000 |           |  | $          | 1.00  |  |  |  | 2006 | 
|1995                     |  |             | 70,000 |           |  | $          | 1.25  |  |  |  | 2007 | 
|1997                     |  |             | 11,000 |           |  | $          | 1.875 |  |  |  | 2009 | 

|                              |                                  |                    |  |             |         |             |  |          |         |   |   |              |              | 
|----------------------------- | -------------------------------- | ------------------ |  | ----------- | ------- | ----------- |  | -------- | ------- | - | - | ------------ | ------------ | 
|                              |                                  |                    |  | Options     |         | Options     |  | Exercise
|                              |                                  |                    |  | Outstanding |         | Exercisable |  | Range   
|                              |                                  |                    |  |             |         |             |  |         
|Limited Partner Unit Options: |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                              | 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 |             
|                              |                                  | Forfeited          |  |             | (10,666 | )           |  |          |        |   |   | $            | 25.25        | 
|                              |                                  | Became exercisable |  |             |        |             |  |          | 81,669  |   |   | $            | 25.25-$25.69 | 
|                              |                                  | Exercised          |  |             | (98,376 | )           |  |          | (98,376 | ) |   | $            | 13.81-$25.69 | 
|                              |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                              | Outstanding at December 31, 2001 |                    |  | 181,822     |         |             |  | 143,822  |         |   | $ | 13.81-$25.69 |             
|                              |                                  |                    |  |             |         |             |  |          |         |   |   |             

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 expense 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 $226,152, $202,634 and $99,076 during 1999, 2000 and 2001,
respectively. The disclosures as required by SFAS 123 are not representative
of the effects on pro forma net income for future years as options vest over
several years and additional awards may be granted in subsequent years.

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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 option grants were determined using the
Black-Scholes option-valuation model. The key input variables used in valuing
the options were:

|                        |  |         |     |  
|----------------------- |  | ------- | --- | -
|                        |  | 1999   
|                        |  |        
|Risk-free interest rate |  |         | 4.7 | %
|Dividend yield          |  |         | 7.6 | %
|Unit price volatility   |  |         | 23  | %
|Expected option lives   |  | 6 years

NOTE 12. LEASES

The Partnership utilizes leased assets in several areas of its operations.
Total rental expense during 2001, 2000 and 1999 was $10.8 million, $10.7
million and $8.7 million, respectively. The minimum rental payments under the
Partnerships various operating leases for the years 2002 through 2006 are $8.8
million, $7.7 million, $7.1 million, $6.1 million and $4.9 million,
respectively. Thereafter, payments aggregate $1.4 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 (Duke Energy RCBP), which is a noncontributory,
trustee-administered pension plan. In addition, certain executive officers
participated in the Duke Energy Executive Cash Balance Plan (Duke Energy
ECBP), which is a noncontributory, nonqualified, defined benefit retirement
plan. The Duke Energy ECBP was established to restore benefit reductions caused
by the maximum benefit limitations that apply to qualified plans. 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. As part of the
change in ownership, the Company is no longer responsible for the funding of
the liabilities associated with these plans.

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

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The components of net pension benefits costs for the TEPPCO RCBP and the
TEPPCO SBP for the years ended December 31, 2001 and 2000, and for the Duke
Energy RCBP and the Duke Energy ECBP for the years ended December 31, 2000 and
1999 were as follows (in thousands):

|                                              |                            |   |       |       |      |   |       |       |  |   |        |       | 
|--------------------------------------------- | -------------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ------ | ----- | 
|                                              |                            |   | 2001  |       | 2000 |   | 1999 
|                                              |                            |   |       |       |      |   |      
|Service cost benefit earned during the year   |                            | $ | 2,419 |       |      | $ | 2,054 |       |  | $ | 1,651  |      
|Interest cost on projected benefit obligation |                            |   | 129   |       |      |   | 782   |       |  |   | 2,666  |      
|Expected return on plan assets                |                            |   | (166  | )     |      |   | (663  | )     |  |   | (2,243 | )    
|Amortization of prior service cost            |                            |   | 8     |       |      |   |      |       |  |   | 2      |      
|Amortization of net transition liability      |                            |   |      |       |      |   | 4     |       |  |   | 15     |      
|Recognized net actuarial loss                 |                            |   |      |       |      |   |      |       |  |   | 285    |      
|                                              |                            |   |       |       |      |   |       |       |  |   |        |      
|                                              | Net pension benefits costs |   | $     | 2,390 |      |   | $     | 2,177 |  |   | $      | 2,376 | 
|                                              |                            |   |       |       |      |   |       |       |  |   |        |      

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 through Duke Energy (Duke Energy OPB). 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 funding of the
liabilities associated with these plans. Effective January 1, 2001, the
Company provided its own plan for health care benefits for retired employees
(TEPPCO OPB).

The Company provides a fixed dollar contribution towards retired employee
medical costs. The fixed dollar contribution does not increase from year to
year. The retiree pays all health care cost increases due to medical
inflation.

The components of net postretirement benefits cost for the Duke Energy OPB
for the years ended December 31, 2000 and 1999, and for the TEPPCO OPB for the
year ended December 31, 2001, were as follows (in thousands):

|                                                               |                                   |   |      |     |      |   |      |    |  |   |      |     | 
|-------------------------------------------------------------- | --------------------------------- | - | ---- | --- | ---- | - | ---- | -- |  | - | ---- | --- | 
|                                                               |                                   |   | 2001 |     | 2000 |   | 1999
|                                                               |                                   |   |      |     |      |   |     
|Service cost benefit earned during the year                    |                                   | $ | 99   |     |      | $ | 39   |    |  | $ | 172  |    
|Interest cost on accumulated postretirement benefit obligation |                                   |   | 113  |     |      |   | 134  |    |  |   | 500  |    
|Expected return on plan assets                                 |                                   |   |     |     |      |   | (85  | )  |  |   | (299 | )  
|Amortization of prior service cost                             |                                   |   | 126  |     |      |   | (96  | )  |  |   | (384 | )  
|Amortization of net transition liability                       |                                   |   |     |     |      |   | 54   |    |  |   | 217  |    
|                                                               |                                   |   |      |     |      |   |      |    |  |   |      |    
|                                                               | Net postretirement benefits costs |   | $    | 338 |      |   | $    | 46 |  |   | $    | 206 | 
|                                                               |                                   |   |      |     |      |   |      |    |  |   |      |    

The weighted average assumptions used in the actuarial computations for
the retirement plans and other postretirement benefit plans for the years ended
December 31, 2001 and 2000 are as follows:

|                                                 |  |                  |      |          |  |      |      |      |  |                      |      |   |  |  |      |  
|------------------------------------------------ |  | ---------------- | ---- | -------- |  | ---- | ---- | ---- |  | -------------------- | ---- | - |  |  | ---- | -
|                                                 |  |                  |      |          |  |      |      |      |  | Other Postretirement
|                                                 |  | Pension Benefits |      | Benefits
|                                                 |  |                  |      |         
|                                                 |  | 2001             |      | 2000     |  | 2001 |      | 2000
|                                                 |  |                  |      |          |  |      |      |     
|Discount rate                                    |  |                  | 7.25 | %        |  |      | 7.50 | %    |  |                      | 7.25 | % |  |  | 7.50 | %
|Increase in compensation levels                  |  |                  | 5.06 | %        |  |      | 4.50 | %    |  |                      |     |   |  |  |     |  
|Expected long-term rate of return on plan assets |  |                  | 9.00 | %        |  |      | 9.25 | %    |  |                      |     |   |  |  |     |  

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following table sets forth the Companys pension and other
postretirement benefits changes in benefit obligation, fair value of plan
assets and funded status as of December 31, 2001 and 2000.

