Item 1. Business
(a) 	General Development of Business
Participating Development Fund 86, A Real Estate Limited Partnership (the "Partnership"), was formed on December 9, 1985 under the Uniform Limited Partnership Act of the State of Connecticut. The Partnership was originally formed to make five participating investments by entering into land purchase leaseback transactions and concurrently funding leasehold mortgage loans secured by commercial and multi-family residential real estate (the "Participating Investments"). The Partnership made its Participating Investments in the following five properties (the "Properties" or individually a "Property"): Sunnyvale R&D, a one-story research and development building located in Sunnyvale, California; Foothills Tech Plaza, two research and development/service buildings in Phoenix, Arizona; Harris Pond Apartments, a 170-unit luxury apartment complex in Charlotte, North Carolina; Pebblebrook Apartments, a 267-unit luxury apartment complex in Overland Park (Kansas City), Kansas; and 1899 Powers Ferry Road, a four-story office building located in Atlanta, Georgia. The Participating Investment in Harris Pond Apartments was sold on November 1, 1989. As a result of defaults under ground leases on the Sunnyvale, Phoenix, Atlanta and Overland Park Properties, the Partnership took title to these Properties in their entirety. The Partnership anticipated liquidating its remaining investments within seven years from their respective dates of funding, however, competitive market conditions limited favorable sales opportunities. The Partnership does not plan to invest in any additional property.
On June 15, 1992, Phoenix Realty Management, Inc., ("Phoenix") sent a notice of resignation as co-General Partner of the Partnership to PDF86 Real Estate Services Inc. ("RE Services" or the "General Partner"), formerly Shearson Lehman Brothers/PDF 86, Inc. (See Item 10. "Certain Matters Involving Affiliates of RE Services"), the Partnership's other co-General Partner. The effective date of the resignation was June 16, 1992. As a result of the resignation of Phoenix, RE Services, as sole General Partner, manages the affairs of the Partnership.
Foothills Tech Plaza was sold on September 29, 1995 for $10,011,512, net of $226,000 in contracted roof repairs. Additional information regarding the sale is incorporated by reference to the section entitled "Message to Investors" and Note 3 "Real Estate Investments" of the Notes to Financial Statements contained in the Partnership's Annual Report to Unitholders for the year ended December 31, 1995 filed as an exhibit under Item 14.
On May 11, 1995, the General Partner executed a letter of intent with an unaffiliated third party to sell Pebblebrook Apartments. During the 1995 third quarter, the prospective buyer rescinded its offer. However, the General Partner subsequently agreed to a letter of intent with another unaffiliated third party to sell Pebblebrook Apartments, and on January 31, 1995 the General Partner executed a purchase and sale agreement for a sales price of $10,570,000, net of commissions. The sale was originally expected to close in late January, 1996 and was subsequently posponed until March, 1996. However, during the due diligence period, the prospective buyer raised certain concerns regarding the physical condition of the Property. While negotiations are continuing and the General Partner remains confident that the sale will be successfully concluded, there is no assurance that an agreement can be reached with the buyer concerning the remaining issues. Therefore, it remains possible that the sale will be further delayed or possibly not close at all.
Additional information regarding the historical development of business is incorporated by reference to Note 1 "Organization," Note 2 "Accounting Policies" and Note 3 "Real Estate Investments" of the Notes to Financial Statements contained in the Partnership's Annual Report to Unitholders for the year ended December 31, 1995 filed as an exhibit under Item 14.
(b)	Financial Information About Industry Segment
The Partnership's sole business is the ownership and operation of the Properties. All of the Partnership's revenues, operating profit or losses and assets relate solely to such industry segment.
(c)	Narrative Description of Business
Incorporated by reference to Note 1 "Organization" and Note 3 "Real Estate Investments" of the Notes to Financial Statements contained in the Partnership's Annual Report to Unitholders for the year ended December 31, 1995 filed as an exhibit under Item 14.
(d) Competition
Incorporated by reference to the section entitled "Property Profiles & Leasing Update" contained in the Partnership's Annual Report to Unitholders for the year ended December 31, 1995 filed as an exhibit under Item 14.
(e)	Employees
The Partnership has no employees.
Item 2.

Item 2. Properties
Description of Properties and material leases incorporated by reference to the "Property Profiles & Leasing Update" and Note 3 "Real Estate Investments" of the Notes to Financial Statements contained in the Partnership's Annual Report to Unitholders for the year ended December 31, 1995, filed as an exhibit under Item 14.
Item 3.

Item 3. Legal Proceedings
Discussion regarding class action settlement agreement incorporated by reference to Note 7 "Litigation" of Notes to Financial Statements contained in the Partnership's Annual Report to Unitholders for the year ended December 31, 1995.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Unit Holders during the fourth quarter of 1995.
PART II
Item 5.

Item 5. Market for the Partnership's Limited Partnership Units and Related Security Holder Matters
(a)	Market Information
There is no established trading market for the Units of the Partnership.
(b)	Holders
As of December 31, 1995, there were 7,759 holders of record, owning an aggregate of 1,124,000 Units.
(c)	Distributions
A discussion of cash distributions paid to the Limited Partners for the two years ended December 31, 1995 is incorporated by reference to the section entitled "Message to Investors" contained in the Partnership's Annual Report To Unitholders for the year ended December 31, 1995 filed as an exhibit under Item 14.
Item 6.

Item 6. Selected Financial Data
Incorporated by reference to the section entitled "Financial Highlights" contained in the Partnership's Annual Report to Unitholders for the year ended December 31, 1995 filed as an exhibit under Item 14.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources - ------------------------------- Foothills Tech Plaza was sold to an unaffiliated third party on September 29, 1995 for $10,011,512, net of $226,000 in contracted roof repairs. The gain on disposition of the property totaled $1,088,860. In anticipation of the sale of Pebblebrook Apartments, the property was reclassified, in the amount of $7,780,273, to "Real estate assets held for sale" on the Partnership's balance sheet. Land, buildings and improvements, net of accumulated depreciation, decreased by $17,452,829 from December 31, 1994 to December 31, 1995 primarily as a result of the Foothills Tech Plaza sale and reclassification of Pebblebrook Apartments.
At December 31, 1995, the Partnership had cash and cash equivalents of $1,480,034 compared with $140,886 at December 31, 1994. The increase is primarily attributable to proceeds from the sale of Foothills Tech Plaza and net cash provided by operating activities in excess of cash distributions paid to Partners. The cash and cash equivalents balance includes amounts reserved for capital and tenant improvements, leasing costs, working capital reserves and cash flow generated from operations of the properties. The Partnership also maintains a restricted cash balance, which is comprised of tenant security deposits. Restricted cash totaled $100,286 at December 31, 1995, compared with $152,162 at December 31, 1994. The decrease is primarily due to the sale of Foothills Tech Plaza.
Prepaid expenses totaled $273,681 at December 31, 1995, compared with $389,472 at December 31, 1994. The decrease is primarily the result of the amortization of leasing commissions associated with the lease-up of Powers Ferry in 1994 and the sale of Foothills Tech Plaza in 1995. Incentives to lease were $188,693 at December 31, 1995 compared to $283,555 at December 31, 1994. The decrease is largely the result of the amortization of a lease buyout at Powers Ferry Office Building. Deferred rent receivable totaled $193,634 at December 31, 1995, compared to $269,701 at December 31, 1994. The decrease is largely due to the write-off of deferred rent resulting from the sale of Foothills Tech Plaza.
Accounts payable and accrued expenses totaled $133,022 at December 31, 1995, compared with $323,897 at December 31, 1994. The decrease primarily is due to a reduction in accrued lease incentives relating to a lease buyout at Powers Ferry Office Building. Security deposits payable totaled $100,286 at December 31, 1995, compared to $152,162 at December 31, 1994. The decrease is mainly due to the sale of Foothills Tech Plaza. Prepaid rent totaled $79,555 at December 31, 1995, compared to $4,085 at December 31, 1994. The increase is largely attributable to the timing of rental payments.
