<PAGE>
 
================================================================================

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549
                                   FORM 10-K

           [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1995
                                       OR
           [_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

 
COMMISSION      REGISTRANT; STATE OF INCORPORATION;          I.R.S. EMPLOYER
FILE NUMBER        ADDRESS; AND TELEPHONE NUMBER            IDENTIFICATION NO.
-----------     -----------------------------------         ------------------
 
 1-8503         HAWAIIAN ELECTRIC INDUSTRIES, INC.              99-0208097
                (A Hawaii Corporation)
                900 Richards Street
                Honolulu, Hawaii 96813
                Telephone (808) 543-5662
 
 1-4955         HAWAIIAN ELECTRIC COMPANY, INC.                 99-0040500
                (A Hawaii Corporation)
                900 Richards Street
                Honolulu, Hawaii 96813
                Telephone (808) 543-7771
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                         NAME OF EACH EXCHANGE
   REGISTRANT               TITLE OF EACH CLASS           ON WHICH REGISTERED
   ----------               -------------------          ----------------------
 
Hawaiian Electric           Common Stock, Without       New York Stock Exchange
Industries, Inc.                 Par Value              Pacific Stock Exchange
 
Hawaiian Electric           First Mortgage Bonds,       New York Stock Exchange
  Company, Inc.                Series S, 7 5/8%               
 
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 
   REGISTRANT                                     TITLE OF EACH CLASS
   ----------                                     -------------------
 
   Hawaiian Electric Industries, Inc. ..........  None
   Hawaiian Electric Company, Inc. .............  Cumulative Preferred Stock
 
================================================================================

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

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


                                      AGGREGATE MARKET    
                                    VALUE OF THE VOTING     NUMBER OF SHARES   
                                        STOCK HELD BY        OF COMMON STOCK  
                                    NONAFFILIATES OF THE   OUTSTANDING OF THE 
                                       REGISTRANTS ON        REGISTRANTS ON   
                                       MARCH 15, 1996        MARCH 15, 1996    
                                    --------------------   ------------------
                                                    
Hawaiian Electric Industries, Inc.      $1,059,264,000        30,050,033
                                                           (Without par value)
Hawaiian Electric Company, Inc.               N/A              12,302,657
                                                            ($6 2/3 par value)

=============================================================================== 


                      DOCUMENTS INCORPORATED BY REFERENCE
 
 
                                                                  PART OF
                                                                 FORM 10-K
                                                               INTO WHICH THE
                                                                DOCUMENT IS
               DOCUMENT                                         INCORPORATED
----------------------------------------------------    ------------------------
 
 
Portions of Annual Reports to Stockholder(s)
 of the following registrants for the fiscal
 year ended December 31, 1995:
 
   Hawaiian Electric Industries, Inc. ..............    Parts I, II, III and IV
                                                     
   Hawaiian Electric Company, Inc. .................    Parts I, II, III and IV
 
Portions of Proxy Statement of Hawaiian
 Electric Industries, Inc., dated March 8, 1996,
 for the Annual Meeting of Stockholders.............            Part III
                                  
 
================================================================================


THIS COMBINED FORM 10-K REPRESENTS SEPARATE FILINGS BY HAWAIIAN ELECTRIC
INDUSTRIES, INC. AND HAWAIIAN ELECTRIC COMPANY, INC. INFORMATION CONTAINED
HEREIN RELATING TO ANY INDIVIDUAL REGISTRANT IS FILED BY EACH REGISTRANT ON ITS
OWN BEHALF. NEITHER REGISTRANT MAKES ANY REPRESENTATIONS AS TO THE INFORMATION
RELATING TO THE OTHER REGISTRANT.

================================================================================
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
Glossary of Terms..........................................................  ii


                                     PART I

Item  1.   Business........................................................   1
Item  2.   Properties......................................................  39
Item  3.   Legal Proceedings...............................................  41
Item  4.   Submission of Matters to a Vote of Security Holders.............  41

                                    PART II

Item  5.   Market for Registrants' Common Equity and
              Related Stockholder Matters..................................  43
Item  6.   Selected Financial Data.........................................  43
Item  7.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations....................................  43
Item  8.   Financial Statements and Supplementary Data.....................  44
Item  9.   Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure.....................................  44

                                    PART III

Item 10.   Directors and Executive Officers of the Registrants.............  44
Item 11.   Executive Compensation..........................................  46
Item 12.   Security Ownership of Certain Beneficial Owners and Management..  50
Item 13.   Certain Relationships and Related Transactions..................  52

                                    PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on
              Form 8-K.....................................................  52
Independent Auditors' Report - HEI.........................................  54
Independent Auditors' Report - HECO........................................  55
Index to Exhibits..........................................................  60
Signatures.................................................................  75
</TABLE>

                                       i
<PAGE>
 
                               GLOSSARY OF TERMS

Defined below are certain terms used in this report:

<TABLE>
<CAPTION>
TERMS              DEFINITIONS
-----              -----------
<C>                <S>
1935 ACT           Public Utility Holding Company Act of 1935
AES                Applied Energy Services, Inc.
AES-BP             AES Barbers Point, Inc.
ARM                Adjustable rate mortgage
ASB                American Savings Bank, F.S.B., a wholly owned subsidiary of
                    HEI Diversified, Inc. and parent company of American
                    Savings Investment Services Corp., ASB Service Corporation,
                    AdCommunications, Inc. and Associated Mortgage, Inc.
BHP                BHP Petroleum Americas Refining Inc., a fuel oil supplier
BIF                Bank Insurance Fund
BPPI               Baldwin Pacific Properties, Inc., a limited partner of
                    Baldwin*Malama (a limited partnership in which Malama
                    Development Corp. is a general partner)
BTU                British thermal unit
CDUP               Conservation District Use Permit amendment
CERCLA             Comprehensive Environmental Response,
                   Compensation and Liability Act
COMPANY            Hawaiian Electric Industries, Inc. and its direct and
                    indirect subsidiaries, including, without limitation,
                    Hawaiian Electric Company, Inc., Maui Electric Company,
                    Limited, Hawaii Electric Light Company, Inc., HEI Investment
                    Corp., Malama Pacific Corp. and its subsidiaries, Hawaiian
                    Tug & Barge Corp., Young Brothers, Limited, HEI
                    Diversified, Inc., American Savings Bank, F.S.B. and its
                    subsidiaries, Lalamilo Ventures, Inc., Pacific Energy
                    Conservation Services, Inc. and HEI Power Corp.
CONSUMER           Division of Consumer Advocacy, Department of Commerce and
 ADVOCATE           Consumer Affairs of the State of Hawaii
CT                 Combustion turbine
CUSA               Chevron U.S.A., Inc., a fuel oil supplier
DOH                Department of Health of the State of Hawaii
DOT                Department of Transportation of the State of Hawaii
DSM                Demand-side management
EPA                Environmental Protection Agency - federal
EPCRA              Emergency Planning and Community Right-to-Know Act
ERL                State of Hawaii Environmental Response Law
FASB               Financial Accounting Standards Board
FDIC               Federal Deposit Insurance Corporation
FDICIA             Federal Deposit Insurance Corporation Improvement Act of 1991
FEDERAL            U.S. Government
FERC               Federal Energy Regulatory Commission
FHLB               Federal Home Loan Bank
FIRREA             Financial Institutions Reform, Recovery, and Enforcement Act
                    of 1989
HAWAII             State of Hawaii
HCPC               Hilo Coast Processing Company
HECO               Hawaiian Electric Company, Inc., a wholly owned electric
                    utility subsidiary of Hawaiian Electric Industries, Inc.
                    and parent company of Maui Electric Company, Limited and
                    Hawaii Electric Light Company, Inc.
 
</TABLE>
                                       ii
<PAGE>
 
GLOSSARY OF TERMS (continued)

<TABLE>
<CAPTION>
TERMS              DEFINITIONS
-----              -----------
<C>                <S>
HEI                Hawaiian Electric Industries, Inc., parent company of
                    Hawaiian Electric Company, Inc., HEI Investment Corp.,
                    Malama Pacific Corp., Hawaiian Tug & Barge Corp., Lalamilo
                    Ventures, Inc., HEI Diversified, Inc., Pacific Energy
                    Conservation Services, Inc. and HEI Power Corp.
HEIDI              HEI Diversified, Inc., a wholly owned subsidiary of
                    Hawaiian Electric Industries, Inc. and the parent company of
                    American Savings Bank, F.S.B.
HEIIC              HEI Investment Corp., a wholly owned subsidiary of Hawaiian
                    Electric Industries, Inc.
HEIPC              HEI Power Corp., a wholly owned subsidiary of Hawaiian
                    Electric Industries, Inc.
HELCO              Hawaii Electric Light Company, Inc., a wholly owned
                    electric utility subsidiary of Hawaiian Electric Company,
                    Inc.
HERS               Hawaiian Electric Renewable Systems, Inc., formerly a
                    wholly owned subsidiary of Hawaiian Electric Industries,
                    Inc. and formerly parent company of Lalamilo Ventures, Inc.
HIG                The Hawaiian Insurance & Guaranty Company, Limited, an
                    insurance company which was placed in state rehabilitation
                    proceedings. HEI Diversified, Inc. was the holder of record
                    of HIG's common stock prior to August 16, 1994
HIRI               Hawaiian Independent Refinery, Inc., a fuel oil refinery
HITI               Hawaiian Interisland Towing, Inc.
HP                 Horsepower
HTB                Hawaiian Tug & Barge Corp., a wholly owned subsidiary of
                    Hawaiian Electric Industries, Inc. and parent company of
                    Young Brothers, Limited
IBEW               International Brotherhood of Electrical Workers
IBU                Inlandboatmen's Union of the Pacific, Marine Division, an
                    affiliate of the International Longshoremen's and
                    Warehousemen's Union, Hawaii Division
ILWU               International Longshoremen's and Warehousemen's Union
IPP                Independent power producer
IRP                Integrated resource plan
IRR                Interest rate risk
KALAELOA           Kalaeloa Partners, L. P.
KCP                Kawaihae Cogeneration Partners
KWH                Kilowatthour
LSFO               Low sulfur fuel oil
LVI                Lalamilo Ventures, Inc., formerly a wholly owned subsidiary
                    of Hawaiian Electric Renewable Systems, Inc. and now a
                    wholly owned subsidiary of Hawaiian Electric Industries,
                    Inc.
MBTU               Million British thermal unit
MD&A               Management's Discussion and Analysis of Financial Condition
                    and Results of Operations
MDC                Malama Development Corp., a wholly owned subsidiary of
                    Malama Pacific Corp.
MECO               Maui Electric Company, Limited, a wholly owned electric
                    utility subsidiary of Hawaiian Electric Company, Inc.
</TABLE>
                                      iii
<PAGE>
 
                         GLOSSARY OF TERMS (continued)

<TABLE>
<CAPTION>
TERMS              DEFINITIONS
-----              -----------
<C>                <S>
MMO                Malama Mohala Corp., a wholly owned subsidiary of Malama
                    Pacific Corp.
MPC                Malama Pacific Corp., a wholly owned subsidiary of Hawaiian
                    Electric Industries, Inc. and parent company of several real
                    estate subsidiaries
MSFO               Medium sulfur fuel oil
MW                 Megawatt
NA                 Not applicable
NAE                North American Environmental, Inc.
NOI                Notice of intent
NPDES              National Pollutant Discharge Elimination System
OPA                Federal Oil Pollution Act of 1990
OTS                Office of Thrift Supervision, Department of Treasury
PCB                Polychlorinated biphenyl
PECS               Pacific Energy Conservation Services, Inc., a wholly owned
                    subsidiary of Hawaiian Electric Industries, Inc.
PGV                Puna Geothermal Venture
PSD                Prevention of significant deterioration
PUC                Public Utilities Commission of the State of Hawaii
PURPA              Public Utility Regulatory Policies Act of 1978
QTL                Qualified Thrift Lender
RCRA               Resource Conservation and Recovery Act of 1976
REGISTRANT         Hawaiian Electric Industries, Inc. or Hawaiian Electric
                    Company, Inc.
SAIF               Savings Association Insurance Fund
SARA               Superfund Amendments and Reauthorization Act
SEC                Securities and Exchange Commission
SFAS               Statement of Financial Accounting Standards
ST                 Steam turbine
STATE              State of Hawaii
TSCA               Toxic Substance Control Act of 1976
UIC                Underground Injection Control
UST                Underground storage tank
YB                 Young Brothers, Limited, a wholly owned subsidiary of
                    Hawaiian Tug & Barge Corp.
</TABLE>

                                       iv
<PAGE>
 
                                     PART I
                                     ------

ITEM 1.  BUSINESS

HEI
---

HEI was incorporated in 1981 under the laws of the State of Hawaii and is a
holding company with subsidiaries engaged in the electric utility, savings bank,
freight transportation, real estate development and other businesses, primarily
in the State of Hawaii. HEI's predecessor, HECO, was incorporated under the laws
of the Kingdom of Hawaii (now the State of Hawaii) on October 13, 1891.

As a result of a 1983 corporate reorganization, HECO became an HEI subsidiary
and common shareholders of HECO became common shareholders of HEI. HECO and its
subsidiaries, MECO and HELCO, are regulated operating public utilities providing
the only public utility electric service on the islands of Oahu, Maui, Lanai,
Molokai and Hawaii. HEI also owns directly or indirectly the following
subsidiaries which comprise its diversified companies: HEIDI and its subsidiary,
ASB and its subsidiaries; HTB and its subsidiary; MPC and its subsidiaries;
HEIIC; LVI; PECS (an inactive company) and HEIPC.

ASB, acquired in 1988, is the fourth largest financial institution in the state
based on total assets and the third largest financial institution based on
deposits, in each case as of September 30, 1995, and has 47 retail branches as
of December 31, 1995. HTB was acquired in 1986 and provides ship assist and
charter towing services and owns YB, a regulated intrastate public carrier of
waterborne freight among the Hawaiian Islands. MPC was formed in 1985 and
develops and invests in real estate. HEIIC was formed in 1984 and is a passive
investment company which primarily holds investments in leveraged leases and
currently plans no new investments. HEIPC was formed in March 1995 to pursue
independent power projects and energy conservation projects in Asia and the
Pacific.

Prior to August 16, 1994, HEIDI was the holder of record of the common stock of
HIG, which was acquired in 1987 and provided property and casualty insurance
primarily in Hawaii. In March of 1993, pursuant to the decision made in 1992,
the stock of HERS, formerly an HEI wind energy subsidiary, was sold to The New
World Power Corporation and LVI became a direct subsidiary of HEI. HEI is
attempting to transfer LVI's windfarm to HELCO, at no cost to electric
customers. For information about the discontinued operations of HIG and HERS,
see Note 2 to HEI's Consolidated Financial Statements which is incorporated
herein by reference to page 45 of HEI's 1995 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13.

The financial information about the Company's industry segments is incorporated
herein by reference to page 26 of HEI's 1995 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13.

For additional information about the Company, reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
(MD&A), incorporated herein by reference to pages 27 to 36 of HEI's 1995 Annual
Report to Stockholders, portions of which are filed herein as HEI Exhibit 13.

ELECTRIC UTILITY
----------------

HECO AND SUBSIDIARIES AND SERVICE AREAS

HECO, MECO and HELCO are regulated operating electric public utilities engaged
in the production, purchase, transmission, distribution and sale of electricity
on the islands of Oahu; Maui, Lanai and Molokai; and Hawaii, respectively. HECO
was incorporated under the laws of the Kingdom of Hawaii (now State of Hawaii)
on October 13, 1891. HECO acquired MECO in 1968 and HELCO in 1970.

In 1995, the electric utilities contributed approximately 76% of HEI's
consolidated revenues from continuing operations and approximately 85% of HEI's
consolidated operating income from continuing operations. At December 31, 1995,
the assets of the electric utilities represented approximately 36% of the total
assets of the Company. For additional information about the electric utilities,
see MD&A and Note 4, incorporated herein by reference to pages 27 to 36 and 46
to 48 of HEI's 1995 Annual Report to Stockholders, portions of which are filed
herein as HEI Exhibit 13, and the MD&A for the electric utilities (HECO MD&A)
and HECO consolidated financial statements incorporated by reference to pages 3
to 30 of HECO's 1995 Annual Report to Stockholder, portions of which are filed
herein as HECO Exhibit 13.

                                       1
<PAGE>
 
The islands of Oahu, Maui, Lanai, Molokai and Hawaii have a combined population
estimated at 1,130,000, or approximately 95% of the population of the State of
Hawaii, and cover a service area of 5,766 square miles. The principal
communities served include Honolulu (on Oahu), Wailuku and Kahului (on Maui) and
Hilo and Kona (on Hawaii). The service areas also include numerous suburban
communities, resorts, U.S. Armed Forces installations and agricultural
operations.

HECO, MECO and HELCO have nonexclusive franchises from the state covering
certain areas and authorizing them to construct, operate and maintain facilities
over and under public streets and sidewalks. HECO's franchise covers the City &
County of Honolulu, MECO's franchises cover the County of Maui and the County of
Kalawao on the islands of Maui, Lanai and Molokai and HELCO's franchise covers
the County of Hawaii. Each of these franchises will continue in effect for an
indefinite period of time until forfeited, altered, amended or repealed.

SALES OF ELECTRICITY

HECO, MECO and HELCO provide the only electric public utility service on the
islands they serve. The following table sets forth the number of their electric
customer accounts as of December 31, 1995, 1994 and 1993 and their electric
sales revenues for each of the years then ended:

<TABLE>
<CAPTION>
                                                     1995                        1994                        1993
                                        ---------------------------------------------------------------------------------------
                                           Customer   Electric sales   Customer    Electric sales    Customer    Electric sales
(dollars in thousands)                     accounts      revenues      accounts       revenues       accounts       revenues
-------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>        <C>              <C>         <C>               <C>         <C>  
HECO .................................      269,307     $712,380       264,992        $652,442        263,478       $644,029
MECO .................................       53,339      127,284        52,483         119,805         51,064        113,018
HELCO.................................       58,515      135,110        58,017         128,259         56,556        112,968
                                        ---------------------------------------------------------------------------------------
                                            381,161     $974,774       375,492        $900,506        371,098       $870,015
                                        =======================================================================================
</TABLE> 

Revenues from the sale of electricity in 1995 were from the following types
of customers in the proportions shown:

<TABLE> 
<CAPTION> 
                                                                           HECO              MECO         HELCO           Total
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>          <C>              <C> 
Residential....................................................              31%               36%         41%              33%
Commercial.....................................................              31                34          38               32
Large light and power..........................................              37                29          20               34
Other..........................................................               1                 1           1                1
                                                                    -----------------------------------------------------------
                                                                            100%              100%        100%             100%
                                                                    ===========================================================
</TABLE>

Approximately 10% of consolidated operating revenues of HECO and its
subsidiaries was derived from the sale of electricity to various federal
government agencies in 1995, 1994 and 1993. One of HECO's larger customers, the
Naval Base at Barbers Point, Oahu, is expected to be closed within the next few
years. However, HECO anticipates that the base closure will ultimately result in
little, if any, loss in aggregate KWH sales, if, as currently anticipated, the
Navy continues to occupy portions of Barbers Point and if much of the surplus
facilities and land currently not utilized by the Navy is occupied by state
agencies. On March 8, 1994, President Clinton signed an Executive Order which
mandates that each federal agency develop and implement a program with the
intent of reducing energy consumption by 30% by the year 2005 to the extent that
these measures are cost-effective. The 30% reductions will be measured relative
to the agency's 1985 energy use. HECO is working with various federal government
agencies such as the Department of Defense to implement demand-side management
programs which will help them achieve their energy reduction objectives. In
November 1995, HECO and the U.S. General Services Administration entered into a
Basic Ordering Agreement (BOA) under which HECO would provide for financing and
installation of energy conservation projects at federal facilities in Hawaii.
The first project to be undertaken under the umbrella BOA is a $4 million air
conditioning upgrade at the federal office building in downtown Honolulu.
Neither HEI nor HECO management can predict with certainty the impact of
President Clinton's Executive Order on the Company's or consolidated HECO's
future results of operations.

                                       2
<PAGE>
 
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED ELECTRIC UTILITY OPERATING
 STATISTICS
                                                1995       1994       1993       1992     1991 (2)
                                          -------------------------------------------------------
<S>                                          <C>        <C>        <C>        <C>        <C>    
                                                                                                
KWH SALES (MILLIONS)                                                                            
Residential.............................     2,471.3    2,427.5    2,340.3    2,326.8    2,270.5
Commercial..............................     2,624.7    2,451.2    2,284.6    2,273.9    2,205.1
Large light and power...................     3,655.1    3,658.6    3,646.2    3,675.8    3,622.6
Other...................................        55.4       55.8       54.1       55.4       55.4
                                           -----------------------------------------------------
                                             8,806.5    8,593.1    8,325.2    8,331.9    8,153.6
                                           =====================================================
                                                                                                
                                                                                                
NET ENERGY GENERATED AND PURCHASED                                                              
   (MILLIONS OF KWH)                                                                            
Net generated...........................     5,850.6    5,727.6    5,789.6    6,555.4    6,991.1
Purchased...............................     3,511.6    3,437.8    3,101.0    2,325.0    1,599.7
                                           -----------------------------------------------------
                                             9,362.2    9,165.4    8,890.6    8,880.4    8,590.8
                                           =====================================================
                                                                                                
                                                                                                
Losses and system uses (%)..............         5.7        6.0        6.1        6.0        4.9 (3)
                                                                                                
ENERGY SUPPLY (YEAREND)                                                                         
Generating capability--MW...............       1,637      1,637      1,638      1,592      1,552
Firm purchased capability--MW...........         469        465        473        454        228
                                           -----------------------------------------------------
                                               2,106      2,102      2,111      2,046      1,780
                                           =====================================================
                                                                                                
                                                                                                
Gross peak demand--MW (1)...............       1,537      1,527      1,496      1,493      1,446
Btu per net KWH generated...............      10,762     10,746     10,846     10,870     10,768
Average fuel oil cost per million Btu  
 (cents)................................       329.7      304.4      340.5      317.1      367.5 
                                                                                                
CUSTOMER ACCOUNTS (YEAREND)                                                                     
Residential.............................     330,508    325,495    320,987    314,185    308,770
Commercial..............................      48,585     47,916     48,008     46,817     46,189
Large light and power...................         580        601        628        641        637
Other...................................       1,488      1,480      1,475      1,474      1,450
                                           -----------------------------------------------------
                                             381,161    375,492    371,098    363,117    357,046
                                           =====================================================
                                                                                                
                                                                                                
ELECTRIC REVENUES (THOUSANDS)                                                                   
Residential.............................    $324,923   $297,984   $283,662   $250,808   $235,295
Commercial..............................     313,909    281,664    262,751    236,350    224,300
Large light and power...................     329,598    314,931    317,816    280,871    271,863
Other...................................       6,344      5,927      5,786      5,164      5,030
                                           -----------------------------------------------------
                                            $974,774   $900,506   $870,015   $773,193   $736,488
                                           =====================================================
                                                                                                
                                                                                                
AVERAGE REVENUE PER KWH SOLD (CENTS)                                                            
Residential.............................       13.15      12.28      12.12      10.78      10.36
Commercial..............................       11.96      11.49      11.50      10.39      10.17
Large light and power...................        9.02       8.61       8.72       7.64       7.51
Other...................................       11.46      10.62      10.69       9.32       9.08
                                           -----------------------------------------------------
                                                                                                
Average revenue per KWH sold............       11.07      10.48      10.45       9.28       9.03
                                                                                                
RESIDENTIAL STATISTICS                                                                          
Average annual use per customer account                                                         
    (KWH)...............................       7,514      7,482      7,367      7,460      7,427
Average annual revenue per                                                                 
    customer account....................    $    988   $    918   $    893   $    804   $    770
                                                                                                
Average number of customer accounts.....     328,912    324,458    317,657    311,915    305,720 
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) Sum of the peak demands on all islands served, noncoincident and
    nonintegrated.
(2) Includes the one-time effect of a change in the method of estimating
    unbilled KWH sales and revenues.
(3) Excluding the effect of a change in the method of estimating unbilled KWH
    sales and revenues, losses and system uses would have been 5.6%.

                                       3

<PAGE>
 
GENERATION STATISTICS

The following table contains certain generation statistics as of December 31,
1995, and for the year ended December 31, 1995. The capability available for
operation at any given time may be less than the generating capability shown
because of capability restrictions or temporary outages for inspection,
maintenance, repairs or unforeseen circumstances.

<TABLE>
<CAPTION>


                                            Generating
                                            and firm
                                            purchased
                                           capability                                                            KWH net
                                             (MW) at             Gross peak                       Annual       generated and
                                           December 31,            demand           Reserve        load          purchased
              Systems                       1995 (1)              (MW) (2)          margin       factor (2)     (millions)
-----------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                   <C>                <C>          <C>          <C>
ISLAND OF OAHU--HECO
Conventional oil-fired steam units..          1,160.0
Combustion turbines (peaking units).            103.0
Firm contract power (3).............            406.0
                                      ---------------------------------------------------------------------------------------
                                              1,669.0             1,190.0          40.3%          73.3%          7,359.2
                                      ---------------------------------------------------------------------------------------
ISLAND OF MAUI--MECO
Conventional oil-fired steam units..             37.6
Combined-cycle unit.................             58.0
Diesel..............................            105.7
Firm contract power (4).............             16.0
                                      ---------------------------------------------------------------------------------------
                                                217.3               170.7          27.3%          69.5%          1,005.9
                                      ---------------------------------------------------------------------------------------
ISLAND OF LANAI--MECO
Diesel..............................              9.7                 4.8         102.1%          66.6%             27.5
                                      ---------------------------------------------------------------------------------------
ISLAND OF MOLOKAI--MECO
Diesel..............................              6.5
Combustion turbine..................              2.2
                                      ---------------------------------------------------------------------------------------
                                                  8.7                 7.0          24.3%          61.1%             37.1
                                      ---------------------------------------------------------------------------------------
ISLAND OF HAWAII--HELCO
Conventional oil-fired steam units..             71.2
Combustion turbines.................             45.7
Diesel..............................             37.7
Firm contract power (4).............             47.0
                                      ---------------------------------------------------------------------------------------
                                                201.6               164.4          22.6%          67.2%            932.5
                                      ---------------------------------------------------------------------------------------
Total...............................          2,106.3             1,536.9          37.0%          72.1%          9,362.2
                                      =======================================================================================


</TABLE>
(1) HECO units at normal ratings, and MECO and HELCO units at reserve ratings.
(2) Noncoincident and nonintegrated.
(3) Independent power producers--180 MW (Kalaeloa), 180 MW (AES-BP) and 46 MW
    (H-Power).
(4) Nonutility generation--MECO: 16 MW (Hawaiian Commercial & Sugar Company) and
    HELCO: 25 MW (PGV) and 22 MW (HCPC).