|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |   | 
|------------------------------- | ---------------------------------------------- |  | ---------------- | ----- | -------- |  | ---- | ------ | ------- |  | -------------------- | ------ | - |  | - | - | 
|                                |                                                |  |                  |       |          |  |      |        |         |  | Other Postretirement
|                                |                                                |  | Pension Benefits |       | Benefits
|                                |                                                |  |                  |       |         
|                                |                                                |  | 2001             |       | 2000     |  | 2001 |        | 2000(1)
|                                |                                                |  |                  |       |          |  |      |        |        
|Change in benefit obligation    |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|                                | Benefit obligation at beginning of year        |  | $                | 1,518 |          |  | $    |       |         |  | $                    |       |   |  | $ |  | 
|                                | Service cost                                   |  |                  | 2,419 |          |  |      | 1,518  |         |  |                      | 99     |   |  |   |  | 
|                                | Interest cost                                  |  |                  | 129   |          |  |      | (1     | )       |  |                      | 113    |   |  |   |  | 
|                                | Plan amendments                                |  |                  | 62    |          |  |      |       |         |  |                      | 1,508  |   |  |   |  | 
|                                | Actuarial (gain)/loss                          |  |                  | (136  | )        |  |      | 1      |         |  |                      | 57     |   |  |   |  | 
|                                | Retiree contributions                          |  |                  |      |          |  |      |       |         |  |                      | 9      |   |  |   |  | 
|                                | Benefits paid                                  |  |                  | (206  | )        |  |      |       |         |  |                      | (5     | ) |  |   |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |   | 
|                                | Benefit obligation at end of year              |  | $                | 3,786 |          |  | $    | 1,518  |         |  | $                    | 1,781  |   |  | $ |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |   | 
|Change in plan assets           |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|                                | Fair value of plan assets at beginning of year |  | $                |      |          |  | $    |       |         |  | $                    |       |   |  | $ |  | 
|                                | Actual return on plan assets                   |  |                  | (37   | )        |  |      |       |         |  |                      |       |   |  |   |  | 
|                                | Retiree contributions                          |  |                  |      |          |  |      |       |         |  |                      | 9      |   |  |   |  | 
|                                | Employer contributions                         |  |                  | 4,202 |          |  |      |       |         |  |                      | (4     | ) |  |   |  | 
|                                | Benefits paid                                  |  |                  | (206  | )        |  |      |       |         |  |                      | (5     | ) |  |   |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |   | 
|                                | Fair value of plan assets at end of year       |  | $                | 3,959 |          |  | $    |       |         |  | $                    |       |   |  | $ |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |   | 
|Reconciliation of funded status |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|                                | Funded status                                  |  | $                | 173   |          |  | $    | (1,518 | )       |  | $                    | (1,781 | ) |  | $ |  | 
|                                | Unrecognized prior service cost                |  |                  | 54    |          |  |      |       |         |  |                      | 1,381  |   |  |   |  | 
|                                | Unrecognized actuarial loss                    |  |                  | 68    |          |  |      |       |         |  |                      | 57     |   |  |   |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |   | 
|                                | Net amount recognized                          |  | $                | 295   |          |  | $    | (1,518 | )       |  | $                    | (343   | ) |  | $ |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |   | 



---

|(1) |  | The TEPPCO OPB became effective on January 1, 2001.
|--- |  | ---------------------------------------------------

Other Plans

Duke Energy also sponsors an employee savings plan, which covers
substantially all employees. Plan contributions on behalf of the Company of
$3.1 million, $2.2 million and $2.2 million were expensed in 2001, 2000 and
1999, respectively.

NOTE 14. COMMITMENTS AND CONTINGENCIES

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. (including the Company and Partnership).In both cases,
the 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

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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 plaintiffs have not stipulated the amount of damages
that they are seeking in the suit. The Partnership cannot estimate the loss,
if any, associated with these pending lawsuits.

On December 21, 2001, the Partnership was named as a defendant in a
lawsuit in the 10th Judicial District, Natchitoches Parish, Louisiana, in
Rebecca L. Grisham et. al. v. TE Products Pipeline Company, Limited
Partnership. In this case, the plaintiffs contend that the defendants
pipeline, which crosses the plaintiffs property, leaked toxic products onto
the plaintiffs property. The plaintiffs further contend that this leak caused
damages to the plaintiffs. The Partnership has filed an answer to the
plaintiffs petition denying the allegations. The plaintiffs have not
stipulated the amount of damages they are seeking in the suit. The Partnership
is defending itself vigorously against the lawsuit. The Partnership cannot
estimate the damages, if any, associated with this pending lawsuit, however,
this case is covered by insurance.

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 Company 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.

In February 2002, a producer on the Jonah System notified Alberta Energy
Company that it has a right to acquire all or a portion of the assets
comprising the Jonah System. This claim is based upon an alleged right of
first refusal contained in a gas gathering agreement between the producer and
Jonah. Subsidiaries of Alberta Energy have agreed to indemnify the
Partnership against losses resulting from the breach of representations
concerning the absence of third party rights in connection with the acquisition
of Jonah, the owner of the Jonah System. The Partnership believes that it has
adequate legal defenses to the producers claim and that no right of first
refusal on any of the underlying Jonah System assets has been triggered.

The operations of the Partnership are subject to federal, state and local
laws and regulations governing the discharge of materials into the environment
otherwise relating to environmental protection. Failure to comply with these
laws and regulations may result in the assessment of administrative, civil, and
criminal penalties, imposition of injunctions delaying or prohibiting certain
activities, and the need to perform investigatory and remedial activities.
Although the Partnership believes its operations are in material compliance
with applicable environmental laws and 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. The Company does not anticipate that changes in
environmental laws and regulations will have a material adverse effect on the
Partnerships financial position, results of operations or cash flows in the
near term.

In 1994, the Partnership and the Indiana Department of Environmental
Management (IDEM) entered into an Agreed Order that resulted in the
implementation of a remediation program for groundwater contamination
attributable to the Partnerships operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnerships proposed remediation
program, was approved by IDEM in 1999. IDEM is expected to issue a Record of
Decision formally approving the remediation program. After the

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Record of
Decision is issued, the Partnership will enter into a subsequent Agreed Order
for the continued operation and maintenance of the remediation program. The
Partnership has an accrued liability of $0.6 million at December 31, 2001, for
future remediation costs at the Seymour terminal. In the opinion of the
Company, the completion of the remediation program will not have a material
adverse effect on the Partnerships financial condition, results of operations
or cash flows.

In 1994, the Partnership was issued a compliance order from the Louisiana
Department of Environmental Quality (LDEQ) relative to environmental
contamination at the Partnerships Arcadia, Louisiana, facility. This
contamination may be attributable to the operations of the Partnership, as well
as adjacent petroleum terminals operated by other companies. In 1999, the
Partnerships Arcadia facility and the adjacent terminals were directed by the
Remediation Services Division of the LDEQ to pursue remediation of this
containment phase. In the opinion of the Company, the completion of the
remediation program that is proposed by the Partnership will not have a future
material adverse effect on the Partnerships financial condition, results of
operations or cash flows.

During 2001, the Partnership accrued $8.6 million to
complete environmental remediation activities at certain of the sites owned by
TCTM and its subsidiaries. In establishing this accrual, the Partnership
expensed $4.4 million for these environmental remediation costs and recorded a
receivable of $4.2 million for the remainder. The receivable is based on a
contractual indemnity obligation for specified environmental liabilities owed
by DEFS to the Partnership in connection with the Partnerships acquisition of
the Upstream Segment from DEFS in November 1998. Under this indemnity
obligation, the Partnership is responsible for the first $3.0 million in
specified environmental liabilities, with DEFS becoming responsible for those
environmental liabilities in excess of $3.0 million, up to a maximum amount of
$25.0 million. At December 31, 2001, an accrual of $6.4 million
remains outstanding related to TCTM environmental remediation activities.
The majority of the indemnified costs relate to remediation
activities at the Velma crude oil site in Stephens County, Oklahoma,
attributable to operations prior to the Partnerships acquisition of the
Upstream Segment. Remediation activities at the Velma crude oil site are being
conducted according to a work plan approved by the Oklahoma Corporation
Commission. In the opinion of the Company, the completion of remediation
programs associated with this release will not have a future material adverse
effect on the Partnerships financial condition, results of operations or cash
flows.