The General Partner has determined that an adequate cash reserve exists to fund anticipated tenant improvement costs and leasing commissions associated with leasing efforts at the Properties, and pay cash distributions to the Limited Partners. For the year ended December 31, 1995, the Partnership declared cash distributions to the Limited Partners totaling $9.79 per Unit. Included in this total was a special distribution in the amount of $8.59 per Unit which was paid on November 24, 1995 and represented proceeds from the sale of Foothills Tech Plaza, and a fourth quarter cash distribution of $0.30 per Unit which was paid on February 9, 1996. In addition, on March 29, 1996 the Partnership paid a special cash distribution in the amount of $.55 per Unit. The distribution was made from the Partnership's cash reserves. The timing and amount of future distributions will depend on several factors, including the adequacy of rental income being generated by current leases and Partnership cash flow.
On February 16, 1996, based upon, among other things, the advice of Partnership counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a resolution that states, among other things, if a Change of Control (as defined below) occurs, the General Partner may distribute the Partnership's cash balances not required for its ordinary course day-to-day operations. "Change of Control" means any purchase or offer to purchase more than 10% of the Units that is not approved in advance by the General Partner. In determining the amount of the distribution, the General Partner may take into account all material factors. In addition, the Partnership will not be obligated to make any distribution to any partner and no partner will be entitled to receive any distribution until the General Partner has declared the distribution and established a record date and distribution date for the distribution. The Partnership filed a form 8-K disclosing this resolution on February 23, 1996.
Results of Operations
1995 Versus 1994 - ---------------- Partnership operations resulted in net income of $2,662,237 for the year ended December 31, 1995, compared with net income of $1,449,548 for the corresponding period in 1994. The increase in net income in 1995 is primarily attributable to the gain on the sale of Foothills Tech Plaza in the amount of $1,088,860.
Rental income totaled $4,397,667 for the year ended December 31, 1995, compared to $4,387,259 for the year ended December 31, 1994. The increase is primarily attributable to higher average occupancy at Powers Ferry Office Building and higher rental rates at Pebblebrook Apartments and Powers Ferry Office Building, partially offset by the sale of Foothills Tech Plaza. Interest income totaled $142,161 for the year ended December 31, 1995, compared to $11,912 for the year ended December 31, 1994. The increase is largely due to the Partnership's higher average cash balance in 1995 resulting from the sale of Foothills Tech Plaza. Other income totaled $8,807 for the year ended December 31, 1995, compared to $189,508 for the year ended December 31, 1994. The decrease is mainly attributable to the receipt of a lease cancellation fee at Powers Ferry Office Building in 1994.
Property operating expenses totaled $1,403,161 for the year ended December 31, 1995, relatively unchanged from $1,407,195 for the year ended December 31, 1994. Depreciation and amortization totaled $1,358,528 for the year ended December 31, 1995, compared to $1,513,099 for the year ended December 31, 1994. The decrease is primarily attributable to a lower depreciable asset base resulting from the sale of Foothills Tech Plaza. The Partnership recognized bad debt expense for the year ended December 31, 1994 totaling $16,905 reflecting the write-off of a former tenant's receivable balance.
As of December 31, 1995, the lease levels at each of the properties were as follows: Powers Ferry Office Building - 94%; Sunnyvale R&D - 100%; and Pebblebrook Apartments - 96%.
1994 Versus 1993 - ---------------- Partnership operations resulted in net income of $1,449,548 for the year ended December 31, 1994, compared with net income of $931,882 for the corresponding period in 1993. The increase in net income in 1994 is primarily attributable to higher rental income and other income in 1994, as well as lower general administrative, bad debt and depreciation expenses. These were offset by lower interest income and higher property operating expenses.
Rental income totaled $4,387,259 for the year ended December 31, 1994, compared with $3,990,962 in 1993. The increase in 1994 is primarily attributable to a rental rate increase at Sunnyvale, increased occupancy at Powers Ferry, scheduled rental rate increases at Pebblebrook and a tenant taking occupancy at Foothills. Other income was $189,508 for the year ended December 31, 1994, compared to $67,093 for the year ended December 31, 1993. The increase of $122,415 is due primarily to the receipt of a tenant's cancellation fee at Powers Ferry. Interest income totaled $11,912 for the year ended December 31, 1994 compared with $42,812 in 1993, reflecting the Partnership's lower average cash balances.
Property operating expenses totaled $1,407,195 for the year ended December 31, 1994, compared to $1,206,605 in 1993. The $200,590 increase is primarily due to higher real estate taxes at the Pebblebrook property and higher repairs and maintenance, payroll, administrative and utility expenses at the Powers Ferry and Pebblebrook properties. Depreciation and amortization expense totaled $1,513,099 for the year ended December 31, 1994, compared with $1,690,501 in 1993. Depreciation and amortization expense was lower for the twelve month period in 1994 due to certain assets becoming fully depreciated during 1994, primarily at the Sunnyvale and Pebblebrook properties.
As of December 31, 1994, the lease levels at each of the properties were as follows: Foothills Tech Plaza - 100%; 1899 Powers Ferry Road - 91%; Sunnyvale R&D - 100%; and Pebblebrook Apartments - 97%.
Item 8.

Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1995 filed as an exhibit under Item 14.
Item 9.

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
The General Partner of the Partnership is PDF86 Real Estate Services Inc. ("RE Services"), formerly Shearson Lehman Brothers, Inc./PDF 86, Inc., an affiliate of Lehman Brothers Inc. ("Lehman"). See a section captioned "Certain Matters Involving Affiliates of RE Services" for a description of the sale of certain of Shearson Lehman Brothers, Inc. ("Shearson") domestic retail brokerage and asset management business to Smith Barney, Harris Upham & Co. Incorporated, which resulted in a change in the general partner's name. Brief descriptions of the business experience of the directors and officers of the General Partner are provided below. Each of the directors of the General Partner is elected annually. There is no family relationship among any of the persons currently serving as directors or officers of the General Partner.
Certain officers and directors of RE Services are now serving (or in the past have served) as officers and directors of entities which act as general partners of a number of real estate limited partnerships which have sought protection under the provisions of the Federal Bankruptcy Code. The partnerships which have filed bankruptcy petitions own real estate which has been adversely affected by the economic conditions in the markets in which the real estate is located and, consequently, the partnerships sought the protection of bankruptcy laws to protect the partnership's assets from losses through foreclosure.
The executive officers and directors of RE Services are listed below.
Name Office ---------- ------------- Kenneth L. Zakin President and Director William Caulfield Vice President and Chief Financial Officer Lawrence M. Ostow Vice President 	 Kenneth L. Zakin, 48, is a Senior Vice President of Lehman Brothers Inc. and has held such title since November 1988. He is currently a senior manager in Lehman Brothers' Diversified Asset Group and was formerly group head of the Commercial Property Division of Shearson Lehman Brothers' Direct Investment Management Group responsible for the management and restructuring of limited partnerships owning commercial properties throughout the United States. From January 1985 through November 1988, Mr. Zakin was a Vice President of Shearson Lehman Brothers Inc. Mr. Zakin is a director of Lexington Corporate Properties, Inc. He is a member of the Bar of the State of New York and previously practiced as an attorney in New York City from 1973 to 1984 specializing in the financing, acquisition, disposition, and restructuring of real estate transactions. Mr. Zakin is a member of the Real Estate Lender's Association and is currently an associate member of the Urban Land Institute and a member of the New York District Council Advisory Services Committee. He received a Juris Doctor degree from St. John's University School of Law in 1973 and a B.A. degree from Syracuse University in 1969.
William Caulfield, 36, is a Vice President of Lehman Brothers Inc. and is responsible for investment management of commercial real estate in the Diversified Asset Group. Prior to the Shearson/Hutton merger in 1988, Mr. Caulfield was a Senior Analyst with E.F. Hutton since October 1986 in Hutton's Partnership Administration Group. Before joining Hutton, Mr. Caulfield was a Business Systems Analyst at Eaton Corp. from 1985 to 1986. Prior to Eaton, he was an Assistant Treasurer with National Westminster Bank USA. Mr. Caulfield holds a B.S. degree in Finance from St. John's University and an M.B.A. from Long Island University - C.W. Post Campus.
Lawrence M. Ostow, 28, is a Vice President of Lehman Brothers and is responsible for the management of commercial real estate in the Diversified Asset Group. Mr. Ostow joined Lehman Brothers in September 1992. Prior to that, Mr. Ostow was a Senior Consultant with Arthur Andersen & Co. in the Real Estate Services Group, beginning in July 1990. Mr. Ostow is a candidate for an M.B.A. from the Stern School of Business in 1997 and earned a B.A. degree in Economics from the University of Michigan in 1990.