INTEGRATED RESOURCE PLANNING AND REQUIREMENTS FOR ADDITIONAL GENERATING CAPACITY

As a result of a proceeding initiated in January 1990, the PUC issued an order
in March 1992 (as revised in May 1992) requiring that the energy utilities in
Hawaii develop integrated resource plans (IRPs). The goal of integrated resource
planning is the identification of the demand-side and supply-side resources and
the integration of these resources for meeting near- and long-term consumer
energy needs in an efficient and reliable manner at the lowest reasonable cost.
In the first phase of the IRP proceeding, the PUC adopted a "framework", which
establishes both the process for developing IRPs and guidelines for the
development of such plans. The PUC's framework directs that each plan cover a
20-year planning

                                       4
<PAGE>
 
horizon with a five-year program implementation schedule and states that the
planning cycle will be repeated every three years. Under the framework, the PUC
may approve, reject or require modifications of the utilities' IRPs.

The framework also states that utilities are entitled to recover all appropriate
and reasonable integrated resource planning and implementation costs, including
the costs of planning and implementing demand-side management (DSM) programs.
Under appropriate circumstances, the utilities may recover net lost revenues
resulting from DSM programs and earn shareholder incentives.

The PUC will determine the appropriate cost recovery mechanism when a specific
DSM program application is filed. The PUC has approved IRP cost recovery
provisions (IRP Clauses) for HECO, MECO and HELCO. Pursuant to the IRP Clauses,
the electric utilities may recover through a surcharge the costs for approved
DSM programs, and other IRP costs incurred and approved by the PUC, to the
extent the costs are not included in their base rates.

Each electric utility has been assigned an individual IRP docket in which the
specific issues relative to each company's IRP can be addressed. The PUC
provides for public participation in the planning process by requiring each
utility to form an advisory group and by holding hearings to review each plan.
Any IRP developed will require PUC approval prior to implementation. Management
cannot predict, until the completion and approval of the IRPs, what effect, if
any, integrated resource planning may eventually have on HECO, MECO and HELCO.

In July 1993, HECO filed with the PUC its 20-year (1994-2013) IRP for the island
of Oahu, together with a five-year (1994-1998) implementation schedule. HELCO
filed its plan in October 1993. MECO filed its plan in December 1993. These
plans identified and evaluated a mix of resources to meet near- and long-term
consumer energy needs in an efficient and reliable manner at the lowest
reasonable cost. The IRPs include DSM programs to reduce load and fuel
consumption and consider the impact on the environment, culture, community
lifestyles and economy of the state. The PUC must review and approve major
elements of the resource plans before the utilities may implement them. The
utilities proposed modifications to their plans during the course of PUC
proceedings to review the plans.

The utilities have characterized their proposed IRPs as planning strategies,
rather than fixed courses of action, and the resources ultimately added to their
systems may differ from those included in the 20-year plan. Under the IRP
framework, the utilities are required to submit annual evaluations of their
plans (including a revised five-year program implementation schedule) and to
submit new plans on a three-year cycle.

Prior to proceeding with the DSM programs, separate PUC approval proceedings
must be completed, in which the PUC will further review the details of the
proposed programs and the utilities' proposals for the recovery of DSM program
expenditures, net lost revenues and shareholder incentives. HECO has filed
separate applications for approval of its five proposed DSM programs, and
evidentiary hearings on these applications were held in January, February and
May 1995. In June and July 1995, MECO and HELCO, respectively, filed four
separate DSM applications for PUC approval.

HECO's IRP.  The PUC issued its final decision and order in HECO's IRP
proceeding on March 31, 1995. The PUC found that HECO's proposed 20-year IRP "is
in the public interest, is consistent with the goals and objectives of
integrated resource planning, and represents a reasonable course for meeting the
energy needs of its customers." In addition, the PUC found that HECO's IRP
"identifies the resources or the mix of resources for meeting near and long term
consumer energy needs in an efficient and reliable manner at the lowest
reasonable cost." HECO's plan includes proposals for five energy efficiency DSM
programs beginning in 1995, which are designed to reduce the rate of increase in
Oahu's energy use (allowing HECO to delay construction of power plants), to
reduce the state's dependence on oil and to achieve savings for its utility
customers who take advantage of the programs, and two load management DSM
programs beginning in the year 2000. The DSM programs include several proposed
incentives to customers to install efficient lighting, refrigeration, water-
heating and air-conditioning equipment and industrial motors. The supply-side
programs proposed in the HECO plan include the addition of a "clean coal"
technology unit in 2005, following the retirement of HECO's Honolulu power plant
(which is assumed, for planning purposes, to be retired at the end of 2004), the
repowering of two existing units at its Waiau power plant, and the addition of
two oil-fired combustion turbines at the end of the first decade in the new
century. HECO is still awaiting PUC approval for its five DSM programs.
Depending on the timing of the PUC decisions, HECO expects to begin program

                                       5
<PAGE>
 
implementation in 1996, one year later than what HECO was projecting in its
five-year implementation schedule.

HECO proposes to file with the PUC by July 1996 its first annual evaluation of
its approved 20-year IRP. The annual evaluation will include a revised five-year
implementation schedule, and will assess the continuing validity of the
forecasts and assumptions upon which its IRP and program implementation schedule
were fashioned. HECO's latest sales, peak load and fuel price forecasts may have
an impact on the supply-side and demand-side resources currently proposed for
implementation over the 1994-2013 IRP planning horizon. Management cannot
predict at this time what effect, if any, these forecasts may eventually have on
HECO's approved IRP.

MECO's IRP.  MECO's 20-year IRP includes proposals for four energy efficiency
DSM programs beginning in 1995 similar to those developed for HECO. The supply-
side programs proposed by MECO include installing approximately 199 MW of
additional generation through the year 2013 on the island of Maui, approximately
11 MW through the year 2001 on the island of Lanai and approximately 13 MW
through the year 2013 on the island of Molokai. Approximately 20 MW of
additional generation are currently scheduled to be placed in service on Maui in
1997, 4.4 MW on Lanai in 1996 and 6.6 MW on Molokai in 1996. Hearings on MECO's
20-year IRP have been completed and MECO is awaiting the PUC's decision. MECO is
also awaiting PUC approval for its four DSM programs. Depending on the timing of
the PUC decisions, MECO expects to begin program implementation in 1996, one
year later than what MECO was projecting in its five-year implementation
schedule.

HELCO's IRP.  HELCO's 20-year IRP includes proposals for four energy efficiency
DSM programs beginning in 1995 similar to those developed for HECO. In addition
to the full-scale DSM programs, HELCO is planning an interruptible load pilot
program. The supply-side programs proposed in HELCO's five-year plan include
installing a 58-MW dual-train combined-cycle unit at HELCO's Keahole plant site,
undertaking transmission and distribution efficiency improvement projects and
conducting alternate energy generation resource studies. HELCO's 20-year plan
includes adding another diesel-fired dual-train combined-cycle unit and a
combustion turbine (first phase of a dual-train combined-cycle unit) at a new
West Hawaii site by the year 2009. Hearings on HELCO's 20-year IRP have been
completed and HELCO is awaiting the PUC's decision. HELCO filed applications to
approve its four DSM programs with the PUC on July 6, 1995. Although hearings
have not yet been held on these applications, on October 26, 1995, HELCO
received from the PUC interim approval to implement the DSM programs as part of
HELCO's contingency plan to address HELCO's capacity situation. See "HELCO power
situation" below. HELCO projects that the DSM programs will reduce HELCO's peak
load by 1.5 megawatts one year after implementation of the DSM programs.

HELCO POWER SITUATION

In 1991, HELCO identified the need for additional generation beginning in 1994
to provide for forecasted load growth while maintaining a satisfactory
generation reserve margin, to address uncertainties about future deliveries of
power from existing firm power producers (see "Nonutility generation") and to
permit the retirement of older generating units. HELCO added firm capacity to
its system in August 1992 (a 20-MW HELCO-owned unit) and in June 1993 (pursuant
to a power purchase agreement for 25 MW of firm capacity). Also, HELCO proceeded
with plans to install two 20-MW combustion turbines, followed by an 18-MW heat
steam recovery generator, at which time these units would be converted to a 56-
MW (net) combined-cycle unit. In January 1994, the PUC approved expenditures for
the first combustion turbine, which HELCO had planned to install in late 1994,
and in September 1995, the PUC conditionally approved expenditures for the
second combustion turbine and the steam recovery generator.

Despite HELCO's best efforts to install the necessary additional generation in
time to meet the forecasted load, the schedule for the installation of HELCO's
phased combined-cycle unit (CT-4, CT-5 and ST-7) at HELCO's Keahole power plant
site was revised due to delays in obtaining approval of the Prevention of
Significant Deterioration/Covered Source Permit (PSD) and the Conservation
District Use Permit amendment (CDUP) for the Keahole power plant site. The
proposed service date for CT-4 has most recently been revised to February 1997
followed by CT-5 in April 1997, if approvals of the CDUP and PSD are received by
the end of March 1996. The conversion to a combined-cycle unit with the
installation of ST-7 remains scheduled for October 1997.

In late 1995, a contested case hearing with respect to the CDUP was conducted
and the hearing officer recommended denial of the CDUP application. The Hawaii
Board of Land and Natural Resources

                                       6
<PAGE>
 
(BLNR) may decide to adopt, modify, or reject the hearing officer's
recommendation. The BLNR was scheduled to make a decision on HELCO's CDUP
application by February 26, 1996. On February 23, 1996, however, the BLNR
informed HELCO that it was continuing deliberations on the application and
extended the application expiration period from February 26, 1996 to March 27,
1996. If the BLNR denies HELCO's CDUP application, this would delay, if not
prevent, installation of HELCO's project at the 15-acre Keahole site.

The Hawaii Department of Health (DOH) forwarded HELCO's air permit to the
Environmental Protection Agency (EPA) for its approval.  In a November 1995
letter to the DOH, the EPA declined to sign HELCO's air permit. HELCO requested
that the EPA reconsider this decision and the EPA agreed to reconsider based on
additional information supplied by HELCO. In a second letter dated February 6,
1996, the EPA set forth information to be considered by HELCO which it feels may
address HELCO's concerns regarding the emission control technology to be used,
and stated that it would continue discussions with HELCO at a later date. HELCO
responded specifically to the EPA's positions by letter dated March 8, 1996, and
discussions are ongoing. If the EPA does not sign the permit forwarded by the
DOH, this would delay, if not prevent, HELCO's project.

Two independent power producers (IPPs) filed separate complaints against HELCO
with the PUC, alleging that they are entitled to power purchase contracts to
provide HELCO with additional capacity which, under HELCO's current estimates of
generating capacity requirements, would be in place of the planned 56-MW
addition by HELCO. In July 1995, the PUC issued a decision and order in a docket
involving one of the IPPs, Kawaihae Cogeneration Partners (KCP). In the order,
the PUC stated its position on various issues affecting HELCO's avoided cost
calculations (several of which were contrary to HELCO's recommendations). In
September 1995, HELCO provided proposals to the two IPPs, and further
negotiations have been undertaken. Status reports on the negotiations with the
two IPPs were filed with the PUC at the end of September and October 1995.

In September 1995, the PUC allowed HELCO to continue to pursue construction of
and commit expenditures for the second combustion turbine and the steam recovery
generator for its planned combined-cycle unit, stating in its order that "no
part of the project may be included in HELCO's rate base unless and until the
project is in fact installed, and is used and useful for utility purposes." In
view of permitting delays and the need for power, the PUC also ordered HELCO to
continue negotiating with the IPPs and directed that the facility to be built
should be the one that can be most expeditiously put into service at "allowable
cost."

On January 26, 1996, the PUC ordered that the KCP docket be reopened and that
HELCO and KCP continue in good faith to negotiate a power purchase agreement,
file a list of unresolved issues requiring  PUC guidance and meet with the PUC
on March 27, 1996.  The other IPP has requested similar assistance from the PUC.
HELCO has opposed reopening of that docket for this purpose.

If HELCO's negotiations with the IPPs result in a power purchase agreement
and/or if HELCO's combined-cycle unit is not installed, HELCO may be required to
write off a portion of the costs incurred in its efforts to put into service its
combined-cycle unit ($43 million as of December 31, 1995) if such costs
ultimately are not recoverable from customers or others. Such a write-off could
have a material adverse effect on consolidated HECO's and the Company's
financial condition and results of operations.

In June 1995, HELCO filed with the PUC its generation resource contingency plan
detailing alternatives and mitigation measures to address possible further
delays in obtaining the permits necessary to construct its combined-cycle unit.
HELCO has arranged for additional firm capacity to be provided by its existing
firm power producers (see "Nonutility generation"), obtained contracts shifting
loads to off-peak hours, begun in January 1996 implementing its energy-
efficiency DSM programs based on interim PUC approval (see "Integrated resource
planning and requirements for additional generating capacity") and deferred
generation unit retirements. These measures have helped HELCO maintain its
reserve margin and reduce the risk of capacity shortages. HELCO is also
proposing installation of up to 6 MW of dispersed generation diesel units that
could provide power by late 1996. In January 1996, the PUC opened a generic
docket relating to HELCO's contingency plan, which had been submitted to the PUC
in June 1995. Pursuant to the PUC order, HELCO submitted updated information to
the PUC on March 18, 1996 and addressed comments by the Consumer Advocate on the
June 1995 contingency plan.

                                       7
<PAGE>
 
NONUTILITY GENERATION

The Company has supported state and federal energy policies which encourage the
development of alternate energy sources that reduce dependence on fuel oil.
Alternate energy sources range from wind, geothermal and hydroelectric power, to
energy produced by the burning of bagasse. Other non-oil projects include a
generating unit burning municipal waste and a fluidized bed unit burning coal.

The "Power purchase agreements" section in Note 4 to HEI's Consolidated
Financial Statements is incorporated herein by reference to page 47 of HEI's
1995 Annual Report to Stockholders, portions of which are filed herein as HEI
Exhibit 13.

HECO power purchase agreements.  HECO currently has three major power purchase
agreements. In March 1988, HECO entered into a power purchase agreement with AES
Barbers Point, Inc. (AES-BP), a Hawaii-based cogeneration subsidiary of Applied
Energy Services, Inc. (AES) of Arlington, Virginia. The agreement with AES-BP,
as amended in August 1989, provides that, for a period of 30 years, HECO will
purchase 180 MW of firm capacity, under the control of HECO's system dispatcher.
The AES-BP 180-MW coal-fired cogeneration plant, which became operational in
September 1992, utilizes a "clean coal" technology. The facility is designed to
sell sufficient steam to be a "Qualifying Facility" under the Public Utility
Regulatory Policies Act of 1978 (PURPA).

In October 1988, HECO entered into an agreement with Kalaeloa Partners, L.P.
(Kalaeloa), a limited partnership whose sole general partner is an indirect,
wholly owned subsidiary of ASEA Brown Boveri, Inc., which has guaranteed certain
of Kalaeloa's obligations and, through affiliates, has contracted to design,
build, operate and maintain the facility. The agreement with Kalaeloa, as
amended, provides that HECO will purchase 180 MW of firm capacity for a period
of 25 years. The Kalaeloa facility, which was completed in the second quarter of
1991, is a combined-cycle operation, consisting of two oil-fired combustion
turbines and a steam turbine which utilizes waste heat from the combustion
turbines. The facility is designed to sell sufficient steam to be a "Qualifying
Facility" under PURPA.

HECO also entered into a power purchase contract and a firm capacity amendment
with the City and County of Honolulu, which has built a 60-MW refuse-fired plant
(H-Power). The H-Power facility began to provide firm energy in the second
quarter of 1990 and currently supplies HECO with 46 MW of firm capacity.

The PUC has approved and allowed rate recovery for the costs related to HECO's
three major power purchase agreements, which provide a total of 406 MW of firm
capacity, representing 24% of HECO's total generating and firm purchased
capability on the island of Oahu as of December 31, 1995.

HERS owned and operated a windfarm on the island of Oahu and sold the
electricity it generated to HECO. In March 1993, HEI sold the stock of HERS to
The New World Power Corporation with the power purchase agreements between HERS
and HECO continuing in effect.

HELCO and MECO power purchase agreements.  As of December 31, 1995, HELCO and
MECO had power purchase agreements for 47 MW and 16 MW of firm capacity,
respectively, representing 23% and 7% of their respective total generating and
firm purchased capabilities.

HELCO has a power purchase agreement with PGV for 25 MW of firm capacity. PGV,
an independent geothermal power producer which experienced substantial delays in
commencing commercial operations, passed an acceptance test in June 1993.
Although a problem with one of its wells reduced production during 1994, it is
now considered to be a firm capacity source for 25 MW. HELCO filed suit against
PGV in 1993 for penalties and other relief related to PGV's failure to provide
power to HELCO by October 3, 1991. HELCO recognized energy and capacity
purchased from PGV as expenses, but withheld certain firm capacity and energy
payments to PGV. On March 7, 1995, HELCO and PGV executed a Settlement
Agreement. As to the part of the settlement agreement dealing with penalties, it
was agreed that HELCO would keep $3.2 million of the amount previously withheld
by HELCO. In 1995, HELCO refunded to customers approximately $0.8 million of the
$3.2 million withheld and is awaiting the PUC's decision on whether any
additional amounts are required to be refunded. In addition, PGV agreed to
provide additional energy in the amount of $2.3 million to HELCO above PGV's
current firm capacity obligation. In 1995, PGV provided HELCO with $1.0 million
of the $2.3 million additional energy, and HELCO reduced its energy cost
adjustment charges to customers by $1.0 million. On February 12, 1996, HELCO and
PGV executed an amendment to the existing power purchase agreement, under which
PGV would be obligated to provide an additional 5 MW of firm capacity to

                                       8
<PAGE>
 
HELCO commencing in late 1996. The amendment has been submitted to the PUC for
approval. Such additional capacity will assist HELCO in addressing its capacity
situation.

In December 1994, at a time when the Hilo Coast Processing Company (HCPC)
contract was for delivery of 18 MW, HCPC filed a Chapter 11 bankruptcy petition.
In July 1995, the bankruptcy court approved an amended and restated HELCO and
HCPC power purchase agreement for 22 MW of firm capacity and the dismissal of
HCPC from bankruptcy, subject to a condition that was satisfied.

The stock of LVI was transferred to HEI prior to the sale of HERS to The New
World Power Corporation. As of December 31, 1995, LVI's windfarm on the island
of Hawaii consisted of wind turbines with a total operating capacity of 1.6 MW.
LVI sells its electricity to HELCO and the Hawaii County Department of Water
Supply.

Hamakua Sugar Company terminated power delivery to HELCO on October 5, 1994,
upon completion of the bankruptcy court-approved final harvest plan. As a
result, HELCO's system capability was reduced by 8 MW.

MECO has a power purchase agreement with Hawaiian Commercial & Sugar Company for
16 MW of firm capacity through December 31, 1999.

FUEL OIL USAGE AND SUPPLY

All rate schedules of the Company's electric utility subsidiaries contain energy
cost adjustment clauses whereby the charges for electric energy (and
consequently the revenues of the electric utility subsidiaries generally)
automatically vary with the weighted average price paid for fuel oil and certain
components of purchased energy costs, and the relative amounts of company-
generated power and purchased power. Accordingly, changes in fuel oil and
certain purchased energy costs are passed on to customers. See discussion below
under "Rates."

HECO's steam power plants burn low sulfur fuel oil (LSFO). HECO's combustion
turbine peaking units on Oahu burn Number 2 diesel fuel (diesel). MECO and HELCO
consume medium sulfur fuel oil (MSFO) in their steam generating plants and
consume diesel in the operation of their combustion turbine and diesel engine
generating units. The LSFO consumed by HECO in its Oahu generating units is
primarily derived from Indonesian and other Far East crude oils processed in
island refineries. The MSFO supplied to MECO and HELCO is derived from the local
refining of U.S. domestic crude oil.

In the second half of 1995, HECO executed new contracts for the purchase of LSFO
and use of certain fuel distribution facilities with Chevron, U.S.A., Inc.
(CUSA) and BHP Petroleum Americas Refining Inc. (BHP). These fuel supply and
facilities operations contracts have a term of two years commencing January 1,
1996. The PUC approved the contracts and issued final orders in December 1995
and January 1996 that permit the inclusion of costs incurred under these
contracts in HECO's energy cost adjustment clause. HECO pays market-related
prices for fuel supplies purchased under these agreements.

HECO, MECO, HELCO and affiliates, HTB and YB, executed new joint fuel supply
contracts with CUSA and BHP to provide for the purchase of diesel and MSFO
supplies and for the use of certain petroleum distribution facilities for a
period of two years commencing January 1, 1996. The PUC subsequently approved
these contracts and issued final orders in December 1995 and January 1996 that
permitted the electric utilities to include fuel costs incurred under these
contracts in their respective energy cost adjustment clauses. The electric
utilities pay market-related prices for diesel and MSFO supplied under these
agreements.

The diesel supplies obtained by the Lanai Division of MECO are purchased under
an arrangement with a CUSA-branded jobber (wholesale merchant) on Lanai. The
Molokai Division of MECO purchases diesel under the joint fuel supply contract
with CUSA referred to above.

The fuel oil commitments information set forth in the "Fuel contracts and other
purchase commitments" section in Note 11 to HECO's Consolidated Financial
Statements is incorporated herein by reference to page 25 of HECO's 1995 Annual
Report to Stockholder, portions of which are filed herein as HECO Exhibit 13.

                                       9
<PAGE>
 
The following table sets forth the average cost of fuel oil used to generate
electricity in the years 1995, 1994 and 1993:

<TABLE>
<CAPTION>
                    HECO                MECO                HELCO           Consolidated
           -------------------------------------------------------------------------------
             $/Barrel   c/MBtu   $/Barrel   c/MBtu   $/Barrel   c/MBtu   $/Barrel   c/MBtu
------------------------------------------------------------------------------------------
<S>          <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>
1995.......     19.19    306.1      24.78    414.4      21.94    355.1      20.47    329.7
1994.......     17.55    279.1      23.36    391.6      20.98    340.9      18.92    304.4
1993.......     20.27    323.7      24.85    416.3      21.02    344.4      21.09    340.5
</TABLE>

The average per-unit cost of fuel oil consumed to generate electricity for HECO,
MECO and HELCO reflects a different volume mix of fuel types and grades. In
1995, 99.8% of HECO's generation fuel consumption consisted of LSFO. The balance
of HECO's fuel consumption was diesel. Diesel also made up approximately two
thirds of MECO's and one third of HELCO's fuel consumption. The remainder of the
fuel consumption of MECO and HELCO consisted of MSFO. In general, MSFO is the
least costly fuel, diesel is the most expensive fuel and the price of LSFO falls
between the two on a per barrel basis. The average prices of LSFO, MSFO and
diesel in 1995 were higher than the respective average prices in 1994. However,
the average prices of LSFO and diesel remained below the respective price levels
prevailing in 1993.

HTB was contractually obligated to ship heavy fuel oil for HELCO and MECO
through December 1993. Effective December 31, 1993, HTB exited the heavy fuel
oil shipping business. See "Regulation and other matters--Environmental
regulation--Water quality controls." HELCO and MECO carried out a bidding
process to determine who would ship heavy fuel oil beyond 1993. Several bids
were received and evaluated and two contracts were signed with Hawaiian
Interisland Towing, Inc., subject to PUC approval. The PUC approved these
contracts and issued a final order in June 1994 that permitted HELCO and MECO to
include the costs of fuel transportation and related costs incurred under the
contracts in their respective energy cost adjustment clause. Freight rates
charged under the contracts are related to published indices for industrial
commodities prices and labor costs. In December 1995, HELCO and MECO exercised
an option to extend for two years their existing contracts with Hawaiian
Interisland Towing, Inc. for the shipment of MSFO and diesel supplies from their
fuel supplier's facilities on Oahu to storage locations on the islands of Hawaii
and Maui, respectively. These contracts include options for two additional two-
year extensions.

In 1996, the Company estimates that 76% of the net energy generated and
purchased by HECO and its subsidiaries will come from oil. This percentage is
down from 87% in 1992, due largely to the purchases from independent power
producers whose fuel sources are primarily coal, and to a lesser extent,
geothermal, solid waste and bagasse (sugarcane waste). Failure by the Company's
oil suppliers to provide fuel pursuant to the supply contracts and/or
substantial increases in fuel prices could adversely affect consolidated HECO's
and the Company's financial condition and results of operations. HECO and its
subsidiaries, however, maintain an inventory of fuel oil approximating a month's
supply, which may be used in the event fuel suppliers are not able to provide
fuel pursuant to the contracts for this period of time, and increases in fuel
oil prices would be passed on to customers through the electric utility
subsidiaries' energy cost adjustment clauses.

