Item 1. Business.
Wellesley Lease Income Limited Partnership II-C (the "Partnership") is a limited partnership organized under the provisions of the Massachusetts Uniform Limited Partnership Act on January 20, 1984. As of December 31, 1995, the Partnership consisted of a General Partner and 1,776 Limited Partners owning 25,050 Units of Limited Partnership Interests of $500 each (the "Units"), except that employees of the Corporate General Partners of the General Partner and employees and securities representatives of its affiliates purchased 298 Units for a net price of $460 per Unit, and the Partnership incurred no obligation to pay any sales commissions with respect to such sales. The Units were sold commencing April 4, 1984, pursuant to a Registration Statement on Form S-1 under the Securities Act of 1933. As set forth more fully at Item 10. Directors and Executive Officers of the Partnership. of this Report, the General Partner is Wellesley Leasing Partnership, and the General Partner has two Corporate General Partners (the "Corporate General Partners"): TLP Leasing Programs, Inc. ("TLP") and CIS Management Services Corporation ("CISMS"), both Massachusetts corporations.
The Partnership was organized to engage in the business of acquiring income-producing computer peripheral equipment for investment purposes, principally International Business Machines, Incorporated ("IBM") equipment. The Partnership's principal objectives are as follows:
1. To acquire and lease equipment, primarily through operating leases, to generate income during its entire useful life;
2. To provide quarterly distributions of cash to the Limited Partners from leasing revenues and from the proceeds of sales or other disposition of Partnership equipment; and
3. To reinvest a portion of lease revenues and a substantial portion of cash from sales and refinancings in additional equipment during the first nine years of the Partnership's operations.
The Partnership was formed primarily for investment purposes and not as a "tax shelter".
The Partnership shall terminate on December 31, 2011, unless sooner dissolved or terminated as provided in Section 11 of the Amended Agreement of Limited Partnership.
The closing date of the Partnership was October 31, 1984, and aggregate equipment purchased through December 31, 1995, is $25,939,110. At the end of 1995, there are 10 leases in place with 7 lessees. The acquisition of these leases and equipment is described more fully in Item 2.

Item 2. Properties.
At December 31, 1995, the Partnership owned computer equipment with a depreciated cost basis of $56,963, subject to 10 existing leases with 7 different lessees. All purchases of computer equipment are subject to a 3% acquisition fee paid to the General Partner.
Item 3.

Item 3. Legal Proceedings.
There are no material pending legal proceedings that the Partnership is a party or of which any of its equipment or leases is the subject, except as described below and in note 8 to the financial statements herein in Item 8. Financial Statements and Supplementary Data.
On January 13, 1989 (the "Petition Date"), Continental Information Systems Corporation ("Continental"), CIS Corporation ("CIS"), CMI Holding Co. ("Holding"), CMI Corporation ("CMI") and certain of its affiliates (collectively, the "Debtors"), voluntarily petitioned for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"), and thereafter continued in the management and operation of their businesses and property as Debtors In Possession until October 25, 1989, when the United States Bankruptcy Court (the "Court") confirmed the appointment of James P. Hassett as Chapter 11 trustee (the "Trustee") of the Debtors. Holding is the parent of TLP and CMI is the parent of CISMS. TLP and CISMS, neither of which filed under Chapter 11, are the two Corporate General Partners of Wellesley Leasing Partnership, the General Partner of the Partnership. Both before and after the Petition Date, CIS and CMI have acted as agents for the Partnership in selling, leasing and remarketing Partnership equipment. Holding became a wholly-owned subsidiary of CIS pursuant to a Court ordered settlement on July 20, 1993.
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP from Holding. Under the new ownership, it is expected that TLP will continue to operate in the same manner of business as it has in the past.
As of the Petition Date, there were a number of unsettled transactions between CIS and CMI and the Partnership and other affiliated partnerships (the Partnership and such other partnerships are herein collectively referred to as the "Partnerships"), including outstanding accounts receivable and accounts payable between each of the Partnerships and CIS and CMI and their affiliates, sales of equipment and related leases from CIS and CMI to each of the Partnerships for which not all documentation had been completed as of the Petition Date, and sales of equipment and related leases from which CIS had failed to remove prior third-party liens. In addition, accounts receivable and accounts payable continued to accrue and be paid between each of the Partnerships and CIS and CMI and their affiliates subsequent to the Petition Date.
On February 28, 1992, the Court granted an order implementing a settlement of the outstanding issues between each of the Partnerships and the Debtors. The settlement occurred on March 13, 1992. In the order the Court approved a set-off on a partnership-by-partnership basis of pre-petition amounts owed by each affected Debtor to each Partnership to the extent of pre-petition amounts owed by that Partnership to that Debtor. As a result of the set-off, the Partnership had a net unsecured pre-petition claim of $90,350 against CMI as of December 31, 1993, which had been fully reserved.
On November 29, 1994, the Court confirmed the Trustee's proposed Joint Plan of Reorganization ("the Plan") dated October 4, 1994, and the Debtors emerged from Chapter 11 bankruptcy protection on December 21, 1994. In accordance with the Plan projections, 100% of each CMI claim would be paid in full, of which 75% would be cash and 25% would be common stock of the reorganized Continental Information Systems Corporation ("CISC"), based on a per share price of $4.29.
On December 27, 1994, the Partnership received the first distribution from the Trustee (now trustee of the Liquidating Estate of CIS Corporation, et al) with respect to the net unsecured pre-petition claim described above. The distribution consisted of cash proceeds of $54,997 and 4,447 shares of common stock in the CISC. During the second quarter of 1995, the stock of CISC began trading, thereby providing an objective valuation method for establishing the cost basis of $2.50 per share, which approximated fair value at June 30, 1995. A charge off was made in 1995 in relation to the difference between the Trustee's original prescribed value of the CISC stock at $4.29 per share and the cost basis established by the Partnership. On July 20, 1995, the Partnership received the second and final distribution which consisted of cash proceeds of $12,765 and 823 shares of common stock. Following the Trustee's second distribution and the charge off made during the year, the Partnership's net unsecured pre-petition claim has been settled as of July 20, 1995 and there are no other outstanding receivable balances.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
None.
Part II
Item 5.