Certain Matters Involving Affiliates of RE Services - --------------------------------------------------- On July 31, 1993, Shearson Lehman Brothers, Inc. sold certain of its domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson changed its name to Lehman Brothers Inc. The transaction did not affect the ownership of the Partnership's General Partner. However, the assets acquired by Smith Barney included the name "Shearson." Consequently, the Shearson Lehman Brothers/PDF 86, Inc. general partner changed its name to PDF86 Real Estate Services Inc. to delete any reference to "Shearson."
Item 11.

Item 11. Executive Compensation
The General Partner and its Affiliates have received certain fees, commissions and reimbursements for expenses incurred as provided for on pages 13 through 17 of the Prospectus which are contained under "Management Compensation" (See Exhibit 3 incorporated herein by reference). The General Partner is entitled to receive a share of cash distributed when and as cash distributions are made to Unit Holders and a share of taxable income or taxable loss, and may be reimbursed for certain out-of-pocket expenses. In addition, the General Partner is entitled to receive various fees and distributions during the liquidation stages of the Partnership. Descriptions of such fees, distribution allocations, and reimbursements is incorporated by reference to Note 5 "Transactions with Related Parties" and Note 6 "Partners' Equity" of the Notes to Financial Statements. Certain officers and directors of the General Partner are employees of Lehman Brothers Inc. and are not compensated by the Partnership or the General Partner for services rendered in connection with the Partnership.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security of Ownership of Certain Beneficial Owners
No person (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) is known to the Registrant to be the beneficial owner of more than five percent of the outstanding voting Interests as of December 31, 1995.
(b) Security Ownership of Management
No officer or director of the General Partner beneficially owned or owned of record directly or indirectly any Interests as of December 31, 1995.
(c) Changes in Control
None.
Item 13.

Item 13. Certain Relationships and Related Transactions
(a) Transactions With Management and Others
Incorporated by reference to Note 3 "Real Estate Investments," Note 5 "Transactions with Related Parties" and Note 6 "Partners' Equity" of the Notes to Financial Statements contained in the Partnership's Annual Report to Unitholders for the year ended December 31, 1995 filed as an exhibit under Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(i) Index to Financial Statements
Balance Sheets at December 31, 1995 and 1994 (1)
Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 (1)
Statements of Partners' Capital (Deficit) for the Years Ended December 31, 1995, 1994 and 1993 (1)
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 (1)
Notes to the Financial Statements (1)
Independent Auditors' Report (1)
(a)(ii) Financial Statement Schedule
Independent Auditors' Report on Schedule III 	 Schedule III - Real Estate and Accumulated Depreciation
(1) Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1995.
(b) Reports on Form 8-K filed in the fourth quarter of 1995:
The Partnership filed a report on Form 8-K on October 12, 1995 regarding the sale of Foothills Tech Plaza. 	 (c) See Exhibit Index contained herein.
Exhibit Number
3 - Agreement of Limited Partnership of Participating Development Fund 86, A Real Estate Limited Partnership. Reference is made to Exhibit A of the Prospectus (the "Prospectus") contained in Amendment No. 2 to Registrant's Form S-11 Registration Statement filed with the Securities and Exchange Commission on December 20, 1985 (the "Registration Statement").
13 - Annual Report to Unitholders for the year ended December 31, 1995.
27 - Financial Data Schedule
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 1996
PARTICIPATING DEVELOPMENT FUND 86
BY: PDF86 Real Estate Services Inc. General Partner
BY: /s/Kenneth L. Zakin Name: Kenneth L. Zakin Title: Director and President
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 in the capacities and on the dates indicated.
PDF86 REAL ESTATE SERVICES INC. General Partner
Date: March 29, 1996 BY: /s/Kenneth L. Zakin Kenneth L. Zakin Director and President
Date: March 29, 1996 BY: /s/William Caulfield William Caulfield Vice President and Chief Financial Officer
Date: March 29, 1996 BY: /s/Lawrence M. Ostow Lawrence M. Ostow Assistant Vice President
INDEPENDENT AUDITORS' REPORT
The Partners Participating Development Fund 86:
Under date of February 16, 1996 we reported on the balance sheets of Participating Development Fund 86 (a Connecticut limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, partners' capital (deficit) and cash flows for each of the years in the three-year period ended December 31, 1995, as contained in the 1995 annual report to unit holders. These financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1995. In connection with our audits of the aforementioned financial statements, we also have audited the related financial statements schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.
In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Boston, Massachusetts February 16, 1996
PARTICIPATING DEVELOPMENT FUND 86 (A Real Estate Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Initial Cost to Partnership
Buildings and Description Encumbrances (1) Land Improvements
Commercial Property:
Sunnyvale R&D Building Sunnyvale, CA -- $6,336,962 $4,848,999
1899 Powers Ferry Road Office Building Marietta, GA -- 2,050,628 6,774,215
8,387,590 11,623,214 Real Estate Held for Sale Pebblebrook Apartments Apartment Buildings Overland Park, KS -- 2,095,205 8,118,985
$10,482,795 $19,742,199
PARTICIPATING DEVELOPMENT FUND 86 (A Real Estate Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Cost Capitalized Subsequent To Acquisition --------------
Buildings and Description Improvements (3) Retirements
Commercial Property:
Sunnyvale R&D Building Sunnyvale, CA $3,141,469 $(2,976,402)
1899 Powers Ferry Road Office Building Marietta, GA 2,189,066 (1,282,863)
5,330,535 (4,259,265)
Real Estate Held for Sale Pebblebrook Apartments Apartment Buildings Overland Park, KS 863,301 (1,250,320)
$6,193,836 $(5,509,585)
PARTICIPATING DEVELOPMENT FUND 86 (A Real Estate Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Gross Amount at Which Carried at Close of Period --------------------------
Buildings and Accumulated Description Land Improvements Total(1) Depreciation(2)
Commercial Property:
Sunnyvale R&D Building Sunnyvale, CA $6,336,962 $5,014,066 $11,351,028 $(1,369,338)
1899 Powers Ferry Road Office Building Marietta, GA 2,050,628 7,680,418 9,731,046 (2,314,185)
8,387,590 12,694,484 21,082,074 (3,683,523)
Real Estate Held for Sale Pebblebrook Apartments Apartment Buildings Overland Park, KS 2,095,205 7,731,966 9,827,171 (2,046,898)
$10,482,795 $20,426,450 $30,909,245 $(5,730,421)
PARTICIPATING DEVELOPMENT FUND 86 (A Real Estate Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Life on which Depreciation in Latest Date of Date Income Statements Description Construction Acquired is Computed
Commercial Property:
Sunnyvale R&D Building Sunnyvale, CA 8/86 8/28/86 5 - 35 years
1899 Powers Ferry Road Office Building Marietta, GA 2/86 7/7/87 5 - 35 years
Real Estate Held for Sale Pebblebrook Apartments Apartment Buildings Overland Park, KS N/A 9/4/86 5 - 35 years
(1) For Federal Income Tax Purposes, the aggregate cost of land, building and improvements is $40,039,600.
(2) For Federal income tax purposes, the amount of accumulated depreciation is $3,630,345.
(3) Tenant improvements are depreciated over the terms of the respective leases.
A reconciliation of the carrying amount of real estate and accumulated depreciation for the years ended December 31, 1995, 1994 and 1993:
Real Estate Investments: 1995 1994 1993
Beginning of year $42,595,901 $46,380,563 $46,170,294 Additions 211,470 1,691,770 493,591 Less Retirements (33,151) (5,476,432) (283,322) Dispositions (11,864,975) 0 0
End of year $30,909,245 $42,595,901 $46,380,563
Accumulated Depreciation:
Beginning of year $ 7,744,521 $11,772,231 $10,371,081 Depreciation 1,251,637 1,448,722 1,684,472 Less Retirements (26,391) (5,476,432) (283,322) Depositions (3,239,346) 0 0
End of year $ 5,730,421 $ 7,744,521 $11,772,231


ITEM 3. LEGAL PROCEEDINGS - --------------------------
See "Business and Properties - Ocean Transportation - Rate Regulation" above for a discussion of rate and other regulatory matters in which Matson is routinely involved.