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, TE Products filed an application with the FERC requesting
permission to charge Market-Based Rates for substantially all refined products
transportation tariffs. On July 31, 2000, the FERC issued an order granting TE
Products Market-Based Rates in certain markets and set for hearing
TE Products application for Market-Based Rates in certain destination
markets and origin markets. After the matter was set for hearing, TE Products
and the protesting shippers entered into a settlement agreement resolving their
respective differences. On April 25, 2001, the FERC issued an order approving
the offer of settlement. As a result of the settlement, TE Products recognized
approximately $1.7 million of previously deferred transportation revenue in the
second quarter of 2001. As a part of the settlement, TE Products withdrew the
application for Market-Based Rates to the Little Rock, Arkansas, Arcadia and
Shreveport-Arcadia, Louisiana, destination markets, which are currently subject
to the PPI Index. As a result, the Partnership made refunds of approximately
$1.0 million in the third quarter of 2001 for those destination markets.

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##### Table of Contents



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Centennial has entered into credit facilities totaling $150 million. The
proceeds were used to fund construction and conversion costs of its pipeline
system. TE Products has guaranteed one-third of the debt of Centennial up to a
maximum amount of $50 million.

Substantially all of the petroleum products transported and stored by the
Partnership are owned by the Partnerships customers. At December 31, 2001,
TCTM and TE Products had approximately 3.8 million barrels and 19.7 million
barrels, respectively, 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 has three reporting segments: refined products, LPGs, and
petrochemicals transportation, which operates as the Downstream Segment; crude
oil and NGLs transportation and marketing, which operates as the Upstream
Segment; and natural gas gathering, which operates as the Midstream Segment.
The amounts indicated below as Partnership and Other relate primarily to
intercompany eliminations and assets held by the Partnership that have not been
allocated to any reporting segment of the Partnership.

The Partnerships Downstream Segment includes the interstate
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. The
Partnerships Downstream Segment, operating through TE Products, is one of the
largest pipeline common carriers of refined petroleum products and LPGs in the
United States. TE Products owns and operates a pipeline system extending from
southeast Texas through the central and midwestern United States to the
northeastern United States.

The Partnerships Upstream Segment includes: gathering, storage,
transportation and marketing of crude oil in Colorado, Oklahoma, Kansas, New
Mexico, Texas and Louisiana; operating two trunkline NGL pipelines in South
Texas and two NGL pipelines in East Texas; and distributing lube oils and
specialty chemicals to industrial and commercial accounts. On July 20, 2000,
the Partnership acquired certain assets from ARCO (see Note 3. Acquisitions).
The acquisition was accounted for under the purchase method of accounting. The
results of the acquisition have been included in the Partnerships Upstream
Segment since the purchase on July 20, 2000.

The Partnerships Midstream Segment includes the gathering of natural gas
in the Green River Basin in southwestern Wyoming, through Jonah, which was
acquired by subsidiaries of the Partnership on September 30, 2001, from Alberta
Energy Company (see Note 3. Acquisitions). The acquisition was
accounted for under the purchase method of accounting. The results of
operations of the Jonah acquisition are included in periods subsequent to
September 30, 2001.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies discussed above (see Note 2.
Summary of Significant Accounting Policies).

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##### Table of Contents



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following table includes financial information by reporting segment
for the years ended December 31, 2001, 2000 and 1999 (in thousands):

|                                         |                  |   |            |         |          |   |           |        |             |   |              |       |   |   |         |   |  |   |           |         | 
|---------------------------------------- | ---------------- | - | ---------- | ------- | -------- | - | --------- | ------ | ----------- | - | ------------ | ----- | - | - | ------- | - |  | - | --------- | ------- | 
|                                         |                  |   | Downstream |         | Upstream |   | Midstream |        | Partnership |   |              |       |  
|                                         |                  |   | Segment    |         | Segment  |   | Segment   |        | and Other   |   | Consolidated
|                                         |                  |   |            |         |          |   |           |        |             |   |             
|2001                                     |                  |   |            |         |          |   |           |        |             |   |              |       |   |   |         |   |  |   |           |        
|Unaffiliated revenues                    |                  | $ | 271,627    |         |          | $ | 3,275,962 |        |             | $ | 8,824        |       |   | $ |        |   |  | $ | 3,556,413 |        
|Operating expenses,
including power      |                  |   | 120,736    |         |          |   | 3,237,635 |        |             |   | 1,154        |       |   |   |        |   |  |   | 3,359,525 |        
|Depreciation and
amortization expense    |                  |   | 28,714     |         |          |   | 12,658    |        |             |   | 4,527        |       |   |   |        |   |  |   | 45,899    |        
|                                         |                  |   |            |         |          |   |           |        |             |   |              |       |   |   |         |   |  |   |           |        
|                                         | Operating income |   |            | 122,177 |          |   |           | 25,669 |             |   |              | 3,143 |   |   |         |  |  |   |           | 150,989 | 
|Interest expense, net                    |                  |   | (29,943    | )       |          |   | (28,553   | )      |             |   | (3,561       | )     |   |   |        |   |  |   | (62,057   | )      
|Equity earnings                          |                  |   | (1,149     | )       |          |   | 18,547    |        |             |   |             |       |   |   |        |   |  |   | 17,398    |        
|Other income, net                        |                  |   | 995        |         |          |   | 1,806     |        |             |   |             |       |   |   |        |   |  |   | 2,801     |        
|                                         |                  |   |            |         |          |   |           |        |             |   |              |       |   |   |         |   |  |   |           |        
|                                         | Net income       |   | $          | 92,080  |          |   | $         | 17,469 |             |   | $            | (418  | ) |   | $       |  |  |   | $         | 109,131 | 
|                                         |                  |   |            |         |          |   |           |        |             |   |              |       |   |   |         |   |  |   |           |        
|Total assets                             |                  | $ | 879,834    |         |          | $ | 811,813   |        |             | $ | 386,695      |       |   | $ | (12,994 | ) |  | $ | 2,065,348 |        
|Accounts receivable, trade               |                  |   | 22,816     |         |          |   | 189,464   |        |             |   | 9,261        |       |   |   |        |   |  |   | 221,541   |        
|Accounts payable and
accrued liabilities |                  | $ | 18,994     |         |          | $ | 201,569   |        |             | $ | 7,512        |       |   | $ |        |   |  | $ | 228,075   |        

|                                         |                  |   |            |        |          |   |              |        |  |   |           |         | 
|---------------------------------------- | ---------------- | - | ---------- | ------ | -------- | - | ------------ | ------ |  | - | --------- | ------- | 
|                                         |                  |   | Downstream |        | Upstream |   |              |        | 
|                                         |                  |   | Segment    |        | Segment  |   | Consolidated
|                                         |                  |   |            |        |          |   |              |        |  |   |           |        
|2000                                     |                  |   |            |        |          |   |              |        |  |   |           |        
|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                          |                  |   |           |        |          |   | 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   |        

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                                         |                  |   |            |        |          |   |              |        |  |   |           |         | 
|---------------------------------------- | ---------------- | - | ---------- | ------ | -------- | - | ------------ | ------ |  | - | --------- | ------- | 
|                                         |                  |   | Downstream |        | Upstream |   |              |        | 
|                                         |                  |   | Segment    |        | Segment  |   | Consolidated
|                                         |                  |   |            |        |          |   |             
|1999                                     |                  |   |            |        |          |   |              |        |  |   |           |        
|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   |        

NOTE 16. COMPREHENSIVE INCOME

SFAS 130, Reporting Comprehensive Incomerequires 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. As of and for the year ended December 31, 2001, the
components of comprehensive income were due to the interest rate swap related
to its variable rate revolving credit facility. The table below reconciles
reported net income to total comprehensive income for the year ended December
31, 2001 (in thousands).