Item 5. Market for the Partnership's Securities and Related Security Holder Matters.
(a) Market Information
The Partnership's outstanding securities consist of Limited Partnership Interests in Units of $500 each. As of December 31, 1995, 25,050 Units had been sold to the public at a price of $500 per Unit (except for 298 Units which were sold for a net price of $460 per Unit to employees of the Corporate General Partners of the General Partner and employees and securities representatives of its affiliates).
There is no public market for the Units, and it is not anticipated that such a public market will develop.
(b) Approximate Number of Security Holders
(c) Dividend History and Restrictions
During the fiscal period ended December 31, 1984, the Partnership completed its offering of 25,050 Units. Pursuant to Section 8 of the Limited Partnership Agreement, the Partnership's "Distributable Cash From Operations" for each year will be determined and then distributed to the Partners. Upon reaching the end of its reinvestment period (the ninth anniversary of the Partnership's closing date), the Partnership will also distribute to the Partners "Distributable Cash From Sales or Refinancings", if any. The Partnership distributed $187,873 to the Limited Partners in 1995, $375,752 in 1994 and $501,000 in 1993 and distributed $9,888 to the General Partner in 1995, $19,776 in 1994 and $26,368 in 1993. The cumulative cash distributions to the Limited Partners through December 31, 1995, are $14,320,335 as compared with the contributed Limited Partners' net capital of $11,158,769.
"Cash From Operations" and "Cash From Sales or Refinancings" means the net cash provided by the Partnership's normal operations or as a result of any sales, refinancings or other dispositions of equipment, respectively, after the general expenses and current liabilities of the Partnership (other than the equipment management fee) are paid, as reduced by any reserves for working capital and contingent liabilities to the extent deemed reasonable by the General Partner, and as increased by any portion of such reserves then deemed by the General Partner not to be required for Partnership operations. "Distributable Cash From Operations" and "Distributable Cash From Sales or Refinancings" means Cash From Operations or Cash From Sales or Refinancings, respectively, reduced by amounts which the General Partner determines shall be reinvested (through the ninth anniversary of the Partnership's closing date) in additional Equipment and by payments of all accrued but unpaid equipment management fees.
For rendering services in connection with the normal operations of the Partnership, the Partnership will pay to the General Partner a Partnership management fee equal to 7% of the monthly rental billings collected.
Each distribution of Distributable Cash From Operations and any Distributable Cash From Sales or Refinancings from gains of the Partnership shall be allocated 95% to the Limited Partners and 5% to the General Partner. Any losses from Sales or Refinancings of equipment shall be allocated 99% to the Limited Partners and 1% to the General Partner until "Payout" has occurred. "Payout" means the time when the aggregate amount of all distributions to the Limited Partners of Distributable Cash From Operations and of Distributable Cash From Sales or Refinancings equals the aggregate amount of the Limited Partners' original invested capital plus a cumulative 10% annual return (compounded daily) on their aggregate unreturned invested capital (calculated from the beginning of the first full fiscal quarter following the Partnership's closing date). Including the distribution for the fourth quarter of 1995 made February 29, 1996, cumulative distributions to date are $572.92 per Unit. This cumulative distribution per Unit amount represents 47.48% of "Payout". After Payout has occurred, any Distributable Cash From Sales or Refinancings will be distributed 15% (plus an additional 1% for each 1% by which the total of all Limited Partners' original Capital Contributions actually paid or allocated to the Partnership's investment in equipment exceeds the greater of (i) 80% of the gross proceeds of the Partnership's offering of Units, reduced by 0.0625% for each 1% of leverage encumbering Partnership equipment, or (ii) 75% of the gross proceeds of such offering) to the General Partner, and the remainder to the Limited Partners. It is not anticipated that Payout will occur as of the liquidation of this Partnership.
Distributable Cash, if any, will be distributed within 60 days after the completion of each of the first three fiscal quarters of each Partnership fiscal year, and within 120 days after the completion of each fiscal year, beginning after the first full fiscal quarter following the Partnership's closing date. Each such distribution will be described in a statement sent to the Limited Partners.
Item 6.