In June 1990, Matson Terminals filed a complaint in the Superior Court of California against Home Insurance Company, Hobbs Group, Inc. and Arkwright- Boston Insurance Company for breach of contract and negligence. The complaint sought recovery of damages sustained at Matson Terminals' Oakland terminal as a result of the October 1989 Loma Prieta earthquake. The court awarded Matson Terminals $23,516,000, which included $11,250,000 in punitive damages. Defendant Home Insurance Company has filed an appeal of the court's award.
In February 1992, Pan Ocean Shipping Co., Ltd. ("Pan Ocean") served on Matson an amended complaint alleging that a Matson vessel negligently dis- charged contaminated ballast water into Los Angeles harbor on January 9, 1991. Pan Ocean admits that a vessel owned and operated by Pan Ocean discharged fuel oil into Los Angeles harbor on January 8, 1991. Pan Ocean is seeking contri- bution and indemnification for the in-harbor clean-up charges which it alleged to be between $16,000,000 and $19,000,000. On April 12, 1993, Pan Ocean amended its complaint to allege fraud and seek unspecified punitive damages. The parties have stipulated to binding arbitration before a Special Master appointed by the United States District Court for the Central District of California. The Special Master's findings will be incorporated into a judgment by the United States District Court, which judgment may be appealed to the Ninth Circuit Court of Appeals only on the issues of punitive damages and mis- conduct of the Special Master. Arbitration hearings, which commenced January 13, 1994, are ongoing. Management believes, after consultation with legal counsel and given the Protection and Indemnity coverage under Matson's insurance policy in effect at the time of the alleged conduct, that any ultimate liability in connection with this action will not have a material adverse effect on Matson's financial condition.
On November 1, 1994, the Division of Water Quality, Department of Wastewater Management, City and County of Honolulu ("City and County") issued a Cease and Desist Order to C&H, alleging violations of a City and County ordinance arising out of C&H's discharge of industrial wastewater from its liquid sugar refinery into the City and County's sewer system. Among other things, the Cease and Desist Order ordered C&H to stop discharging wastewater into the sewer system, ordered C&H to provide a corrective action plan, and warned that the violation might carry civil and/or criminal penalties. Subsequently, the City and County issued Amended Order No. 1 on November 9, 1994, and Amended Order No. 2 on December 2, 1994. All orders were con- solidated under Docket No. 94-021 ("Amended Orders"). Amended Order No. 2, among other things, permitted C&H to discharge wastewater into the sewer system, provided C&H did not violate its permit, and imposed a fine on C&H in the amount of $1,650,000, which was suspended, provided C&H comply with the Amended Orders. C&H appealed the Amended Orders.
In May 1995, C&H presented a settlement proposal to the City and County which provided, among other things, that both C&H and the City and County agreed that certain modifications completed at the refinery have alleviated the unanticipated operational difficulties that led to the issuance of the Amended Orders. On March 4, 1996, the City and County accepted the terms and condi- tions of C&H's proposal, which are contained in a Consent Agreement pursuant to which the fine was rescinded. The Consent Agreement resolves all issues raised in the Amended Orders and Docket No. 94-021, including the Petitions to Appeal filed by C&H.
A&B and its subsidiaries are parties to, or may be contingently liable in connection with, other legal actions arising in the normal conduct of their businesses, the outcomes of which, in the opinion of management after consulta- tion with counsel, would not have a material adverse effect on A&B's financial position.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------
For the information about executive officers of A&B required to be included in this Part I, see paragraph B of "Directors and Executive Officers of the Registrant" in Part III below, which is incorporated into Part I by reference.
PART II -------
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED - ----------------------------------------------------------
STOCKHOLDER MATTERS -------------------
This information is contained in the sections captioned "Common Stock" and "Dividends" on pages 19 and 20 of the 1995 Annual Report, which sections are incorporated herein by reference.
At February 16, 1996, there were 6,270 record holders of A&B common stock.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA - --------------------------------
Information for the years 1985 through 1995 is contained in the compara- tive table captioned "Eleven-Year Summary of Selected Financial Data" on pages 22 and 23 of the 1995 Annual Report, which information is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ---------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS -----------------------------------
A&B's financial statements, including the results of operations discussed herein, are based on the historical-cost method of accounting, in accordance with generally accepted accounting principles. If estimated current costs of property and inventory were applied to reflect the effects of inflation on A&B's businesses, total assets would be higher and net income lower than shown by the historical-cost financial statements. However, the carrying values of current assets (other than inventories, real estate held for sale, deferred income taxes and prepaid and other assets) and of debt instruments are reason- able estimates of their fair values. Investments in marketable securities are stated in the financial statements at market values in accordance with State- ment of Financial Accounting Standards No. 115. Certain investments held in the Capital Construction Fund at amortized cost exceeded their fair values at December 31, 1995 and 1994. This matter is described more fully in Note 11 on page 39 of the 1995 Annual Report, which Note is incorporated herein by reference.
Additional information applicable to this Item 7 is contained in the section captioned "Management's Discussion and Analysis" on pages 25 through 27 of the 1995 Annual Report, which section is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------
This information is contained in the financial statements and accompanying notes on pages 28 through 39 of the 1995 Annual Report, the Independent Auditors' Report on page 21 of the 1995 Annual Report, and the Industry Segment Information for the years ended December 31, 1995, 1994 and 1993 appearing on page 24 of the 1995 Annual Report and incorporated into the financial state- ments by Note 13 thereto, all of which are incorporated herein by reference.
ITEM 9.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------
A. DIRECTORS ---------
For information about the directors of A&B, see the section captioned "Election of Directors" on pages 2 and 3 of A&B's proxy statement dated March 4, 1996 ("A&B's 1996 Proxy Statement"), which section is incorporated herein by reference.
B. EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------
The name of each executive officer of A&B (in alphabetical order), age (in parentheses) as of March 31, 1996, and present and prior positions with A&B and business experience for the past five years are given below.
Generally, the term of office of executive officers is at the pleasure of the Board of Directors. With regard to compliance with Section 16(a) of the Securities Exchange Act of 1934, A&B believes that during fiscal 1995 its directors and executive officers filed on a timely basis all reports required to be filed under Section 16(a), except that Mr. Robert G. Reed III, a director, was required to file a Form 4 on or before November 10, 1995 with respect to a transfer of 1,000 shares, but such transfer was reported on a Form 5 filed on February 12, 1996. For a discussion of severance agreements between A&B and certain of A&B's executive officers, see the subsection cap- tioned "Severance Agreements" on page 13 of A&B's 1996 Proxy Statement, which subsection is incorporated herein by reference.
Meredith J. Ching (39) - ----------------------
Vice President (Government & Community Relations) of A&B, 10/92-present; Vice President of ABHI (Government & Community Relations), 10/92-present; Vice President of ABHI (Natural Resources Development & Government Affairs), 4/89- 9/92; first joined A&B or a subsidiary in 1982.
John C. Couch (56) - ------------------
Chairman of the Board of A&B, 4/95-present; President of A&B, 4/91-present; Chief Executive Officer of A&B, 4/92-present; Chief Operating Officer of A&B, 4/91-4/92; Chairman of the Board of ABHI, 4/95-present; Chief Executive Officer of ABHI, 4/89-present; President of ABHI, 4/89-4/95; Chairman of the Board of Matson, 4/95-present; Vice Chairman of the Board of Matson, 4/92-3/95; Chairman of the Board of C&H, 7/90-present; Director of A&B, 10/85-present; Director of Matson, 4/91-present; Director of ABHI, 4/89-present; prior to 4/89, held various executive positions with A&B, Matson and Matson's subsidiaries; first joined A&B or a subsidiary in 1976.
W. Allen Doane (48) - -------------------
President of ABHI, 4/95-present; Chief Operating Officer of ABHI, 4/91- present; Executive Vice President of ABHI, 4/91-4/95; first joined A&B or a subsidiary in 1991.
Raymond J. Donohue (59) - -----------------------
Senior Vice President of Matson, 4/86-present; Chief Financial Officer of Matson, 2/81-present; first joined Matson in 1980.