|                                                                                        |                            |   |         |        | 
|--------------------------------------------------------------------------------------- | -------------------------- | - | ------- | ------ | 
|Net income                                                                              |                            | $ | 109,131 |       
|Cumulative effect attributable to adoption of SFAS 133 (see Note
2. Use of Derivatives) |                            |   | (10,103 | )     
|Net loss on cash flow hedges                                                            |                            |   | (10,221 | )     
|                                                                                        |                            |   |         |       
|                                                                                        | Total comprehensive income |   | $       | 88,807 | 
|                                                                                        |                            |   |         |       

The accumulated balance of other comprehensive loss related to cash flow
hedges is as follows (in thousands):

|                                       |  |   |         |  
|-------------------------------------- |  | - | ------- | -
|Balance at December 31, 2000           |  | $ |        |  
|Cumulative effect of accounting change |  |   | (10,103 | )
|Net loss on cash flow hedges           |  |   | (10,221 | )
|                                       |  |   |         |  
|Balance at December 31, 2001           |  | $ | (20,324 | )
|                                       |  |   |         |  

NOTE 17. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Under the Partnerships shelf registration statement on Form S-3 filed
with the Securities and Exchange Commission on February 12, 2002, TE Products
Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream Companies,
L.P. and Jonah Gas Gathering Company, the Partnerships significant operating
subsidiaries (the Guarantor Subsidiaries), may issue unconditional guarantees
of senior or subordinated debt securities of the Partnership in the event that
the Partnership issues such securities from time to time under the registration
statement. If issued, the guarantees will be full, unconditional and joint and
several.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following supplemental condensed consolidating financial information
reflects the separate accounts of the Partnership, the combined accounts of the
Guarantor Subsidiaries (including Jonah for all periods and dates from
and after September 30, 2001, the date Jonah became a subsidiary of the
Partnership), the combined accounts of the other non-guarantor subsidiaries of
the Partnership, the combined consolidating adjustments and eliminations and
the consolidated Partnership accounts for the dates and periods indicated. For
purposes of the following consolidating information, the Partnerships and
Guarantor Subsidiaries investments in their respective subsidiaries are
accounted for by the equity method of accounting.

|                                  |  |                                                   |                                         |              |         |              |           |             |               |              |               |   |                |         |  |   |          |            |   |   |           |           | 
|--------------------------------- |  | ------------------------------------------------- | --------------------------------------- | ------------ | ------- | ------------ | --------- | ----------- | ------------- | ------------ | ------------- | - | -------------- | ------- |  | - | -------- | ---------- | - | - | --------- | --------- | 
|                                  |  |                                                   |                                         |              |         |              |           |             |               |              |               |   |                |         |  |   |          |            |   |   | TEPPCO   
|                                  |  |                                                   |                                         |              | TEPPCO  |              | Guarantor |             | Non-Guarantor |              | Consolidating |   | Partners, L.P.
|December 31, 2001                 |  | Partners, L.P.                                    |                                         | Subsidiaries |         | Subsidiaries |           | Adjustments |               | Consolidated
|                                  |  |                                                   |                                         |              |         |              |           |             |               |             
|                                  |  |                                                   |                                         |              |         |              |           |             |               |              |               |   | (in thousands) |         |  |   |          |            |   |   |          
|Assets                            |  |                                                   |                                         |              |         |              |           |             |               |              |               |   |                |         |  |   |          |            |   |  
|                                  |  | Current assets                                    |                                         | $            | 3,100   |              |           | $           | 59,730        |              |               | $ | 223,345        |         |  | $ | (2,695   | )          |   | $ | 283,480   |          
|                                  |  | Property, plant and equipment  net               |                                         |              |        |              |           |             | 849,978       |              |               |   | 330,483        |         |  |   |         |            |   |   | 1,180,461 |          
|                                  |  | Equity investments                                |                                         |              | 669,370 |              |           |             | 309,080       |              |               |   | 222,815        |         |  |   | (909,041 | )          |   |   | 292,224   |          
|                                  |  | Intercompany notes receivable                     |                                         |              | 700,564 |              |           |             | 11,269        |              |               |   | 7,404          |         |  |   | (719,237 | )          |   |   |          |          
|                                  |  | Other assets                                      |                                         |              | 3,853   |              |           |             | 244,448       |              |               |   | 65,386         |         |  |   | (4,504   | )          |   |   | 309,183   |          
|                                  |  |                                                   |                                         |              |         |              |           |             |               |              |               |   |                |         |  |   |          |            |   |   |           |          
|                                  |  |                                                   | Total assets                            |              | $       | 1,376,887    |           |             | $             | 1,474,505    |               |   | $              | 849,433 |  |   | $        | (1,635,477 | ) |   | $         | 2,065,348 | 
|                                  |  |                                                   |                                         |              |         |              |           |             |               |              |               |   |                |         |  |   |          |            |   |   |           |          
|Liabilities and partners capital |  |                                                   |                                         |              |         |              |           |             |               |              |               |   |                |         |  |   |          |            |   |  
|                                  |  | Current liabilities                               |                                         | $            | 367,094 |              |           | $           | 361,547       |              |               | $ | 310,476        |         |  | $ | (370,275 | )          |   | $ | 668,842   |          
|                                  |  | Long term debt                                    |                                         |              | 340,658 |              |           |             | 389,814       |              |               |   |               |         |  |   |         |            |   |   | 730,472   |          
|                                  |  | Intercompany notes payable                        |                                         |              |        |              |           |             | 45,410        |              |               |   | 294,801        |         |  |   | (340,211 | )          |   |   |          |          
|                                  |  | Other long term liabilities and minority interest |                                         |              |        |              |           |             | 8,364         |              |               |   | 231            |         |  |   | 8,628    |            |   |   | 17,223    |          
|                                  |  | Redeemable Class B Units held by related party    |                                         |              | 105,630 |              |           |             |              |              |               |   |               |         |  |   |         |            |   |   | 105,630   |          
|                                  |  | Total partners capital                           |                                         |              | 563,505 |              |           |             | 669,370       |              |               |   | 243,925        |         |  |   | (933,619 | )          |   |   | 543,181   |          
|                                  |  |                                                   |                                         |              |         |              |           |             |               |              |               |   |                |         |  |   |          |            |   |   |           |          
|                                  |  |                                                   | Total liabilities and partners capital |              | $       | 1,376,887    |           |             | $             | 1,474,505    |               |   | $              | 849,433 |  |   | $        | (1,635,477 | ) |   | $         | 2,065,348 | 
|                                  |  |                                                   |                                         |              |         |              |           |             |               |              |               |   |                |         |  |   |          |            |   |   |           |          