Item 6. Selected Financial Data.
The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with the financial statements and notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included in Items 8. and 7., respectively, of this report.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
General
On October 31, 1984, the Partnership completed its offering and received from the escrow account $12,513,080 representing 25,050 Units of Limited Partnership Interests. Of this amount, the Partnership received proceeds from the sale of 298 Units at a price net of sales commission for employees of the Corporate General Partners of the General Partner and employees and securities representatives of its affiliates, who are allowed to purchase Units for a net price of $460 per Unit.
Results of Operations
The following discussion relates to Partnership's operations for the year ended December 31, 1995, in comparison to the years ended December 31, 1994 and 1993.
The Partnership realized net income of $71,675, $89,491 and $242,805, for the years ended December 31, 1995, 1994, and 1993, respectively. Rental income decreased $17,495 or 10% and $617,442 or 78% in 1995 and 1994, respectively. The decrease in rental income is primarily due to lower rental rates on equipment lease extensions and remarketing and a reduction in the overall equipment portfolio available for lease. Interest income decreased as result of lower average short-term investment balances. The recovery of net unsecured pre-petition claim of $25,940 and $54,997 for the years ended December 31, 1995 and 1994, respectively, was the result of the receipt of the Trustee's distributions on the fully reserved net unsecured pre-petition receivable, in the original amount of $90,350 (for further discussion refer to note 8 to the financial statements). The current year recovery relates to the receipt of the second and final Trustee's distribution comprised of cash and stock, along with the second quarter of 1995 establishment of the carrying value of the stock received in the December 27, 1994 distribution. Accordingly, the prior year recovery amount represents the cash portion of the Trustee's first distribution. The decrease in net gain on sale of equipment can be attributed to fewer sales of equipment during 1995 in comparison to sales made in 1994.
Total costs and expenses decreased $158,938 or 57% and $280,684 or 50% in 1995 and 1994, respectively, compared to prior periods. The decrease in costs and expenses each year is primarily the result of lower depreciation expense, which accounted for a decrease of $151,915 and $233,182 in 1995 and 1994, respectively. Depreciation expense decreased each year due to the reduction in the size of the equipment portfolio and an increased portion of the equipment portfolio becoming fully depreciated. Included in depreciation expense in 1994 and 1993 is a provision for $10,000 and $50,000, respectively, to properly reflect the equipment portfolio's net realizable value for those years. The net loss on sale of marketable securities reflects the fourth quarter sale of stock that had been received from the Trustee. The current year increase in management fees resulted from the successful collection efforts of delinquent rents receivable. Management fees decreased sharply in 1994 from the prior year as a result of the decline in rental income accompanied by the increase of delinquent accounts receivable. General and administrative expenses remained relatively flat over the past three years. The Partnership was able to reverse its provision for doubtful accounts in the amount of $4,396 for the year ended December 31, 1995. In comparison, the Partnership established a reserve for doubtful accounts in 1994 in the amount of $7,787.
The Partnership recorded net income (loss) per Limited Partnership Unit of $2.16, ($2.56) and $8.27 for the years ended December 31, 1995, 1994 and 1993, respectively. The allocation for the years ended December 31, 1995 and 1994 includes a cost recovery allocation of profit and loss among the General and Limited Partners which results in an allocation of net loss to the Limited Partners. This cost recovery allocation is required to maintain capital accounts consistent with the distribution provisions of the Partnership Agreement. In certain periods, the cost recovery of profit and loss may result in an allocation of net loss the Limited Partners in instances when the Partnership's operations were profitable for the period.
Liquidity and Capital Resources
For the year ended December 31, 1995, rental revenue generated from operating leases was the primary source of funds for the Partnership. As equipment leases terminate, the General Partner determines if the equipment will be extended to the same lessee, remarketed to another lessee, or if it is less marketable, sold. This decision is made upon analyzing which options would generate the most favorable results.
Rental income will continue to decrease due to two factors. The first factor is the rate obtained when the original leases expire and are remarketed at a lower rate. Typically the remarketed rates are lower due to the decrease in useful life of the equipment. Secondly, the increasing change of technology in the computer industry usually decreases the demand for older equipment, thus increasing the possibility of obsolescence. Both of these factors together will cause remarketed rates to be lower than original rates and will cause certain leases to terminate upon expiration. Future rental revenues amount to $51,122 and are related to leases that expire over the next three years (for further discussion, refer to note 4 to the financial statements).
During the second quarter of 1995, the General Partner announced its intentions of winding down the operations of the Partnership. It is anticipated that substantially all of the assets will be liquidated and the proceeds will be used to settle all outstanding liabilities and make a final distribution during 1996.
The Partnership's investing activities for the year resulted in equipment sales with a depreciated cost basis of $8,120 generating $9,755 in proceeds. During the fourth quarter, the Partnership sold 4,161 shares of CISC stock, having a cost basis of $10,403, generating net sales proceeds in the amount of $8,838. The Partnership has no material capital expenditure commitments and will not purchase equipment in the future as the Partnership has reached the end of its reinvestment period and has announced its intentions of winding down the Partnership.
Cash distributions paid in the first quarter of 1996 are currently at an annual level of 1% per Limited Partnership Unit or $1.25 per Limited Partnership Unit on a quarterly basis. During 1995, the Partnership distributed a total of $7.50 per Limited Partnership Unit, of which $2.16 per Unit represents income and $5.34 per Unit represents a return of capital. For the quarter ended December 31, 1995, the Partnership declared a cash distribution of $32,961, of which $1,648 was distributed to the General Partner and $31,313 was distributed to the Limited Partners. The distribution subsequently occurred on February 29, 1996. The Partnership expects distributions to be more volatile as its operations are winding down. The effects of inflation have not been significant to the Partnership and are not expected to have any material impact in future periods.
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP from Holding. Under the new ownership, it is expected that TLP will continue to operate in the same manner of business as it has in the past.
Item 8.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Partners of Wellesley Lease Income Limited Partnership II-C:
We have audited the accompanying balance sheets of Wellesley Lease Income Limited Partnership II-C (a Massachusetts Limited Partnership) as of December 31, 1995 and 1994, and the related statements of operations, partners' equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 1995. In connection with our audits of the financial statements, we have also audited the accompanying financial statement schedule II for each of the years in the three-year period ended December 31, 1995. These financial statements and this financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and this financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wellesley Lease Income Limited Partnership II-C as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related 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.
As discussed in note 1, the General Partner has begun the process of liquidating the assets of the Partnership, and anticipates that the process will be substantially complete in 1996.
KPMG Peat Marwick LLP
Boston, Massachusetts March 15, 1996
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Balance Sheets December 31, 1995 and 1994
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Statements of Operations For the Years Ended December 31, 1995, 1994 and 1993
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Statements of Partners' Equity (Deficit) For the Years Ended December 31, 1995, 1994 and 1993
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Statements of Cash Flows For the Years Ended December 31, 1995, 1994 and 1993
See accompanying notes to financial statements.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Notes to Financial Statements December 31, 1995, 1994 and 1993
(1) Organization and Partnership Matters
The Partnership was organized under the Massachusetts Uniform Limited Partnership Act on January 20, 1984. The Amended Agreement of Limited Partnership authorized the issuance of up to 25,000 Limited Partnership Units at a per unit gross price of $500 and up to 50 additional units to affiliates. The Partnership closed on October 31, 1984, with 25,050 units.
The General Partner has contributed $1,000 in respect of its General Partnership interest. In addition, the General Partner and its affiliates have acquired an additional $24,000 of Limited Partnership Units in accordance with the Amended Agreement of Limited Partnership.
Pursuant to the terms of the Amended Agreement of Limited Partnership, Distributable Cash From Operations and Profits for federal income tax and financial reporting purposes from normal operations and any Distributable Cash From Sales or Refinancings from gains of the Partnership shall be allocated 95% to the Limited Partners and 5% to the General Partner. Further, gains on sales of equipment occurring after the reinvestment period end shall be allocated first to eliminate negative capital accounts, if any, and second 95% to the Limited Partners and 5% to the General Partner until "Payout" has occurred. "Payout" means the time when the aggregate amount of all distributions to the Limited Partners of Distributable Cash From Operations and of Distributable Cash From Sales or Refinancings equals the aggregate amount of the Limited Partners' original invested capital plus a cumulative 10% annual return (compounded daily) on their aggregate unreturned invested capital (calculated from the beginning of the first full fiscal quarter following the Partnership's closing date). Losses for federal income tax and financial reporting purposes from normal operations and any Distributable Cash From Sales or Refinancings from losses of the Partnership shall be allocated 99% to the Limited Partners and 1% to the General Partner until Payout has occurred, and 85% to the Limited Partners and 15% to the General Partner thereafter. In addition, special cost recovery allocations may be required to reflect the differing initial capital contributions of the General Partner and the Limited Partners. The Partnership's books and records are in accordance with the terms of the Amended Agreement of Limited Partnership. Including the fourth quarter of 1995 distribution made February 29, 1996, cumulative distributions to date are $572.92 per Unit. This cumulative distribution per Unit amount represents 47.48% of Payout. It is not anticipated that Payout will occur as of the liquidation of this Partnership.
During the second quarter of 1995, the General Partner announced its intentions of winding down the operations of the Partnership. It is anticipated that substantially all of the assets will be liquidated and the proceeds will be used to settle all outstanding liabilities and make a final distribution during 1996.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Notes to Financial Statements
(2) Significant Accounting Policies
General
The Partnership's records are maintained on the accrual basis of accounting so that revenues are recognized as earned and expenses are recognized as incurred. Assets and liabilities are those of the Partnership and do not include any assets and liabilities of the individual partners. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Depreciation on investment property purchased in 1987 and thereafter is provided using the double-declining balance method, generally over a five-year period. The Partnership's policy is to periodically review the estimated fair market value of its equipment to assess the recoverability of its undepreciated cost. In accordance with this policy, the Partnership records a charge to depreciation expense in instances when the net book value of equipment exceeds its net realizable value. Included in depreciation expense in 1994 and 1993 is a provision for $10,000 and $50,000, respectively, to properly reflect the equipment portfolio's net realizable value for those years. Routine maintenance and repairs are expensed as incurred. Major betterments and enhancements are capitalized and depreciated in accordance with the Partnership's depreciation policy.
Cash and Cash Equivalents
The Partnership considers cash and short-term investments with original maturities of three months or less to be cash and cash equivalents.
Allowance for Doubtful Accounts
The financial statements include allowances for estimated losses on receivable balances. The allowances for doubtful accounts are based on past write off experience and an evaluation of potential uncollectible accounts within the current receivable balances. Receivable balances which are determined to be uncollectible are charged against the allowance and subsequent recoveries, if any, are credited to the allowance. At December 31, 1995 and 1994, the allowance for doubtful accounts included in rents receivable was $635 and $56, respectively, and $0 and $21,250 included in accounts receivable - affiliates, respectively.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Notes to Financial Statements
Marketable Securities
The marketable securities are stated at fair value at the balance sheet date and consist of 1,109 shares of common stock in Continental Information Systems Corporation ("CISC") received by the Partnership in the distributions made December 27, 1994 and July 20, 1995 by the Trustee of the Liquidating Estate of CIS Corporation, et al, ("the Trustee"), with respect to the outstanding net unsecured pre-petition claim. During the second quarter of 1995, the stock began trading, thereby providing an objective valuation measure for establishing the cost basis. Unrealized gains and losses are recorded directly in partners' equity except those gains and losses that are deemed to be other than temporary, which would be reflected in income or loss (see note 7).
Income Taxes
No provision for federal income taxes has been made as the liability for such taxes is that of the Partners rather than the Partnership. Taxable income (loss), as reported on Schedule K-1, Form 1065 "Partner's Share of Income, Credits, Deductions, etc.", was $15,766, $(126,997) and $292,805 in 1995, 1994 and 1993, respectively (see note 6).
(3) Investment Property
At December 31, 1995, the Partnership owned computer equipment with a depreciated cost basis of $56,963, subject to existing leases. All purchases of computer equipment are subject to a 3% acquisition fee paid to the General Partner.
(4) Leases
Description of leasing arrangements:
Operations consist primarily of leasing computer equipment. All equipment leases are classified as operating leases and expire over the next three years.
Minimum lease payments scheduled to be received in the future under existing noncancelable operating leases are as follows:
1996 $ 44,087 1997 5,676 1998 1,359 --------------
$ 51,122 ==============
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Notes to Financial Statements
The following schedule provides an analysis of the cost of capital equipment by major classes as of December 31, 1995:
Computer peripherals $ 306,927 Other 222,258 -------------- $ 529,185 ==============
Five lessees, Caterpillar Tractor Company, Coast Pump & Supply Company, Incorporated, First Option of Chicago, Incorporated, New York Life Insurance Company and Owens Corning Fiberglass, Incorporated, lease equipment in which the related rental payments exceed 10% of the total rental income. The related rental payments comprise 12.91%, 14.10%, 10.14%, 24.04% and 29.68%, respectively, of the total rental income for the year ended December 31, 1995. Caterpillar Tractor Company, Coast Pump & Supply Company Incorporated, First Option of Chicago, Incorporated, New York Life Insurance Company and Owens Corning Fiberglass, Incorporated, lease equipment comprising 12.25%, 10.47%, 4.85%, 25.86% and 23.58%, respectively, of the total equipment portfolio at December 31, 1995.
(5) Related Party Transactions
Fees, commissions and other expenses paid or accrued by the Partnership to the General Partner or affiliates of the General Partner for the years ended December 31, 1995, 1994, and 1993 are as follows:
Under the terms of the Partnership Agreement, the General Partner is entitled to an equipment acquisition fee of 3% of the purchase price paid by the Partnership for the equipment. The General Partner is also entitled to a management fee equal to 7% of the monthly rental billings collected. Also, the Partnership reimburses the General Partner and its affiliates for certain expenses incurred by them in connection with the operation of the Partnership.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Notes to Financial Statements
(6) Reconciliation of Financial Statement Net Income to Taxable Income (Loss) to Partners
A reconciliation of financial statement net income to taxable income (loss) to partners is as follows for the years ended December 31, 1995, 1994 and 1993:
Losses for federal tax purposes from normal operations are allocated 99% to the Limited Partners and 1% to the General Partner. Profits for federal tax purposes from normal operations are allocated 95% to the Limited Partners and 5% to the General Partner. In addition, special cost recovery allocations may be required to reflect the differing initial capital contribution of the General Partner and the Limited Partners.
(7) Fair Values of Financial Instruments
Pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires investments in debt and equity securities other than those accounted for under the equity method to be carried at fair value or amortized cost for debt securities expected to be held to maturity, the Partnership has classified its investments in equity securities as available for sale. Accordingly, the net unrealized gains and losses computed in marking these securities to market are reported as a component of partners' equity. At December 31, 1995 the difference between the fair value and the cost basis of these securities is an unrealized loss of $416.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Notes to Financial Statements
The fair value is based on currently quoted market prices. The cost basis and estimated fair value of the Partnership's marketable securities at December 31, 1995 are as follows:
As was discussed in note 2, Marketable Securities, the Partnership received stock in CISC as part of the December 27, 1994 and July 20, 1995 distributions from the Trustee, with respect to the outstanding net unsecured pre-petition claim. The receivables comprising the net unsecured pre-petition claim had been fully reserved during prior years; thus, during the second quarter of 1995 when the stock began actively trading, the carrying amount for the stock was established to be $2.50 per share which approximated fair value at June 30, 1995.
(8) Bankruptcy of Continental Information Systems Corporation
On January 13, 1989 (the "Petition Date"), Continental Information Systems Corporation ("Continental"), CIS Corporation ("CIS"), CMI Holding Co. ("Holding"), CMI Corporation ("CMI") and certain of its affiliates (collectively, the "Debtors"), voluntarily petitioned for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"), and thereafter continued in the management and operation of their businesses and property as Debtors In Possession until October 25, 1989, when the United States Bankruptcy Court (the "Court") confirmed the appointment of James P. Hassett as Chapter 11 trustee (the "Trustee") of the Debtors. Holding is the parent of TLP and CMI is the parent of CISMS. TLP and CISMS, neither of which filed under Chapter 11, are the two Corporate General Partners of Wellesley Leasing Partnership, the General Partner of the Partnership. Both before and after the Petition Date, CIS and CMI have acted as agents for the Partnership in selling, leasing and remarketing Partnership equipment. Holding became a wholly-owned subsidiary of CIS pursuant to a Court ordered settlement on July 20, 1993.
As of the Petition Date, there were a number of unsettled transactions between CIS and CMI and the Partnership and other affiliated partnerships (the Partnership and such other partnerships are herein collectively referred to as the "Partnerships"), including outstanding accounts receivable and accounts payable between each of the Partnerships and CIS and CMI and their affiliates, sales of equipment and related leases from CIS and CMI to each of the Partnerships for which not all documentation had been completed as of the Petition Date, and sales of equipment and related leases from which CIS had failed to remove prior third-party liens. In addition, accounts receivable and accounts payable continued to accrue and be paid between each of the Partnerships and CIS and CMI and their affiliates subsequent to the Petition Date.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Notes to Financial Statements
On February 28, 1992, the Court granted an order implementing a settlement of the outstanding issues between each of the Partnerships and the Debtors. The settlement occurred on March 13, 1992. In the order the Court approved a set-off on a partnership-by-partnership basis of pre-petition amounts owed by each affected Debtor to each Partnership to the extent of pre-petition amounts owed by that Partnership to that Debtor. As a result of the set-off, the Partnership had a net unsecured pre-petition claim of $90,350 against CMI as of December 31, 1993 which had been fully reserved.
On November 29, 1994, the Court confirmed the Trustee's proposed Joint Plan of Reorganization ("the Plan") dated October 4, 1994, and the Debtors emerged from Chapter 11 bankruptcy protection on December 21, 1994. In accordance with the Plan projections, 100% of each CMI claim would be paid in full, of which 75% would be cash and 25% would be common stock of the reorganized Continental Information Systems Corporation ("CISC"), based on a per share price of $4.29.
On December 27, 1994, the Partnership received the first distribution from the Trustee (now trustee of the Liquidating Estate of CIS Corporation, et al) with respect to the net unsecured pre-petition claim described above. The distribution consisted of cash proceeds of $54,997 and 4,447 shares of common stock in the CISC. During the second quarter of 1995, the stock of CISC began trading, thereby providing an objective valuation method for establishing the cost basis of $2.50 per share, which approximated fair value at June 30, 1995. A charge off was made in 1995 in relation to the difference between the Trustee's original prescribed value of the CISC stock at $4.29 per share and the cost basis established by the Partnership. On July 20, 1995, the Partnership received the second and final distribution which consisted of cash proceeds of $12,765 and 823 shares of common stock. Following the Trustee's second distribution and the charge off made during the year, the Partnership's net unsecured pre-petition claim has been settled as of July 20, 1995 and there are no other outstanding receivable balances.
(9) Subsequent Events
On January 9, 1996, TLP Holding LLC purchased all the common stock of TLP from Holding. Under the new ownership, it is expected that TLP will continue to operate in the same manner of business as it has in the past.
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Schedule II - Valuation and Qualifying Accounts and Reserves
WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Computer Equipment Portfolio (Unaudited) December 31, 1995
Lessee
Bangor Hydro Electric Power, Incorporated Caterpillar Tractor Company Coast Pump & Supply Company, Incorporated First Options of Chicago, Incorporated New York Life Insurance Company Owens Corning Fiberglass, Incorporated South Pacific Transport Company
Equipment Description Acquisition Price
Computer Peripherals $ 306,927 Other 222,258 ------------
$ 529,185 ============
Exhibit 11 WELLESLEY LEASE INCOME LIMITED PARTNERSHIP II-C (A Massachusetts Limited Partnership)
Computation of Net Income (Loss) per Limited Partnership Unit For the Years Ended December 31, 1995, 1994 and 1993
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Statement Disclosures.
None.
Part III
Item 10.