RATES

HECO, MECO and HELCO are subject to the regulatory jurisdiction of the PUC with
respect to rates, standards of service, issuance of securities, accounting and
certain other matters. See "Regulation and other matters--Electric utility
regulation."

All rate schedules of HECO and its subsidiaries contain an energy cost
adjustment clause to reflect changes in the weighted average price paid for fuel
oil and certain components of purchased energy costs, and the relative amounts
of company-generated power and purchased power. Under current law and practices,
specific and separate PUC approval is not required for each rate change pursuant
to automatic rate adjustment clauses previously approved by the PUC. Rate
increases, other than pursuant to such automatic adjustment clauses, require the
prior approval of the PUC after public and contested case hearings. PURPA
requires the PUC to periodically review the energy cost adjustment clauses of
electric and gas utilities in the state, and such clauses, as well as the rates
charged by the utilities generally, are subject to change.

                                       10
<PAGE>
 
The "Regulation of electric utility rates" and "Recent rate requests" sections
in MD&A are incorporated herein by reference to pages 29 and 30 of HEI's 1995
Annual Report to Stockholders, portions of which are filed herein as HEI Exhibit
13.

In March 1996, HELCO received an interim decision and order authorizing a 4.8%,
or $6.8 million, increase in annual revenues, based on a 11.65% return on
average common equity. Interim increases are subject to refund with interest,
pending the final outcome of the case.

HECO and its subsidiaries participated in the PUC's generic docket to determine
whether Statement of Financial Accounting Standards (SFAS) No. 106 should be
adopted for rate-making purposes. The information on postretirement benefits
other than pensions in MD&A and in the "Postretirement benefits other than
pensions" section in Note 17 to HEI's Consolidated Financial Statements is
incorporated herein by reference to pages 29, 58 and 59 of HEI's 1995 Annual
Report to Stockholders, portions of which are filed herein as HEI Exhibit 13.

WAIAU-CAMPBELL INDUSTRIAL PARK TRANSMISSION LINES

In 1993, the PUC held hearings concerning Part 2 of the Waiau-Campbell
Industrial Park (CIP) 138-kilovolt transmission lines. These lines are part of a
second transmission corridor in West Oahu, running approximately 15 miles
between CIP and HECO's Waiau power plant. The new lines were needed (1) to
increase system reliability, (2) to provide additional transmission capacity to
meet expected load growth and (3) to provide transmission capacity for existing
and new power generation projects planned for West Oahu. HECO experienced
community opposition over the proposed placement of portions of these lines
based in part on the potential effects of the lines on aesthetics and the
concern of some that the electric and magnetic fields (EMF) from the power lines
may have adverse health effects. HECO witnesses addressed EMF, the route
selection process (which involved extensive public input), as well as
engineering and related subjects.

One proposal by those who oppose the route of the overhead lines was to place
Part 2 of the Waiau-CIP lines underground. HECO estimated that this proposal
would cost approximately $100 million more than the cost of overhead lines. In
April 1994, the PUC issued a decision which permitted HECO to construct the
lines above ground. While the PUC recognized the concerns of aesthetics and EMF,
it felt that neither concern was sufficient to justify the added cost of
undergrounding the lines. In May 1994, appeals to the state Supreme Court were
filed by intervenors in the PUC proceeding requesting that the Court overturn
the PUC's ruling that allowed HECO to construct the lines above ground.
Management cannot predict with certainty the final outcome of the appeals. No
stay of the PUC order has been entered. HECO completed construction of the
overhead lines which were placed in service in August 1995.

SAVINGS BANK--AMERICAN SAVINGS BANK, F.S.B.
-------------------------------------------

GENERAL

ASB was granted a charter as a federal savings bank in January 1987. Prior to
that time, ASB operated as the Hawaii division of American Savings & Loan
Association of Salt Lake City, Utah since 1925. As of September 30, 1995, ASB
was the fourth largest financial institution in the state based on total assets
of $3.3 billion and the third largest financial institution based on deposits of
$2.2 billion.

HEI agreed with the Office of Thrift Supervision's (OTS) predecessor regulatory
agency that ASB's regulatory capital would be maintained at a level of at least
6% of ASB's total liabilities, or at such greater amount as may be required from
time to time by regulation. Under the agreement, HEI's obligation to contribute
additional capital was limited to a maximum aggregate amount of approximately
$65.1 million. HEI elected to contribute additional capital of $12.0 million,
$1.0 million and $0.8 million to ASB during 1995, 1994 and 1993, respectively.
Most of the additional capital contribution to ASB in 1995 was contributed in
anticipation of legislative proposals in Congress to make a one-time assessment
of thrifts to fully capitalize the Savings Association Insurance Fund (SAIF).
See "Savings bank regulation, Deposit Insurance, Deposit Insurance Assessment"
for a further description of the legislative proposals and their potential
impact. ASB is subject to the OTS regulations for dividends and other
distributions applicable to financial institutions regulated by the OTS.

ASB's earnings depend primarily on its net interest income--the difference
between the interest income earned on interest-earning assets (loans receivable,
mortgage-backed securities and investments) and the interest expense incurred on
interest-bearing liabilities (deposit liabilities and borrowings). Deposits

                                       11
<PAGE>
 
traditionally have been the principal source of ASB's funds for use in lending,
meeting liquidity requirements and making investments. ASB also derives funds
from receipt of interest and principal on outstanding loans receivable,
borrowings from the Federal Home Loan Bank (FHLB) of Seattle, securities sold
under agreements to repurchase and other sources, including collateralized
medium-term notes. In recent years, securities sold under agreements to
repurchase and advances from the FHLB of Seattle have become more significant
sources of funds.

For additional information about ASB, reference is made to "Savings Bank" under
MD&A and to Note 5 to HEI's Consolidated Financial Statements, incorporated
herein by reference to pages 31 to 32, 35 to 36 and 49 to 52 of HEI's 1995
Annual Report to Stockholders, portions of which are filed herein as HEI Exhibit
13.

The following table sets forth selected data for ASB for the periods indicated:
<TABLE> 
<CAPTION> 
                                            Years ended December 31,
                                          ---------------------------
                                             1995      1994      1993
---------------------------------------------------------------------
<S>                                        <C>         <C>       <C> 
Equity to assets ratio
      Average equity divided by average     
       total assets.......................   6.23%     6.64%     7.03% 
Return on assets                                                       
      Net income divided by average total                                 
       assets (1).........................   0.71%     0.86%     1.00% 
Return on equity                                                       
      Net income divided by average                                   
       equity (1).........................   11.5%     13.0%     14.2%  
</TABLE> 

(1) Net income includes amortization of goodwill and core deposit intangibles.
    Average balances for each period have been calculated using the average
    month-end balances during the period.

CONSOLIDATED AVERAGE BALANCE SHEET

The following table sets forth average balances of major balance sheet
categories for the periods indicated. Average balances for each period have been
calculated using the average month-end or daily average balances during the
period.
<TABLE> 
<CAPTION> 
                                                Years ended December 31, 
                                       ---------------------------------------
(in thousands)                               1995         1994         1993
------------------------------------------------------------------------------
<S>                                       <C>          <C>          <C>
ASSETS
Investment securities...............      $   80,633   $   88,728   $  136,987
Mortgage-backed securities..........       1,251,192      732,623      647,973
Loans receivable, net...............       1,751,729    1,878,581    1,570,751
Other...............................         173,895      178,088      183,151
                                       ---------------------------------------
                                          $3,257,449   $2,878,020   $2,538,862
                                       =======================================


LIABILITIES AND STOCKHOLDER'S EQUITY
Deposit liabilities.................      $2,149,229   $2,134,029   $2,076,192
Other borrowings....................         835,310      477,331      230,101
Other...............................          69,903       75,573       54,212
Stockholder's equity................         203,007      191,087      178,357
                                       ---------------------------------------
                                          $3,257,449   $2,878,020   $2,538,862
                                       =======================================
</TABLE> 

ASSET/LIABILITY MANAGEMENT

Interest rate sensitivity refers to the relationship between market interest
rates and net interest income resulting from the repricing of interest-earning
assets and interest-bearing liabilities. Interest rate risk arises when an
interest-earning asset matures or when its interest rate changes in a time frame
different from that of the supporting interest-bearing liability. Maintaining an
equilibrium between rate sensitive interest-earning assets and interest-bearing
liabilities will reduce some interest rate risk but it will not guarantee a
stable net interest spread because yields and rates may change simultaneously or
at different times and such changes may occur in differing increments. Market
rate fluctuations could materially affect the overall net interest spread even
if interest-earning assets and interest-bearing liabilities were perfectly
matched. The difference between the amounts of interest-earning assets and
interest-bearing liabilities that reprice during a given period is called "gap."
An asset-sensitive position or "positive gap" exists when more assets than
liabilities reprice within a given period; a liability-sensitive position or

                                       12
<PAGE>
 
"negative gap" exists when more liabilities than assets reprice within a given
period. A positive gap generally produces more net interest income in periods of
rising interest rates and a negative gap generally produces more net interest
income in periods of falling interest rates.

As rates increased during 1994 and part of 1995, the gap in the near term (0-6
months) was a negative 7.6% of total assets as compared to a cumulative one-year
negative gap position of 2.6% of total assets as of December 31, 1995. The
negative near-term gap position reflects increases in short-term certificate of
deposits and other borrowings to support investment activities. The lower
cumulative one-year 1995 negative gap was primarily due to investments in
adjustable rate loans and mortgage-backed securities. The following table shows
ASB's interest rate sensitivity at December 31, 1995:

<TABLE>
<CAPTION>
                                                Cumulative volumes at December 31, 1995
                                                      subject to repricing within
                                        -------------------------------------------------------
                                           6 months      6 months     1-5    Over 5
(dollars in millions)                      or less      to 1 year    years   years      Total (1)
-----------------------------------------------------------------------------------------------
<S>                                        <C>         <C>          <C>      <C>       <C>
Interest-earning assets
-----------------------
Real estate loans and mortgage-
   backed securities
   Balloon and adjustable rate.........     $   554      $   644    $  84     $  --      $1,282
   Fixed rate 1-4 unit residential.....         181          131      655       496       1,463
    Other..............................          46           24       71        34         175
Consumer and other loans...............         133            6       23        23         185
Commercial loans.......................           7            3       11         7          28
Other interest-earning assets..........          97           --       --        --          97
                                        -------------------------------------------------------

Total interest-earning assets..........       1,018          808      844       560       3,230
                                        -------------------------------------------------------

Interest-bearing liabilities
----------------------------
Certificate accounts...................         314          457      139        54         964
Money market accounts..................          65           --       --        --          65
"Negotiable Order of Withdrawal" 
  accounts.............................         276           --       --        --         276
Passbook accounts......................         157           52      342       368         919
FHLB advances..........................         121           85      167       128         501
Other borrowings.......................         343           45       25        --         413
                                        -------------------------------------------------------


Total interest-bearing liabilities.....       1,276          639      673       550       3,138
                                        -------------------------------------------------------

Interest rate sensitivity gap (2)......     $  (258)     $   169    $ 171     $  10      $   92
                                        =======================================================


Cumulative interest rate
  sensitivity gap......................     $  (258)     $   (89)   $  82     $  92
                                        ===========================================


Cumulative interest rate sensitivity
  gap over total assets................       (7.56)%      (2.61)%    2.40%     2.70%
                                        ===========================================
</TABLE>

(1) The table does not include $183 million of noninterest-earning assets and
    $57 million of noninterest-bearing liabilities.

(2) The difference between the total interest-earning assets and the total
    interest-bearing liabilities.

                                       13
<PAGE>
 
INTEREST INCOME AND INTEREST EXPENSE

The following table sets forth average balances, interest and dividend income,
interest expense and weighted average yields earned and rates paid, for certain
categories of interest-earning assets and interest-bearing liabilities for the
periods indicated. Average balances for each period have been calculated using
the average month-end or daily average balances during the period.

<TABLE>
<CAPTION>
                                               Years ended December 31,
                                         --------------------------------------
(dollars in thousands)                     1995          1994          1993
-------------------------------------------------------------------------------
<S>                                      <C>           <C>           <C>
Loans
  Average balances ....................  $1,751,729    $1,878,581    $1,570,751
  Interest income .....................  $  146,046    $  154,026    $  135,778
  Weighted average yield ..............        8.34%         8.20%         8.64%

Mortgage-backed securities
  Average balances ....................  $1,251,192    $  732,623    $  647,973
  Interest income .....................  $   85,727    $   44,043    $   43,397
  Weighted average yield...............        6.85%         6.01%         6.70%

Investments (1) (2)
  Average balances ....................  $   80,633    $   88,728    $  136,987
  Interest and dividend income.........  $    4,921    $    5,304    $    9,444
  Weighted average yield...............        6.10%         5.98%         6.89%

Total interest-earning assets
  Average balances ....................  $3,083,554    $2,699,932    $2,355,711
  Interest and dividend income.........  $  236,694    $  203,373    $  188,619
  Weighted average yield...............        7.68%         7.53%         8.01%

Deposits
  Average balances ....................  $2,149,229    $2,134,029    $2,076,192
  Interest expense ....................  $   89,296    $   76,509    $   77,651
  Weighted average rate................        4.15%         3.59%         3.74%

Borrowings
  Average balances ....................  $  835,310    $  477,331    $  230,101
  Interest expense ....................  $   53,409    $   27,397    $   15,050
  Weighted average rate................        6.39%         5.74%         6.54%

Total interest-bearing liabilities
  Average balances ....................  $2,984,539    $2,611,360    $2,306,293
  Interest expense ....................  $  142,705    $  103,906    $   92,701
  Weighted average rate................        4.78%         3.98%         4.02%

Net balance, net interest income
 and interest rate spread
  Net balance .........................  $   99,015    $   88,572    $   49,418
  Net interest income..................  $   93,989    $   99,467    $   95,918
  Interest rate spread.................        2.90%         3.55%         3.99%
</TABLE>

(1)  ASB has no material amount of tax-exempt investments for periods shown.
     Investments include interest-bearing deposits, marketable securities and
     investments in regulatory agencies.

(2)  Includes interest-bearing deposits in the Federal Home Loan Bank of
     Seattle.

                                       14
<PAGE>
 
The following table shows the effect on net interest income of (1) changes in
interest rates (change in weighted average interest rate multiplied by prior
period average portfolio balance) and (2) changes in volume (change in average
portfolio balance multiplied by prior period rate). Any remaining change is
allocated to the above two categories on a pro rata basis.

<TABLE>
<CAPTION>
                                              Increase (decrease) due to
                                        ----------------------------------
(in thousands)                               Rate       Volume      Total
--------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
Year ended December 31, 1995 vs. 1994
-------------------------------------
Income from interest-earning assets
 Loan portfolio........................... $  2,588    $(10,568)   $(7,980)
 Mortgage-backed securities...............    6,874      34,810     41,684
 Investments..............................      105        (488)      (383)
                                           -------------------------------
                                              9,567      23,754     33,321
                                           -------------------------------
Expense from interest-bearing
 liabilities
 Deposits.................................   12,228         559     12,787
 FHLB advances and other borrowings.......    3,413      22,599     26,012
                                           -------------------------------
                                             15,641      23,158     38,799
                                           -------------------------------
Net interest income....................... $ (6,074)   $    596    $(5,478)
                                           ===============================

Year ended December 31, 1994 vs. 1993
-------------------------------------
Income from interest-earning assets
 Loan portfolio........................... $ (7,209)   $ 25,457    $18,248
 Mortgage-backed securities...............   (4,715)      5,361        646
 Investments..............................   (1,129)     (3,011)    (4,140)
                                           -------------------------------
                                            (13,053)     27,807     14,754
                                           -------------------------------
Expense from interest-bearing
 liabilities
 Deposits.................................   (3,228)      2,086     (1,142)
 FHLB advances and other borrowings.......   (2,044)     14,391     12,347
                                           -------------------------------
                                             (5,272)     16,477     11,205
                                           -------------------------------
Net interest income....................... $ (7,781)   $ 11,330    $ 3,549
                                           ===============================
</TABLE>

OTHER INCOME
In addition to net interest income, ASB has various sources of other income,
including fee income from servicing loans, fees on deposit accounts, rental
income from premises and other income. Other income totaled approximately $17.9
million in 1995, compared to $12.2 million in 1994 and $11.1 million in 1993.
The increase in other income during 1995 was primarily due to a $3.9 million
one-time gain on sale of trading account securities.   In November 1995, the
Financial Accounting Standards Board (FASB) issued a special report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In connection with the guidance provided in the special
report, the FASB indicated that an enterprise may reassess the appropriateness
of the classifications of all securities held at that time and account for any
resulting reclassifications at fair value in accordance with the requirements of
SFAS No. 115. Such reclassifications were required to occur no later than
December 31, 1995. The guidance indicated that reclassifications from the held-
to-maturity category that resulted from this one-time reassessment would not
call into question the intent of an enterprise to hold other debt securities to
maturity in the future. In accordance with the implementation guidance provided
in the special report, ASB transferred approximately $49.5 million of mortgage-
backed securities previously classified as held-to-maturity securities to
trading account securities on November 28, 1995. All such securities were then
sold prior to the end of 1995.

                                       15
<PAGE>
 
LENDING ACTIVITIES

General.  ASB's net loan and mortgage-backed securities portfolio totaled
approximately $3.1 billion at December 31, 1995, representing 91.8% of its total
assets, compared to $2.9 billion, or 92.8%, and $2.4 billion, or 90.3%, at
December 31, 1994 and 1993, respectively. ASB's loan portfolio consists
primarily of conventional residential mortgage loans which are not insured by
the Federal Housing Administration nor guaranteed by the Veterans
Administration.

The following tables set forth the composition of ASB's loan and mortgage-backed
securities portfolio:

<TABLE>
<CAPTION>
                                                                                     December 31,
                                           -----------------------------------------------------------------------------------
                                                     1995                         1994                          1993
                                           -----------------------------------------------------------------------------------
(dollars in thousands)                       Balance        % of total      Balance     % of total      Balance     % of total
------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>           <C>         <C>             <C>         <C>
Real estate loans (1)
Conventional.............................  $1,474,232         47.06%      $1,636,282       56.59%     $1,584,218       66.98%
Construction and development.............      21,285          0.68           32,074        1.11          26,526        1.12
Troubled debt restructurings.............      15,982          0.51           16,151        0.56           3,397        0.14
                                           -----------------------------------------------------------------------------------
                                            1,511,499         48.25        1,684,507       58.26       1,614,141       68.24
Less
  Unearned fees and discounts............     (15,244)        (0.49)         (21,159)      (0.73)        (26,728)      (1.13)
  Undisbursed loan funds.................     (10,422)        (0.33)         (13,844)      (0.48)        (13,142)      (0.55)
  Allowance for losses...................     (10,837)        (0.34)          (7,259)      (0.25)         (3,962)      (0.17)
                                           -----------------------------------------------------------------------------------
Total real estate loans, net.............   1,474,996         47.09        1,642,245       56.80       1,570,309       66.39
                                           -----------------------------------------------------------------------------------
Other loans
Loans on deposits........................      15,688          0.50           15,378        0.53          15,015        0.63
Consumer and other loans.................     170,743          5.45          144,505        5.00         129,961        5.49
Commercial loans.........................      34,666          1.11           27,981        0.97          24,494        1.04
                                           -----------------------------------------------------------------------------------
                                              221,097          7.06          187,864        6.50         169,470        7.16
Less
  Unearned fees and discounts............         (38)        (0.00)             (52)      (0.00)           (156)      (0.01)
  Undisbursed loan funds.................      (6,175)        (0.20)          (4,468)      (0.16)         (3,173)      (0.13)
  Allowance for losses...................      (2,079)        (0.07)          (1,534)      (0.05)         (1,352)      (0.06)
                                           -----------------------------------------------------------------------------------
Total other loans, net...................     212,805          6.79          181,810        6.29         164,789        6.96
                                           -----------------------------------------------------------------------------------
Mortgage-backed securities, net of
 discounts...............................   1,444,832         46.12        1,067,287       36.91         630,156       26.65
                                           -----------------------------------------------------------------------------------
 Total loans and mortgage-backed
  securities, net........................  $3,132,633        100.00%      $2,891,342      100.00%     $2,365,254      100.00%
                                           ===================================================================================
</TABLE>
 
(1) Includes renegotiated loans.

                                       16
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                        December 31,
                                                              --------------------------------------------------------------
                                                                           1992                              1991
                                                              --------------------------------------------------------------
(dollars in thousands)                                             Balance      % of total         Balance        % of total
----------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>                <C>            <C>
Real estate loans (1)
Conventional...............................................       $1,294,769       59.59%          $  976,004        50.02%
Construction and development...............................           33,123        1.53               24,978         1.28
Troubled debt restructurings...............................            8,945        0.41                  180         0.01
                                                              --------------------------------------------------------------
                                                                   1,336,837       61.53            1,001,162        51.31
Less
  Unearned fees and discounts..............................          (20,422)      (0.94)             (16,106)       (0.82)
  Undisbursed loan funds...................................          (16,203)      (0.74)             (11,854)       (0.61)
  Allowance for losses.....................................           (3,626)      (0.17)              (2,678)       (0.14)
                                                              --------------------------------------------------------------
Total real estate loans, net...............................        1,296,586       59.68              970,524        49.74
                                                              --------------------------------------------------------------
Other loans
Loans on deposits..........................................           15,013        0.69               15,528         0.80
Consumer and other loans...................................          134,943        6.21              144,356         7.40
Commercial loans...........................................           21,830        1.01               22,998         1.18
                                                              --------------------------------------------------------------
                                                                     171,786        7.91              182,882         9.38
Less
  Unearned fees and discounts..............................             (148)      (0.01)                (204)       (0.01)
  Undisbursed loan funds...................................           (3,805)      (0.18)              (3,436)       (0.18)
  Allowance for losses.....................................           (1,531)      (0.07)              (1,140)       (0.06)
                                                              --------------------------------------------------------------
Total other loans, net.....................................          166,302        7.65              178,102         9.13
                                                              --------------------------------------------------------------
Mortgage-backed securities, net of discounts...............          709,891       32.67              802,430        41.13
                                                              --------------------------------------------------------------
  Total loans and mortgage-backed
   securities, net.........................................       $2,172,779      100.00%          $1,951,056       100.00%
                                                              ==============================================================
</TABLE>

(1) Includes renegotiated loans.

Origination, purchase and sale of loans.  Generally, loans originated and
purchased by ASB are secured by real estate located in Hawaii. As of December
31, 1995, approximately $55.5 million of loans purchased from other lenders were
secured by properties located in the continental United States. For additional
information, including information concerning the geographic distribution of
ASB's mortgage-backed securities portfolio and the geographic concentration of
credit risk, reference is made to Note 19 to HEI's Consolidated Financial
Statements, incorporated herein by reference to page 59 of HEI's 1995 Annual
Report to Stockholders, portions of which are filed herein as HEI Exhibit 13.

The amount of loans originated during 1995, 1994, 1993, 1992 and 1991 were $382
million, $523 million, $564 million, $601 million and $387 million,
respectively. The decrease in loans originated in 1995 from 1994 was due in part
to lower refinancings and the weak economy.

Residential mortgage lending.  During the last half of 1995, interest rates
along with the demand for adjustable rate mortgage (ARM) loans over fixed rate
loans decreased compared with 1994. ARM loans carry adjustable interest rates
which are typically set according to a short-term index. Payment amounts may be
adjusted periodically based on changes in interest rates. ARM loans represented
approximately 27.7% of the total originations of first mortgage loans in 1995,
compared to 46.3% and 24.7% in 1994 and 1993, respectively. ASB intends to
continue to emphasize the origination and purchase of ARM loans to further
improve its asset/liability structure.

ASB is permitted to lend up to 100% of the appraised value of the real property
securing a loan. Its general policy is to require private mortgage insurance
when the loan-to-value ratio of owner-occupied property exceeds 80% of the lower
of the appraised value or purchase price. On nonowner-occupied residential
properties, the loan-to-value ratio may not exceed 80% of the lower of the
appraised value or purchase price.

                                       17
<PAGE>
 
Construction and development lending.  ASB provides both fixed and adjustable
rate loans for the construction of one-to-four residential unit and commercial
properties. Construction and development financing generally involves a higher
degree of credit risk than long-term financing on improved, occupied real
estate. Accordingly, all construction and development loans are priced higher
than loans secured by completed structures. ASB's underwriting, monitoring and
disbursement practices with respect to construction and development financing
are designed to ensure sufficient funds are available to complete construction
projects. As of December 31, 1995, 1994 and 1993, construction and development
loans represented 1.2%, 1.7% and 1.5%, respectively, of ASB's gross loan
portfolio. See "Loan portfolio risk elements."

Multi-family residential and commercial real estate lending.  Permanent loans
secured by multi-family properties (generally apartment buildings), as well as
commercial and industrial properties (including office buildings, shopping
centers and warehouses), are originated by ASB for its own portfolio as well as
for participation with other lenders. In 1995, 1994 and 1993, loans on these
types of properties accounted for approximately 5.9%, 6.6% and 6.0%,
respectively, of ASB's total mortgage loan originations. The objective of
commercial real estate lending is to diversify ASB's loan portfolio to include
sound, income-producing properties.

Consumer lending.  ASB offers a variety of secured and unsecured consumer loans.
Loans secured by deposits are limited to 90% of the available account balance.
ASB also offers VISA cards, automobile loans, general purpose consumer loans,
second mortgage loans, home equity lines of credit, checking account overdraft
protection and unsecured lines of credit. In 1995, 1994 and 1993, loans of these
types accounted for approximately 11.5%, 6.2% and 4.3%, respectively, of ASB's
total loan originations.