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                                  |                                                   |                                         |              |              |         |              |           |             |               |              |               |         |                 |         |   |          |            |            |   |         |           |           | 
|--------------------------------- | ------------------------------------------------- | --------------------------------------- | ------------ | ------------ | ------- | ------------ | --------- | ----------- | ------------- | ------------ | ------------- | ------- | --------------- | ------- | - | -------- | ---------- | ---------- | - | ------- | --------- | --------- | 
|                                  |                                                   |                                         |              |              |         |              |           |             |               |              |               |         |                 |         |   |          |            |            |   |         | TEPPCO   
|                                  |                                                   |                                         |              |              | TEPPCO  |              | Guarantor |             | Non-Guarantor |              | Consolidating |         | Partners, L .P.
|December 31, 2000                 |                                                   | Partners, L .P.                         |              | Subsidiaries |         | Subsidiaries |           | Adjustments |               | Consolidated
|                                  |                                                   |                                         |              |              |         |              |           |             |               |             
|                                  |                                                   |                                         |              |              |         |              |           |             |               |              |               |         | (in thousands)  |         |   |          |            |            |   |         |          
|Assets                            |                                                   |                                         |              |              |         |              |           |             |               |              |               |         |                 |         |   |          |            |            |   |        
|                                  | Current assets                                    |                                         | $            | 6,083        |         |              | $         | 52,773      |               |              | $             | 315,488 |                 |         | $ | (10,947  | )          |            | $ | 363,397 |          
|                                  | Property, plant and equipment  net               |                                         |              |             |         |              |           | 640,657     |               |              |               | 309,048 |                 |         |   |         |            |            |   | 949,705 |          
|                                  | Equity investments                                |                                         |              | 420,433      |         |              |           | 202,811     |               |              |               | 236,232 |                 |         |   | (617,828 | )          |            |   | 241,648 |          
|                                  | Intercompany notes receivable                     |                                         |              | 441,836      |         |              |           |            |               |              |               |        |                 |         |   | (441,836 | )          |            |   |        |          
|                                  | Other assets                                      |                                         |              | 5,322        |         |              |           | 15,385      |               |              |               | 48,475  |                 |         |   | (1,122   | )          |            |   | 68,060  |          
|                                  |                                                   |                                         |              |              |         |              |           |             |               |              |               |         |                 |         |   |          |            |            |   |         |          
|                                  |                                                   |                                         | Total assets |              | $       | 873,674      |           |             | $             | 911,626      |               |         | $               | 909,243 |   |          | $          | (1,071,733 | ) |         | $         | 1,622,810 | 
|                                  |                                                   |                                         |              |              |         |              |           |             |               |              |               |         |                 |         |   |          |            |            |   |         |          
|Liabilities and partners capital |                                                   |                                         |              |              |         |              |           |             |               |              |               |         |                 |         |   |          |            |            |   |        
|                                  | Current liabilities                               |                                         | $            | 7,206        |         |              | $         | 45,085      |               |              | $             | 318,049 |                 |         | $ | (12,069  | )          |            | $ | 358,271 |          
|                                  | Long term debt                                    |                                         |              | 446,000      |         |              |           | 389,784     |               |              |               |        |                 |         |   |         |            |            |   | 835,784 |          
|                                  | Intercompany notes payable                        |                                         |              |             |         |              |           | 48,037      |               |              |               | 393,799 |                 |         |   | (441,836 | )          |            |   |        |          
|                                  | Other long term liabilities and minority interest |                                         |              |             |         |              |           | 3,991       |               |              |               |        |                 |         |   | 4,296    |            |            |   | 8,287   |          
|                                  | Redeemable Class B Units held by related party    |                                         |              | 105,411      |         |              |           |            |               |              |               |        |                 |         |   |         |            |            |   | 105,411 |          
|                                  | Total partners capital                           |                                         |              | 315,057      |         |              |           | 424,729     |               |              |               | 197,395 |                 |         |   | (622,124 | )          |            |   | 315,057 |          
|                                  |                                                   |                                         |              |              |         |              |           |             |               |              |               |         |                 |         |   |          |            |            |   |         |          
|                                  |                                                   | Total liabilities and partners capital |              | $            | 873,674 |              |           | $           | 911,626       |              |               | $       | 909,243         |         |   | $        | (1,071,733 | )          |   | $       | 1,622,810 |          
|                                  |                                                   |                                         |              |              |         |              |           |             |               |              |               |         |                 |         |   |          |            |            |   |         |          

|                             |                  |                                 |         |              |         |              |         |               |         |               |           |                |        |   |          |   |          |   |           |         |         | 
|---------------------------- | ---------------- | ------------------------------- | ------- | ------------ | ------- | ------------ | ------- | ------------- | ------- | ------------- | --------- | -------------- | ------ | - | -------- | - | -------- | - | --------- | ------- | ------- | 
|                             |                  |                                 |         |              |         |              |         |               |         |               |           |                |        |   |          |   |          |   |           | TEPPCO 
|                             |                  |                                 |         | TEPPCO       |         | Guarantor    |         | Non-Guarantor |         | Consolidating |           | Partners, L.P.
|Year Ended December 31, 2001 |                  | Partners, L .P.                 |         | Subsidiaries |         | Subsidiaries |         | Adjustments   |         | Consolidated 
|                             |                  |                                 |         |              |         |              |         |               |         |              
|                             |                  |                                 |         |              |         |              |         |               |         |               |           | (in thousands) |        |   |          |   |          |   |           |        
|Operating revenues           |                  | $                               |        |              |         | $            | 273,379 |               |         | $             | 3,283,356 |                |        | $ | (322     | ) |          | $ | 3,556,413 |        
|Costs and expenses           |                  |                                 |        |              |         |              | 152,558 |               |         |               | 3,253,188 |                |        |   | (322     | ) |          |   | 3,405,424 |        
|                             |                  |                                 |         |              |         |              |         |               |         |               |           |                |        |   |          |   |          |   |           |        
|                             | Operating income |                                 |         |             |         |              |         | 120,821       |         |               |           | 30,168         |        |   |          |  |          |   |           | 150,989 |        
|                             |                  |                                 |         |              |         |              |         |               |         |               |           |                |        |   |          |   |          |   |           |        
|Interest expense  net       |                  |                                 | (40,143 | )            |         |              | (30,605 | )             |         |               | (31,452   | )              |        |   | 40,143   |   |          |   | (62,057   | )      
|Equity earnings              |                  |                                 | 109,131 |              |         |              | 18,178  |               |         |               | 18,547    |                |        |   | (128,458 | ) |          |   | 17,398    |        
|Other income  net           |                  |                                 | 40,143  |              |         |              | 1,537   |               |         |               | 2,064     |                |        |   | (40,143  | ) |          |   | 3,601     |        
|                             |                  |                                 |         |              |         |              |         |               |         |               |           |                |        |   |          |   |          |   |           |        
|                             |                  | Income before minority interest |         |              | 109,131 |              |         |               | 109,931 |               |           |                | 19,327 |   |          |   | (128,458 | ) |           |         | 109,931 | 
|Minority interest            |                  |                                 |        |              |         |              |        |               |         |               |          |                |        |   | (800     | ) |          |   | (800      | )      
|                             |                  |                                 |         |              |         |              |         |               |         |               |           |                |        |   |          |   |          |   |           |        
|                             |                  | Net income                      |         | $            | 109,131 |              |         | $             | 109,931 |               |           | $              | 19,327 |   |          | $ | (129,258 | ) |           | $       | 109,131 | 
|                             |                  |                                 |         |              |         |              |         |               |         |               |           |                |        |   |          |   |          |   |           |        

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                             |                                 |                 |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |         | 
|---------------------------- | ------------------------------- | --------------- | ------- | ------------ | --------- | ------------ | ------------- | ----------- | ------------- | ------------ | -------------- | ------ |  | - | ------- | ------- | - | - | --------- | ------- | 
|                             |                                 |                 |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   | TEPPCO   
|                             |                                 |                 | TEPPCO  |              | Guarantor |              | Non-Guarantor |             | Consolidating |              | Partners, L.P.
|Year Ended December 31, 2000 |                                 | Partners, L .P. |         | Subsidiaries |           | Subsidiaries |               | Adjustments |               | Consolidated
|                             |                                 |                 |         |              |           |              |               |             |               |             
|                             |                                 |                 |         |              |           |              |               |             |               |              | (in thousands) |        |  |   |         |         |   |   |          
|Operating revenues           |                                 | $               |        |              |           | $            | 229,234       |             |               | $            | 2,858,707      |        |  | $ |        |         |   | $ | 3,087,941 |        
|Costs and expenses           |                                 |                 |        |              |           |              | 143,793       |             |               |              | 2,836,123      |        |  |   |        |         |   |   | 2,979,916 |        
|                             |                                 |                 |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Operating income                |                 |         |             |           |              |               | 85,441      |               |              |                | 22,584 |  |   |         |        |   |   |           | 108,025 | 
|                             |                                 |                 |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|Interest expense  net       |                                 |                 | (17,773 | )            |           |              | (27,572       | )           |               |              | (16,851        | )      |  |   | 17,773  |         |   |   | (44,423   | )      
|Equity earnings              |                                 |                 | 77,376  |              |           |              | 18,602        |             |               |              | 12,214         |        |  |   | (95,978 | )       |   |   | 12,214    |        
|Other income  net           |                                 |                 | 17,773  |              |           |              | 1,694         |             |               |              | 655            |        |  |   | (17,773 | )       |   |   | 2,349     |        
|                             |                                 |                 |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Income before minority interest |                 |         | 77,376       |           |              |               | 78,165      |               |              |                | 18,602 |  |   |         | (95,978 | ) |   |           | 78,165  | 
|Minority interest            |                                 |                 |        |              |           |              |              |             |               |              |               |        |  |   | (789    | )       |   |   | (789      | )      
|                             |                                 |                 |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Net income                      |                 | $       | 77,376       |           |              | $             | 78,165      |               |              | $              | 18,602 |  |   | $       | (96,767 | ) |   | $         | 77,376  | 
|                             |                                 |                 |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        