Item 10. Directors and Executive Officers of the Partnership.
(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1. of this report, the General Partner of the Partnership is Wellesley Leasing Partnership. Under the Partnership Agreement, the General Partner is solely responsible for the operation of the Partnership's properties, and the Limited Partners have no right to participate in the control of such operations. The General Partner has two Corporate General Partners: TLP and CISMS, both Massachusetts corporations. The names and ages of the Directors and Executive Officers of the Corporate General Partners are as follows:
* Executive Committee Member
(c) Identification of certain significant persons
See Item 10. (a-b)
(d) Family relationship
No family relationship exists between any of the foregoing Directors or Officers.
(e) Business experience
Arthur P. Beecher is President and Director of TLP. He is also President and Assistant Secretary of CISMS. Prior to joining TLP in October 1983, Mr. Beecher was an Officer of Computer Systems of America, Inc., in Boston, Massachusetts, most recently as Vice President, Finance and Administration since 1975. Mr. Beecher holds a B.S. from Boston University and is a Certified Public Accountant.
Thomas J. Prinzing is a Director of TLP and CISMS. On December 18, 1995, Mr. Prinzing was elected President, Chief Executive Officer and Director of Continental Information Systems Corporation ("CISC"). Mr. Prinzing is also the President of CIS Air Corporation, a position he has held since 1991. From 1984 to 1991 he was Senior Vice President and Chief Financial Officer of CIS. Mr. Prinzing has an Honors Bachelor of Commerce degree of the University of Windsor and is a Certified Public Accountant.
Frank J. Corcoran is Director, Vice President, Treasurer and Clerk of TLP, and is also Vice President, Treasurer and Clerk of CISMS. Mr. Corcoran is Senior Vice President, Chief Financial Officer, Treasurer and Director of CIS and a Vice President and Treasurer of Holding. Prior to joining CIS in November 1994, he was with Unisys Finance Corporation, from 1985 to 1994, most recently as the Vice President and General Manager. Mr. Corcoran holds a B.S. from Wayne State University, a M.S. in Taxation from Walsh College and is a Certified Public Accountant.
(f) Involvement in certain legal proceedings
The Partnership is not aware of any legal proceedings against any Director or Executive Officer of the Corporate General Partners which may be important for the evaluation of any such person's ability and integrity.
Item 11.