Corporate banking/commercial lending.  ASB is authorized to make both secured
and unsecured corporate banking loans to business entities. This lending
activity is designed to diversify ASB's asset structure, shorten maturities,
provide rate sensitivity to the loan portfolio and attract business checking
deposits. As of December 31, 1995, 1994 and 1993, corporate banking loans
represented 1.7%, 1.3% and 1.2%, respectively, of ASB's total net loan
portfolio.

Loan origination fee and servicing income.  In addition to interest earned on
loans, ASB receives income from servicing of loans, for late payments and from
other related services. Servicing fees are received on loans originated and
subsequently sold by ASB through a securitization process and also on loans for
which ASB acts as collection agent on behalf of third-party purchasers.

ASB generally charges the borrower at loan settlement a loan origination fee
ranging from 2% to 3% of the amount borrowed. Loan origination fees (net of
direct loan origination costs) are deferred and recognized as an adjustment of
yield over the life of the loan. Nonrefundable commitment fees (net of direct
loan origination costs, if applicable) to originate or purchase loans are
deferred. The nonrefundable commitment fees are recognized as an adjustment of
yield over the life of the loan if the commitment is exercised. If the
commitment expires unexercised, nonrefundable commitment fees are recognized in
income upon expiration of the commitment.

Loan portfolio risk elements.  When a borrower fails to make a required payment
on a loan and does not cure the delinquency promptly, the loan is classified as
delinquent. If delinquencies are not cured promptly, ASB normally commences a
collection action, including foreclosure proceedings in the case of secured
loans. In a foreclosure action, the property securing the delinquent debt is
sold at a public auction in which ASB may participate as a bidder to protect its
interest. If ASB is the successful bidder, the property is classified in a real
estate owned account until it is sold. At December 31, 1995, there were nine
residential properties acquired in settlement of loans totaling $2.7 million or
0.08% of total assets. At December 31, 1994, there were three residential
properties acquired in settlement of loans totaling $0.8 million or 0.03% of
total assets. At December 31, 1993, there was one residential property acquired
in settlement of a loan totaling $0.2 million, or 0.01% of total assets.

In addition to delinquent loans, other significant lending risk elements
include: (1) accruing loans which are over 90 days past due as to principal or
interest, (2) loans accounted for on a nonaccrual basis (nonaccrual loans), and
(3) loans on which various concessions are made with respect to interest rate,
maturity, or other terms due to the inability of the borrower to service the
obligation under the original terms of the agreement (renegotiated loans). ASB
has no loans which are over 90 days past due on which interest is being accrued
for the years presented in the table below. The level of nonaccrual and
renegotiated loans represented 1.7%, 1.4%, 0.5%, 1.0% and 0.1%, of ASB's total
net loans outstanding

                                       18
<PAGE>
 
at December 31, 1995, 1994, 1993, 1992 and 1991, respectively. The following
table sets forth certain information with respect to nonaccrual and renegotiated
loans for the dates indicated:

<TABLE>
<CAPTION>
                                                           December 31,
                                        -----------------------------------------------
(in thousands)                              1995      1994      1993     1992     1991
---------------------------------------------------------------------------------------
<S>                                        <C>       <C>       <C>      <C>       <C>
Nonaccrual loans--
Real estate
  1-4 unit residential.................    $11,533   $ 8,773   $5,006   $12,526   $ 556
  Income property......................     13,820    14,224      220       395      --
                                        -----------------------------------------------
Total real estate......................     25,353    22,997    5,226    12,921     556
Commercial.............................         11        25       38     1,059      --
Consumer...............................      1,702       793      460       181     439
                                        -----------------------------------------------
Total nonaccrual loans.................    $27,066   $23,815   $5,724   $14,161   $ 995
                                        ===============================================

Renegotiated loans not included
 above--
Real estate
  1-4 unit residential.................    $ 1,053   $ 1,004   $  381   $    --   $  --
  Income property......................         --        --    1,486        --     180
  Commercial...........................         --        --      324        --      --
                                        -----------------------------------------------
Total renegotiated loans...............    $ 1,053   $ 1,004   $2,191   $    --   $ 180
                                        ===============================================
</TABLE>

ASB's policy generally is to place mortgage loans on a nonaccrual status
(interest accrual is suspended) when the loan becomes more than 90 days past due
or on an earlier basis when there is a reasonable doubt as to its
collectability. Loans on nonaccrual status amounted to $27.1 million (1.6% of
total loans) at December 31, 1995, $23.8 million (1.3% of total loans) at
December 31, 1994, $5.7 million (0.3% of total loans) at December 31, 1993,
$14.2 million (0.9% of total loans) at December 31, 1992 and $1.0 million (0.1%
of total loans) at December 31, 1991.

The significant increase in loans on nonaccrual status from yearend 1991 to 1992
was primarily due to the effects of Hurricane Iniki on the island of Kauai, such
as higher unemployment. As of December 31, 1992, real estate loans with
remaining principal balances of $8.9 million were restructured to defer monthly
contractual principal and interest payments for three months with repayments of
the entire deferred amounts due at the end of the three-month period. These
loans had been classified as nonaccrual loans as of December 31, 1992.
Substantially all of these loans have resumed their normal repayment schedule
and are classified as performing loans.

In 1994, the $18 million increase in nonaccrual real estate loans was a result
of Hawaii's weak economy. A rising trend of delinquencies resulted in a $3.8
million increase in nonaccrual residential loans. The $14 million increase in
nonaccrual income property loans was primarily due to three commercial real
estate loans with principal balances totaling $11.8 million that were
restructured/renegotiated to defer monthly principal and interest payments for
three to six months. Based on evaluations of collection prospects, a specific
loss reserve of $1.6 million was established in 1994 for one of the loans
secured by a commercial retail/office building located on the island of Oahu. In
1995, the $3.3 million increase in nonaccrual loans was a result of Hawaii's
continued weak economy.

Allowance for loan losses.  The provision for loan losses is dependent upon
management's evaluation as to the amount needed to maintain the allowance for
loan losses at a level considered appropriate in relation to the risk of future
losses inherent in the loan portfolio. While management attempts to use the best
information available to make evaluations, future adjustments may be necessary
as circumstances change and additional information becomes available.

                                       19
<PAGE>
 
The following table presents the changes in the allowance for loan losses for
the periods indicated.

<TABLE>
<CAPTION>
                                                                                  Years ended December 31,
                                                                   --------------------------------------------------
(dollars in thousands)                                                  1995      1994      1993      1992      1991
---------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>        <C>       <C>       <C>       <C>
Allowance for loan losses, beginning of year..................        $ 8,793    $5,314    $5,157    $3,818    $3,387
                                                                   --------------------------------------------------
ADDITIONS TO PROVISIONS FOR LOSSES
Real estate loans.............................................          4,107     3,406       336       945       296
Other loans...................................................            780       577       443       549       345
                                                                   --------------------------------------------------
Total additions...............................................          4,887     3,983       779     1,494       641
                                                                   --------------------------------------------------
NET (RECOVERY) CHARGE-OFFS
Real estate loans.............................................             69       109        --        (3)      (12)
Other loans...................................................            695       395       622       158       222
                                                                   --------------------------------------------------
Total net charge-offs.........................................            764       504       622       155       210
                                                                   --------------------------------------------------
Allowance for loan losses, end of year........................        $12,916    $8,793    $5,314    $5,157    $3,818
                                                                   ==================================================
Ratio of net charge-offs during the period to
 average loans outstanding....................................           0.04%     0.03%     0.04%     0.01%     0.02%
                                                                   ==================================================
</TABLE>

ASB's ratio of provisions for loan losses during the period to average loans
outstanding was 0.28%, 0.21%, 0.05%, 0.11% and 0.06% for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991, respectively. The increase in
provisions for loan losses during 1992 was primarily due to the 27% increase in
average loans outstanding and a $0.6 million additional provision for Kauai
loans anticipated to be affected by Hurricane Iniki. In 1994 and 1995, to
establish additional specific loss reserves and in response to a rising trend of
delinquencies caused by Hawaii's weak economy, ASB increased its loss reserve by
$3.5 million and $4.1 million, respectively.

INVESTMENT ACTIVITIES

In recent years, ASB's investment portfolio has consisted primarily of stock of
the FHLB of Seattle, federal agency obligations and mortgage-backed securities.
In response to the then increasing interest rate environment, management decided
to liquidate ASB's portfolio of securities held for trading and the liquidation
was completed in October 1994. Also, see the prior discussion under "Other
income" of the one-time gain on sale of trading account securities in 1995.

The following table sets forth the composition of ASB's investment portfolio,
excluding mortgage-backed securities to be held-to-maturity, at the dates
indicated:

<TABLE>
<CAPTION>
                                                        December 31,          
                                            --------------------------------  
(dollars in thousands)                           1995       1994       1993   
----------------------------------------------------------------------------  
<S>                                            <C>        <C>        <C>      
Investment in FHLB stock.................      $34,720    $32,523    $23,203  
Marketable securities....................           --         --     45,396  
                                            --------------------------------  
Total investments........................      $34,720    $32,523    $68,599  
                                            ================================  
Weighted average rate on investments (1).         6.03%      6.86%      9.75% 
                                            ================================   
</TABLE>

(1)  On investments during the year ended December 31.

DEPOSITS AND OTHER SOURCES OF FUNDS

General.  Deposits traditionally have been the principal source of ASB's funds
for use in lending, meeting liquidity requirements and making investments. ASB
also derives funds from receipt of interest and principal on outstanding loans
receivable and mortgage-backed securities, borrowings from the FHLB of Seattle,
securities sold under agreements to repurchase and other sources. ASB borrows on
a short-term basis to compensate for seasonal or other reductions in deposit
flows. ASB also may borrow on a longer-term basis to support expanded lending or
investment activities. In the last few years, securities sold under agreements
to repurchase and advances from the FHLB have become a more

                                       20
<PAGE>
 
significant source of funds as the demand for deposits has decreased. Using
higher cost sources of funds puts downward pressure on ASB's net interest
income.

Deposits.  ASB's deposits are obtained primarily from residents of Hawaii. In
1995, ASB had average deposits aggregating $2.1 billion, with a net savings
inflow of $15.0 million, excluding interest credited to deposit accounts. Net
savings outflows for 1994 and 1993 were approximately $32 million and $9
million, respectively, excluding interest credited to deposit accounts. The net
savings outflow for 1994 was due primarily to the effects of rising interest
rates and increased competition. The net savings outflow for 1993 was due
primarily to the withdrawal of a trust company deposit account of $92 million.
The trust company had been acquired by another financial institution. The
weighted average rate paid on deposits during 1995 was 4.15%, compared to 3.59%
and 3.74% in 1994 and 1993, respectively. In the three years ended December 31,
1995, ASB had no deposits placed by or through a broker.

The following table shows the distribution of ASB's average deposits and average
daily rates by type of deposit for the years indicated. Average balances for a
period have been calculated using the average of month-end balances during the
period.

<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                             -----------------------------------------------------------------------------------------------------
                                                1995                               1994                            1993
                             -----------------------------------------------------------------------------------------------------
                                            % of                                % of                             % of
                                Average     total      Average     Average      total     Average    Average     total     Average
(dollars in thousands)          balance    deposits    rate %      balance    deposits    rate %     balance    deposits    rate %
----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>        <C>       <C>         <C>          <C>       <C>         <C>        <C>
Passbook accounts...........  $  978,858      45.5%       3.48%   $1,215,919     57.0%      3.51%   $1,126,880     54.3%     3.73%
Negotiable Order of
  Withdrawal (NOW)
  accounts..................     264,996      12.4        2.09       266,335     12.5       2.25       268,227     12.9      2.49
Money market accounts.......      66,634       3.1        3.43        88,320      4.1       3.02       119,238      5.7      3.15
Certificate accounts........     838,741      39.0        5.66       563,455     26.4       4.48       561,847     27.1      4.48
                             ----------------------------------------------------------------------------------------------------
Total deposits..............  $2,149,229     100.0%       4.15%   $2,134,029    100.0%      3.59%   $2,076,192    100.0%     3.74%
                             ====================================================================================================
</TABLE>

At December 31, 1995, ASB had $267.9 million in certificate accounts of $100,000
 or more, maturing as follows:


<TABLE>
<CAPTION>
(in thousands)                                              Amount
--------------------------------------------------------------------
<S>                                                        <C>
Three months or less................................       $  92,355
Greater than three months through six months........          47,257
Greater than six months through twelve months.......         102,447
Greater than twelve months..........................          25,876
                                                    ----------------
                                                           $ 267,935
                                                    ================
</TABLE>

Borrowings.  ASB obtains advances from the FHLB of Seattle, provided certain
standards related to credit-worthiness have been met. Advances are secured under
a blanket pledge of the common stock ASB owns in the FHLB of Seattle and each
note or other instrument held by ASB and the mortgage securing it. FHLB advances
generally are available to meet seasonal and other withdrawals of deposit
accounts, to expand lending and to assist in the effort to improve asset and
liability management. FHLB advances are made pursuant to several different
credit programs offered from time to time by the FHLB of Seattle.

At December 31, 1995, 1994 and 1993, advances from the FHLB amounted to $501
million, $616 million and $290 million, respectively. The weighted average rates
on the advances from the FHLB outstanding at December 31, 1995, 1994 and 1993
were 6.52%, 6.17% and 6.24%, respectively. The maximum amount outstanding at any
month-end during 1995, 1994 and 1993 was $618 million, $616 million and $290
million, respectively. Advances from the FHLB averaged $559 million, $453
million and $210 million during 1995, 1994 and 1993, respectively, and the
approximate weighted average rate thereon was 6.55%, 5.77% and 6.84%,
respectively. During 1994, increased advances from the FHLB were needed to
support investment activities as the effects of rising interest rates and
increased competition slowed deposit growth. During 1995, advances decreased as
securities sold under agreements to repurchase provided a lower cost funding
source.

                                       21
<PAGE>
 
At December 31, 1995 and 1994, securities sold under agreements to repurchase
consisted of mortgage-backed securities sold to brokers/dealers under fixed-
coupon agreements. The agreements are treated as financings and the obligations
to repurchase securities sold are reflected as a liability in the consolidated
balance sheets. The dollar amount of securities underlying the agreements
remains in the asset accounts. At December 31, 1995 and 1994, $412.5 million
(including accrued interest of $2.5 million) and $123.3 million (including
accrued interest of $1.0 million) of the agreements were to repurchase identical
securities, respectively. There were no outstanding securities sold under
agreements to repurchase as of December 31, 1993. The weighted average rates on
securities sold under agreements to repurchase outstanding at December 31, 1995
and 1994 were 5.84% and 6.22%, respectively. The maximum amount outstanding at
any month-end during 1995, 1994 and 1993 was $413 million, $123 million and $27
million, respectively. Securities sold under agreements to repurchase averaged
$277 million, $21 million and $20 million during 1995, 1994 and 1993,
respectively, and the approximate weighted average interest rate thereon was
6.08%, 5.14% and 3.39%, respectively. During 1995, increased securities sold
under agreements to repurchase were needed to support investment activities as
the effects of rising interest rates and increased competition slowed deposit
growth.

Subject to obtaining certain approvals from the FHLB of Seattle, ASB may offer
collateralized medium-term notes due from nine months to 30 years from the date
of issue and bearing interest at a fixed or floating rate established at the
time of issue. At December 31, 1995, 1994 and 1993, ASB had no outstanding
collateralized medium-term notes.

The following table sets forth information concerning ASB's advances from FHLB
and other borrowings at the dates indicated:

<TABLE>
<CAPTION>
                                                                December 31,
                                             -------------------------------------------
(dollars in thousands)                                  1995        1994         1993
----------------------------------------------------------------------------------------
<S>                                                   <C>          <C>          <C>
Advances from FHLB........................            $501,274     $616,374     $289,674
Securities sold under agreements to 
  repurchase..............................             412,521      123,301           --
                                             -------------------------------------------
Total borrowings..........................            $913,795     $739,675     $289,674
                                             ===========================================
Weighted average rate (1).................                6.21%        6.18%        6.24%
</TABLE>

(1) On borrowings at December 31.

COMPETITION

The primary factors in competing for deposits are interest rates, the quality
and range of services offered, marketing, convenience of office locations,
office hours and perceptions of the institution's financial soundness and
safety. Competition for deposits comes primarily from other savings
institutions, commercial banks, credit unions, money market and mutual funds and
other investment alternatives. Additional competition for deposits comes from
various types of corporate and government borrowers, including insurance
companies. To meet the competition, ASB offers a variety of savings and checking
accounts at competitive rates, convenient business hours, convenient branch
locations with interbranch deposit and withdrawal privileges at each office and
conducts advertising and promotional campaigns.

The primary factors in competing for first mortgage and other loans are interest
rates, loan origination fees and the quality and range of lending services
offered. Competition for origination of first mortgage loans comes primarily
from other savings institutions, mortgage banking firms, commercial banks,
insurance companies and real estate investment trusts. ASB believes that it is
able to compete for such loans primarily through the interest rates and loan
fees it charges, the type of mortgage loan programs it offers and the efficiency
and quality of the services it provides its borrowers and the real estate
business community.

OTHER
-----

FREIGHT TRANSPORTATION -- HAWAIIAN TUG & BARGE CORP. AND YOUNG BROTHERS, LIMITED
--------------------------------------------------------------------------------

GENERAL

HTB and its wholly owned subsidiary, YB, were acquired in 1986. HTB provides
marine transportation services in Hawaii and the Pacific area, including charter
tug and barge and harbor tug operations. YB,

                                       22
<PAGE>
 
which is a regulated interisland cargo carrier, transports general freight and
containerized cargo by barge on a regular schedule between all major ports in
Hawaii. YB moved 3.2 million revenue tons of cargo between the islands in 1995,
compared to 3.0 million revenue tons in 1994.

A substantial portion of the state's commodities are imported, and almost all of
Hawaii's overseas inbound and outbound cargo moves through Honolulu. Cargo
destined for the neighbor islands is trans-shipped through the Honolulu gateway.

YB has a nonexclusive Certificate of Public Convenience and Necessity from the
PUC to operate as an intrastate common carrier by water. The Certificate will
remain in effect for an indefinite period unless suspended or terminated by the
PUC. YB encounters competition from, among others, interstate carriers and
unregulated contract carriers.

YB RATES

YB generally must accept for transport all cargo offered. YB rates and charges
must be approved by the PUC and the PUC has broad discretion in its regulation
of the rates charged by YB.

YB filed an application on May 16, 1994 requesting PUC approval to increase its
general freight rates by 5.9% and its Minimum Bill of Lading charge from $18.00
to $20.93 to be effective July 1, 1994. On June 17, 1994, the PUC suspended YB's
application for a period of six months to and including December 31, 1994. On
September 26, 1994, YB filed with the PUC a Stipulation indicating YB and the
Consumer Advocate had agreed to stipulate to a 6% general rate increase to be
effective upon PUC approval. On December 12, 1994, the PUC granted YB approval
to increase its rates 6% across-the-board (including the Minimum Bill of
Lading), which became effective on December 15, 1994.

On November 29, 1994, the PUC allowed the utility companies to record
postretirement benefits other than pension costs on the accrual basis and to
increase rates to recover such costs on January 1, 1995. After submission of
certain information required by the PUC, the PUC issued a letter to YB
authorizing a 2.66% increase in rates across-the-board effective January 1,
1995.

On February 3, 1995, YB filed an application with the PUC to revise its tariff
and rate schedules to:  1) streamline the existing tariff in order to minimize
rate subsidization and encourage efficient cargo flow; 2) simplify the existing
rules and regulations which were cumbersome to administer; and 3) rebalance the
rates to reflect the differences in costs to handle and transport the various
cargo offerings and to price competitively within YB's market while remaining
revenue neutral. On March 24, 1995, the PUC suspended YB's application for a
period of six months to and including September 30, 1995 and placed YB's
proposed tariff changes under investigation. An evidentiary hearing was held on
August 2, 1995. On September 29, 1995, the PUC authorized YB to implement Hawaii
and Kauai county rates and to separate and revise the Maui county rates for the
ports of Maui, Lanai, and Molokai. The new tariff became effective on October
10, 1995.

REAL ESTATE--MALAMA PACIFIC CORP.
---------------------------------

GENERAL

MPC was incorporated in 1985 and engages in real estate development activities,
both directly and through joint ventures.

MPC's real estate development investments and residential projects are targeted
for Hawaii's owner-occupant market. MPC is currently involved in the development
of five residential projects (Kipona Hills, Kua' Aina Ridge, Westpark and
Westhills at Makakilo Heights, Piilani Village Phase 1 and Sunrise Estates) on
approximately 316 acres of land on the islands of Oahu, Maui and Hawaii
encompassing approximately 580 homes or lots, of which approximately 400 have
been completed and sold. MPC and its joint ventures own approximately 424 acres
of land for future residential development.

Residential development generally requires a long lead time to obtain necessary
zoning changes, building permits and other required approvals. MPC's projects
are subject to the usual risks of real estate development, including
fluctuations in interest rates, the receipt of timely and appropriate state and
local zoning and other necessary approvals, possible cost overruns and
construction delays, adverse changes in general commerce and local market
conditions, compliance with applicable environmental and other regulations, and
potential competition from other new projects and resales of existing
residences.

                                       23
<PAGE>
 
In 1995, MPC and its subsidiaries continued to experience slow sales in their
real estate projects. Although interest rates declined, sales were dampened by
declining consumer confidence caused in large part by perceived lack of job
security.

JOINT VENTURE DEVELOPMENTS

Makakilo Cliffs.  In 1990, Malama Development Corp. (MDC) and JGL Enterprises
Inc. formed Makakilo Cliffs Joint Venture for the development of a 280-unit
multi-family residential project on approximately 26 acres in Makakilo, Hawaii
(island of Oahu). MDC's partnership interest was assigned to Malama Makakilo
Corp., another wholly owned subsidiary of MPC, in August 1990. Sales of the
first 81 units closed in 1991 and all remaining units closed in 1992. The joint
venture was dissolved in December 1993.

Sunrise Estates.  In 1990, MDC and HSC, Inc. formed Sunrise Estates Joint
Venture to develop and sell 165 one-acre house lots in Hilo, Hawaii (island of
Hawaii). In 1993 and 1992, sales of three lots and 153 lots closed,
respectively. There were no sales in 1994 and 1995. Subdivision approval for the
remaining nine lots was received in 1995.

In 1991, HSC, Inc. and Malama Elua Corp., a wholly owned subsidiary of MPC,
formed Sunrise Estates II Joint Venture to develop and sell approximately 140
one-acre house lots in Hilo, Hawaii, adjacent to the Sunrise Estates Joint
Venture project. Rezoning was completed in 1993 and subdivision approval is
expected to be obtained in 1996.

Ainalani Associates.  Malama Mohala Corp. (MMO) and MDT-BF Limited Partnership
(MDT) were partners in a joint venture known as Ainalani Associates. In 1992,
MMO acquired MDT's 50% interest in Ainalani Associates, and the partnership was
dissolved. MMO is completing the development and sale of three projects on the
islands of Maui and Hawaii, described below under "MMO projects" and is a 50%
partner in Palailai Associates, a partnership with Palailai Holdings, Inc.

Baldwin*Malama.  In 1990, MDC acquired a 50% general partnership interest in
Baldwin*Malama, a partnership with Baldwin Pacific Properties, Inc. (BPPI),
established to acquire approximately 172 acres of land for potential development
of about 780 single and multi-family residential units in Kihei on the island of
Maui. In 1994, the project received approval to increase density to
approximately 1,000 units. The project has completed site work for the first
phase of single family units. At December 31, 1995, 51 homes were completed and
sold and two completed units were available for sale.

In May 1993, Baldwin*Malama was reorganized as a limited partnership in which
MDC is the sole general partner and BPPI is the sole limited partner. In
conjunction with the dissolution of the Baldwin*Malama general partnership and
formation of the limited partnership, MPC agreed to loan $1.6 million to BPPI
and up to $15 million to the limited partnership. Through 1995, MPC agreed to
increase the maximum loan amount to Baldwin*Malama up to $22.5 million. As of
December 31, 1995, the outstanding balances on MPC's loans to BPPI and
Baldwin*Malama were $1.0 million and $20.6 million, respectively. Beginning in
May 1993, MDC consolidated the accounts of Baldwin*Malama. Previously, MDC
accounted for its investment in Baldwin*Malama under the equity method.

Palailai Associates.  MMO assumed Ainalani Associates' 50% interest in Palailai
Associates in 1992 upon acquiring MDT's 50% interest in Ainalani Associates. In
1993, Palailai Associates completed the development and sale of the first
increment of 107 homes and lots and completed the bulk sale of its 38.8 acres of
multi-family zoned land in Makakilo, Oahu. The second increment of 69 single
family homes is completed, with 66 homes sold as of December 31, 1995. The third
increment of 100 single family homes is in progress with 44 homes completed and
sold as of December 31, 1995. Palailai Associates owns approximately 42 acres of
adjacent land zoned for residential development.

MMO PROJECTS

In 1992, MMO acquired the Kipona Hills, Kua' Aina Ridge and Kehaulani Place
projects of Ainalani Associates as a result of MMO's acquisition of MDT's 50%
interest in Ainalani Associates and Ainalani Associates' subsequent dissolution.

Kipona Hills is a 66-unit subdivision located in Waikoloa on the island of
Hawaii. Through December 31, 1995, 65 homes or lots were completed and sold, and
one lot was available for sale.

                                       24
<PAGE>
 
Kua' Aina Ridge is a 92-lot subdivision in Pukalani, Maui. Subdivision
improvements have been completed and sales closings commenced in 1993. As of
December 31, 1995, 62 lots were available for sale, three homes were under
construction and one completed unit was available for sale.