|                             |                                 |                 |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |         | 
|---------------------------- | ------------------------------- | --------------- | ------ | ------------ | --------- | ------------ | ------------- | ----------- | ------------- | ------------ | -------------- | ------ |  | - | ------- | ------- | - | - | --------- | ------- | 
|                             |                                 |                 |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   | TEPPCO   
|                             |                                 |                 | TEPPCO |              | Guarantor |              | Non-Guarantor |             | Consolidating |              | Partners, L.P.
|Year Ended December 31, 1999 |                                 | Partners, L .P. |        | Subsidiaries |           | Subsidiaries |               | Adjustments |               | Consolidated
|                             |                                 |                 |        |              |           |              |               |             |               |             
|                             |                                 |                 |        |              |           |              |               |             |               |              | (in thousands) |        |  |   |         |         |   |   |          
|Operating revenues           |                                 | $               |       |              |           | $            | 222,915       |             |               | $            | 1,711,968      |        |  | $ |        |         |   | $ | 1,934,883 |        
|Costs and expenses           |                                 |                 |       |              |           |              | 138,035       |             |               |              | 1,696,758      |        |  |   |        |         |   |   | 1,834,793 |        
|                             |                                 |                 |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Operating income                |                 |        |             |           |              |               | 84,880      |               |              |                | 15,210 |  |   |         |        |   |   |           | 100,090 | 
|                             |                                 |                 |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|Interest expense  net       |                                 |                 |       |              |           |              | (26,682       | )           |               |              | (2,748         | )      |  |   |        |         |   |   | (29,430   | )      
|Equity earnings              |                                 |                 | 72,120 |              |           |              | 13,188        |             |               |              |               |        |  |   | (85,308 | )       |   |   |          |        
|Other income  net           |                                 |                 |       |              |           |              | 1,470         |             |               |              | 726            |        |  |   |        |         |   |   | 2,196     |        
|                             |                                 |                 |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Income before minority interest |                 |        | 72,120       |           |              |               | 72,856      |               |              |                | 13,188 |  |   |         | (85,308 | ) |   |           | 72,856  | 
|Minority interest            |                                 |                 |       |              |           |              |              |             |               |              |               |        |  |   | (736    | )       |   |   | (736      | )      
|                             |                                 |                 |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Net income                      |                 | $      | 72,120       |           |              | $             | 72,856      |               |              | $              | 13,188 |  |   | $       | (86,044 | ) |   | $         | 72,120  | 
|                             |                                 |                 |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        

|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |          |   |        |          |         |        |        |  
|---------------------------------------------------- | ---------- | --------------------------------------------------------------------------------- | ------------------------------------------- | ------------ | ------ | ------------ | --------- | ----------- | ------------- | ------------ | ------------- | ------ | -------------- | ------- | -------- | -------- | - | ------ | -------- | ------- | ------ | ------ | -
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |          |   |        |          |         | TEPPCO
|                                                     |            |                                                                                   |                                             |              | TEPPCO |              | Guarantor |             | Non-Guarantor |              | Consolidating |        | Partners, L.P.
|Year Ended December 31, 2001                         |            | Partners, L.P.                                                                    |                                             | Subsidiaries |        | Subsidiaries |           | Adjustments |               | Consolidated
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |             
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        | (in thousands) |         |          |          |   |        |          |         |       
|Cash flows from operating activities                 |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |          |   |        |          |        
|                                                     | Net income |                                                                                   | $                                           | 109,131      |        |              | $         | 109,931     |               |              | $             | 19,327 |                |         | $        | (129,258 | ) |        | $        | 109,131 |       
|                                                     |            | Adjustments to reconcile net income to
net cash provided by operating activities: |                                             |              |        |              |           |             |               |              |               |        |                |         |          |          |   |        |          |         |        |       
|                                                     |            |                                                                                   | Depreciation and amortization               |              |        |             |           |             |               | 31,226       |               |        |                | 14,673  |          |          |   |       |          |         |        | 45,899 |  
|                                                     |            |                                                                                   | Equity earnings, net of distributions       |              |        | (5,219       | )         |             |               | 10,131       |               |        |                | 13,417  |          |          |   | (3,952 | )        |         |        | 14,377 |  
|                                                     |            |                                                                                   | Changes in assets and liabilities and other |              |        | 2,874        |           |             |               | 16,850       |               |        |                | (20,783 | )        |          |   | 800    |          |         |        | (259   | )
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |          |   |        |          |         |       
|Net cash provided by operating activities            |            |                                                                                   | 106,786                                     |              |        |              | 168,138   |             |               |              | 26,634        |        |                |         | (132,410 | )        |   |        | 169,148  |        
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |          |   |        |          |         |       
|Cash flows from investing activities                 |            |                                                                                   | (498,711                                    | )            |        |              | (514,178  | )           |               |              | (43,687       | )      |                |         | 498,711  |          |   |        | (557,865 | )      
|Cash flows from financing activities                 |            |                                                                                   | 391,925                                     |              |        |              | 340,529   |             |               |              | 20,947        |        |                |         | (366,301 | )        |   |        | 387,100  |        
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |          |   |        |          |         |       
|Net increase (decrease) in cash and cash equivalents |            |                                                                                   |                                            |              |        |              | (5,511    | )           |               |              | 3,894         |        |                |         |         |          |   |        | (1,617   | )      
|Cash and cash equivalents at beginning of period     |            |                                                                                   |                                            |              |        |              | 9,166     |             |               |              | 17,930        |        |                |         |         |          |   |        | 27,096   |        
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |          |   |        |          |         |       
|Cash and cash equivalents at end of period           |            | $                                                                                 |                                            |              |        | $            | 3,655     |             |               | $            | 21,824        |        |                | $       |         |          |   | $      | 25,479   |        
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |          |   |        |          |         |       

F-33



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##### Table of Contents



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |         |   |        |          |        |        |         |  
|---------------------------------------------------- | ---------- | --------------------------------------------------------------------------------- | ------------------------------------------- | ------------ | ------ | ------------ | --------- | ----------- | ------------- | ------------ | ------------- | ------ | -------------- | ------- | -------- | ------- | - | ------ | -------- | ------ | ------ | ------- | -
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |         |   |        |          |        | TEPPCO
|                                                     |            |                                                                                   |                                             |              | TEPPCO |              | Guarantor |             | Non-Guarantor |              | Consolidating |        | Partners, L.P.
|Year Ended December 31, 2000                         |            | Partners, L.P.                                                                    |                                             | Subsidiaries |        | Subsidiaries |           | Adjustments |               | Consolidated
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |             
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        | (in thousands) |         |          |         |   |        |          |        |       
|Cash flows from operating activities                 |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |         |   |        |          |       
|                                                     | Net income |                                                                                   | $                                           | 77,376       |        |              | $         | 78,165      |               |              | $             | 18,602 |                |         | $        | (96,767 | ) |        | $        | 77,376 |       
|                                                     |            | Adjustments to reconcile net income to
net cash provided by operating activities: |                                             |              |        |              |           |             |               |              |               |        |                |         |          |         |   |        |          |        |        |        
|                                                     |            |                                                                                   | Depreciation and amortization               |              |        |             |           |             |               | 25,728       |               |        |                | 9,435   |          |         |   |       |          |        |        | 35,163  |  
|                                                     |            |                                                                                   | Equity earnings, net of distributions       |              |        | 4,025        |           |             |               | (1,962       | )             |        |                | (10,260 | )        |         |   | (1,887 | )        |        |        | (10,084 | )
|                                                     |            |                                                                                   | Changes in assets and liabilities and other |              |        | 7,242        |           |             |               | 1,046        |               |        |                | 845     |          |         |   | (3,543 | )        |        |        | 5,590   |  
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |         |   |        |          |        |       
|Net cash provided by operating activities            |            |                                                                                   | 88,643                                      |              |        |              | 102,977   |             |               |              | 18,622        |        |                |         | (102,197 | )       |   |        | 108,045  |       
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |         |   |        |          |        |       
|Cash flows from investing activities                 |            |                                                                                   | (535,048                                    | )            |        |              | (67,225   | )           |               |              | (434,113      | )      |                |         | 542,192  |         |   |        | (494,194 | )     
|Cash flows from financing activities                 |            |                                                                                   | 446,405                                     |              |        |              | (42,870   | )           |               |              | 417,112       |        |                |         | (439,995 | )       |   |        | 380,652  |       
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |         |   |        |          |        |       
|Net increase (decrease) in cash and cash equivalents |            |                                                                                   |                                            |              |        |              | (7,118    | )           |               |              | 1,621         |        |                |         |         |         |   |        | (5,497   | )     
|Cash and cash equivalents at beginning of period     |            |                                                                                   |                                            |              |        |              | 16,284    |             |               |              | 16,309        |        |                |         |         |         |   |        | 32,593   |       
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |         |   |        |          |        |       
|Cash and cash equivalents at end of period           |            | $                                                                                 |                                            |              |        | $            | 9,166     |             |               | $            | 17,930        |        |                | $       |         |         |   | $      | 27,096   |       
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |         |          |         |   |        |          |        |       