Item 11. Management Remuneration and Transactions.
(a), (b), (c), (d), and (e): The Officers and Directors of the Corporate General Partners receive no current or proposed direct remuneration in such capacities, pursuant to any standard arrangements or otherwise, from the Partnership. In addition, the Partnership has not paid and does not propose to pay any options, warrants or rights to the Officers and Directors of the Corporate General Partners. There exists no remuneration plan or arrangement with any officer or director of the Corporate General Partners resulting from the resignation, retirement or any other termination. See note 5 to the financial statements included in Item 8. of this report for a description of the remuneration paid by the Partnership to the General Partner and its affiliates during 1995, 1994 and 1993.
Item 12.

Item 12. Security Ownership of Certain Owners and Management.
By virtue of its organization as a limited partnership, the Partnership has outstanding no securities possessing traditional voting rights. However, as provided for in Section 13.2 of the Amended Agreement of Limited Partnership (subject to Section 13.3), a majority interest of the Limited Partners have voting rights with respect to:
1. Amendment of the Limited Partnership Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of substantially all the assets of the Partnership.
No person or group is known by the General Partner to own beneficially more than 5% of the Partnership's 25,050 outstanding Limited Partnership Units as of December 31, 1995.
By virtue of its organization as a limited partnership, the Partnership has no Officers or Directors. See also note 1 to the financial statements included in Item 8. and Item 10. of this report.
Item 13.

Item 13. Certain Relationships and Related Transactions.
(a), (b), and (c): The General Partner of the Partnership is Wellesley Leasing Partnership, a Massachusetts general partnership which in turn has two Corporate General Partners: TLP and CISMS, both Massachusetts corporations. The Corporate General Partners' directors and executive officers are identified in Item 10. of this report. The Partnership was not involved in any transaction involving any of these Directors or Officers or any member of the immediate family of these individuals, nor did any of these persons provide services to the Partnership for which they received direct or indirect remuneration. Similarly, there exists no business relationship between the Partnership and any of the Directors or Officers of the Corporate General Partners, nor were any of the individuals indebted to the Partnership.
The General Partner is responsible for acquiring, financing, leasing and selling equipment for the Partnership. CISMS proposes for the Partnership equipment acquisitions, leasing transactions, financing and refinancing transactions, and sale transactions, for approval by the Executive Committee, and oversees the operation, management and use of each Partnership's equipment. TLP oversaw the marketing of the Units and oversees all administrative functions of the Partnership and provides substantially all of the General Partner's capital resources. In consideration of such services and capital commitments, TLP receives 40%, and CISMS receives 60%, of all compensation received by the General Partner in connection with the formation and operation of the Partnership (including equipment management fees, acquisition fees, subordinated remarketing fees and the General Partner's share of Distributable Cash From Sales or Refinancings), except for acquisition fees, as to which TLP receives 25% and CISMS receives 75%. The General Partner also was reimbursed in an amount equal to 3% of the gross proceeds of the Partnership's offerings for organizational and offering expenses; all such expenses in excess of that amount were borne by TLP. See note 5 to the financial statements included in Item 8. of this report for a description of payments made by the Partnership to the General Partner.
For information regarding the settlements between the Partnership and the Liquidating Estate of CIS Corporation, et al, arising out of the emergence from bankruptcy of CIS and CMI, see Item 3. Legal Proceedings.
Part IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K: None.