Kehaulani Place, consisting of approximately 50 acres of land in Pukalani, Maui,
is currently zoned for agriculture. Rezoning and land-use reclassification will
be required before development can commence. Land planning and presentations to
local community groups commenced in 1993 and are ongoing.

PROJECT FINANCING

At December 31, 1995, MPC or its subsidiaries were directly liable for $12.6
million of outstanding loans and had additional loan facilities of $1.1 million.
In addition, at December 31, 1995, MPC or its subsidiaries had issued (i)
guaranties under which they were jointly and severally contingently liable with
their joint venture partners for $2.0 million of outstanding loans and $0.3
million of additional undrawn loan facilities and (ii) payment guaranties under
which MPC or its subsidiaries were severally contingently liable for $5.6
million of outstanding loans and $4.6 million of additional undrawn loan
facilities. In total, at December 31, 1995, MPC or its subsidiaries were liable
or contingently liable for $20.2 million of outstanding loans and $6.0 million
in undrawn loan facilities. All such loans are collateralized by real property.
At December 31, 1995, HEI had agreed with the lenders of construction loans and
loan facilities, of which approximately $10.3 million was outstanding and $5.7
million was undrawn, that it will maintain ownership of 100% of the stock of MPC
and that it intends, subject to good and prudent business practices, to keep MPC
financially sound and responsible to meet its obligations. MPC or its
subsidiaries may enter into additional commitments in connection with the
financing of future phases of development of MPC's projects and HEI may enter
into similar agreements regarding the ownership and financial condition of MPC.

HEI INVESTMENT CORP.
--------------------

HEIIC was incorporated in May 1984 primarily to make passive, tax-advantaged
investments in corporate securities and other long-term investments. HEIIC is
not an "investment company" under the Investment Company Act of 1940 and has no
direct employees.

HEIIC's long-term investments consist primarily of investments in leveraged
leases. HEIIC has a 15% ownership interest in an 818-MW coal-fired generating
unit in Georgia, which is subject to a leveraged lease agreement entered into in
1985 and expiring in 2013. The lessee has options to renew the lease at fixed
rentals for at least 8.5 additional years, and thereafter at fair market
rentals. In the fall of 1987, HEIIC purchased commercial buildings on leasehold
properties located in the continental United States, along with the related
lease rights and obligations. These leveraged, purchase-leaseback investments
included two major buildings housing operations of Hershey Foods in Pennsylvania
and six supermarkets leased to The Kroger Co. in various states. In 1995, HEIIC
sold one supermarket to the lessee pursuant to the provisions of the leveraged
lease agreement and recorded a net loss of $1.3 million on the sale. HEIIC's
investments in leveraged leases amounted to $53.4 million and $54.4 million at
December 31, 1995 and 1994, respectively. For further information concerning
HEIIC's investments in leveraged leases, see Note 8 to HEI's Consolidated
Financial Statements, incorporated herein by reference to page 53 of HEI's 1995
Annual Report to Stockholders, portions of which are filed herein as HEI Exhibit
13. No new investments are currently planned by HEIIC.

HEI POWER CORP.
---------------

HEIPC was formed in March 1995 to pursue independent power projects and energy
conservation projects in Asia and the Pacific. For a further description of
HEIPC, including its $1.7 million operating loss in the first year of operation,
see the discussion under "Other" in MD&A, incorporated herein by reference to
page 32 of HEI's 1995 Annual Report to Stockholders, portions of which are filed
herein as HEI Exhibit 13.

In February 1996, HEIPC signed a "Memorandum of Understanding" with
Massachusetts-based Beacon Hill Associates, Inc. for the development of a 60 MW
naphtha-fueled combined-cycle power plant in Phnom Penh, Cambodia.

DISCONTINUED OPERATIONS
-----------------------

For information concerning the Company's discontinued operations formerly
conducted by HIG and HERS, see Note 2 to HEI's Consolidated Financial
Statements, incorporated herein by reference to page 45 of HEI's 1995 Annual
Report to Stockholders, portions of which are filed herein as HEI Exhibit 13.

                                       25
<PAGE>
 
REGULATION AND OTHER MATTERS
----------------------------

HOLDING COMPANY REGULATION

HEI and HECO are holding companies within the meaning of the Public Utility
Holding Company Act of 1935 (1935 Act). However, under current rules and
regulations, they are exempt from the comprehensive regulation of the Securities
and Exchange Commission (SEC) under the 1935 Act except for Section 9(a)(2)
(relating to the acquisition of securities of other public utility companies)
through compliance with certain annual filing requirements under the 1935 Act
for holding companies which own utility businesses that are primarily intrastate
in character. The exemption afforded HEI and HECO may be revoked if the SEC
finds that such exemption "may be detrimental to the public interest or the
interest of investors or consumers." HEI and HECO may own or have interests in
foreign utility operations without adversely affecting this exemption so long as
the requirements of other exemptions under the 1935 Act are satisfied. HEI has
obtained the PUC certification which is a prerequisite to obtaining an exemption
for foreign utility operations and to the Company's maintenance of its exemption
under the 1935 Act if it acquires such ownership interests.

Legislation has been introduced in Congress that would repeal the 1935 Act
leaving the regulation of utility holding companies to be governed by other
federal and state laws. Management cannot predict if this legislation will be
enacted or the final form it might take.

HEI is subject to an agreement entered into with the PUC (the PUC Agreement)
when HECO became a wholly owned subsidiary of HEI. The PUC Agreement, among
other things, requires HEI to provide the PUC with periodic financial
information and other reports concerning intercompany transactions and other
matters. It prohibits the electric utilities from loaning funds to HEI or its
nonutility subsidiaries and from redeeming common stock of the electric utility
subsidiaries without PUC approval. Further, the PUC could limit the ability of
the electric utility subsidiaries to pay dividends on their common stock. See
"Restrictions on dividends and other distributions" and "Electric utility
regulation" (regarding the PUC review of the relationship between HEI and HECO).

As a result of the acquisition of ASB, HEI and HEIDI are subject to OTS
registration, supervision and reporting requirements as savings and loan holding
companies.

In the event the OTS has reasonable cause to believe that the continuation by
HEI or HEIDI of any activity constitutes a serious risk to the financial safety,
soundness, or stability of ASB, the OTS is authorized under the Home Owners'
Loan Act of 1933, as amended, to impose certain restrictions in the form of a
directive to HEI and any of its subsidiaries, or HEIDI and any of its
subsidiaries. Such possible restrictions include limiting (i) the payment of
dividends by ASB; (ii) transactions between ASB, HEI or HEIDI, and the
subsidiaries or affiliates of ASB, HEI or HEIDI; and (iii) the activities of ASB
that might create a serious risk that the liabilities of HEI and its other
affiliates, or HEIDI and its other affiliates, may be imposed on ASB.
Theoretically, this authority would allow the OTS to prohibit dividends, limit
affiliate transactions or otherwise restrict activities as a result of losses
suffered by HEI, HEIDI or their other subsidiaries, and thus conceivably may be
an indirect means of limiting affiliations between ASB and affiliates engaged in
nonfinancial activities. See "Restrictions on dividends and other
distributions."

OTS regulations also generally prohibit savings and loan holding companies and
their nonthrift subsidiaries from engaging in activities other than those which
are specifically enumerated in the regulations. Such restrictions, if applicable
to HEI and HEIDI, would significantly limit the kinds of activities in which HEI
and HEIDI and their subsidiaries may engage. However, the OTS regulations
provide for an exemption which is available to HEI and HEIDI if ASB satisfies
the "qualified thrift lender" test discussed below. See "Savings bank
regulation--FDIC Improvement Act of 1991 and implementing regulations--Qualified
thrift lender test." ASB currently meets the qualified thrift lender test and
must continue to meet the test in order to avoid restrictions on the activities
of HEI and HEIDI and their subsidiaries which could result in a need to divest
ASB.

HEI and HEIDI are prohibited, directly or indirectly, or through one or more
subsidiaries, from (i) acquiring control of, or acquiring by merger or purchase
of assets, another insured institution or holding company thereof, without prior
written OTS approval; (ii) acquiring more than 5% of the voting shares of
another savings association or savings and loan holding company which is not a
subsidiary; or (iii) acquiring or retaining control of a savings association not
insured by the FDIC. No director or officer of HEI or HEIDI, or person
beneficially owning more than 25% of such holding company's

                                       26
<PAGE>
 
voting shares, may, except with the prior approval of the OTS, (a) also serve as
director, officer, or employee of any insured institution or (b) acquire control
of any savings association not a subsidiary of such holding company.

RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS

HEI is a legal entity separate and distinct from its various subsidiaries. As a
holding company with no significant operations of its own, the principal sources
of its funds are dividends or other distributions from its operating
subsidiaries, borrowings and sales of equity. The rights of HEI and,
consequently, its shareholders, to participate in any distribution of the assets
of any of its subsidiaries is subject to the prior claims of the creditors and
preferred stockholders of such subsidiary, except to the extent that claims of
HEI in its capacity as a creditor are recognized.

The ability of certain of HEI's subsidiaries to pay dividends or make other
distributions to HEI is subject to contractual and regulatory restrictions. By
agreement with the PUC, in the event that the consolidated common stock equity
of the electric utility subsidiaries falls below 35% of total electric utility
capitalization, these companies would be restricted, unless they obtained PUC
approval, in their payment of cash dividends to 80% of the earnings available
for the payment of dividends in the current fiscal year and preceding five
years, less the amount of dividends paid during that period. The PUC Agreement
also provides that the foregoing dividend restriction shall not be construed to
relinquish any right the PUC may have to review the dividend policies of the
electric utility subsidiaries. The consolidated common stock equity of HEI's
electric utility subsidiaries was 53% of their total capitalization (including
the current maturities of long-term debt and preferred stock sinking fund
requirements due within one year but excluding short-term borrowings) as of
December 31, 1995. At December 31, 1995, HECO and its subsidiaries had net
assets of $697 million, of which approximately $327 million were not available
for transfer to HEI without regulatory approval.

The ability of ASB to make capital distributions to HEI and other affiliates is
restricted under federal law. Subject to a limited exception for stock
redemptions that do not result in any decrease in ASB's capital and would
improve ASB's financial condition, ASB is prohibited from declaring any
dividends, making any other capital distribution, or paying a management fee to
a controlling person if, following the distribution or payment, ASB would be
deemed to be under-capitalized, significantly under-capitalized or critically
under-capitalized. See "Savings bank regulation--FDIC Improvement Act of 1991
and Implementing Regulations--Prompt corrective action."

As a Tier-1 institution (one that meets its fully phased-in capital requirements
and has not been notified by the OTS that it is in need of more than normal
supervision), ASB may make capital distributions without OTS approval in amounts
up to one-half of ASB's surplus capital ratio (the amount of its capital in
excess of its fully phased-in capital requirement) at the beginning of a
calendar year, plus its net income for that calendar year to date. The term
"fully phased-in capital requirements" means the institution's capital
requirements under the statutory and regulatory standards applicable as of
December 31, 1994, as modified by any individual minimum capital requirements
applicable to the institution. ASB, as a Tier-1 institution, may exceed the
foregoing limits if ASB provides a thirty-day advance notice to the OTS and
receives no objection within thirty days. Even in the case of distributions
within the permissible limits, however, a thirty day advance notice to the OTS
is required.

HEI and its subsidiaries are also subject to debt covenants, preferred stock
resolutions and guaranties that could limit their respective abilities to pay
dividends. The Company does not expect that the regulatory and contractual
restrictions applicable to HEI or its direct and indirect subsidiaries will
significantly affect the operations of HEI or its ability to pay dividends on
its common stock.

ELECTRIC UTILITY REGULATION

The PUC regulates the rates, standards of service, issuance of securities,
accounting and certain other aspects of the operations of HEI's electric utility
subsidiaries. See "Electric Utility--Rates."

In addition, the PUC has ordered the electric utility subsidiaries to develop
plans for the integration of demand-side and supply-side resources available to
meet consumer energy needs efficiently, reliably and at the lowest reasonable
cost. The PUC may approve, reject or require modifications of these plans. See
"Electric Utility--Integrated Resource Planning and requirements for additional
generating capacity."

                                       27
<PAGE>
 
In March 1995, the PUC opened a generic docket to investigate whether Hawaii
public utilities should be allowed to establish property damage reserves to
recover the cost of damage to their facilities and equipment caused by
catastrophic disasters. See "Property damage reserve" in MD&A, incorporated
herein by reference to page 30 of HEI's 1995 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13.

Any adverse decision or policy made or adopted by the PUC, or any prolonged
delay in rendering a decision, could have a material adverse effect on
consolidated HECO's and the Company's financial condition or results of
operations.

Certain transactions between HEI's public utility subsidiaries (HECO, MECO and
HELCO) and HEI and affiliated interests, are subject to regulation by the PUC.
Under the law, all contracts (including summaries of unwritten agreements), made
on or after July 1, 1988 of $300,000 or more in a calendar year for management,
supervisory, construction, engineering, accounting, legal, financial and similar
services and for the sale, lease or transfer of property between a public
utility and affiliated interests must be filed with the PUC to be effective, and
the PUC may issue cease and desist orders if such contracts are not filed. All
such affiliated contracts for capital expenditures (except for real property)
must be accompanied by comparative price quotations from two nonaffiliates,
unless the quotations cannot be obtained without substantial expense. Moreover,
all transfers of $300,000 or more of real property between a public utility and
affiliated interests require the prior approval of the PUC and proof that the
transfer is in the best interest of the public utility and its customers. If the
PUC, in its discretion, determines that an affiliated contract was unreasonable
or otherwise contrary to the public interest, the utility must either revise the
contract or risk disallowance of the payments for rate-making purposes. In rate-
making proceedings, a utility must also prove the reasonableness of payments
made to affiliated interests under any affiliated contracts of $300,000 or more
by clear and convincing evidence. An "affiliated interest" is defined by statute
and includes officers and directors of a public utility, every person owning or
holding, directly or indirectly, 10% or more of the voting securities of a
public utility, and corporations which have in common with a public utility more
than one-third of the directors of that public utility.

To address community concerns, HECO proposed by letter dated January 25, 1993,
that the PUC initiate a review of the relationship between HEI and HECO and the
effects of that relationship on the operations of HECO. By an order dated
January 26, 1993, the PUC opened a docket and initiated such a review to
determine whether the HEI-HECO relationship, HEI's diversified activities, and
HEI's policies, operations and practices have resulted in or are having any
negative effects on HECO, its electric utility subsidiaries and ratepayers. In
May 1994, a consultant, Dennis Thomas and Associates, was selected by the PUC to
perform the review. In early 1995, Dennis Thomas and Associates issued its
report to the PUC. The report concluded that "on balance, diversification has
not hurt electric ratepayers." Other major findings of the study were that no
utility assets have been used to fund HEI's nonutility investments or
operations, HEI has not denied needed capital to the electric utilities and
management processes within the electric utilities operate without interference
from HEI. The report also included a number of recommendations, most of which
the Company has implemented. The PUC has not issued a final order in the docket.
See also "Holding company regulation."

HECO and its subsidiaries are not subject to regulation by the Federal Energy
Regulatory Commission (FERC) under the Federal Power Act, except under Sections
210 through 212 (added by Title II of PURPA), which permit the FERC to order
electric utilities to interconnect with qualifying cogenerators and small power
producers, and to wheel power to other electric utilities. Title I of PURPA,
which relates to retail regulatory policies for electric utilities, also applies
to HECO and its subsidiaries. Title VII of the Energy Policy Act of 1992, which
creates "exempt wholesale generators" (EWGs) as a category that is exempt from
the 1935 Act and which addresses transmission access, also applies to HECO and
its subsidiaries. The Company cannot predict the extent to which cogeneration,
EWGs, or transmission access, will reduce its electrical loads, reduce its
current and future generating and transmission capability requirements, or
affect its financial condition or results of operations.

Because they are located in the State of Hawaii, HECO and its subsidiaries are
exempt by statute from limitations set forth in the Powerplant and Industrial
Fuel Act of 1978 on the use of petroleum as a primary energy source.

                                       28
<PAGE>
 
SAVINGS BANK REGULATION

ASB, a federally-chartered savings bank, and its holding companies are subject
to the regulatory supervision of the OTS and, in certain respects, the Federal
Deposit Insurance Corporation (FDIC). In addition, ASB must comply with Federal
Reserve Board reserve requirements and OTS liquidity requirements. See
"Liquidity and capital resources-savings bank" in MD&A and "Proposed legislation
affecting financial institutions" in Note 5 to HEI's Consolidated Financial
Statements, incorporated herein by reference to pages 36 and 52 of HEI's 1995
Annual Report to Stockholders, portions of which are filed herein as HEI
Exhibit 13.

Deposit insurance
-----------------

Deposit insurance assessments.  FIRREA provides for separately funded and
maintained deposit insurance funds administered by the FDIC for savings
associations and banks. SAIF generally insures the deposits of savings
associations. The Bank Insurance Fund (BIF) generally insures the deposits of
commercial banks. In 1991, the FDIC adopted a risk-based deposit insurance
assessment system. Under this system, the actual assessment rate for a
particular institution depends in part upon the supervisory risk rating the FDIC
assigns to the institution.

Savings associations and banks have in the past paid assessments ranging from 23
to 31 cents per $100 of deposits to capitalize the SAIF and BIF. However, under
existing law, the FDIC may reduce these assessment rates when the SAIF and BIF
individually reach a designated 1.25% reserve ratio. In 1995, the BIF reached
the designated reserve ratio and the FDIC, therefore, reduced the assessment
rates for banks. Effective in January 1996, well-capitalized banks pay only the
legally required annual minimum of $2,000 for BIF insurance. For all other BIF
members, the assessment rates range from 3 to 27 cents per $100 of deposits,
depending on their risk classification.

There is no reasonable likelihood that, under current conditions, the SAIF will
achieve the designated 1.25% reserve ratio before the next century. Although the
FDIC reduced the assessments paid by banks, it maintained the assessment rates
of 23 to 31 cents per $100 of deposits for SAIF members. The disparity between
the BIF and SAIF assessment rates places ASB (which paid an assessment rate of
23 cents per $100 of deposits in 1995) and other SAIF members at a disadvantage
in competing against commercial banks.

There have been a number of legislative proposals in Congress to address this
situation, including making a one-time or phased-in assessment of thrifts to
fully capitalize the SAIF, followed by a merger of the SAIF and the BIF;
eliminating or reducing the disparity in the assessment rates paid by banks or
thrifts if the SAIF is recapitalized through the assessment; and merging bank
and thrift charters. Certain of these proposals, if adopted, could have a
material adverse effect on the Company and ASB. For example, if a one-time
assessment of 85 cents for every $100 of deposits is imposed, it is estimated
that ASB would be assessed approximately $18 million on a pretax basis ($11
million after-tax), based on ASB's deposit liabilities as of March 31, 1995. If
bank and thrift charters are merged, HEI and its other subsidiaries might become
subject to the restrictions on the permissible activities of a bank holding
company. While certain of the proposals under consideration would grandfather
the activities of existing savings and loan holding companies, management cannot
predict whether or in what form any of these proposals might ultimately be
adopted or the extent to which the business of the Company or ASB might be
affected.

Deposit insurance coverage.  FDIC Improvement Act of 1991 (FDICIA) amended
various provisions of the Federal Deposit Insurance Act governing deposit
insurance coverage. FDICIA, as further implemented by amendments to the FDIC's
deposit insurance regulations, made certain significant changes relating to pro
rata or "pass through" insurance coverage for employee benefit plan participants
and beneficiaries, and insurance coverage for certain retirement accounts and
trust funds. (The term "pass-through" insurance means that the insurance
coverage passes through to each owner/beneficiary of the applicable deposit.)
Although the vast majority of the FDIC's deposit insurance regulations, such as
the basic rules providing that individual accounts are insured to $100,000
separately from qualifying joint accounts, remain unchanged, several important
changes were made.

Effective December 19, 1993, an individual's interest in deposits at the same
institution in any combination of certain retirement accounts will be added
together and insured up to $100,000 in the aggregate. This is a reduction from
the maximum of $400,000 in insurance coverage formerly provided if deposits were
made in four different types of retirement plan accounts.

                                       29
<PAGE>
 
"Pass-through" insurance coverage for the deposits of most employee benefit
plans (i.e., $100,000 per individual participating, not $100,000 per plan)
generally continues only for institutions that are well-capitalized under the
FDIC's prompt corrective action regulations. The FDIC has amended its deposit
insurance regulations to require financial institutions to provide employee
benefit plan depositors information, not otherwise available, on the
institution's capital category and whether "pass-through" deposit insurance is
available. As of December 31, 1995, ASB was well-capitalized.

Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and
------------------------------------------------------------------------
implementing regulations
------------------------

Capital requirements.  Under Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA), the OTS set three capital standards for
thrifts, each of which must be no less stringent than those applicable to
national banks. The three standards provide: (1) a leverage limit which requires
a savings association to maintain core capital in an amount of not less than 3%
of the association's adjusted total assets; (2) a tangible capital requirement
of not less than 1.5% of an association's adjusted total assets; and (3) an 8%
risk-based capital requirement, which may deviate from national bank standards
to reflect interest rate risk or other risks, but such deviations may not result
in materially lower levels of capital than would be required under risk-based
capital standards applicable to national banks. Generally, the OTS must restrict
the asset growth of an association that fails to meet the capital requirements.
As of December 31, 1995, ASB was in compliance with all of the minimum standards
with a core capital ratio of 5.4%, a tangible capital ratio of 5.2% and risk-
based capital ratio of 12.9% (based on risk-based capital of $193.4 million,
$73.9 million in excess of the requirement).

The OTS has adopted a rule that adds an interest rate risk (IRR) component to
the existing risk-based capital requirement. Institutions with an "above normal"
level of IRR exposure will be required to hold additional capital. "Above
normal" IRR is defined as any decline in market value of an institution's
portfolio equity in excess of 2% of the market value of its assets, which would
result from an immediate 200 basis point change in interest rates. The OTS rule
requires a savings association with an "above normal" level of IRR exposure to
hold one-half of the "above normal" IRR times the market value of its assets as
capital, in addition to its existing 8% risk-based capital requirement. Although
the rule generally became effective January 1, 1994, the OTS intends to delay
implementation of the IRR capital deduction (which was to become effective with
the September 1994 Thrift Financial Report) pending the testing of an OTS
appeals process for certain institutions subject to such deductions. This means
that in calculating the risk-based capital requirement, ASB was not required to
deduct capital for IRR, and did not report such a deduction for the December
1995 Thrift Financial Report. However, if the rule adding the IRR component had
been implemented, ASB would not have been required to deduct an amount from
total capital or to hold additional capital as of December 31, 1995.

In August 1995, the Board of Governors of the Federal Reserve System, the FDIC
and the Office of the Comptroller of the Currency adopted a regulation that
stipulates IRR will be taken into account when determining a bank's capital
adequacy. These banking agencies have also solicited comments on a proposed
supervisory policy statement that describes the process they will use to assess
the exposure of a bank's economic value to changes in interest rates. After
these banking agencies gain experience with this process, they contemplate
issuing standards establishing an explicit capital charge for IRR. FIRREA
requires that the capital standards for thrifts be no less stringent than those
applicable to national banks. Although the OTS has indicated that it will review
any differences between its approach and that of the other federal banking
agencies for the purpose of achieving greater consistency and uniformity among
all four agencies, the impact of the proposed supervisory policy statement on
ASB cannot be predicted at this time.

Affiliate transactions.  Significant restrictions apply to certain transactions
between ASB and its affiliates, including HEI and its direct and indirect
subsidiaries. FIRREA significantly altered both the scope and substance of such
limitations on transactions with affiliates and provides for thrift affiliate
rules similar to, but more restrictive than, those applicable to banks. For
example, ASB is prohibited from making any loan or other extension of credit to
an entity affiliated with ASB unless the affiliate is engaged exclusively in
activities which the Federal Reserve Board has determined to be permissible for
bank holding companies. There are also various other restrictions which apply to
loans and other transactions between ASB and certain executive officers,
directors and insiders of ASB. ASB is also barred from making a purchase of or
any investment in securities issued by an affiliate, other than with respect to
shares of a subsidiary of ASB.

                                       30
<PAGE>
 
FDIC Improvement Act of 1991 and implementing regulations
---------------------------------------------------------

FDICIA subjects the banking and thrift industries to heightened regulation and
supervision. FDICIA makes a number of reforms addressing the safety and
soundness of the deposit insurance system, supervision of domestic and foreign
depository institutions and improvement of accounting standards. FDICIA also
limits deposit insurance coverage, implements changes in consumer protection
laws and calls for least-cost resolution and prompt corrective action with
regard to troubled institutions.

Pursuant to FDICIA, the federal banking agencies have promulgated regulations
which may affect the operations of ASB and its holding companies. Such
regulations address, for example, standards for safety and soundness, real
estate lending, accounting and reporting, transactions with affiliates, and
loans to insiders. See also "Deposit Insurance."

Prompt corrective action.  FDICIA establishes a statutory framework that is
triggered by the capital level of a savings association and subjects it to
progressively more stringent restrictions and supervision as capital levels
decline. The OTS rules implement the system of prompt corrective action. In
particular, the rules define the relevant capital measures for the categories of
well-capitalized, adequately capitalized, under-capitalized, significantly
under-capitalized and critically under-capitalized.

A savings association that is under-capitalized or significantly under-
capitalized is subject to additional mandatory supervisory actions and a number
of discretionary actions if the OTS determines that any of the actions is
necessary to resolve the problems of the association at the least possible long-
term cost to the SAIF. A savings association that is critically under-
capitalized must be placed in conservatorship or receivership within 90 days,
unless the OTS and the FDIC concur that other action would be more appropriate.