|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |        |         |         |   |       |         |        |        |        |  
|---------------------------------------------------- | ---------- | --------------------------------------------------------------------------------- | ------------------------------------------- | ------------ | ------ | ------------ | --------- | ----------- | ------------- | ------------ | ------------- | ------ | -------------- | ------ | ------- | ------- | - | ----- | ------- | ------ | ------ | ------ | -
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |        |         |         |   |       |         |        | TEPPCO
|                                                     |            |                                                                                   |                                             |              | TEPPCO |              | Guarantor |             | Non-Guarantor |              | Consolidating |        | Partners, L.P.
|Year
Ended December 31, 1999                         |            | Partners, L.P.                                                                    |                                             | Subsidiaries |        | Subsidiaries |           | Adjustments |               | Consolidated
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |             
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        | (in thousands) |        |         |         |   |       |         |        |       
|Cash flows from operating activities                 |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |        |         |         |   |       |         |       
|                                                     | Net income |                                                                                   | $                                           | 72,120       |        |              | $         | 72,856      |               |              | $             | 13,188 |                |        | $       | (86,044 | ) |       | $       | 72,120 |       
|                                                     |            | Adjustments to reconcile net income to
net cash provided by operating activities: |                                             |              |        |              |           |             |               |              |               |        |                |        |         |         |   |       |         |        |        |       
|                                                     |            |                                                                                   | Depreciation and amortization               |              |        |             |           |             |               | 25,094       |               |        |                | 7,562  |         |         |   |      |         |        |        | 32,656 |  
|                                                     |            |                                                                                   | Equity earnings, net of distributions       |              |        | (3,561       | )         |             |               | (5,144       | )             |        |                |       |         |         |   | 9,098 |         |        |        | 393    |  
|                                                     |            |                                                                                   | Changes in assets and liabilities and other |              |        | 369          |           |             |               | 451          |               |        |                | (2,917 | )       |         |   | (2    | )       |        |        | (2,099 | )
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |        |         |         |   |       |         |        |       
|Net cash provided by operating activities            |            |                                                                                   | 68,928                                      |              |        |              | 93,257    |             |               |              | 17,833        |        |                |        | (76,948 | )       |   |       | 103,070 |       
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |        |         |         |   |       |         |        |       
|Cash flows from investing activities                 |            |                                                                                   |                                            |              |        |              | (66,282   | )           |               |              | (10,359       | )      |                |        |        |         |   |       | (76,641 | )     
|Cash flows from financing activities                 |            |                                                                                   | (68,928                                     | )            |        |              | (44,628   | )           |               |              | (4,651        | )      |                |        | 76,948  |         |   |       | (41,259 | )     
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |        |         |         |   |       |         |        |       
|Net increase (decrease) in cash and cash equivalents |            |                                                                                   |                                            |              |        |              | (17,653   | )           |               |              | 2,823         |        |                |        |        |         |   |       | (14,830 | )     
|Cash and cash equivalents at beginning of period     |            |                                                                                   |                                            |              |        |              | 33,937    |             |               |              | 13,486        |        |                |        |        |         |   |       | 47,423  |       
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |        |         |         |   |       |         |        |       
|Cash and cash equivalents at end of period           |            | $                                                                                 |                                            |              |        | $            | 16,284    |             |               | $            | 16,309        |        |                | $      |        |         |   | $     | 32,593  |       
|                                                     |            |                                                                                   |                                             |              |        |              |           |             |               |              |               |        |                |        |         |         |   |       |         |        |       

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##### Table of Contents



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

|                                                                 |  |                                         |         |         |  |         |           |         |  |   |         |  |  |   |         | 
|---------------------------------------------------------------- |  | --------------------------------------- | ------- | ------- |  | ------- | --------- | ------- |  | - | ------- |  |  | - | ------- | 
|                                                                 |  | First                                   |         | Second  |  | Third   |           | Fourth 
|                                                                 |  | Quarter                                 |         | Quarter |  | Quarter |           | Quarter
|                                                                 |  |                                         |         |         |  |         |           |        
|                                                                 |  | (in thousands, except per Unit amounts) |         |         |  |        
|2001(1)                                                          |  |                                         |         |         |  |         |           |         |  |   |         |  |  |   |         | 
|Operating revenues                                               |  | $                                       | 785,235 |         |  | $       | 1,073,682 |         |  | $ | 990,816 |  |  | $ | 706,680 | 
|Operating income                                                 |  |                                         | 36,306  |         |  |         | 53,069    |         |  |   | 27,121  |  |  |   | 34,493  | 
|Net income                                                       |  |                                         | 25,735  |         |  |         | 43,038    |         |  |   | 19,092  |  |  |   | 21,266  | 
|Basic income per Limited
Partner and Class B Unit                |  | $                                       | 0.55    |         |  | $       | 0.90      |         |  | $ | 0.35    |  |  | $ | 0.40    | 
|Diluted income per Limited
Partner and Class B Unit(1)           |  | $                                       | 0.55    |         |  | $       | 0.89      |         |  | $ | 0.35    |  |  | $ | 0.40    | 
|2000(2)                                                          |  |                                         |         |         |  |         |           |         |  |   |         |  |  |   |         | 
|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(2) |  | $                                       | 0.60    |         |  | $       | 0.35      |         |  | $ | 0.41    |  |  | $ | 0.53    | 



---

|(1) |  | Per Unit calculation includes 2,000,000 Limited Partner Units issued in
February 2001, 250,000 Limited Partner Units issued in March 2001, and
5,500,000 Limited Partner Units issued in November 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Per Unit calculation includes 3,700,000 Limited Partner Units issued on
October 25, 2000.                                                                                                              

NOTE 19. SUBSEQUENT EVENTS

On January 9, 2002, the Partnership announced a definitive agreement to
acquire the Chaparral and Quanah pipelines from Diamond-Koch II, L.P. and
Diamond-Koch III, L.P. for approximately $130 million. The transaction closed
on March 1, 2002, at a cost of approximately $132 million. The purchase was
funded by a drawdown of the Partnerships Three Year Facility.

In January and February 2002, $25 million and $15 million was drawn down
on the Three Year Facility and the Bridge Facility, respectively.