ITEM 1 - BUSINESS
May Drilling Partnership 1983-3 (the "Drilling or General Partnership") and May Limited Partnership 1983-3 (the "Limited Partnership") were organized by May Petroleum Inc. ("May") to explore for and develop oil and gas reserves primarily in Texas, Oklahoma and Louisiana. Funds received from the sale and production of oil and gas reserves are used to pay the obligations of the Limited Partnership. Funds not required by the Limited Partnership as working capital are distributed to the participants in the Drilling Partnership and the general partner.
The general partner of the Limited Partnership is EDP Operating, Ltd., which is one of the operating partnerships for Hallwood Energy Partners, L. P. ("HEP"). The Drilling Partnership is the sole limited partner of the Limited Partnership. The Limited Partnership does not have any subsidiaries, nor does it engage in any other kind of business. The Limited Partnership has no employees and is operated by Hallwood Petroleum, Inc. ("HPI"), a subsidiary of HEP. In February 1996, HPI employed 133 full-time employees.
Pursuant to the terms of the general partnership agreement and the limited partnership agreement, HEP is obligated, from time to time, to contribute certain amounts, in property, cash or unreimbursed services, to the Limited Partnership. As of December 31, 1995, all such required contributions had been made.
PARTICIPATION IN EXPENSES AND REVENUES
The principal expenses and revenues of the Limited Partnership are shared by the general partner and the Drilling Partnership as set forth in the following table. The charges and credits to participants in the Drilling Partnership are shared among the participants in proportion to their ownership of units of participation.
In 1996, the sharing ratio will be 57.7% to the limited partner and 42.3% to the general partner.
To the extent that the characterization of any expense of the Limited Partnership depends on its deductibility for federal income tax purposes, the proper characterization is determined by the general partner (according to its intended characterization on the Limited Partnership's federal income tax return) in good faith at the time the expense is to be charged or credited. Such characterization will control related charges and credits to the partners regardless of any subsequent determination by the Internal Revenue Service or a court of law that the reported expenses should be otherwise characterized for tax purposes.
COMPETITION
Oil and gas must compete with coal, atomic energy, hydro-electric power and other forms of energy. See also "Marketing" for a discussion of the market structure for oil and gas sales.
REGULATION
Production and sale of oil and gas is subject to federal and state governmental regulations in a variety of ways including environmental regulations, labor law, interstate sales, excise taxes and federal, state and Indian lands royalty payments. Failure to comply with these regulations may result in fines, cancellation of licenses to do business and cancellation of federal, state or Indian leases.
The production of oil and gas is subject to regulation by the state regulatory agencies in the states in which the Limited Partnership does business. These agencies make and enforce regulations to prevent waste of oil and gas and to protect the rights of owners to produce oil and gas from a common reservoir. The regulatory agencies regulate the amount of oil and gas produced by assigning allowable production rates to wells capable of producing oil and gas.
FEDERAL INCOME TAX CONSIDERATIONS
The Limited Partnership and the General Partnership are partnerships for federal income tax purposes. Consequently, they are not taxable entities; rather, all income, gains, losses, deductions and credits are passed through and taken into account by the partners on their individual federal income tax returns. In general, distributions are not subject to tax so long as such distributions do not exceed the partner's adjusted tax basis. Any distributions in excess of the partner's adjusted tax basis are taxed generally as capital gains.
MARKETING
The oil and gas produced from the properties owned by the Limited Partnership has typically been marketed through normal channels for such products. Oil has generally been sold to purchasers at field prices posted by the principal purchasers of crude oil in the areas where the producing properties are located. The majority of the Limited Partnership's gas production is sold on the spot market and is transported in intrastate and interstate pipelines. Both oil and natural gas are purchased by refineries, major oil companies, public utilities and other users and processors of petroleum products.
Factors which, if they were to occur, might adversely affect the Limited Partnership include decreases in oil and gas prices, the availability of a market for production, rising operational costs of producing oil and gas, compliance with and changes in environmental control statutes and increasing costs and difficulties of transportation.
SIGNIFICANT CUSTOMER
For the years ended December 31, 1995, 1994 and 1993, purchases by the following company exceeded 10% of the total oil and gas revenues of the Limited Partnership:
Although the Limited Partnership sells the majority of its production to one purchaser, there are numerous other purchasers in the area, so the loss of its significant customer would not adversely affect the Limited Partnership's operations.
ENVIRONMENTAL CONSIDERATIONS
The exploration for, and development of, oil and gas involve the extraction, production and transportation of materials which, under certain conditions, can be hazardous or can cause environmental pollution problems. In light of the present general interest in environmental problems, the general partner cannot predict what effect possible future public or private action may have on the business of the Limited Partnership. The general partner is continually taking all action necessary in its operations to ensure conformity with applicable federal, state and local environmental regulations and does not presently anticipate that the compliance with federal, state and local environmental regulations will have a material adverse effect upon capital expenditures, earnings or the competitive position of the Limited Partnership in the oil and gas industry.
INSURANCE COVERAGE
The Limited Partnership is subject to all the risks inherent in the exploration for, and development of, oil and gas, including blowouts, fires and other casualties. The Limited Partnership maintains insurance coverage as is customary for entities of a similar size engaged in operations similar to the Limited Partnership's, but losses can occur from uninsurable risks or in amounts in excess of existing insurance coverage. The occurrence of an event which is not insured or not fully insured could have an adverse impact upon the Limited Partnership's earnings and financial position.
ITEM 2

ITEM 2 - PROPERTIES
The Limited Partnership's oil and gas reserves are concentrated in prospects in south Louisiana. The Limited Partnership's reserves are predominantly natural gas, which accounts for 86% of estimated future gross revenues in the Limited Partnership's reserve report as of December 31, 1995.
SIGNIFICANT PROSPECTS
At December 31, 1995, the following prospects accounted for approximately 97% of the Limited Partnership's proved oil and gas reserves. Reserve quantities were obtained from the December 31, 1995 reserve report prepared by HPI's petroleum engineers.
BOUDREAUX PROSPECT. The Boudreaux prospect is located in Lafayette Parish, Louisiana. The Limited Partnership's interest in the prospect has remaining net proved reserves of 36,800 bbls of oil and 1,711,000 mcf of gas as of December 31, 1995, all of which are developed and producing at December 31, 1995. The Limited Partnership's working interest in this prospect ranges up to 3.5%.
MEAUX PROSPECT. The Meaux prospect is located in Lafayette Parish, Louisiana. The Limited Partnership's interest in the prospect has remaining net proved reserves of 800 bbls of oil and 77,000 mcf of gas as of December 31, 1995, all of which are developed and producing at December 31, 1995. The Limited Partnership's working interest in this prospect is 19.8%.
ITEM 3

ITEM 3 - LEGAL PROCEEDINGS
For a description of legal proceedings affecting the Limited Partnership, please refer to Item 8 - Note 3.
ITEM 4

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matter was submitted to a vote of participants during the fourth quarter of 1995.
PART II -------
ITEM 5

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
a) The registrant's securities consist of partnership interests which are not traded on any exchange and for which no established public trading market exists.
b) As of December 31, 1995, there were approximately 776 holders of record of partnership interests in the Drilling Partnership.
c) Distributions paid by the Limited Partnership were as follows (in thousands):
ITEM 6