G. Stephen Holaday (51) - -----------------------
Senior Vice President of ABHI, 4/89-present; Vice President and Controller of A&B, 4/93-1/96; Vice President, Chief Financial Officer and Treasurer of A&B, 4/89-4/93; Chief Financial Officer and Treasurer of ABHI, 4/89-1/96; first joined A&B or a subsidiary in 1983.
John B. Kelley (50) - -------------------
Vice President (Investor Relations) of A&B, 1/95-present; Vice President (Corporate Planning & Development, Investor Relations) of A&B, 10/92-12/94; Vice President (Community & Investor Relations) of A&B, 2/91-10/92; Vice Presi- dent (Corporate & Investor Relations) of A&B, 8/88-1/91; Vice President of ABHI, 8/89-present; first joined A&B or a subsidiary in 1979.
Miles B. King (48) - ------------------
Vice President and Chief Administrative Officer of A&B, 4/93-present; Senior Vice President (Industrial Relations) of ABHI, 4/93-present; Senior Vice President (Human Resources) of Matson, 10/92-present; Executive Vice President of The Hay Group, 1988-1992.
David G. Koncelik (54) - ----------------------
Senior Vice President of ABHI, 1/94-present; President and Chief Executive Officer of C&H, 1/94-present; Executive Vice President and Chief Operating Officer of C&H, 1/91-12/93; Chief Financial Officer of C&H, 12/88-12/93; Senior Vice President of C&H, 12/88-12/90.
Michael J. Marks (57) - ---------------------
Vice President, General Counsel and Secretary of A&B, 4/89-present; Senior Vice President and General Counsel of ABHI, 4/89-present; first joined A&B or a subsidiary in 1975.
C. Bradley Mulholland (54) - --------------------------
President of Matson, 5/90-present; Chief Executive Officer of Matson, 4/92-present; Chief Operating Officer of Matson, 7/89-4/92; Executive Vice President of Matson, 9/87-5/90; Director of A&B, 4/91-present; Director of Matson, 7/89-present; Director of ABHI, 4/91-present; first joined Matson in 1965.
Glenn R. Rogers (52) - --------------------
Vice President, Chief Financial Officer and Treasurer of A&B, 4/93- present; Senior Vice President, Chief Financial Officer and Treasurer of ABHI, 1/96-present; Senior Vice President, Marketing of Matson, 1/89-4/93; first joined A&B or a subsidiary in 1975.
Robert K. Sasaki (55) - ---------------------
Vice President of A&B, 7/90-present; Senior Vice President (Properties) of ABHI, 4/89-present; first joined A&B or a subsidiary in 1965.
Thomas A. Wellman (37) - ----------------------
Controller of A&B, 1/96-present; Assistant Controller of A&B, 4/93-1/96; Vice President of ABHI, 1/96-present; Controller of ABHI, 11/91-present; Area Controller (Hawaii), Matson, 9/90-10/91; Internal Auditor, A&B, 7/89-8/90; first joined A&B or a subsidiary in 1989.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION - --------------------------------
See the section captioned "Executive Compensation" on pages 8 through 13 of A&B's 1996 Proxy Statement, which section is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS - --------------------------------------------------------- AND MANAGEMENT --------------
See the section titled "Security Ownership of Certain Shareholders" and the subsection titled "Security Ownership of Directors and Executive Officers" on page 5 and on pages 6 and 7, respectively, of A&B's 1996 Proxy Statement, which section and subsection are incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - --------------------------------------------------------
See the subsection titled "Certain Relationships and Transactions" on page 7 of A&B's 1996 Proxy Statement, the section titled "Compensation Committee Interlocks and Insider Participation" on page 16 of A&B's 1996 Proxy Statement, and the last paragraph of the subsection titled "Compensation of Directors" on page 4 of A&B's 1996 Proxy Statement, which are incorporated herein by reference.
PART IV -------
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND - ------------------------------------------------------ REPORTS ON FORM 8-K -------------------
A. FINANCIAL STATEMENTS --------------------
Financial Statements of Alexander & Baldwin, Inc. and Subsidiaries and Independent Auditors' Report (in-corporated by reference to the pages of the 1995 Annual Report shown in parentheses below):
Balance Sheets, December 31, 1995 and 1994 (pages 30 and 31). Statements of Income for the years ended December 31, 1995, 1994 and 1993 (page 28). Statements of Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993 (page 32). Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 (page 29). Notes to Financial Statements (pages 33 through 39 and page 24 to the extent incorporated by Note 13). Independent Auditors' Report (page 21).
B. FINANCIAL STATEMENT SCHEDULES -----------------------------
Financial Schedules of Alexander & Baldwin, Inc. and Subsidiaries as required by Rule 5-04 of Regulation S-X (filed herewith):
I - Condensed Financial Information of Registrant - Balance Sheets, December 31, 1995 and 1994; Statements of Income and Cash Flows for the years ended December 31, 1995, 1994 and 1993; Notes to Condensed Financial Statements.
NOTE: All other schedules are omitted because of the absence of the condi- tions under which they are required or because the information called for is included in the financial statements or notes thereto.
C. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K -----------------------------------------------
Exhibits not filed herewith are incorporated by reference to the exhibit number and previous filing shown in parentheses. All previous exhibits were filed with the Securities and Exchange Commission in Washington, D.C. Exhibits filed pursuant to the Securities Exchange Act of 1934 were filed under file number 0-565. Shareholders may obtain copies of exhibits for a copying and handling charge of $0.15 a page by writing to Michael J. Marks, Vice President, General Counsel and Secretary, Alexander & Baldwin, Inc., P. O. Box 3440, Honolulu, Hawaii 96801.
3. Articles of incorporation and bylaws.
3.a. Restated Articles of Association of A&B, as restated effective May 5, 1986, together with Amendments dated April 28, 1988 and April 26, 1990 (Exhibits 3.a.(iii) and (iv) to A&B's Form 10-Q for the quarter ended March 31, 1990).
3.b. Bylaws of A&B as amended effective October 24, 1991 (Exhibit 3.b.(i) to A&B's Form 10-Q for the quarter ended September 30, 1991).
4. Instruments defining rights of security holders, including indentures.
4.a. Equity.
4.a. Rights Agreement, dated as of December 8, 1988 between Alexander & Baldwin, Inc. and Manufacturers Hanover Trust Company, Press Release of Alexander & Baldwin, Inc. and Form of Letter to Shareholders of Alexander & Baldwin, Inc. (Exhibits 4, 28(a) and 28(b) to A&B's Form 8-K dated December 13, 1988).
4.b. Debt.
4.b. (i) Amended and Restated Revolving Credit and Term Loan Agreement effective as of April 1, 1989 among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and Wells Fargo Bank, N.A., First Hawaiian Bank, Chemical Bank, Bank of Hawaii, Chase Manhattan Bank, and The Bank of California, N.A. (Exhibit 4.b.(xi) to A&B's Form 10-Q for the quarter ended September 30, 1989).
(ii) First Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of December 21, 1989, among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and Wells Fargo Bank, N.A., First Hawaiian Bank, Chemical Bank, Bank of Hawaii, Chase Manhattan Bank and The Bank of California, N.A. (Exhibit 4.b.(ii) to A&B's Form 10-K for the year ended December 31, 1989).
(iii) Second Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of May 4, 1990, among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and Wells Fargo Bank, N.A., First Hawaiian Bank, Chemical Bank, Bank of Hawaii, Chase Manhattan Bank and The Bank of California, N.A. (Exhibit 4.b.(iii) to A&B's Form 10-Q for the quarter ended June 30, 1990).
(iv) Third Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of February 8, 1991, among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and Wells Fargo Bank, N.A., First Hawaiian Bank, Bank of Hawaii, Bank of America National Trust & Savings Association and The Bank of California, N.A. (Exhibit 4.b.(iv) to A&B's Form 10-K for the year ended December 31, 1990).
(v) Fourth Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of November 26, 1991, among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and Wells Fargo Bank, N.A., First Hawaiian Bank, Bank of America National Trust & Savings Association, Bank of Hawaii, The Bank of California, N.A., and Credit Lyonnais San Francisco Branch and Credit Lyonnais Cayman Island Branch (Exhibit 4.b.(vi) to A&B's Form 10-K for the year ended December 31, 1991).