On February 20, 2002, the Partnership received $494.6 million in net
proceeds from the issuance of $500 million principal amount of 7.625% Senior
Notes due 2012. The Senior Notes may be redeemed at any time at the option of
the Partnership with the payment of accrued interest and a make-whole premium
determined by discounting remaining interest and principal payments using a
discount rate equal to the rate of the United States Treasury securities of
comparable remaining maturity plus 35 basis points. The proceeds from the
offering were used to reduce the outstanding balances of the credit facilities
(see Note 8. Long Term Debt). The repayments included $160 million
outstanding on the Short-term Revolver, $215 million outstanding on the Bridge
Facility and $115.7 million outstanding on the Three Year Facility. The
Partnerships Guarantor Subsidiaries issued unconditional guarantees of these
Senior Notes (see Note 17. Supplemental Condensed Consolidating Financial Information).

F-35



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.1     |  | Certificate of Limited Partnership of TEPPCO Partners, L.P.
(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     |  | Third Amended and Restated Agreement of Limited Partnership of
TEPPCO Partners, L.P., dated September 21, 2001 (Filed as
Exhibit 3.7 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended September 30, 2001 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).                                                                                                                                                                                                                                                        
|4.4     |  | Form of Indenture between TEPPCO Partners, L.P., as issuer, TE
Products Pipeline Company, Limited Partnership, TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering
Company, as subsidiary guarantors, and First Union National
Bank, NA, as trustee, dated as of February 20, 2002 (Filed as
Exhibit 99.2 to Form 8-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) dated as of February 20, 2002 and
incorporated
herein by reference).          
|4.5     |  | First Supplemental Indenture between TEPPCO Partners, L.P., as
issuer, TE Products Pipeline Company, Limited Partnership,
TCTM, L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas
Gathering Company, as subsidiary guarantors, and First Union
National Bank, NA, as trustee, dated as of February 20, 2002
(Filed as Exhibit 99.3 to Form 8-K of TEPPCO Partners, L.P
(Commission File No. 1-10403) dated as of February 20, 2002
and incorporated
herein by reference).
|10.1+   |  | 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.                                                                                                                                                                                                                                                                                                      



---



##### Table of Contents



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  | (Commission File No. 1-10403) for the quarter ended September
30, 1997 and incorporated
herein by reference).                                                                                                                                                                                                                                                                                         
|10.2+  |  | 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).                                                                                                                      
|10.3+  |  | 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).                                                                                                                     
|10.4+  |  | 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).                                                                                                                                    
|10.5+  |  | 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).                                                                                                                                                                                        
|10.6+  |  | 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).                                                                                                                                                                                   
|10.7+  |  | 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).                                                                                                                                                                          
|10.8+  |  | 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).                                                                                                                                                                            
|10.9+  |  | 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).                                                                                                                                
|10.10+ |  | 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).                                                                                                                 
|10.11  |  | 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).                                                                                                              
|10.12  |  | 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).                                                                                                    
|10.13  |  | 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).                                                                       
|10.14  |  | 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).                                                                   
|10.15+ |  | Form of Employment Agreement between the Company and Thomas R.
Harper, David L. Langley, Charles H. Leonard, James C. Ruth,
John N. Goodpasture, Leonard W. Mallett, Stephen W. Russell,
David E. Owen, and Barbara A. Carroll (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).



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##### Table of Contents



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16  |  | 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).                                                                  
|10.17  |  | 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).
|10.18  |  | 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).                                                                                                                                                                              
|10.19+ |  | 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).                                                                                                                   
|10.20+ |  | Form of Employment and Non-Compete Agreement between the
Company and J. Michael Cockrell 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).                                                                                                     
|10.21+ |  | 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).                                                                                                         
|10.22+ |  | 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).                                                                                                  
|10.23+ |  | 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).                                                                                                                         
|10.24  |  | 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).                                                                                                                     
|10.25  |  | Amended and Restated Purchase Agreement By and Between
Atlantic Richfield Company and Texas Eastern Products Pipeline
Company With Respect to the Sale of ARCO Pipe Line 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).                  
|10.26+ |  | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Amendment and Restatement, effective January
1, 2000 (Filed as Exhibit 10.28 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 2000 and incorporated herein by reference).                                                                                           
|10.27+ |  | TEPPCO Supplemental Benefit Plan, effective April 1, 2000
(Filed as Exhibit 10.29 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31,
2000 and
incorporated herein by reference).                                                                                                                                                                  
|10.28+ |  | Employment Agreement with Barry R. Pearl (Filed as Exhibit
10.30 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 2001 and
incorporated herein by reference).                                                                                                                                                                                   
|10.29  |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L. P. as Borrower, SunTrust Bank as Administrative Agent and
LC Issuing Bank, and Certain Lenders, dated as of April 6,
2001 ($500,000,000 Revolving Facility) (Filed as Exhibit 10.31
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 2001 and incorporated
herein by reference).



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##### Table of Contents



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.30  |  | Credit Agreement among TEPPCO Partners, L. P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders,
dated as of April 6, 2001 ($200,000,000 Revolving Facility)
(Filed as Exhibit 10.32 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March 31,
2001 and incorporated herein by reference).                                                                                                 
|10.31  |  | Purchase and Sale Agreement By and Among Green River Pipeline,
LLC and McMurry Oil Company, Sellers, and TEPPCO Partners,
L.P., Buyer, dated as of September 7, 2000. Filed as Exhibit
3.6 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended June 30, 2001 and incorporated
herein by reference).                                                                                                                  
|10.32  |  | Credit Agreement Among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders,
dated as of September 28, 2001 ($400,000,000 Term Facility)
(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, 2001 and incorporated
herein by reference).                                                                                              
|10.33  |  | Amendment 1, dated as of September 28, 2001, to the Amended
and Restated Credit Agreement among TEPPCO Partners, L. P. as
Borrower, SunTrust Bank as Administrative Agent and LC Issuing
Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.33 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2001 and
incorporated
herein by reference).
|10.34  |  | Amendment 1, dated as of September 28, 2001, to the Credit
Agreement among TEPPCO Partners, L. P. as Borrower, SunTrust
Bank as Administrative Agent, and Certain Lenders, dated as of
April 6, 2001 ($200,000,000 Revolving Facility) (Filed as
Exhibit 10.34 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended September
30, 2001 and incorporated
herein by reference).                                         
|10.35* |  | Amendment and Restatement, dated as of November 13, 2001, to
the Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders,
dated as of April 6, 2001 ($200,000,000 Revolving Facility).                                                                                                                                                                                                        
|10.36* |  | Second Amendment and Restatement, dated as of November 13,
2001, to the Amended and Restated Credit Agreement amount
TEPPCO Partners, L.P. as Borrower, SunTrust Bank as
Administrative Agent and LC Issuing Bank, and Certain Lenders,
dated as of April 6, 2001 ($500,000,000 Revolving Facility).                                                                                                                                                       
|10.37  |  | Second Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership, dated
September 21, 2001 (Filed as Exhibit 3.8 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                                      
|10.38  |  | Amended and Restated Agreement of Limited Partnership of TCTM,
L.P., dated September 21, 2001 (Filed as Exhibit 3.9 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended September 30, 2001 and incorporated
herein by reference).                                                                                                                                                                                    
|10.39  |  | Agreement of Limited Partnership of TEPPCO Midstream
Companies, L.P., dated September 24, 2001 (Filed as Exhibit
3.10 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 2001 and
incorporated herein by reference).                                                                                                                                                                                  
|10.40* |  | Agreement of Partnership of Jonah Gas Gathering Company dated
June 20, 1996 as amended by that certain Assignment of
Partnership Interests dated September 28, 2001.                                                                                                                                                                                                                                                                                       
|10.41* |  | Unanimous Written Consent of the Board of Directors of
TEPPCO GP, Inc. dated February 13, 2002.                                                                                                                                                                                                                                                                                                                                                            
|12.1*  |  | Statement of Computation of Ratio of Earnings to Fixed
Charges.                                                                                                                                                                                                                                                                                                                                                                                            
|21*    |  | Subsidiaries of the Partnership.                                                                                                                                                                                                                                                                                                                                                                                                                           
|23*    |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|24*    |  | Powers of Attorney.                                                                                                                                                                                                                                                                                                                                                                                                                                        



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| |                                                             
| | ------------------------------------------------------------
| | * Filed herewith.                                           
| | + A management contract or
compensation plan or arrangement.