Interest rates.  FDIC regulations restrict the ability of financial institutions
that are not well-capitalized to offer interest rates on deposits that are
significantly higher than the rates offered by competing institutions. To be a
well-capitalized institution not subject to these interest rate restrictions, an
institution must have a leverage ratio of 5.0%, a Tier-1 risk-based ratio of
6.0%, a total risk-based ratio of 10% and not be in a "troubled condition." As
of December 31, 1995, ASB was well-capitalized with a leverage ratio of 5.4%, a
Tier-1 risk-based ratio of 12.2% and a total risk-based ratio of 12.9%.

Qualified thrift lender test.  The FDICIA amends the qualified thrift lender
(QTL) test provisions of FIRREA by reducing the percentage of assets thrifts
must maintain in housing-related loans and investments from 70% to 65%, and
changing the computation period to require that the percentage be reached on a
monthly average basis in nine out of the previous 12 months. Savings
associations that fail to satisfy the QTL test by not holding the required
percentage of housing-related investments are subject to various penalties,
including limitations on their activities and restrictions on their FHLB
advances. Failure to satisfy the QTL test would also bring into operation
restrictions on the activities that may be engaged in by HEI, HEIDI and their
other subsidiaries and could effectively result in the required divestiture of
ASB. At all times during 1995, ASB was in compliance with the QTL test. See
"Holding company regulation."

Federal Home Loan Bank System
-----------------------------

ASB is a member of the FHLB System which consists of 12 regional FHLBs. The FHLB
System provides a central credit facility for member institutions. ASB, as a
member of the FHLB of Seattle, is required to own shares of capital stock in the
FHLB of Seattle in an amount equal to the greater of 1% of ASB's aggregate
unpaid residential loan principal at the beginning of each year, 0.3% of total
assets or 5% of FHLB advances outstanding. The FHLBs serve as the central
liquidity facilities for savings associations and resources of long-term funds
for financing housing. Long-term advances may only be made for the purpose of
providing funds for financing residential housing. Additionally, at such time as
an advance is made or renewed, it must be secured by collateral from one of the
following categories: (1) fully disbursed, whole first mortgages on improved
residential property, or securities representing a whole interest in such
mortgages; (2) securities issued, insured or guaranteed by the U.S. Government
or any agency thereof; (3) FHLB deposits; and (4) other real estate-related
collateral that has a readily ascertainable value and with respect to which a
security interest can be perfected. The aggregate amount of outstanding advances
secured by such other real estate-related collateral may not exceed 30% of the
member's capital.

                                       31
<PAGE>
 
Other laws, regulations and proposed legislation
------------------------------------------------

Other laws.  ASB is subject to federal and state consumer protection laws which
affect lending activities, such as the Truth-in-Lending Law, the Truth in
Savings Act, the Equal Credit Opportunity Act, the Real Estate Settlement
Procedures Act and several federal and state financial privacy acts. These laws
may provide for substantial penalties in the event of noncompliance. Management
of ASB believes that its lending activities are in compliance with these laws
and regulations.

The Community Reinvestment Act (CRA) was enacted by Congress in 1977 to ensure
that banks and thrifts help meet the credit needs of their communities,
including low- and moderate-income areas, consistent with safe and sound lending
practices. The OTS will consider ASB's CRA record in evaluating an application
for a new deposit facility, including the establishment of a branch, the
relocation of a branch or office, or the acquisition of an interest in another
bank or thrift. ASB received a CRA rating of "outstanding" in its OTS
examination report dated October 2, 1995.

The Reigle-Neal Interstate Banking and Branching Act of 1994 (Interstate Banking
Act) was signed into law on September 29, 1994. Beginning September 29, 1995,
and subject to certain limits, adequately capitalized and adequately managed
bank holding companies will be permitted to acquire control of banks in any
state, including Hawaii. Beginning on June 1, 1997 or earlier if expressly
permitted by Hawaii law, and subject to certain limits, an adequately
capitalized and adequately managed bank may apply for permission to merge with
an out-of-state bank and convert all branches of both banks into branches of a
single bank. The State of Hawaii retains the authority to prohibit such mergers
if, between September 29, 1994 and June 1, 1997, it enacts a law expressly
prohibiting such mergers. Out-of-state banks may also be permitted to open new
branches in Hawaii if Hawaii law so authorizes. Management cannot predict
whether or in what form the Hawaii Legislature might adopt interstate branching
legislation during the 1996 legislative session or the extent to which the
business of the Company or ASB might be affected. Although the Interstate
Banking Act applies only to banks, it could result in greater competitive
pressures on savings associations such as ASB.

Pending legislation.  Bills are now pending or expected to be introduced in the
United States Congress that contain proposals for altering the structure,
regulation and competitive relationships of the nation's financial institutions.
If enacted into law, these pending bills could have the effect of increasing or
decreasing the cost of doing business, limiting or expanding permissible
activities, or affecting the competitive balance among banks, thrifts and other
financial institutions. Some of these bills would realign the structure and
jurisdiction of various financial institution regulatory agencies and the FHLB
system. Whether or in what form any such legislation may be adopted or the
extent to which the business of the Company or ASB might be affected thereby
cannot be predicted. See also "Deposit insurance--Deposit insurance
assessments."

FREIGHT TRANSPORTATION REGULATION

The PUC has broad authority in its regulation of the intrastate business and
operations of YB. See "Other--Freight transportation--Hawaiian Tug & Barge Corp.
and Young Brothers, Limited." In particular, the PUC has the authority to review
and modify YB's intrastate rates and charges under the Hawaii Water Carrier Act.
In all rate proceedings under such act, YB has the burden of proving the
reasonableness of expenditures, contracts, leases or other transactions. An
adverse decision or policy adopted by the PUC, or a delay in granting requested
rate or other relief, could have a material effect on the financial condition or
results of operations of YB.

ENVIRONMENTAL REGULATION

HEI and its subsidiaries are subject to federal and state statutes and
governmental regulations pertaining to water quality, air quality and other
environmental factors.

Water quality controls. As part of the process of generating electricity, water
used for condenser cooling of the electric utility subsidiaries' steam electric
generating stations is discharged into ocean waters or into underground
injection wells. The subsidiaries are required periodically to obtain permits
from the DOH in order to be allowed to discharge the water. The electric utility
subsidiaries must obtain National Pollutant Discharge Elimination System (NPDES)
permits from the DOH to allow wastewater discharges into ocean waters for each
of five generating stations (three at HECO and one each at MECO and HELCO) and
Underground Injection Control (UIC) permits for wastewater discharge to
underground injection wells for several HELCO facilities and one MECO facility.

                                       32
<PAGE>
 
During 1995, the DOH issued NPDES permit renewals for MECO's Kahului generating
station and for HECO's Kahe, Waiau and Honolulu generating stations. Only
HELCO's Shipman generating station has yet to receive its NPDES permit renewal
and is continuing to operate on an administrative extension of the previously
expired permit. The DOH is preparing a draft permit, but is awaiting additional
requested storm water information from HECO/HELCO.

In September 1994, the DOH determined that MECO's Maalaea facility requires a
NPDES permit for industrial-related storm water runoff. A storm water permit
application was submitted to the DOH on April 18, 1995. Application processing
by the DOH is on hold until baseline storm water data are submitted. The DOH
also promulgated regulations that require storm water runoff and dewatering
permits for construction-related projects. These construction-related permits
require discharge monitoring and implementation of best management practices
during construction activities to comply with state water quality standards. To
date, HECO has submitted several Notices of Intent (NOI) for both construction
storm water discharge permits and dewatering permits. A NOI was also submitted
in June 1995 for construction-related activities at MECO's Maalaea generation
expansion project. HECO is also working cooperatively with the City & County of
Honolulu Department of Public Works to obtain a blanket NPDES permit to
discharge water removed from utility manholes into municipal storm drain
systems.

On August 15, 1995, the DOH issued a notice of apparent violation of NPDES
permit requirements to HELCO's Shipman generating station. The violation was for
the failure to periodically calibrate temperature recording equipment. By letter
dated September 5, 1995, HECO's Environmental Department informed the DOH that
immediate corrective actions were taken by HELCO. The DOH was satisfied with the
response and will not take further action. All HECO and MECO facilities were in
compliance with NPDES permit conditions during 1995.

Due to the proposed addition of generating units at MECO's Maalaea Generating
Station, a UIC permit application was submitted to the DOH in September 1994 to
install another injection well system to handle wastestreams that might be
generated from the new generating units. The DOH approved MECO's construction of
the new wells in December 1994, and injection well construction commenced at
Maalaea in December 1995. The DOH also issued new UIC permits for HELCO's Puna
(February 1995) and Keahole (March 1995) generating stations. As a result, HELCO
has now received operating permits for all its facilities. HELCO and MECO are in
compliance with new UIC monitoring requirements, including effluent monitoring
and well status investigations. The DOH issued a notice of apparent violation to
HELCO in August 1994 for failing to provide advanced notice of modification of
the Hill No. 6 drainage well. The DOH requested additional information related
to the drainage well modification in October 1994 and HECO responded on behalf
of HELCO via letter in January 1995. In August 1995, the DOH issued a final
notice and finding of violation, and assessed HELCO a $15,500 penalty, which
HELCO paid to close the investigation. No further action is anticipated by the
DOH.

In August 1993, MECO and HELCO were informed by the EPA that federal UIC permits
would be required for all existing and proposed injection wells. Under the most
recent agreement between the EPA and DOH, the EPA will allow the DOH to continue
operation of its state UIC permit program. Hence, all affected injection wells
(including dry wells) will be regulated by both federal and state UIC permits.
MECO and HELCO facilities submitted completed UIC applications to the EPA in
July 1994. A UIC application was also submitted for the proposed injection well
system at Maalaea in November 1994. The EPA issued draft UIC permits and related
public notices for the Keahole and Hill injection wells on May 22, 1995. HECO
submitted comments on the draft permits in late June 1995. Final permits have
not been issued. The EPA issued a letter to HECO in October 1995 confirming that
the DOH-permitted wells may continue to operate without new EPA UIC permits.
Currently, the EPA and DOH are discussing the possibility of consolidating
federal requirements into the DOH UIC permits. Negotiations have been ongoing
for several months.

The Federal Oil Pollution Act of 1990 (OPA) governs actual or threatened oil
releases in navigable U.S. waters (inland waters and up to three miles offshore)
and waters of the U.S.' exclusive economic zone (up to 200 miles to sea from the
shoreline). Responsible parties under OPA are jointly, severally and strictly
liable for oil removal costs incurred by the federal government or the state and
damages to natural resources and real or personal property. Responsible parties
include vessel owners and operators. OPA imposes fines and jail terms ranging in
severity depending on how the release was caused. OPA also requires that
responsible parties submit certificates of financial responsibility sufficient
to meet the responsible party's maximum limited liability. Protection and
Indemnity Insurance Clubs (mutual

                                       33
<PAGE>
 
insurance pools) have refused to issue these certificates because OPA provides
for direct liability against guarantors. The Coast Guard issued interim
guidelines in September 1992, which included the requirement that a spill
response plan be submitted by February 18, 1993, and be finalized by August 18,
1993. The EPA and Hawaii Department of Transportation (DOT) also have similar
requirements for submission of spill response plans. The EPA issued its proposed
rules and guidelines on this matter in February 1993. With HTB exiting the fuel
transportation business at the end of 1993, the Company's freight transportation
operations subject the Company to significantly lessened environmental risks.
HTB's fuel and lubricating oil and the other cargo carried in its barges may be
accidentally discharged into ocean waters causing a pollution hazard, but the
quantities carried do not pose a major environmental hazard. HTB and YB
employees are trained to respond to oil or other spills that occur. The
utilities filed preliminary plans on February 18, 1993 with regard to the
following facilities: to the Coast Guard for the Kahului Harbor terminaling
facility and pipeline; to the EPA for the Honolulu, Waiau, Kahe, Shipman and
Kahului power plants, the Iwilei fuel storage facility, and the Ward Avenue
facility; and to the DOT for the pipelines between Honolulu power plant and the
Iwilei fuel storage facility and between the Chevron fuel storage facility in
Hilo and the Shipman and Hill power plants, respectively. The EPA, DOT and Coast
Guard promulgated regulations implementing OPA in July 1994, January 1993 and
February 1993, respectively.

Revised Facility Spill Response Plans (FSRPs) for the HECO Generating Stations
(Kahe, Waiau, and Honolulu) and the Iwilei fuel storage facility were submitted
to the EPA on January 12, 1995. HECO is awaiting the EPA's review and approval
of these FSRPs. The HECO FSRP for the Kahe Generating Station was modified to
include the Kahe pipeline, and was submitted to the DOT on February 15, 1995.
The HECO pipeline connecting the Iwilei fuel storage facility and the Honolulu
Generating Station was determined not to meet the DOT's definition of
"significant and substantial harm". Thus, the DOT approval of the Honolulu-
Iwilei pipeline FSRP is not required at this time in order to continue pipeline
operations. The HECO Ward Avenue facility does not store more than one million
gallons of oil, and is therefore not required to have an EPA approved response
plan in order to continue storing/handling oil. Instead, HECO completed a
Certification of the Applicability of the Substantial Harm Criteria for the Ward
Avenue Complex in June 1995. A revised Kahului response plan was submitted to
the EPA and Coast Guard in January 1995. The Coast Guard and EPA approved the
Kahului FSRP. In September 1994, it was determined that MECO's Maalaea power
plant was also required to develop an oil spill response plan. The Maalaea FSRP
was submitted to the EPA on August 31, 1994. HECO submitted the revised HELCO
Hilo Area Pipeline FSRP to the DOT on February 12, 1995. The DOT approved the
HELCO Hilo Area Pipeline FSRP on February 15, 1995, with the condition that
additional clarification be provided on some areas of the plan (which has been
done). HELCO's Shipman facility does not store more than one million gallons of
oil, and is therefore not required to have an EPA approved response plan in
order to continue storing/handling oil. HELCO also completed a Certification of
the Applicability of the Substantial Harm Criteria for the Shipman power plant,
which was submitted in December 1995.

Air quality controls. The generation stations of the utility subsidiaries
operate under air pollution control permits issued by the DOH and, in a limited
number of cases, by the EPA. The entire electric utility industry is being
affected by the 1990 Amendments to the Clean Air Act. Hawaii utilities may be
affected by the air toxics provisions (Title III) when the Maximum Allowable
Control Technology (MACT) emission standards are proposed for generation units.
Hawaii utilities are affected by the operating permit provisions (Title V). The
DOH adopted implementing regulations on November 26, 1993 which required
submission of permit applications for existing sources during 1994. All
applications were filed in 1994 as required and supplementary information was
filed in 1995. Results of further air quality analyses could trigger
requirements to mitigate emission impacts. Reports on emissions of air toxics
could trigger requirements to conduct risk assessments. Hawaii utilities are
also affected by the enforcement provisions (Title VII) which require the EPA to
promulgate new regulations which mandate "enhanced monitoring" of emissions from
many generation units. In response, the EPA proposed rules on October 1, 1993
which allow for cost effective alternatives to costly continuous emission
monitoring systems. The EPA withdrew that proposal in April 1995 for revision. A
new draft rule is expected in early 1996 and, as ordered by federal court, a
final rule is expected by July 1996.

On November 1, 1989, the DOH issued a Notice and Finding of Violation and Order
indicating that Maalaea units X-1 and X-2 had exceeded operating limitations of
12 hours per day at various times in 1988. These incidents resulted from
unscheduled unit outages and resulted in no net increase in emissions by MECO.
Subsequently, MECO took steps to preclude future violations. An application for
a

                                       34
<PAGE>
 
permit modification was submitted to the EPA, revising the operating hour
limitation to annual rather than daily. Approval was received from the EPA in
July 1992. Settlement discussions as to the Notice of Violation have been
unsuccessful to date. The DOH has not yet set a hearing on the Notice of
Violation. Units X-1 and X-2 continue to operate in compliance with the revised
permit.

Initial source tests for HELCO's CT-2 generating unit in December 1989 indicated
particulate emissions above permitted levels. Subsequent retesting confirmed
earlier results. Following analysis, HECO (on behalf of HELCO) proposed in
November 1990 that the permitted particulate limit be increased. By letter dated
April 13, 1992, the EPA concurred that revision is warranted. HECO and HELCO
worked with the DOH, the manufacturer and a consultant to determine an
appropriate new emission limit for particulates as well as oxides of nitrogen. A
comprehensive emission test program has been completed and on April 14, 1994, a
final report was submitted to the DOH for its review. On May 5, 1994, a petition
was submitted to the DOH to revise NOx limits, and an application to revise the
particulate limit was submitted to the DOH on August 30, 1994. Follow-up
questions from the DOH were received in October 1994 and were responded to in
November 1994 and in February 1995. The DOH had issued a Notice of Violation on
August 17, 1992 for the non-complying emissions. In accordance with discussions
with the DOH, CT-2 continues to operate pending issuance of the revised permit.

Emission tests conducted by MECO in January 1992 on the six diesel units at Miki
Basin, Lanai were consistent with earlier indications that emissions were above
permit limits. Those tests results were submitted to the DOH. After unit
adjustments and improvements in measurements of hourly fuel usage, additional
tests were conducted in July and September 1993 which indicated that all six
units are in compliance with permit limits. A report on these tests was
submitted to the DOH. After reviewing the report, the DOH concluded in a letter
dated December 13, 1993 that all six units are operating in compliance with
permit limits. The DOH will determine what action, if any, would be appropriate
for the previous indications of violation.

A Notice and Finding of Violation and Order was issued by the DOH to HELCO on
July 8, 1993 for excessive visible emissions from Shipman Unit 1 on September
23, 1991 and on January 31, 1992. The DOH ordered HELCO to come into compliance.
HELCO's written response to the DOH dated July 29, 1993 stated that HELCO had
come into compliance and identified the cause of the problem as corroded air
heater tubes that were replaced in February 1993. The repairs were necessarily
delayed for approximately one year until there was sufficient island-wide
generation to allow Unit 1 to be shutdown. No further action has been required
by the DOH.

Hazardous waste and toxic substances controls. The operations of the electric
utility and freight transportation subsidiaries are subject to regulations
promulgated by the EPA to implement the provisions of the Resource Conservation
and Recovery Act (RCRA), the Superfund Amendments and Reauthorization Act (SARA)
and the Toxic Substances Control Act (TSCA). The DOH has been working towards
obtaining primacy to operate state-authorized RCRA (hazardous waste) programs.
The DOH finalized RCRA administrative rules in mid-June 1994, with the rules
becoming effective on June 18, 1994. The DOH's state contingency plan and the
state Environmental Response Law (ERL) rules were adopted in August 1995.

Whether on a federal or state level, RCRA provisions identify certain wastes as
hazardous and set forth measures that must be taken in the transportation,
storage, treatment and disposal of these wastes. Some of the wastes generated at
steam electric generating stations possess characteristics which make them
subject to these EPA regulations. Since October 1986, all HECO generating
stations have operated RCRA-exempt wastewater treatment units to treat
potentially regulated wastes from occasional boiler waterside and fireside
cleaning operations. Steam generating stations at MECO and HELCO also operate
similar RCRA-exempt wastewater management systems. In March 1990, the EPA
changed RCRA testing requirements used to characterize a waste as hazardous
which potentially affected the hazardous waste generating status of all
facilities. A new and more stringent Toxicity Characteristic Leaching Procedure
replaced the former Extraction Procedure toxicity test and included additional
testing requirements for 25 organic compounds. HECO's continuing program to
recharacterize all HECO, MECO and HELCO wastestreams using the Toxicity
Characteristic Leaching Procedure has demonstrated the adequacy of the existing
treatment systems and identified other potential compliance requirements. Waste
recharacterization studies indicate that treatment facility wastestreams are
nonhazardous and no change in RCRA generator status is required.

                                       35
<PAGE>
 
The RCRA still regulates most generating stations as RCRA small quantity
generators (SQGs). All Company facilities listed with the DOH and EPA as SQGs
are believed to be in compliance with RCRA requirements. In July 1994, the DOH
conducted hazardous waste compliance evaluation inspections at MECO's Kahului
and Maalaea power plants to review facility status as SQGs. On October 20, 1994,
the DOH issued warning letters and inspection reports to the Kahului and Maalaea
facilities. Potential RCRA violations and areas of concern were listed for both
facilities. HECO submitted responses to the DOH on December 5, 1994, contesting
most of the potential violations cited by the DOH. With the exception of some
solvent handling concerns, which have been corrected, all other areas of DOH
concern were not RCRA hazardous waste violations. On February 20, 1995, the DOH
favorably acknowledged HECO's response and issued MECO a "Return to Compliance
Letter" for both facilities.

RCRA underground storage tank (UST) regulations require all facilities with USTs
used to store petroleum products to comply with costly leak detection, spill
prevention and new tank standard retrofit requirements within a specified
compliance period based on tank age. All HECO, MECO and HELCO USTs were in
compliance with the DOH and EPA standards during 1995.

The Emergency Planning and Community Right-to-Know Act (EPCRA) under SARA Title
III requires HECO, MECO and HELCO to report hazardous chemicals present in their
facilities in order to provide the public with information on these chemicals so
that emergency procedures can be established to protect the public in the event
of hazardous chemical releases. HECO has six facilities, MECO five facilities
and HELCO seven facilities that qualify as "reporting facilities" under EPCRA.
All HECO, MECO and HELCO facilities are in compliance with applicable reporting
requirements, which are made annually to the State Emergency Planning
Commission, the Local Emergency Planning Committee and local fire departments.
In September 1995, the EPA published a notice of proposed rule making to expand
the types of industries required to file annual Toxic Release Inventory reports
(i.e., to report facility releases of toxic chemicals). The proposed rule
includes the steam electric category, which is currently exempt from Toxic
Release Inventory reporting requirements. The EPA tentatively has scheduled the
issuance of the proposed rule in April 1996.

The TSCA regulations specify procedures for the handling and disposal of
polychlorinated biphenyl (PCB), a compound found in transformer and capacitor
dielectric fluids. HECO and its subsidiaries have instituted procedures to
monitor compliance with these regulations. In addition, HECO has implemented a
program to identify and replace PCB transformers and capacitors in the HECO
system. All HECO, MECO and HELCO facilities are currently believed to be in
compliance with PCB regulations. In December 1994, the EPA published in the
Federal Register a Proposed Rule to amend PCB disposal regulations. The proposed
rule calls for changes in determining PCB concentrations, and in marking,
storage and disposal requirements. The final rule is anticipated to be issued in
June 1996.

By letter dated August 21, 1992 the EPA provided MECO with a notice of potential
liability and request for information relating to a federal Superfund closure
investigation at the North American Environmental, Inc. (NAE) storage facility
in Clearfield, Utah. MECO was identified by the EPA as a potentially responsible
party for three PCB capacitors originally contracted for disposal by
Westinghouse. Although Westinghouse has already disposed of the capacitors, MECO
was obligated to comply with the information requests attached to the EPA
notice. A preliminary response to the EPA's information request was submitted to
the EPA on October 5, 1992. MECO has since received confirmation from
Westinghouse that the three capacitors were removed from the NAE facility and
incinerated at Aptus (an EPA-approved facility in Kansas) on September 16, 1992.
By letter dated December 2, 1992, the EPA notified MECO that a draft
Administrative Order on Consent for the cleanup of the NAE facility had been
sent to potentially responsible parties that have waste remaining at the NAE
site and to parties that have expressed a desire to participate in the cleanup.
MECO did not receive a draft Administrative Order on Consent because the three
PCB capacitors were removed from the NAE facility and incinerated. By letter
dated February 8, 1993, Westinghouse confirmed that it would indemnify MECO
pursuant to its contract for this matter. In early 1995, the EPA issued an
Administrative Order on Consent to the Freeport Center and the Defense Logistics
Agency. Both agencies are responding to the AOC and are initiating corrective
actions. Recovery of cleanup costs may fall back on other potentially
responsible parties once cleanup is completed and costs have been determined.

The state ERL, as amended, governs releases of hazardous substances, including
oil, in areas within the state's jurisdiction. Responsible parties under the
state ERL are jointly, severally and strictly liable for a release of a
hazardous substance into the environment. Responsible parties include owners or
operators

                                       36
<PAGE>
 
of a facility where a hazardous substance comes to be located and any person who
at the time of disposal of the hazardous substance owned or operated any
facility at which such hazardous substance was disposed. The DOH issued final
rules (or State Contingency Plan) implementing the state ERL on August 17, 1995.
Potential exposure to liability under the state ERL/State Contingency Plan is
associated with the release of regulated substances, including oil, to the
environment.

By letters in January and February 1995, the DOH advised HECO, HTB, YB and
others that the DOH was conducting an investigation to determine the nature and
extent of actual or potential releases of hazardous substances, oil, pollutants
or contaminants at or near Honolulu Harbor. The DOH letter to HECO requested
information regarding past hazardous substances and oil spills that may have
occurred at HECO's Honolulu power plant and nearby fuel storage and pipeline
facilities, which are located near Honolulu Harbor. HECO submitted a response to
the DOH on April 28, 1995. The DOH letters to HTB and YB requested information
regarding past hazardous substances and oil spills that may have occurred at
Pier 21 and Piers 24-29 in Honolulu Harbor. HTB and YB provided responses to the
DOH letters. Based on a limited review of the responses received from HECO, HTB,
YB and others, the DOH issued letters on December 18, 1995, indicating that the
DOH has identified a number of parties, including HECO, HTB and YB, who appear
to be either potentially responsible for the contamination and/or operate their
facilities upon contaminated land. The DOH met with these identified parties on
January 24, 1996 to inform them of its findings and to establish the framework
to determine remedial and cleanup requirements. The DOH's goal is the formation
of a voluntary response group comprised of these identified parties. The
Honolulu Harbor area of investigation was divided into four units, with the
highest priority area (Iwilei Area) to be addressed first. The DOH met a second
time with the identified parties on March 14, 1996, and additional meetings are
being scheduled. Because the process for determining appropriate remedial and
cleanup action, if any, is at an early stage, management cannot predict at this
time the costs of future site analysis, remediation and cleanup requirements, if
any, nor can it estimate when such costs, if any, would be incurred.