(vi) Fifth Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of December 29, 1992, among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and First Hawaiian Bank, Bank of America National Trust & Savings Association, Bank of Hawaii, The Bank of California, N.A., Credit Lyonnais San Francisco Branch and Credit Lyonnais Cayman Island Branch (Exhibit 4.b.(vii) to A&B's Form 10-K for the year ended December 31, 1992).
(vii) Sixth Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of December 30, 1993, among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and First Hawaiian Bank, Bank of America National Trust & Savings Association, Bank of Hawaii, The Bank of California, N.A., Credit Lyonnais Los Angeles Branch and Credit Lyonnais Cayman Island Branch (Exhibit 4.b.(vii) to A&B's Form 10-K for the year ended December 31, 1993).
(viii) Seventh Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of November 30, 1994, among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and First Hawaiian Bank, Bank of America National Trust & Savings Association, Bank of Hawaii, The Bank of California, N.A., Credit Lyonnais Los Angeles Branch and Credit Lyonnais Cayman Island Branch (Exhibit 4.b.(viii) to A&B's Form 10-K for the year ended December 31, 1994).
(ix) Eighth Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of November 30, 1995, among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and First Hawaiian Bank, Bank of America National Trust & Savings Association, Bank of Hawaii, The Bank of California, N.A., Credit Lyonnais Los Angeles Branch and Credit Lyonnais Cayman Island Branch.
10. Material contracts.
10.a. (i) Purchase and Exchange Agreement, by and between Wailea Development Company, Inc. and Wailea Resort Company, Ltd., dated as of January 15, 1989; Letters of Guaranty of Alexander & Baldwin, Inc. and Shinwa Golf Kabushiki Kaisha, respectively, dated as of January 15, 1989; Press Release of Alexander & Baldwin, Inc., dated February 10, 1989; and Pro Forma Financial Information relative to the transaction (Ex- hibits 10.b.(vii)(a) through 10.b.(vii)(e) to A&B's Form 8-K dated February 10, 1989).
(ii) Contract for the Construction of One Containership by and between Matson Navigation Company, Inc. and National Steel and Ship- building Company, dated January 31, 1990 (Exhibit 10.b.(vii) to A&B's Form 10-K for the year ended December 31, 1989).
(iii) Issuing and Paying Agent Agreement between Matson Navigation Company, Inc. and Security Pacific National Trust (New York), with respect to Matson Navigation Company, Inc.'s $150 million commercial paper program dated September 18, 1992 (Exhibit 10.b.1.(xxviii) to A&B's Form 10-Q for the quarter ended September 30, 1992).
(iv) Issuing and Paying Agent Agreement among Matson Leasing Company, Inc., Matson Navigation Company, Inc. and Security Pacific National Trust (New York), with respect to Matson Leasing Company, Inc.'s $115 million commercial paper program dated September 18, 1992 (Exhibit 10.b.1.(xxix) to A&B's Form 10-Q for the quarter ended September 30, 1992).
(v) Revolving Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and First Hawaiian Bank, dated July 9, 1991 (Exhibit 10.b.(xi) to A&B's Form 10-Q for the quarter ended September 30, 1991).
(vi) Note Agreement among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and The Prudential Insurance Company of America, effec- tive as of December 20, 1990 (Exhibit 10.b.(ix) to A&B's Form 10-K for the year ended December 31, 1990).
(vii) Note Agreement among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and The Prudential Insurance Company of America, dated as of June 4, 1993 (Exhibit 10.a.(xiii) to A&B's Form 8-K dated June 4, 1993).
(viii) Amendment dated as of May 20, 1994 to the Note Agreements among Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential Insurance Company of America, dated as of December 20, 1990 and June 4, 1993 (Exhibit 10.a.(xviv) to A&B's Form 10-Q for the quarter ended June 30, 1994).
(ix) Amendment dated January 23, 1995 to the Note Agreement among Alexander & Baldwin, Inc. and A&B-Hawaii, Inc. and The Prudential Insurance Company of America, effective as of December 20, 1990 (Exhi- bit 10.a.(xvi) to A&B's Form 10-K for the year ended December 31, 1994).
(x) General Lease between the State of California and California and Hawaiian Sugar Company, dated September 24, 1992 (Exhibit 10.a.(xiv) to A&B's Form 10-Q for the quarter ended June 30, 1993). (xi) Amendment to Lease and Reservation of Easements, between the State of California and California and Hawaiian Sugar Company, dated as of July 29, 1993 (Exhibit 10.a.(xv) to A&B's Form 10-Q for the quarter ended September 30, 1993).
(xii)(a) Commercial Paper Dealer Agreement between California and Hawaiian Sugar Company and First Chicago Capital Markets, Inc., dated April 22, 1991, with respect to California and Hawaiian Sugar Company's $100 million revolving credit facility (Exhibit 10.a.(xviii) to A&B's Form 10-K for the year ended December 31, 1993).
(xii)(b) Depositary Agreement between California and Hawaiian Sugar Company and the First National Bank of Chicago, dated as of April 6, 1989 (Exhibit 10.a.(xix)(b) to A&B's Form 10-K for the year ended December 31, 1994).
(xiii) Amendment dated as of February 10, 1995, to Depositary Agreement between California and Hawaiian Sugar Company and The First National Bank of Chicago, dated as of April 6, 1989 (Exhibit 10.a.(xx) to A&B's Form 10-K for the year ended December 31, 1994).
(xiv) Revolving Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xx) to A&B's Form 10-Q for the quarter ended September 30, 1994).
(xv) Amendment dated August 31, 1994 to the Revolving Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First Hawaiian Bank dated December 30, 1993 (Exhibit 10.a.(xxi) to A&B's Form 10-Q for the quarter ended September 30, 1994).
(xvi) Second Amendment dated March 29, 1995 to the Revolving Credit Agreement between Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and First Hawaiian Bank, dated December 30, 1993 (Exhibit 10.a.(xxiii) to A&B's Form 10-Q for the quarter ended March 31, 1995).
(xvii) Amendment dated November 29, 1995 to the Note Agreement among Alexander & Baldwin, Inc., A&B-Hawaii, Inc., and The Prudential Insurance Company of America, dated as of December 20, 1990 and June 4, 1993.
(xviii) Asset Purchase Agreement among XTRA, Inc., Matson Navigation Company, Inc. and Matson Leasing Company, Inc., dated June 30, 1995 (Exhibit 10.a.(xxiv) to A&B's Form 8-K dated June 30, 1995).
(xix) Revised pro forma financial information relative to the Asset Purchase Agreement among XTRA, Inc., Matson Navigation Company, Inc. and Matson Leasing Company, Inc., dated June 30, 1995 (Exhibit 10.a.(xxv) to A&B's Form 8-K/A dated June 30, 1995).
(xx) Balance sheets as of December 31, 1993 and 1994 and State- ments of Income and Statements of Cash Flows for the years ended December 31, 1992, 1993 and 1994, relative to the Asset Purchase Agreement among XTRA, Inc., Matson Navigation Company, Inc. and Matson Leasing Company, Inc., dated June 30, 1995 (Exhibit 10.a.(xxvi) to A&B's Form 8-K/A dated June 30, 1995).
(xxi) Commercial Paper Dealer Agreement among California and Hawaiian Sugar Company, Inc., Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and Goldman Sachs Money Markets, L.P. dated June 20, 1995, with respect to California and Hawaiian Sugar Company, Inc.'s $100 million revolving credit facility (Exhibit 10.a.(xxvi) to A&B's Form 10-Q for the quarter ended June 30, 1995).
(xxii) Amendment dated as of June 30, 1995 to the Note Agreements, among Alexander & Baldwin, Inc., A&B-Hawaii, Inc. and The Prudential Insurance Company of America, dated as of December 20, 1990 and June 4, 1993 (Exhibit 10.a.(xxvii) to A&B's Form 10-Q for the quarter ended June 30, 1995).
(xxiii) Note Agreement between Matson Leasing Company, Inc. and The Prudential Insurance Company of America, dated as of June 28, 1991 (Exhibit 10.b.(x) to A&B's Form 10-Q for the quarter ended June 30, 1991).
(xxiv) Amendment dated March 11, 1992 to the Note Agreement between Matson Leasing Company, Inc. and The Prudential Insurance Company of America, dated as of June 28, 1991 (Exhibit 10.a.(vii) to A&B's Form 10-K for the year ended December 31, 1992).