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Material changes in the Limited Partnership's cash position for the years ended December 31, 1995 and 1994 are summarized as follows:
Cash provided by operating activities in 1995 was used for distributions to the partners and additions to oil and gas properties. The Limited Partnership has net working capital of $316,000. This working capital, together with future net cash flows generated from operations may be used to fund future distributions. Future distributions depend on, among other things, continuation of current or higher oil and gas prices, markets for production and future development costs, and the outcome of the litigation described in Item 8, Note 3.
The Limited Partnership's ability to generate funds adequate to meet its future needs will be largely dependent upon its ability to continue to develop further its existing reserves. Proved reserves and discounted future net revenues (discounted at 10% and before general and administrative expenses) from proved reserves were estimated at 39,000 bbls and 1,844,000 mcf valued at $3,206,000 in 1995 and 39,000 bbls and 1,870,000 mcf valued at $2,872,000 in 1994. The increase in discounted future net revenues and the fluctuation in the quantities resulted from an increase in year end oil and gas prices as well as changes in the estimated rates of production on certain wells.
During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121 provides the standards for accounting for the impairment of various long- lived assets. The Limited Partnership is required to adopt SFAS 121 no later than 1996. The Limited Partnership uses the full cost method of accounting for its only long-lived assets, which requires an impairment to be recorded when total capitalized costs exceed the present value, discounted at 10%, of estimated future net revenues from proved oil and gas reserves. Therefore, the adoption of SFAS 121 is not expected to have a material effect on the financial position or results of operations of the Limited Partnership.
RESULTS OF OPERATIONS - ---------------------
1995 COMPARED TO 1994 - ---------------------
OIL REVENUE
Oil revenue increased $11,000 during 1995 as compared with 1994. The increase is comprised of an increase in the average oil price from $16.03 per barrel in 1994 to $17.68 per barrel in 1995 combined with a 2% increase in production as shown in the table below. The increase in production is due to increased state allowable production limits, partially offset by normal production declines as well as the temporary abandonment of one well and sale of another during the second quarter of 1994.
GAS REVENUE
Gas revenue decreased $40,000 during 1995 as compared with 1994. The decrease is due to a decrease in the average gas price from $2.15 per mcf during 1994 to $1.84 per mcf during 1995, partially offset by an 8% increase in production as shown below. The increase in production is due to increased state allowable production limits, partially offset by normal production declines as well as the temporary abandonment of one well and the sale of another during the second quarter of 1994.
The following table summarizes the Limited Partnership's share of production from the Limited Partnership's significant properties for 1995 and 1994.
LEASE OPERATING
Lease operating expense decreased $23,000 during 1995 as compared with 1994 primarily due to the sale of the Warwick Richard #1 during the second quarter of 1994 and the temporary abandonment of the Duhon #1.
PRODUCTION TAXES
Production taxes increased $16,000 during 1995 as compared with 1994 as a result of the settlement of a lawsuit which resulted in lower production taxes during 1994.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased $27,000 during 1995 as compared with 1994 due to a decrease in the allocation of overhead from the general partner.
DEPLETION
Depletion expense increased $12,000 during 1995 as compared with 1994 due to a higher depletion rate caused by the 8% increase in oil and gas production during 1995.
LITIGATION SETTLEMENT
Litigation settlement expense during 1995 primarily represents amounts paid in connection with the settlement of a royalty dispute on the Duhon #1 well.
1994 COMPARED TO 1993 - ---------------------
OIL REVENUES
Oil revenues decreased $61,000 in 1994 as compared to 1993. The average oil price decreased from $17.88 per barrel in 1993 to $16.03 per barrel in 1994. Oil production decreased 36% as shown in the table below, primarily due to the reduction in state allowable production limits, as well as normal production declines. GAS REVENUES
Gas revenues decreased $461,000 as compared to 1993. The average gas price decreased from $2.26 per mcf in 1993 to $2.15 per mcf in 1994. Gas production decreased 42% as shown in the table below, primarily due to the reduction in state allowable production limits, as well as normal production declines.
The following table summarizes the Limited Partnership's share of production from the Limited Partnership's significant properties for 1994 and 1993.
LEASE OPERATING
Lease operating expense decreased $14,000 as compared to 1993, primarily due to the sale of the Warwick Richard #1 during the second quarter of 1994.
PRODUCTION TAXES
Production taxes decreased $45,000 in 1994 as compared to 1993, primarily due to the decrease in revenues mentioned previously.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased $26,000 in 1994 as compared to 1993, due to a decrease in allocation of overhead from the general partner.
DEPLETION
Depletion expense decreased $68,000 as compared to 1993, primarily due to a lower depletion rate. LITIGATION SETTLEMENT
Litigation settlement expense during 1993 represents the costs of a lawsuit settlement which is discussed in Item 8