By letter dated December 15, 1994, the DOH advised MECO that the DOH was
conducting an investigation to determine the nature and extent of actual or
potential releases of hazardous substances, oil, pollutants or contaminants at
Kaunakakai, Molokai, Hawaii. The DOH letter requested information regarding past
hazardous substances and oil spills that may have occurred in the area of a
former Molokai Electric Company, Limited's (MOECO) power plant site which had
been located at Kaunakakai. Operations at this MOECO power plant were terminated
in 1985, prior to MECO acquiring MOECO in 1989. In February 1995, HECO filed its
initial response to the DOH's request for information, and filed additional
information in March 1995. The DOH was contacted in December 1995 for an update
of its investigation. According to the DOH, investigations in the near future
will primarily focus on past pipeline releases that occurred near the Kaunakakai
Harbor and will not involve the old power plant area. However, investigations
around the old power plant may be renewed should future soil sampling indicate a
problem.

Both HTB and YB generate small quantities of hazardous wastes as a result of
operations and equipment maintenance activities and have contracted with a firm
to dispose of these wastes in compliance with the EPA regulations and the RCRA
provisions. YB, as a public carrier, also moves hazardous wastes and explosives
for customers. Employees are trained in the applicable handling methods to
assist in the safe movement of these cargoes. Both HTB and YB are subject to the
jurisdiction of the Coast Guard which monitors ocean activities to ensure
compliance with federal regulations.

Finally, ASB may be subject to the provisions of the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) and regulations promulgated
thereunder. CERCLA imposes liability for environmental cleanup costs on certain
categories of responsible parties, including the current owner and operator of a
facility and prior owners or operators who owned or operated the facility at the
time the hazardous substances were released or disposed. CERCLA exempts persons
whose ownership in a facility is held primarily to protect a security interest,
provided that they do not participate in the management of the facility.
Although there may be some risk of liability for ASB for environmental cleanup
costs, the Company believes the risk is not as great for ASB, which specializes
in residential lending, as it may be for other depository institutions which
have a larger portfolio of commercial loans.

                                       37
<PAGE>
 
RATING AGENCIES' ACTIONS

As of March 19, 1996, the Standard & Poor's (S&P), Moody's Investors Service
(Moody's) and Duff & Phelps Credit Rating Co.'s (Duff & Phelps) ratings of HEI's
and HECO's securities were as follows:
<TABLE> 
<CAPTION> 
                                      S&P    Moody's   Duff & Phelps
--------------------------------------------------------------------
<S>                                   <C>    <C>       <C>
HEI
---
Medium-term notes...................  BBB    Baa2      BBB+
Commercial paper....................  A-2    P-2       Duff 2

HECO
----
First mortgage bonds................  BBB+   A3        A
Unsecured notes.....................  BBB+   Baa1      A-
Cumulative preferred stock..........  BBB    baa1      BBB+
Commercial paper....................  A-2    P-2       Duff 1-
</TABLE> 

The Company has been informed by such rating agencies that each of the ratings
referenced above is within a category that signifies "investment grade."
However, each such rating reflects only the view of the applicable rating agency
at the time the rating is issued, from whom an explanation of the significance
of such ratings may be obtained. Each rating should be evaluated independently
of any other rating. There is no assurance that any such credit rating will
remain in effect for any given period of time or that such rating will not be
lowered, suspended or withdrawn entirely by the applicable rating agency if, in
such rating agency's judgment, circumstances so warrant. Any such lowering,
suspension or withdrawal of any rating may have an adverse effect on the market
price or marketability of HEI's and/or HECO's securities and serve to increase
the cost of capital of HEI and HECO.

Neither HEI nor HECO management can predict with certainty future rating agency
actions or their effects on the future cost of capital of HEI or HECO.

RESEARCH AND DEVELOPMENT
------------------------

HECO and its subsidiaries expensed approximately $2.2 million, $2.4 million and
$2.3 million in 1995, 1994 and 1993, respectively, for research and development.
Contributions to the Electric Power Research Institute accounted for most of the
expenses. There were also expenses in the areas of energy conservation,
environmental control, emissions control and for other similar studies relative
to technologies with the potential of being specifically applicable to HECO, its
subsidiaries and its customers.

EMPLOYEE RELATIONS
------------------

At December 31, 1995, the Company's continuing operations had 3,384 full-time
and part-time employees, compared with 3,386 at December 31, 1994.

HECO

At December 31, 1995, HECO and its subsidiaries had 2,208 employees, compared
with 2,219 employees at December 31, 1994.

The current collective bargaining agreement between the International
Brotherhood of Electrical Workers (IBEW), Local 1260, and HECO, MECO and HELCO,
covering approximately 63% of the total employees of these companies, was
extended in November 1995 for a two-year period from November 1, 1996 through
October 31, 1998. The extension provides for noncompounded wage increases of 3%
on November 1 of each year during the term of the agreement.

The current benefits agreement between IBEW Local 1260 and HECO, MECO and HELCO
was also extended for a two-year period and will be in effect until October 31,
1998.

                                       38
<PAGE>
 
HTB

HTB and YB have a collective bargaining agreement with the Inlandboatmen's Union
of the Pacific (IBU) effective from July 26, 1995 through July 25, 1998. A 2.5%
across-the-board wage increase was effective for the first year, with 3% in the
second and third years. Journeyman craftsmen were not included in this new
contact but were covered in YB's contract with the International Longshoremen's
and Warehousemen's Union (ILWU), Hawaii Division, Local 142. The agreement
covers all employees of HTB and YB employed on ocean, inter-island and harbor
tug operations and dispatchers. It excludes office clerical employees,
confidential employees, professional and management employees, guards and
watchmen.

YB has a collective bargaining agreement covering the period of July 1, 1993
through June 30, 1996 with the, ILWU, Hawaii Division, Local 142. The agreement
was ratified on December 23, 1994 after ten months of negotiation. The agreement
covers all full-time and part-time receiving and delivery clerks working on the
docks loading and discharging vessels, all maintenance personnel, documentation
clerks and customer service representatives employed by YB in the state. The
agreement excludes confidential employees, professional employees, supervisory
employees, guards and other clerical personnel.

OTHER

The employees of HEI and its direct and indirect subsidiaries are not covered by
any collective bargaining agreement, except as identified above.

ITEM 2.   PROPERTIES

HEI leases office space in downtown Honolulu. The leases expire at various dates
---                                                                             
from March 31, 1996 to April 30, 1999 (with an option for HEI to extend one of
the leases on most of the office space to March 31, 2001). HEI also leases
office space from HECO in downtown Honolulu. The properties of HEI's
subsidiaries are as follows:

ELECTRIC UTILITY
----------------

See page 4 for the "Generation statistics" of HECO and its subsidiaries, such as
generating and firm purchased capability, reserve margin and annual load factor.

HECO owns and operates three generating plants on the island of Oahu at
----                                                                   
Honolulu, Waiau and Kahe, with an aggregate generating capability of 1,263 MW at
December 31, 1995. The three plants are situated on HECO-owned land having a
combined area of 535 acres. In addition, HECO owns a total of 124 acres of land
on which are located substations, transformer vaults, distribution baseyards and
the Kalaeloa cogeneration facility.

Electric lines are located over or under public and nonpublic properties. Most
of HECO's leases, easements and licenses have been recorded.

HECO owns overhead transmission lines, overhead distribution lines, underground
cables, fully-owned or jointly-owned poles and steel or aluminum high voltage
transmission towers. The transmission system operates at 46,000 and 138,000
volts. The total capacity of HECO's transmission and distribution substations
was 5,736,000 kilovoltamperes at December 31, 1995.

HECO owns a building and approximately 11.5 acres of land located in Honolulu
which houses its operating, engineering and information services departments and
a warehousing center. It also leases an office building and certain office
spaces in Honolulu. The lease for the office building expires in November 2002,
with an option to further extend the lease to November 2012. The leases for
certain office spaces expire on various dates through November 30, 2004 with
options to extend to various dates through November 30, 2014.

HECO owns 19.2 acres of land at Barbers Point used to situate fuel oil storage
facilities with a combined capacity of 970,700 barrels. HECO also owns fuel oil
tanks at each plant site with a total maximum usable capacity of 844,600
barrels.

The properties of HECO are subject to a first mortgage securing HECO's
outstanding first mortgage bonds.

A brief description of the properties of HECO's two electric utility
subsidiaries follows:

                                       39
<PAGE>
 
MECO owns and operates two generating plants on the island of Maui, at Kahului
----                                                                          
and Maalaea, with an aggregate capability of 201.3 MW. The plants are situated
on MECO-owned land having a combined area of 28.6 acres. MECO also owns fuel oil
storage facilities at these sites with a total maximum usable capacity of
145,300 barrels.

MECO's administrative offices and engineering and distribution departments are
located on 9.1 acres of MECO-owned land in Kahului.

MECO also owns and operates smaller distribution and generation systems on the
islands of Lanai and Molokai.

The properties of MECO are subject to a first mortgage securing MECO's
outstanding first mortgage bonds.

HELCO owns and operates five generating plants on the island of Hawaii. These
-----                                                                        
plants at Hilo (2), Waimea, Kona and Puna have an aggregate generating
capability of 154.6 MW (excluding two small run-of-river hydro units). The
plants are situated on HELCO-owned land having a combined area of approximately
43 acres. HELCO owns 6.0 acres of land in Kona, which are used for a baseyard,
and it leases 4.0 acres of land for its baseyard in Hilo. The lease expires in
2030. The deeds to the sites located in Hilo contain certain restrictions which
do not materially interfere with the use of the sites for public utility
purposes.

The properties of HELCO are subject to a first mortgage securing HELCO's
outstanding first mortgage bonds.

SAVINGS BANK
------------

ASB owns its executive office building located in downtown Honolulu and land and
---                                                                             
an office building in the Mililani Technology Park on Oahu.

The following table sets forth certain information with respect to branches
owned and leased by ASB and its subsidiaries at December 31, 1995.
<TABLE> 
<CAPTION> 
                                 Number of branches
                            -------------------------
                               Owned   Leased   Total
-----------------------------------------------------
<S>                            <C>     <C>      <C>
Oahu......................         5       25      30
Maui......................         3        3       6
Kauai.....................         3        1       4
Hawaii....................         2        4       6
Molokai...................        --        1       1
                            -------------------------
                                  13       34      47
                            =========================
</TABLE> 

The net book value of branches and office facilities is approximately $40
million. Of this amount, $33 million represents the net book value of the land
and improvements for the branches and office facilities owned by ASB and $7
million represents the net book value of ASB's leasehold improvements.

OTHER
-----

FREIGHT TRANSPORTATION
----------------------

HTB owned seven tugboats ranging from 1,430 to 2,668 HP, two tenders (auxiliary
boats) of 500 HP and two flatdecked barges as of December 31, 1995.

HTB owns no real property, but rents on a month-to-month basis its pier property
used in its operations from the State of Hawaii under a revocable permit.

YB, HTB's subsidiary, owned four tugboats, two doubledecked and six flatdecked
barges and most of its shoreside equipment, including 20-foot containers,
chassis, 20-foot and 40-foot refrigerated containers, container vans, hi-lifts,
flatracks, automobile racks and other related equipment as of December 31, 1995.

YB owns no real property, but rents on a month-to-month basis or leases various
pier properties and warehouse facilities from the State of Hawaii under a
revocable permit, or under a five-year lease. All lease terms began on January
1, 1992. It is expected that expiring leases will be renewed as necessary.

                                       40
<PAGE>
 
REAL ESTATE DEVELOPMENT
-----------------------

MPC.  See Item 1, "Business--Other--Real estate--Malama Pacific Corp." MDC,
MPC's subsidiary owns 1.27 acres of land adjacent to HECO's Ward Avenue facility
on Oahu. As of December 31, 1995, there is an agreement to sell 0.23 acres of
the property. The remaining property is leased to HECO and other commercial
tenants.

OTHER
-----

HEIIC.  See Item 1, "Business--Other--HEI Investment Corp."

LVI operates a windfarm on the island of Hawaii with a generating capability of
1.6 MW. LVI leases 78 acres of land for its windfarm.

As of March 19, 1996, HEIPC leases office space in downtown Honolulu.

ITEM 3.  LEGAL PROCEEDINGS

Except as provided for below and in "Item 1. Business," there are no known
material pending legal proceedings, other than ordinary routine litigation
incidental to their respective businesses, to which HEI or any of its
subsidiaries is a party or of which any of their property is the subject.

DISCONTINUED OPERATIONS
-----------------------

See "The Hawaiian Insurance & Guaranty Company, Limited" in Note 2 to HEI's
Consolidated Financial Statements, incorporated herein by reference to page 45
of HEI's 1995 Annual Report to Stockholders, portions of which are filed herein
as HEI Exhibit 13.

In December 1994, five insurance agencies, which had served as insurance agents
for HIG and its subsidiaries, filed a complaint against HEI, HEIDI and others.
The complaint set forth several causes of action, including breach of contract
and piercing the corporate veil. The plaintiffs asked for relief from the
defendants, including compensatory damages for lost commissions, lost business
and lost profits in an amount to be proven at trial and punitive damages. In
August 1995, the court granted defendants' motions for summary judgment and in
February 1996, the court directed that final judgment be entered.

HECO POWER OUTAGE
-----------------

See "HECO power outage" in Note 4 to HEI's Consolidated Financial Statements,
incorporated herein by reference to page 48 of HEI's 1995 Annual Report to
Stockholders, portions of which are filed herein as HEI Exhibit 13.

HELCO POWER SITUATION
---------------------

See "HELCO power situation" on pages 6 and 7 of this report.

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

HEI AND HECO:

During the fourth quarter of 1995, no matters were submitted to a vote of
security holders of the Registrants.

EXECUTIVE OFFICERS OF HEI

The following persons are, or may be deemed, executive officers of HEI. Their
ages are given as of February 28, 1996 and their years of company service are
given as of December 31, 1995. Officers are appointed to serve until the meeting
of the HEI Board of Directors following the next Annual Meeting of Stockholders
(which will occur on April 23, 1996) and/or until their successors have been
appointed and qualified (or until their earlier resignation or removal). Company
service includes service with an HEI subsidiary.

                                       41
<PAGE>
 

                                                            Business experience
HEI Executive Officers                                      for past five years
--------------------------------------------------------------------------------
Robert F. Clarke, age 53
   President and Chief Executive Officer...................  1/91 to date
   Director................................................  4/89 to date
   (Company service: 8 years)

T. Michael May, age 49
   Senior Vice President...................................  9/95 to date
   Director................................................  9/95 to date
   (Company service: 3 years)
   T. Michael May is also President of HECO and
      served as HECO Senior Vice President from
      2/92 to 8/95. Prior to joining HECO, he was
      a principal partner in Management Assets
      Group (a general management consulting
      practice) from 9/89 to 1/92. 

Robert F. Mougeot, age 53
   Financial Vice President and Chief Financial Officer....  4/89 to date
   (Company service: 7 years)

Peter C. Lewis, age 61
   Vice President - Administration.........................  10/89 to date
   (Company service: 27 years)

Charles F. Wall, age 56
   Vice President and Corporate Information Officer........  7/90 to date
   (Company service: 5 years)

Andrew I. T. Chang, age 56
   Vice President - Government Relations...................  4/91 to date
   Manager, Government Relations...........................  8/90 to 3/91
   (Company service: 11 years)

Constance H. Lau, age 43
   Treasurer...............................................  4/89 to date
   (Company service: 11 years)

Curtis Y. Harada, age 40
   Controller..............................................  1/91 to date
   Auditor, HECO...........................................  7/89 to 1/91
   (Company service: 6 years)

Betty Ann M. Splinter, age 50
   Secretary...............................................  10/89 to date
   (Company service: 21 years)

Wayne K. Minami, age 53
   President and Chief Executive    
   Officer, American Savings Bank, F.S.B. .................  1/87 to date 
   (Company service: 9 years)

HEI's executive officers, with the exception of Charles F. Wall and Andrew I. T.
Chang, are officers and/or directors of one or more of HEI's subsidiaries. Mr.
Minami is deemed an executive officer of HEI under the definition of Rule 3b-7
of the SEC's General Rules and Regulations under the Securities Exchange Act of
1934.

There are no family relationships between any executive officer of HEI and any
other executive officer or director of HEI, or any arrangement or understanding
between any executive officer and any person pursuant to which the officer was
selected.

                                       42
<PAGE>
 
                                    PART II
                                    -------


ITEM 5.  MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

HEI:

The information required by this item is incorporated herein by reference to
pages 59 and 61 (Note 18, "Regulatory restrictions on net assets" and Note 21,
"Quarterly information (unaudited)" to HEI's Consolidated Financial Statements)
and page 25 of HEI's 1995 Annual Report to Stockholders, portions of which are
filed herein as HEI Exhibit 13. Certain restrictions on dividends and other
distributions of HEI are described in this report under "Item 1. Business--
Regulation and other matters--Restrictions on dividends and other
distributions." The total number of holders of record of HEI common stock as of
March 15, 1996, was 22,672.

HECO:

The information required with respect to "Market information" and "holders" is
not applicable. Since the corporate restructuring on July 1, 1983, all the
common stock of HECO has been held solely by its parent, HEI, and is not
publicly traded.

The dividends declared and paid on HECO's common stock for the four quarters of
1995 and 1994 were as follows:

<TABLE>
<CAPTION>
          Quarter ended                      1995         1994
-----------------------------------------------------------------
<S>                                      <C>           <C>
March 31............................     $ 8,927,000   $9,923,000
June 30.............................       7,900,000    1,330,000
September 30........................       8,770,000    7,594,000
December 31.........................      12,410,000    9,664,000
</TABLE>

The regulatory restrictions on net assets are incorporated herein by reference
to page 27 (Note 12 to HECO's Consolidated Financial Statements, "Regulatory
restrictions on distributions to parent") of HECO's 1995 Annual Report to
Stockholder, portions of which are filed herein as HECO Exhibit 13.

ITEM 6.  SELECTED FINANCIAL DATA

HEI:

The information required by this item is incorporated herein by reference to
page 25 of HEI's 1995 Annual Report to Stockholders, portions of which are filed
herein as HEI Exhibit 13.

HECO:

The information required by this item is incorporated herein by reference to
page 2 of HECO's 1995 Annual Report to Stockholder, portions of which are filed
herein as HECO Exhibit 13.

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

HEI:

The information required by this item is set forth in MD&A, incorporated herein
by reference to pages 27 to 36 of HEI's 1995 Annual Report to Stockholders,
portions of which are filed herein as HEI Exhibit 13.

HECO:

The information required by this item is set forth in HECO MD&A, incorporated
herein by reference to pages 3 to 10 of HECO's 1995 Annual Report to
Stockholder, portions of which are filed herein as HECO Exhibit 13.

                                       43
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

HEI:

The information required by this item is incorporated herein by reference to the
section entitled "Segment financial information" on page 26 and to pages 38 to
61 of HEI's 1995 Annual Report to Stockholders, portions of which are filed
herein as HEI Exhibit 13.

HECO:

The information required by this item is incorporated herein by reference to
pages 11 to 30 of HECO's 1995 Annual Report to Stockholder, portions of which
are filed herein as HECO Exhibit 13.

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

HEI AND HECO:

None

                                    PART III
                                    --------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

HEI:

Information for this item concerning the executive officers of HEI is set forth
on pages 41 and 42 of this report. The list of current directors of HEI is
incorporated herein by reference to page 62 of HEI's 1995 Annual Report to
Stockholders, portions of which are filed herein as HEI Exhibit 13. Information
on the current directors' business experience and directorships is incorporated
herein by reference to pages 3 to 6 of the registrant's Definitive Proxy
Statement, prepared for the Annual Meeting of Stockholders to be held on April
23, 1996.

There are no family relationships between any director of HEI and any other
executive officer or director of HEI, or any arrangement or understanding
between any director and any person pursuant to which the director was selected.

The information required under this item by Item 405 of Regulation S-K is
incorporated by reference to page 11 of HEI's Definitive Proxy Statement,
prepared for the Annual Meeting of Stockholders to be held on April 23, 1996.

HECO:

The following persons are, or may be deemed, executive officers of HECO. Their
ages are given as of February 28, 1996 and their years of company service are
given as of December 31, 1995. Officers are appointed to serve until the meeting
of the HECO Board of Directors following the next HECO Annual Meeting and/or
until their respective successors have been appointed and qualified (or until
their earlier resignation or removal). Company service includes service with
HECO affiliates.

<TABLE>
<CAPTION>
                                                                            Business experience
HECO Executive Officers                                                     for past five years
-----------------------------------------------------------------------------------------------
<S>                                                                         <C>
Robert F. Clarke, age 53
    Chairman of the Board..............................................      1/91 to date
    (Company service: 8 years)

T. Michael May, age 49
    President..........................................................      9/95 to date
    Senior Vice President..............................................      2/92 to 8/95
    Director...........................................................      9/95 to date
    (Company service: 3 years)
    T. Michael May, prior to joining HECO, was a principal partner in
    Management Assets Group (a general management consulting practice)
    from 9/89 to 1/92.
</TABLE>
                                       44
<PAGE>
 
<TABLE>
<CAPTION>

                                                                                 Business experience
HECO Executive Officers                                                          for past five years
------------------------------------------------------------------------------------------------------
<S>                                                                             <C>
Jackie Mahi Erickson, age 55
    Vice President - General Counsel & Government Relations..........             7/95 to date
    Vice President - General Counsel.................................             2/91 to 6/95
    Corporate Counsel................................................             1/81 to 1/91
    (Company service: 15 years)

Charles M. Freedman, age 49
    Vice President - Corporate Excellence............................             7/95 to date
    Vice President - Corporate Relations.............................             5/92 to 6/95
    (Company service: 5 years)
          Charles Freedman, prior to rejoining HECO on 5/92,
           served as Director of Communications in the Office of
           the Governor of Hawaii, from 1986 to 4/92.

Edward Y. Hirata, age 62
    Vice President - Regulatory Affairs..............................             7/95 to date
    Vice President - Planning........................................             12/91 to 6/95
    Vice President, HELCO and MECO...................................             12/91 to date
    (Company service: 9 years)
          Edward Y. Hirata, prior to rejoining HECO on 12/91,
           served as Director of Department of Transportation
            for the State of Hawaii, from 4/87 to 11/91.

George T. Iwahiro, age 58
    Vice President - Energy Delivery.................................             7/95 to date
    Vice President - Engineering.....................................             2/91 to 6/95
    Vice President - Consumer, Regulatory and Public Affairs.........             2/85 to 1/91
    Vice President, HELCO and MECO...................................             3/85 to 12/91
    (Company service: 36 years)

Thomas L. Joaquin, age 52
    Vice President - Power Supply....................................             7/95 to date
    Vice President - Operations......................................             5/94 to 6/95
    General Manager, Production......................................             11/93 to 4/94
    Manager, Production..............................................             10/92 to 10/93
    Manager, Production (MECO).......................................             7/87 to 9/92
    (Company service: 22 years)

Richard L. O'Connell, age 66
    Vice President - Customer Operations.............................             7/95 to date
    Vice President - Customer Relations..............................             2/91 to 6/95
    Vice President - Facilities......................................             6/88 to 1/91
    (Company service: 15 years)

Paul A. Oyer, age 55
    Financial Vice President and Treasurer...........................             5/89 to date
    Director.........................................................             4/85 to date
    Financial Vice President and Treasurer, HELCO and MECO...........             3/85 to date
    (Company service: 29 years)

Ernest T. Shiraki, age 48
    Controller.......................................................             5/89 to date
    (Company service: 26 years)
</TABLE>

                                       45
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                             Business experience
HECO Executive Officers                                      for past five years
--------------------------------------------------------------------------------
<S>                                                          <C>
Molly M. Egged, age 45
    Secretary.........................................       10/89 to date
    Secretary, HELCO and MECO.........................       10/89 to date
    Executive Secretary...............................       12/80 to 12/92
    (Company service: 15 years)
</TABLE> 

HECO's executive officers, Robert F. Clarke, T. Michael May, Edward Y. Hirata,
Paul A. Oyer and Molly M. Egged, are officers of one or more of the affiliated
HEI companies.

There are no family relationships between any executive officer or director of
HECO and any other executive officer or director of HECO, or any arrangement or
understanding between any director and any person pursuant to which the director
was selected.

The list of current directors of HECO is incorporated herein by reference to
page 33 of HECO's 1995 Annual Report to Stockholder, portions of which are filed
herein as HECO Exhibit 13. Information on the business experience and
directorships of directors of HECO who are also directors of HEI is incorporated
herein by reference to pages 3 through 6 of HEI's Definitive Proxy Statement,
prepared for the Annual Meeting of Stockholders to be held on April 23, 1996.

Mildred D. Kosaki, age 71, and Paul C. Yuen, age 67, as of February 28, 1996 are
the only outside directors of HECO who are not directors of HEI. Mrs. Kosaki has
been a director of HECO since 1973. She resigned from the HEI Board in 1987. She
was also a director of the International Pacific University from 1989 to 1991.
She is a specialist in education research. Dr. Yuen, who was elected a director
of HECO in April 1993, is Dean of the College of Engineering at the University
of Hawaii-Manoa. In the past five years, he has held various administrative
positions at the University of Hawaii-Manoa. He also serves on the boards of
Cyanotech Corporation and the Pacific International Center for High Technology
Research. Information on Mr. Oyer's business experience and directorship is
indicated above.