(xxv) Second Amendment dated as of August 31, 1993 to the Note Agreement between Matson Leasing Company, Inc. and The Prudential Insurance Company of America, dated as of June 28, 1991 (Exhibit 10.a.(viii) to A&B's Form 10-K for the year ended December 31, 1993).
(xxvi) Note Agreement between Matson Leasing Company, Inc. and The Prudential Insurance Company of America, dated as of March 11, 1992 (Exhibit 10.a.(x) to A&B's Form 10-Q for the quarter ended March 31, 1992).
(xxvii) First Amendment dated as of August 1, 1993 to the Note Agreement between Matson Leasing Company, Inc. and The Prudential Insurance Company of America, dated as of March 11, 1992 (Exhibit 10.a.(xi) to A&B's Form 10-K for the year ended December 31, 1993).
(xxviii)(a) Assignment and Assumption Agreement dated as of June 30, 1995, among Matson Leasing Company, Inc., Matson Navigation Company, Inc. and The Prudential Insurance Company of America, with respect to the Note Agreements between Matson Leasing Company, Inc. and The Prudential Insurance Company of America dated as of June 28, 1991 and March 11, 1992 (Exhibit 10.a.(xxviii)(a) to A&B's Form 10-Q for the quarter ended June 30, 1995).
(xxviii)(b) Consent and Amendment Agreement dated as of June 30, 1995, among Matson Leasing Company, Inc., Matson Navigation Company, Inc. and The Prudential Insurance Company of America, with respect to the Note Agreements between Matson Leasing Company, Inc. and The Prudential Insurance Company of America dated as of June 28, 1991 and March 11, 1992 (Exhibit 10.a.(xxviii)(b) to A&B's Form 10-Q for the quarter ended June 30, 1995).
(xxix) Agreement to Implement the Execution and Closing of Vessel Purchase, Purchase of Guam Assets and Alliance Slot Hire Agreement between Matson Navigation Company, Inc. and American President Lines, Ltd., dated as of September 22, 1995 (Exhibit 10.a.(xxix) to A&B's Form 10-Q for the quarter ended September 30, 1995).
(xxx) Amendments Nos. 1 through 7, dated as of October 10, 1995, October 30, 1995, November 30, 1995, December 8, 1995, December 15, 1995, January 31, 1996 and February 8, 1996, respectively, to the Agreement to Implement the Execution and Closing of Vessel Purchase, Purchase of Guam Assets and Alliance Slot Hire Agreement between Matson Navigation Company, Inc., and American President Lines, Ltd., dated as of September 22, 1995.
(xxxi) Vessel Purchase Agreement between Matson Navigation Company, Inc., and American President Lines, Ltd., dated December 20, 1995.
(xxxii) Amendment No. 1 dated December 28, 1995 to the Vessel Purchase Agreement between Matson Navigation Company, Inc., and American President Lines, Ltd., dated December 20, 1995.
*10.b.1. (i) Alexander & Baldwin, Inc. Restricted Stock Bonus Plan, as restated effective April 28, 1988 (Exhibit 10.c.1.(xi) to A&B's Form 10-Q for the quarter ended June 30, 1988).
(ii) Alexander & Baldwin, Inc. 1983 Stock Option Plan (Exhibit 10.c.1.(vii) to A&B's Form 10-K for the year ended December 31, 1982).
* All exhibits listed under 10.b.1. are management contracts or compensatory plans or arrangements.
(iii) Amendment No. 1 to Alexander & Baldwin, Inc. 1983 Stock Option Plan, effective December 14, 1983 (Exhibit 10.c.1.(viii) to A&B's Form 10-K for the year ended December 31, 1983).
(iv) Amendment No. 2 to Alexander & Baldwin, Inc. 1983 Stock Option Plan, effective January 1, 1987 (Exhibit 10.c.1.(xii) to A&B's Form 10-K for the year ended December 31, 1986).
(v)Amendment No. 3 to the Alexander & Baldwin, Inc. 1983 Stock Option Plan (Exhibit 10.b.1.(xxv) to A&B's Form 10-Q for the quarter ended June 30, 1992).
(vi) Alexander & Baldwin, Inc. 1989 Stock Option/ Stock Incentive Plan (Exhibit 10.c.1.(ix) to A&B's Form 10-K for the year ended December 31, 1988).
(vii) Amendment No. 1 to the Alexander & Baldwin, Inc. 1989 Stock Option/Stock Incentive Plan (Exhibit 10.b.1.(xxvi) to A&B's Form 10-Q for the quarter ended June 30, 1992).
(viii) Amendment No. 2 to the Alexander & Baldwin, Inc. 1989 Stock Option/Stock Incentive Plan, effective as of January 27, 1994 (Exhibit 10.b.1.(iv) to A&B's Form 10-Q for the quarter ended March 31, 1994).
(ix) Amendment No. 3 to the Alexander & Baldwin, Inc. 1989 Stock Option/Stock Incentive Plan, effective as of October 27, 1994 (Exhibit 10.b.1.(ix) to A&B's Form 10-K for the year ended December 31, 1994).
(x) Alexander & Baldwin, Inc. 1989 Non-Employee Director Stock Option Plan (Exhibit 10.c.1.(x) to A&B's Form 10-K for the year ended December 31, 1988).
(xi) Amendment No. 1 to the Alexander & Baldwin, Inc. 1989 Non- Employee Director Stock Option Plan (Exhibit 10.b.1.(xxiv) to A&B's Form 10-K for the year ended December 31, 1991).
(xii) Amendment No. 2 to the Alexander & Baldwin, Inc. 1989 Non- Employee Director Stock Option Plan (Exhibit 10.b.1.(xxvii) to A&B's Form 10-Q for the quarter ended June 30, 1992).
(xiii) Second Amended and Restated Employment Agreement between Alexander & Baldwin, Inc. and R. J. Pfeiffer, effective as of October 25, 1990 (Ex-hibit 10.c.1.(xiii) to A&B's Form 10-K for the year ended December 31, 1990).
(xiv) A&B Deferred Compensation Plan for Outside Directors (Exhibit 10.c.1.(xviii) to A&B's Form 10-K for the year ended December 31, 1985).
(xv) Amendment No. 1 to A&B Deferred Compensation Plan for Outside Directors, effective October 27, 1988 (Exhibit 10.c.1.(xxix) to A&B's Form 10-Q for the quarter ended September 30, 1988).
(xvi) A&B Life Insurance Plan for Outside Directors (Exhibit 10.c.1.(xix) to A&B's Form 10-K for the year ended December 31, 1985).
(xvii) A&B Excess Benefits Plan, Amended and Restated Effective July 1, 1991 (Exhibit 10.b.1.(xvi) to A&B's Form 10-K for the year ended December 31, 1992).
(xviii) Amendment No. 1 to the A&B Excess Benefits Plan, effective January 1, 1994 (Exhibit 10.b.1.(xvii) to A&B's Form 10-K for the year ended December 31, 1993).
(xix) Amendment No. 2 to the A&B Excess Benefits Plan, effective August 24, 1994 (Exhibit 10.b.1.(xix) to A&B's Form 10-K for the year ended December 31, 1994).
(xx) Amendment No. 3 to and Restatement of the A&B Excess Benefits Plan, effective February 1, 1995 (Exhibit 10.b.1.(xx) to A&B's Form 10-K for the year ended December 31, 1994).
(xxi) A&B Executive Survivor/Retirement Benefit Plan, Amended and Restated Effective July 1, 1991 (Exhibit 10.b.1.(xvii) to A&B's Form 10-K for the year ended December 31, 1992).
(xxii) Amendment No. 1 to and Restatement of the A&B Executive Survivor/Retirement Benefit Plan, effective February 1, 1995 (Exhibit 10.b.1.(xxii) to A&B's Form 10-K for the year ended December 31, 1994).
(xxiii) A&B 1985 Supplemental Executive Retirement Plan, Amended and Restated Effective July 1, 1991 (Exhibit 10.b.1.(xviii) to A&B's Form 10-K for the year ended December 31, 1992).
(xxiv) Amendment No. 1 to and Restatement of the A&B 1985 Supple- mental Executive Retirement Plan, effective February 1, 1995 (Exhibit 10.b.1.(xxiv) to A&B's Form 10-K for the year ended December 31, 1994).