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE ----
FINANCIAL STATEMENTS:
Independent Auditors' Report 12
Balance Sheets at December 31, 1995 and 1994 - May Drilling Partnership 1983-3 13
Balance Sheets at December 31, 1995 and 1994 - May Limited Partnership 1983-3 14
Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 - May Limited Partnership 1983-3 15
Statements of Changes in Partners' Capital for the Years Ended December 31, 1995, 1994 and 1993 - May Limited Partnership 1983-3 16
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 - May Limited Partnership 1983-3 17
Notes to Financial Statements - May Drilling Partnership 1983-3 and May Limited Partnership 1983-3 18-21
SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) 22
INDEPENDENT AUDITORS' REPORT ----------------------------
DRILLING PARTNERSHIP 1983-3 AND MAY LIMITED PARTNERSHIP 1983-3:
We have audited the financial statements of May Drilling Partnership 1983-3 ("General Partnership") and May Limited Partnership 1983-3 ("Limited Partnership") as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, listed in the accompanying index at Item 8. These financial statements are the responsibility of the Partnerships' management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the General Partnership and the Limited Partnership at December 31, 1995 and 1994, and the results of operations and cash flows of the Limited Partnership for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado February 27, 1996
MAY DRILLING PARTNERSHIP 1983-3 BALANCE SHEETS (In thousands)
Note: The statements of operations and cash flows for May Drilling Partnership 1983-3 are not presented because such information is equal to the Limited Partners' share of such activity as presented in the May Limited Partnership 1983-3 financial statements. The May Drilling Partnership carries its investment in May Limited Partnership 1983-3 on the equity method. The May Limited Partnership 1983-3 financial statements should be read in conjunction with this balance sheet.
MAY LIMITED PARTNERSHIP 1983-3 BALANCE SHEETS (In thousands)
MAY LIMITED PARTNERSHIP 1983-3 STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (In thousands, except for Units)
MAY LIMITED PARTNERSHIP 1983-3 STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (In thousands)
MAY LIMITED PARTNERSHIP 1983-3 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (In thousands)
The accompanying notes are an integral part of the financial statements.
MAY DRILLING PARTNERSHIP 1983-3 AND MAY LIMITED PARTNERSHIP 1983-3
NOTES TO FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES AND OTHER MATTERS
GENERAL PARTNERSHIP
May Drilling Partnership 1983-3, a Texas general partnership (the "General Partnership"), was organized by May Petroleum Inc. ("May") for the purpose of oil and gas exploration through May Limited Partnership 1983-3 (the "Limited Partnership"). The General Partnership was formed on November 7, 1983, with investors ("Participants") subscribing an aggregate of $11,629,000 in assessable $1,000 units. After the expenditure of the initial contributions of the Participants, additional mandatory assessments from each Participant are provided for under the terms of the general partnership agreement in an amount up to 25% of the initial contribution of the Participant. No additional assessments were made.
The general partnership agreement requires that the manager, Hallwood Energy Partners, L. P. ("HEP"), offer to repurchase partnership interests from Participants for cash at amounts to be determined by appraisal of the Limited Partnership's net assets no later than December 31, 1988, and during the two succeeding years, if such net assets are positive. The manager has made repurchase offers in all years since 1989 and intends to make a repurchase offer in 1996.
As the General Partnership is the sole limited partner of the Limited Partnership, its results of operations, cash flows and changes in partners' capital are equal to the limited partner's share of the Limited Partnership's results of operations, cash flows and changes in partners' capital as set forth herein. Therefore, separate statements of operations, cash flows and changes in partners' capital are not presented for the General Partnership.
LIMITED PARTNERSHIP
The Limited Partnership, a Texas limited partnership, was organized by May and the General Partnership, for the purpose of oil and gas exploration and the production of crude oil, natural gas and petroleum products. The Limited Partnership's oil and gas reserves are located in prospects in south Louisiana. Among other things, the terms of the Limited Partnership agreement (the "Agreement") give the general partner the authority to borrow funds. The Agreement also requires that the general partner's total capital contributions to the Limited Partnership as of each year end, including unrecovered general partner acreage and equipment advances, must be compared to total Limited Partnership expenditures from inception to date, and if such contributions are less than 15% of such expenditures, an additional contribution in the amount of the deficiency is required. At December 31, 1995, no additional contributions were necessary to comply with this requirement.
On June 30, 1987, May sold to HEP all of its economic interest in the Limited Partnership and account receivable balances due from the Limited Partnership. HEP became the general partner of the Limited Partnership in 1988.
SHARING OF COSTS AND REVENUES
Capital costs, as defined by the Agreement, for commercially productive wells and the costs related to the organization of the Limited Partnership are borne by the general partner. Noncapital costs and direct expenses, as defined by the Agreement, are charged 1% to the general partner and 99% to the limited partner. Oil and gas sales, operating expenses and general and administrative overhead are shared so that the general partner's allocation will equal the percentage that the amount of Limited Partnership expenses, as defined, allocated to the general partner bears to the aggregate amount of Limited Partnership expenses allocated to the general partner and the limited partner, plus 15 percentage points, but in no event will the general partner's allocation exceed 50%. The sharing ratio for each of the last three years was as follows:
SIGNIFICANT CUSTOMER
For the years ended December 31, 1995, 1994 and 1993, purchases by the following company exceeded 10% of the total oil and gas revenues of the Limited Partnership:
Although the Limited Partnership sells the majority of its production to one purchaser, there are numerous other purchasers in the area, so the loss of its significant customer would not adversely affect the Limited Partnership's operations.
INCOME TAXES
No provision for federal income taxes is included in the financial statements of the Limited Partnership or the General Partnership because, as partnerships, they are not subject to federal income tax and the tax effects of their activities accrue to the partners. The partnerships' tax returns, the qualification of the General and Limited Partnerships as partnerships for federal income tax purposes, and the amount of taxable income or loss are subject to examination by federal and state taxing authorities. If such examinations result in changes to the partnerships' taxable income or loss, the tax liability of the partners could change accordingly.
OIL AND GAS PROPERTIES
The Limited Partnership follows the full cost method of accounting for oil and gas properties and, accordingly, capitalizes all costs associated with the exploration and development of oil and gas reserves.
The capitalized costs of evaluated properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production basis. Full cost amortization per dollar of gross oil and gas revenues was $.21 in 1995, $.18 in 1994 and $.16 in 1993.
Capitalized costs are limited to an amount not to exceed the present value of estimated future net cash flows. No valuation adjustment was required in 1995, 1994 or 1993. Significant price declines in the future could cause the Limited Partnership to experience valuation adjustments and could reduce the amount of future cash flow available for distributions and operations.
Generally no gains or losses are recognized on the sale or disposition of oil and gas properties. Maintenance and repairs are charged against income when incurred.
During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121 provides the standards for accounting for the impairment of various long- lived assets. The Limited Partnership is required to adopt SFAS 121 no later than 1996. The Limited Partnership uses the full cost method of accounting for its only long-lived assets, which requires an impairment to be recorded when total capitalized costs exceed the present value, discounted at 10%, of estimated future net revenues from proved oil and gas reserves. Therefore, the adoption of SFAS 121 is not expected to have a material effect on the financial position or results of operations of the Limited Partnership.
GAS BALANCING
The Limited Partnership uses the sales method for accounting for gas balancing. Under this method, the Limited Partnership recognizes revenue on all of its sales of production, and any over production or under production is recovered at a future date.
As of December 31, 1995, the net imbalance to the Limited Partnership interest is not considered material. Current imbalances can be made up with production from existing wells or from wells which will be drilled as offsets to current producing wells.
USE OF ESTIMATES
The preparation of the financial statements for the Limited Partnership and General Partnership in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
RELATED PARTY TRANSACTIONS
Hallwood Petroleum, Inc. ("HPI"), a subsidiary of the general partner, pays all costs and expenses of operations and receives all revenues associated with the Limited Partnership's properties. At month end, HPI distributes revenues in excess of costs to the Limited Partnership.
The amounts due from HPI were $39,000 and $11,000 as of December 31, 1995 and 1994, respectively. These balances represent net revenues less operating costs and expenses.
CASH FLOWS
All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to conform to the classifications used in the current year.
(2) GENERAL AND ADMINISTRATIVE OVERHEAD
HPI conducts the day to day operations of the Limited Partnership and other affiliated partnerships of HEP. The costs of operating the entities are allocated to each partnership based upon the time spent on that partnership. General and administrative overhead allocated by HPI to the Limited Partnership totaled $80,000 in 1995, $103,000 in 1994 and $143,000 in 1993.
(3) LEGAL PROCEEDINGS
In June 1993, 14 lawsuits were filed against the Limited Partnership in the 15th Judicial District Court, Lafayette Parish, Louisiana, Docket Nos. 93-2332-F through 93-2345-F, styled Lamson Petroleum Corporation v. Hallwood Petroleum, Inc. et al. The plaintiffs in the lawsuits claim that they have valid leases covering streets and roads in the units of the A. L. Boudreaux #1 well, G. S. Boudreaux #1 well, Mary Guilbeau #1 well and Duhon #1 well, which represents approximately 3% to 4% of the Limited Partnership's interest in these properties, and are entitled to a portion of the production from the wells dating from February 1990. The Limited Partnership has not recognized revenue attributable to the contested leases since January 1993. These revenues, totaling $61,000 at December 31, 1995, have been placed in escrow pending resolution of the lawsuits. At this time, the Limited Partnership believes that the difference between the escrowed amount and the amount of any liability that may result upon resolution of this matter will not be material.
In February 1994, the Limited Partnership and the other parties to the lawsuit styled SAS Exploration, Inc. v. Hall Financial Group, Inc. et al. settled the lawsuit. The plaintiffs alleged that certain leases in the A. L. Boudreaux #1 and A. M. Duhon #1 wells expired and terminated at the end of their primary terms as a result of production being from the Bol Mex 4 Sand rather than the A. B. Sand. In the settlement, the Limited Partnership and the plaintiffs cross- conveyed interests in certain leases to one another and the Limited Partnership paid the plaintiffs $306,000. The cash paid by the Limited Partnership was reflected as litigation settlement expense in the December 31, 1993 financial statements. The interest conveyance resulted in a decrease in the Limited Partnership's reserves as of December 31, 1993 totaling 197,000 mcf of gas, 4,100 barrels of oil and $371,000 in future net revenues, discounted at 10%.
SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (Unaudited)
The following tables contain certain costs and reserve information related to the Limited Partnership's oil and gas activities. The Limited Partnership has no long-term supply agreements and all reserves are located within the United States.
COSTS INCURRED -
Certain reserve value information is provided directly to partners pursuant to the Agreement. Accordingly, such information is not presented herein.
(a) See Note 3 to financial statements.
ITEM 9

ITEM 9 - DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III --------
ITEM 10

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Drilling Partnership and Limited Partnership are managed by affiliates of HEP and do not have directors or executive officers.
ITEM 11

ITEM 11 - EXECUTIVE COMPENSATION
The partnerships pay no salaries or other direct remuneration to officers, directors or key employees of the general partner or HPI. The Limited Partnership reimburses the general partner for general and administrative costs incurred on behalf of the partnerships. See Note 2 to the Financial Statements.
ITEM 12

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the knowledge of the general partner, no person owns of record or beneficially more than 5% of the Drilling Partnership's outstanding units, other than HEP, the address of which is 4582 S. Ulster Street Parkway, Denver, Colorado 80237, and which beneficially owns approximately 37.2% of the outstanding units. The general partner of HEP is Hallwood Energy Corporation.
ITEM 13

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to the Limited Partnership and its relationships and transactions with the general partner, see Part I, Item 1 and Part II, Item 7.
PART IV -------
ITEM 14

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. Financial Statements and Schedules: See Index at Item 8.
b. Reports on Form 8-K - None.
c. Exhibits:
3.1 The General Partnership Agreement and the Limited Partnership Agreement filed as an Exhibit to Registration Statement No. 0-11313, are incorporated herein by reference.
SIGNATURES - ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Partnerships have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
MAY DRILLING PARTNERSHIP 1983-3 MAY LIMITED PARTNERSHIP 1983-3 BY: EDP OPERATING, LTD., GENERAL PARTNER
BY: HALLWOOD G.P., INC. GENERAL PARTNER
By: /s/William L. Guzzetti -------------------------- William L. Guzzetti President, Chief Executive Officer and Director
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 dates indicated.
Signature Title Date --------- ----- ----
/s/Robert S. Pfeiffer Vice President February 29, 1996 --------------------------- (Principal ----------------- Robert S. Pfeiffer Accounting Officer)