(xxv) A&B Retirement Plan for Outside Directors, Amended and Restated Effective October 24, 1991 (Exhibit 10.b.1.(xix) to A&B's Form 10-K for the year ended December 31, 1992).
(xxvi) Amendment No. 1 to and Restatement of the A&B Retirement Plan for Outside Directors, effective February 1, 1995 (Exhibit 10.b.1.(xxvi) to A&B's Form 10-K for the year ended December 31, 1994).
(xxvii) Form of Severance Agreement entered into with certain executive officers, as amended and restated effective August 22, 1991 (Exhibit 10.c.1.(xxiv) to A&B's Form 10-Q for the quarter ended September 30, 1991).
(xxviii) Alexander & Baldwin, Inc. One-Year Performance Improvement Incentive Plan, as restated effective October 22, 1992 (Exhibit 10.b.1.(xxi) to A&B's Form 10-K for the year ended December 31, 1992).
(xxix) Alexander & Baldwin, Inc. Three-Year Performance Improvement Incentive Plan, as restated effective October 22, 1992 (Exhibit 10.b.1.(xxii) to A&B's Form 10-K for the year ended December 31, 1992).
(xxx) Alexander & Baldwin, Inc. Deferred Compensation Plan effective August 25, 1994 (Exhi-bit 10.b.1.(xxv) to A&B's Form 10-Q for the quarter ended September 30, 1994).
11. Statement re computation of per share earnings.
13. Annual report to security holders.
13. Alexander & Baldwin, Inc. 1995 Annual Report.
22. Subsidiaries.
22. Alexander & Baldwin, Inc. Subsidiaries as of February 29, 1996
24. Consent of Deloitte & Touche LLP dated March 27, 1996 (included as last page of A&B's Form 10-K for the year ended December 31, 1995).
D. REPORTS ON FORM 8-K -------------------
An amendment on Form 8-K/A, to a report on Form 8-K dated June 30, 1995, was filed on December 12, 1995, for the purpose of filing under Item 7 certain required pro forma financial information and financial statements relative to the sale by Matson Leasing and Matson (collectively, the "Sellers"), of Matson Leasing's container leasing business, through the sale of certain assets and liabilities of the Sellers (primarily of Matson Leasing).
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALEXANDER & BALDWIN, INC. (Registrant)
Date: March 27, 1996 By /s/ John C. Couch --------------------------------
John C. Couch Chairman of the Board, President and Chief Executive Officer
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 in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ----
/s/ John C. Couch Chairman of the March 27, 1996 - ------------------------- Board, President John C. Couch and Chief Execu- tive Officer and Director
/s/ Glenn R. Rogers Vice President, March 27, 1996 - ------------------------- Chief Financial Glenn R. Rogers Officer and Treasurer
/s/ Thomas A. Wellman Controller March 27, 1996 - ------------------------- Thomas A. Wellman
/s/ Michael J. Chun Director March 27, 1996 - ------------------------- Michael J. Chun
/s/ Leo E. Denlea, Jr. Director March 27, 1996 - ------------------------- Leo E. Denlea, Jr.
/s/ Walter A. Dods, Jr. Director March 27, 1996 - -------------------------- Walter A. Dods, Jr.
/s/ Charles G. King Director March 27, 1996 - -------------------------- Charles G. King
/s/ Carson R. McKissick Director March 27, 1996 - -------------------------- Carson R. McKissick
/s/ C. Bradley Mulholland Director March 27, 1996 - -------------------------- C. Bradley Mulholland
/s/ Robert G. Reed III Director March 27, 1996 - -------------------------- Robert G. Reed III
/s/ Maryanna G. Shaw Director March 27, 1996 - -------------------------- Maryanna G. Shaw
/s/ Charles M. Stockholm Director March 27, 1996 - -------------------------- Charles M. Stockholm
INDEPENDENT AUDITORS' REPORT
Alexander & Baldwin, Inc.:
We have audited the financial statements of Alexander & Baldwin, Inc. and its subsidiaries as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, and have issued our report thereon dated January 25, 1996; such financial statements and report are included in your 1995 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of Alexander & Baldwin, Inc. and its subsidiaries, listed in Item 14.B. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information shown therein.
/s/ Deloitte & Touche LLP Honolulu, Hawaii
January 25, 1996
INDEPENDENT AUDITORS' CONSENT
Alexander & Baldwin, Inc.:
We consent to the incorporation by reference in Registration Statements No. 2-72008, 2-84179, 33-31922, 33-31923 and 33-54825 of Alexander & Baldwin, Inc. and its subsidiaries on Form S-8 of our reports dated January 25, 1996, appearing in and incorporated by reference in the Annual Report on Form 10-K of Alexander & Baldwin, Inc. and its subsidiaries for the year ended December 31, 1995.
/s/ Deloitte & Touche LLP Honolulu, Hawaii
March 27, 1996
SCHEDULE I Page 1 of 4 ALEXANDER & BALDWIN, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ALEXANDER & BALDWIN, INC. (Parent Company) CONDENSED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 (In thousands)
1995 1994 ------ ------ ASSETS Current Assets: Cash and cash equivalents $44 $37 Accounts and notes receivable, net 75 1 Prepaid expenses and other 7,033 5,913 -------- -------- Total current assets 7,152 5,951 -------- -------- Investments: Subsidiaries consolidated, at equity 584,151 596,070 Other 81,538 61,031 -------- -------- Total investments 665,689 657,101 -------- -------- Real Estate Developments - 8,196 -------- -------- Property, at cost 97,193 80,814 Less accumulated depreciation and amortization 10,512 7,595 -------- -------- Property -- net 86,681 73,219 -------- -------- Other Assets 1,234 1,232 -------- -------- Total $760,756 $745,699 ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $319 $1,640 Due to subsidiaries 53,805 54,162 Other 4,361 9,188 -------- -------- Total current liabilities 58,485 64,990 -------- -------- Long-Term Liabilities 5,127 7,485 -------- -------- Deferred Income Taxes 43,818 40,610 -------- -------- Commitments and Contingencies
Shareholders' Equity: Capital stock 37,133 37,493 Additional capital 40,138 38,862 Unrealized holding gains on securities 39,830 29,073 Retained earnings 550,042 541,910 Cost of treasury stock (13,817) (14,724) -------- -------- Total shareholders' equity 653,326 632,614 -------- -------- Total $760,756 $745,699 ======== ========
See accompanying notes.
SCHEDULE I Page 4 of 4
ALEXANDER & BALDWIN, INC. (Parent Company) NOTES TO CONDENSED FINANCIAL STATEMENTS
(a) ORGANIZATION AND OPERATIONS
Alexander & Baldwin, Inc. is the parent company of A&B-Hawaii, Inc. (ABHI) and Matson Navigation Company, Inc. (Matson). ABHI has principal business opera- tions of Food Products and Property Development and Management. Matson has principal business operations of Ocean Transportation and until June 1995, of Container Leasing. The net assets of Matson Leasing Company, Inc., the Company's container leasing subsidiary, were sold in June 1995 for $361.7 million in cash. Accordingly, the operating results and the gain on sale of The container leasing segment have been separately reported.
(b) LONG-TERM LIABILITIES
At December 31, 1995 and 1994, long-term liabilities consisted of the following:
1995 1994 (In thousands) Long-term debt: Limited partnership subscription notes, no interest, payable through 1996 $850 $1,700 Mortgage loans, collateralized by land and buildings, 9% to 12.5%, repaid in 1995 - 6,041 Total 850 7,741 Less current portion 850 6,657 Long-term debt 0 1,084 Other--principally deferred compensation and executive survivors 5,127 6,401 Total $5,127 $7,485
At December 31, 1995, maturities of long-term debt during 1996 will be $850,000.
(c)COMMITMENTS AND CONTINGENCIES
The Company and certain subsidiaries are parties to various legal actions and are contingently liable in connection with claims and contracts arising in the normal course of business, the outcome of which, in the opinion of management after consultation with legal counsel, will not have a material adverse effect on the Company's financial position.
At December 31, 1995, the Company did not have any significant firm commitments.
(d)CASH DIVIDENDS FROM AFFILIATES
Cash dividends from a consolidated subsidiary were $70,000,000 in 1995, $60,000,000 in 1994 and $39,000,000 in 1993.