ITEM 11.  EXECUTIVE COMPENSATION

HEI:

The information required under this item for HEI is incorporated by reference to
pages 8 and 9, 12 to 18 and 23 and 24 of HEI's Definitive Proxy Statement,
prepared for the Annual Meeting of Stockholders to be held on April 23, 1996.

HECO:

The following tables set forth the information required for the chief executive
officers of HECO and the four other most highly compensated HECO executive
officers serving at the end of 1995. All executive compensation amounts
presented for Harwood D. Williamson and T. Michael May are the same amounts
presented in HEI's Definitive Proxy Statement, prepared for the Annual Meeting
of Stockholders to be held on April 23, 1996.

SUMMARY COMPENSATION TABLE
--------------------------

The following is the summary compensation table which sets forth the annual and
long-term compensation of the chief executive officers of HECO and the four
other most highly compensated executive officers of HECO serving at the end of
1995.

                                       46
<PAGE>
 
                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                 Long-Term
                                                   Annual Compensation                          Compensation
                                    ----------------------------------------------    ---------------------------
                                                                                         Awards          Payouts
                                                                           Other      ------------     ----------        All
                                                                          Annual       Securities                       Other
                                                                          Compen-      Underlying          LTIP         Compen-
Name and Principal                           Salary          Bonus        sation         Options          Payouts       sation
   Position (1)                 Year         ($)(2)          ($)(3)       ($)(4)         (#)(5)            ($)(6)       ($)(7)
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>        <C>              <C>          <C>            <C>             <C>            <C> 
Harwood D. Williamson.........  1995       $230,000        $ 57,920      $ 86,184         15,000            --         $22,956
President                       1994        387,367         100,174        76,465         15,000        $     0         20,663
                                1993        341,333               0        68,544          8,000         66,150         18,843

T. Michael May................  1995        226,000          41,987             0          4,000             na          8,177
President                       1994        199,667          32,995             0              0             na          8,151
                                1993        191,000               0       105,138          4,000             na          4,796

Paul A. Oyer..................  1995        188,000          17,959        13,167          3,000             na          7,907
Financial Vice President        1994        188,067          22,283        11,928              0             na          7,106
   and Treasurer                1993        175,100               0        10,806          3,000             na          6,339

George T. Iwahiro.............  1995        148,000          14,966             0          2,000             na          7,730
Vice President-                 1994        139,867          18,476             0              0             na          7,042
   Energy Delivery              1993        133,833               0             0          2,000             na          6,548

Edward Y. Hirata..............  1995        140,000          16,519           270          3,000             na         10,002
Vice President-                 1994        134,467          20,451           405              0             na          9,169
   Regulatory Affairs           1993        129,000               0           540          3,000             na          9,310

Thomas L. Joaquin.............  1995        137,000          17,959             0          3,000             na          4,404
Vice President-                 1994        112,700          22,283             0              0             na          4,219
  Power Supply                  1993        101,567               0             0              0             na          3,943
</TABLE>

(1) Mr. Williamson retired as President and CEO effective September 1, 1995 and
    Mr. May succeeded Mr. Williamson effective the same date.
(2) Includes a one-time lump sum transitional payment of $49,000 for Mr.
    Williamson and $9,800 for Mr. Oyer in 1994, representing two years of
    "normalized" insider directors' fees following a decision by the
    Compensation Committee of the HEI Board of Directors (the Committee) to
    discontinue all insider directors' fees, effective May 1, 1994. Also
    includes directors' fees of $7,700 for the period January 1 through April
    30, 1994 and $28,000 for 1993 for Mr. Williamson and directors' fees of
    $1,400 for the period January 1 through April 30, 1994 and $5,600 for 1993
    for Mr. Oyer.
(3) The named executive officers are eligible for an incentive award under the
    Company's annual Executive Incentive Compensation Plan (EICP). EICP bonus
    payouts are reflected for the year earned.
(4) Covers perquisites of $105,138 for Mr. May for 1993 which he recognized as
    imputed income under the Internal Revenue Code, including $40,026 for moving
    expenses grossed up for taxes and $63,282 for closing costs on the sale of
    his San Diego home grossed up for taxes. Covers interest earned on deferred
    compensation by Mr. Williamson at above-market interest rates on deferred
    annual and Long-Term Incentive Plan (LTIP) payouts as well as interest
    earned at market rates on deferred LTIP payouts in the amount of $86,184 for
    1995, $76,465 for 1994 and $68,544 for 1993. Amounts for Mr. Oyer and Mr.
    Hirata represent above-market earnings on deferred annual payouts.
(5) Except for Mr. Williamson, options granted did not include dividend
    equivalents.
(6) LTIP payouts are determined in April each year for the three-year cycle
    ending on December 31 of the previous calendar year; if there is a payout,
    the amount is reflected as LTIP compensation in

                                       47
<PAGE>
 
    the table for the previous year for the named executive officers. In April
    1994, LTIP payouts were made for the 1991-1993 performance cycle and are
    reflected as LTIP compensation in the table for 1993. In April 1995, no LTIP
    payouts were made for the 1992-1994 performance cycle for the named
    executive officers. The determination of whether there will be a payout
    under the 1993-1995 LTIP will not be made until later this year.

(7) Represents amounts accrued by the Company for certain death benefits
    provided to the named executive officers. Additional information is
    incorporated by reference to "Other Compensation Plans" on page 21 of HEI's
    Definitive Proxy Statement, prepared for the Annual Meeting of Stockholders
    to be held on April 23, 1996.

OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------

The following table shows the HEI stock options which were granted in 1995 to
the executives named in the HECO Summary Compensation Table, all of which are
nonqualified stock options. The practice of granting stock options, which may
include dividend equivalent shares, has been followed each year since 1987.

<TABLE>
<CAPTION>
                                   Number of            Percent of
                                   Securities          Total Options
                                   Underlying           Granted to      Exercise                    Grant Date
                                    Options            Employees in      Price      Expiration       Present
                                 Granted (#)(1)         Fiscal Year     ($/share)       Date       Value ($)(2)
-----------------------------------------------------------------------------------------------------------------
<S>                              <C>                   <C>              <C>         <C>              <C>
Harwood D. Williamson...........         15,000                  11%      32.83    April 18, 2005     $102,300
T. Michael May..................          4,000                   3       32.83    April 18, 2005       11,280
Paul A. Oyer....................          3,000                   2       32.83    April 18, 2005        8,460
George T. Iwahiro...............          2,000                   1       32.83    April 18, 2005        5,640
Edward Y. Hirata................          3,000                   2       32.83    April 18, 2005        8,460
Thomas L. Joaquin...............          3,000                   2       32.83    April 18, 2005        8,460
</TABLE>

(1) For the 15,000 option shares granted with an exercise price of $32.83 per
    share to Mr. Williamson, additional dividend equivalent shares were granted
    at no additional cost throughout the four-year vesting period (vesting in
    equal installments) which began on the date of grant. Dividend equivalents
    are computed, as of each dividend record date, both with respect to the
    number of shares under the option and with respect to the number of dividend
    equivalent shares previously credited to the participant and not issued
    during the period prior to the dividend record date. No dividend equivalents
    were granted to the other named executive officers besides Mr. Williamson.
    Accelerated vesting is provided in the event a Change-in-Control occurs. No
    stock appreciation rights have been granted under the Company's current
    benefit plans.

(2) Based on a Binomial Option Pricing Model which is a variation of the
    Black-Scholes Option Pricing Model. For the stock options granted on April
    18, 1995, with a 10-year option period, an exercise price of $32.83, and
    with additional dividend equivalent shares granted for the first four years
    of the option (for Mr. Williamson only), the Binomial Value adjusted for
    forfeiture risk is $6.82 per share. The following assumptions were used in
    the model: Stock Price: $32.83; Exercise Price: $32.83; Term: 10 years;
    Volatility: 0.333; Interest Rate: 6.25%; and Dividend Rate: 6.57%. The
    following were the valuation results: Binomial Option Value: $2.82; Dividend
    Credit Value: $4.00; and Total Value $6.82.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
-------------------------------------------------------------

The following table shows the stock options, including dividend equivalents,
exercised by the named executive officers in 1995. Also shown is the number of
unexercised options and the value of unexercised in the money options, including
dividend equivalents, at the end of 1995. Under the Stock Option and Incentive
Plan, dividend equivalents have been granted to Mr. Williamson as part of the
stock option grant, except for the one-time, premium-priced grant to Mr.
Williamson in May 1992.

Dividend equivalents permit a participant who exercises a stock option to obtain
at no additional cost, in addition to the option shares, the amount of dividends
declared on the number of shares of common stock with respect to which the
option is exercised during the period between the grant and the exercise

                                       48
<PAGE>
 
of the option. Dividend equivalents are computed, as of each dividend record
date throughout the four-year vesting period (vesting in equal installments),
which begins on the date of grant, both with respect to the number of shares
underlying the option and with respect to the number of dividend equivalent
shares previously credited to the executive officer and not issued during the
period prior to the dividend record date.

              AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                         FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                                                                    Value of
                                                                                            Number of              Unexercised
                                                                                           Unexercised            In the Money
                                                                                            Options                  Options
                                                                                           (Including              (Including
                                                                                             Dividend                Dividend
                                                Dividend                                   Equivalents)            Equivalents)
                                    Shares     Equivalents     Value         Value          at Fiscal                at Fiscal
                                   Acquired     Acquired      Realized    Realized On       Year-end                Year-end (1)
                                      On           On            On         Dividend     ------------------------------------------
                                   Exercise     Exercise       Options     Equivalents     Exercisable/         Exercisable/
                                     (#)          (#)            ($)          ($)         Unexercisable(#)     Unexercisable ($)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>           <C>         <C>             <C>                  <C>
Harwood D. Williamson.............   64,000         10,916    $262,473        $410,245          40,000 / 0        $          0 / 0
T. Michael May....................       --             --          --              --       2,000 / 6,000            960 / 24,640
Paul A. Oyer......................       --             --          --              --       7,678 / 4,500         61,151 / 18,480
George T. Iwahiro.................       --             --          --              --       2,000 / 3,000          6,510 / 12,320
Edward Y. Hirata..................       --             --          --              --       1,500 / 4,500            720 / 18,480
Thomas L. Joaquin.................       --             --          --              --           0 / 3,000              0 / 17,760
</TABLE>

(1)  Includes exercisable dividend equivalents of $27,900 for Mr. Oyer. All
     options were in the money (where the option price is less than the closing
     price on December 29, 1995) except the 1992 premium-priced stock option
     grant to Mr. Williamson without dividend equivalents with an exercise price
     of $41.00 per share. Value based on closing price of $38.75 per share on
     the New York Stock Exchange on December 29, 1995.

LONG-TERM INCENTIVE PLAN AWARDS TABLE
-------------------------------------

A Long-Term Incentive Plan award was made to one of the named executive officers
in the HECO Summary Compensation Table, Mr. May. Additional information required
under this item is incorporated by reference to page 15 of HEI's Definitive
Proxy Statement, prepared for the Annual Meeting of Stockholders to be held on
April 23, 1996.

PENSION PLAN
------------

The Retirement Plan for Employees of Hawaiian Electric Industries, Inc. and
Participating Subsidiaries (the Retirement Plan) provides a monthly retirement
pension for life. Additional information required under this item is
incorporated by reference to "Pension Plans" on pages 16 and 17 of HEI's
Definitive Proxy Statement, prepared for the Annual Meeting of Stockholders to
be held on April 23, 1996. As of December 31, 1995, the named executive officers
in the HECO Summary Compensation Table had the following number of years of
credited service under the Retirement Plan:  Mr. Williamson, 39 years (as of
September 1, 1995); Mr. May, 3 years; Mr. Oyer, 29 years; Mr. Iwahiro, 36 years;
Mr. Hirata, 9 years; and Mr. Joaquin, 22 years.

CHANGE-IN-CONTROL AGREEMENTS
----------------------------

Mr. May is the only named executive officer in the HECO Summary Compensation
Table with whom HEI has a currently applicable Change-in-Control Agreement.
Additional information required under this item is incorporated by reference to
"Change-in-Control Agreements" on pages 17 and 18 of HEI's Definitive Proxy
Statement, prepared for the Annual Meeting of Stockholders to be held on April
23, 1996.

                                       49
<PAGE>
 
HEI COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
---------------------------------------------------------------

Decisions on executive compensation for the named HECO executive officers are
made by the Committee which is composed of five independent nonemployee
directors. All decisions by the Committee concerning HECO officers are reviewed
by the full HEI Board of Directors except for decisions about HEI's stock-based
plans, which are made solely by the Committee in order to satisfy Securities
Exchange Act Rule 16b-3, and are reviewed and approved by the HECO Board of
Directors. Information required under this item is incorporated by reference to
pages 23 and 24 of HEI's Definitive Proxy Statement, prepared for the Annual
Meeting of Stockholders to be held on April 23, 1996.

HECO BOARD OF DIRECTORS
-----------------------

Committees of the HECO Board
----------------------------

During 1995, the Board of Directors of HECO had only one standing committee, the
Audit Committee, which was comprised of four nonemployee directors: Ben F.
Kaito, Chairman, and Mildred D. Kosaki, Diane J. Plotts and Paul C. Yuen. In
1995, the Audit Committee held five meetings to review with management, the
internal auditor and HECO's independent auditors the activities of the internal
auditor, the results of the annual audit by the independent auditor and the
financial statements which are included in HECO's 1995 Annual Report to
Stockholder. On December 31, 1995, Ben F. Kaito retired, and on January 16,
1996, Edwin L. Carter was elected a HECO director and was appointed Chairman of
the HECO Audit Committee. The Audit Committee holds such meetings as it deems
advisable to review the financial operations of HECO.

Remuneration of HECO Directors and attendance at meetings
---------------------------------------------------------

In 1995, Mildred D. Kosaki and Paul C. Yuen were the only nonemployee directors
of HECO who were not also directors of HEI. They were paid a retainer of
$12,000, one-half of which was distributed in the common stock of HEI pursuant
to the HEI Nonemployee Director Stock Plan and one-half of which was distributed
in cash. The number of shares of stock distributed was based on a price of
$34.375 per share, which is equal to the closing sales price of HEI common stock
on the New York Stock Exchange on April 18, 1995, as quoted in "Composite
Transactions" in The Wall Street Journal, divided into $6,000, with a cash
payment made in lieu of any fractional share. The nonemployee directors of HECO
who were also nonemployee directors of HEI did not receive a separate retainer
from HECO. In addition, a fee of $700 was paid in cash to each nonemployee
director (including nonemployee directors of HECO who are also nonemployee
directors of HEI) for each Board and Committee meeting attended by the director.
The Chairman of the Audit Committee was paid an additional $100 for each
Committee meeting attended. Effective May 1, 1994, employee members of the Board
of Directors were no longer compensated for attendance at any meeting of the
Board or committees of the Board.

In 1995, there were six regular bi-monthly meetings and one special meeting of
the Board of Directors. All incumbent directors, attended at least 75% of the
combined total number of meetings of the Board and Committee on which they
served.

HECO participates in the Nonemployee Director Retirement Plan, a description of
which is incorporated by reference to page 8 of HEI's Definitive Proxy
Statement, prepared for the Annual Meeting of Stockholders to be held on April
23, 1996.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

HEI:

The information required under this item is incorporated by reference to pages
10 and 11 of HEI's Definitive Proxy Statement, prepared for the Annual Meeting
of Stockholders to be held on April 23, 1996.

HECO:

HEI owns all of the common stock of HECO, which is HECO's only class of voting
securities. HECO has also issued and has outstanding various series of preferred
stock, the holders of which, upon certain defaults in dividend payments, have
the right to elect a majority of the directors of HECO.

The following table shows the shares of HEI common stock beneficially owned by
each HECO director (other than those who are also directors of HEI), named HECO
executive officers as listed in the

                                       50
<PAGE>
 
Summary Compensation Table on pages 47 and 48 and by HECO directors and officers
as a group, as of February 14, 1996, based on information furnished by the
respective individuals.

<TABLE>
<CAPTION>
                                                      Amount of Common Stock and
Name of Individual or Group                         Nature of Beneficial Ownership
----------------------------------------------------------------------------------
                                                                      Total
                                                            ----------------------
Directors
---------
<S>                             <C>                                   <C>
Mildred D. Kosaki...........              1,887  (b)                     1,887
                                ---------------

Paul A. Oyer*...............              3,057  (a)
                                          7,678  (d)                    10,735
                                ---------------

Paul C. Yuen................                810  (b)                       810
                                ---------------

Other named executive officers
-----------------------------
George T. Iwahiro...........              6,558  (a)
                                            823  (b)
                                          2,000  (d)                     9,381
                                ---------------

Edward Y. Hirata............              2,989  (a)
                                          1,281  (b)
                                          1,500  (d)                     5,770
                                ---------------

Thomas L. Joaquin...........              2,638  (a)
                                             23  (b)
                                             10  (c)                     2,671
                                ---------------

All directors and executive              35,093  (a)
 officers as a group                     17,006  (b)
 (17 persons)...............                117  (c)
                                        109,661  (d)                   161,877**
                                ---------------
</TABLE>

*      Also a named executive officer listed in the Summary Compensation Table
       on pages 47 and 48.

**     HECO directors Messrs. Carter, Clarke, Henderson and May and Ms. Plotts,
       who also serve on the HEI Board of Directors are not shown separately,
       but are included in the total amount. The information required as to
       these directors is incorporated by reference to pages 10 and 11 of HEI's
       Definitive Proxy Statement, prepared for the Annual Meeting of
       Stockholders to be held on April 23, 1996. Messrs. Clarke and May are
       also named executive officers listed in the Summary Compensation Table
       incorporated by reference to pages 12 and 13 of the above-referenced
       Definitive Proxy Statement of HEI. The number of shares of common stock
       beneficially owned by any HECO director or by all HECO directors and
       officers as a group does not exceed 1% of the outstanding common stock of
       HEI.
(a)    Sole voting and investment power.
(b)    Shared voting and investment power (shares registered in name of
       respective individual and spouse).
(c)    Shares owned by spouse, children or other relatives sharing the home of
       the director or an officer in the group and in which personal interest of
       the director or officer is disclaimed.
(d)    Stock options, including accompanying dividend equivalents shares,
       exercisable within 60 days after February 14, 1996, under the 1987 Stock
       Option and Incentive Plan, as amended in 1992.

                                       51
<PAGE>
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

HEI:

The information required under this item is incorporated by reference to pages
23 to 25 of HEI's Definitive Proxy Statement, prepared for the Annual Meeting of
Stockholders to be held on April 23, 1996.

HECO:

The information required under this item is incorporated by reference to pages
23 to 25 of HEI's Definitive Proxy Statement, prepared for the Annual Meeting of
Stockholders to be held on April 23, 1996.

                                    PART IV
                                    -------

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

(a)(1)   FINANCIAL STATEMENTS

The following financial statements contained in HEI's 1995 Annual Report to
Stockholders and HECO's 1995 Annual Report to Stockholder, portions of which are
filed by HEI as Exhibit 13 and, portions of which are filed by HECO as Exhibit
13, respectively, are incorporated by reference in Part II, Item 8, of this Form
10-K:

<TABLE>
<CAPTION>
                                                                        1995 Annual Report to
                                                                       Stockholder(s) (Page/s)
                                                                    ----------------------------
                                                                         HEI          HECO
------------------------------------------------------------------------------------------------
   <S>                                                                  <C>           <C>
   Independent Auditors' Report..................................        37            31
   Consolidated Statements of Income, Years ended                   
     December 31, 1995, 1994 and 1993............................        38            11 
   Consolidated Statements of Retained Earnings, Years ended                   
     December 31, 1995, 1994 and 1993............................        38            11 
   Consolidated Balance Sheets, December 31, 1995 and 1994.......        39            12
   Consolidated Statements of Capitalization,
     December 31, 1995 and 1994..................................        na           13-14
   Consolidated Statements of Cash Flows, Years ended
     December 31, 1995, 1994 and 1993............................        40            15
   Notes to Consolidated Financial Statements....................      41-61          16-30
------------------------------------------------------------------------------------------------
</TABLE>

(a)(2) FINANCIAL STATEMENT SCHEDULES

The following financial statement schedules for HEI and HECO are included in
this Report on the pages indicated below:

<TABLE>
<CAPTION>
                                                                        Page/s in Form 10-K
                                                                    ----------------------------
                                                                         HEI          HECO
------------------------------------------------------------------------------------------------
   <S>                                                                  <C>           <C>
   Independent Auditors' Report...................................       54            55
   Schedule I    Condensed Financial Information of Registrant,        
                   Hawaiian Electric Industries, Inc. (Parent
                   Company) as of December 31, 1995 and 1994
                   and Years ended December 31, 1995, 1994 and
                   1993...........................................      56-58          na
   Schedule II   Valuation and Qualifying Accounts, Years
                   ended December 31, 1995, 1994 and 1993.........       59            59
</TABLE>

Certain Schedules, other than those listed, are omitted because they are not
required, or are not applicable, or the required information is shown in the
consolidated financial statements or notes included in HEI's 1995 Annual Report
to Stockholders and HECO's 1995 Annual Report to Stockholder, which financial
statements are incorporated herein by reference.

                                       52
<PAGE>
 
(A)(3)  EXHIBITS

Exhibits for HEI and HECO and their subsidiaries are listed in the "Index to
Exhibits" found on pages 60 through 66 of this Form 10-K. The exhibits listed
for HEI and HECO are listed in the index under the headings "HEI" and "HECO,"
respectively, except that the exhibits listed under "HECO" are also considered
exhibits for HEI.

(B)  REPORTS ON FORM 8-K

HEI AND HECO:

During the fourth quarter of 1995, HEI and HECO filed Current Reports,
Forms 8-K, with the SEC dated December 11, 1995 and December 13, 1995. These
reports contained information under Item 5, Other events, regarding HECO's
receipt of a 1995 final rate order (Form 8-K dated December 11, 1995) and
regarding an update of the HELCO power situation and discontinued operations
(Form 8-K dated December 13, 1995).

                                       53
<PAGE>
 
[KPMG Peat Marwick letterhead]



                          Independent Auditors' Report
                          ----------------------------



The Board of Directors
  and Stockholders
Hawaiian Electric Industries, Inc.:

Under date of January 25, 1996, we reported on the consolidated balance sheets
of Hawaiian Electric Industries, Inc. and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income, retained earnings
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 stockholders. These consolidated
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 consolidated financial statements, we also have audited the
related financial statement schedules as listed in the accompanying index. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.



/s/ KPMG Peat Marwick LLP

Honolulu, Hawaii
January 25, 1996

                                       54
<PAGE>
 
[KPMG Peat Marwick letterhead]



                          Independent Auditors' Report
                          ----------------------------



The Board of Directors
  and Stockholder
Hawaiian Electric Company, Inc.:

Under date of January 25, 1996, we reported on the consolidated balance sheets
and consolidated statements of capitalization of Hawaiian Electric Company, Inc.
(a wholly owned subsidiary of Hawaiian Electric Industries, Inc.) and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, retained earnings 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 stockholder. These consolidated 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 consolidated
financial statements, we also have audited the related financial statement
schedule as listed in the accompanying index. The financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.



/s/ KPMG Peat Marwick LLP

Honolulu, Hawaii
January 25, 1996

                                       55
<PAGE>
 
                      Hawaiian Electric Industries, Inc.
          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
              HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                             December 31,
                                                      ------------------------
(in thousands)                                              1995        1994
------------------------------------------------------------------------------
<S>                                                      <C>          <C>
ASSETS
Cash and equivalents.................................    $      673   $    223
Advances to and notes receivable from subsidiaries...        40,576     27,696
Accounts receivable..................................         2,404      2,565
Other investments....................................           810        809
Property, plant and equipment, net...................         2,455      2,460
Other assets.........................................         2,537      5,857
Investment in wholly owned subsidiaries, at equity...       967,437    888,651
                                                      ------------------------
                                                         $1,016,892   $928,261
                                                      ========================

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.....................................    $    7,152   $  9,246
Advances from subsidiaries...........................            --      2,293
Commercial paper.....................................        45,393     12,750
Long-term debt.......................................       223,500    209,500
Deferred income taxes................................         3,053      4,301
Unamortized tax credits..............................            41         29
Other................................................         8,150      8,053
                                                      ------------------------
                                                            287,289    246,172
                                                      ------------------------

Stockholders' equity
Common stock.........................................       585,387    546,254
Retained earnings....................................       144,216    135,835
                                                      ------------------------
                                                            729,603    682,089
                                                      ------------------------
                                                         $1,016,892   $928,261
                                                      ========================

Note to Balance Sheets
----------------------
Long-term debt, consisted of the following:
Promissory notes, 6.3% - 7.6%, due in
 various years through 2005..........................    $  143,000   $113,000
Promissory notes, 8.2% - 9.9%, due in
 various years through 2011..........................        45,500     61,500
Promissory note, variable rate
 (6.32% at December 31, 1995) due 1999...............        35,000     35,000
                                                      ------------------------
                                                         $  223,500   $209,500
                                                      ========================
</TABLE>

As of December 31, 1995, HEI guaranteed debt of its subsidiaries and affiliates
amounting to $10 million.


The aggregate payments of principal required on long-term debt subsequent to
December 31, 1995 are $42 million in 1996, $51 million in 1997, $1 million in
1998, $41 million in 1999, $10 million in 2000 and $79 million thereafter.

                                       56
<PAGE>
 
                      Hawaiian Electric Industries, Inc.
    SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
              HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
                         CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                               Years ended December 31,
                                           -------------------------------
(in thousands)                               1995        1994       1993
--------------------------------------------------------------------------
<S>                                        <C>         <C>        <C>
REVENUES.................................. $  2,923    $ 3,318    $  3,353

Equity in income from continuing
 operations of subsidiaries...............   89,198     84,819      74,764
                                           -------------------------------

                                             92,121     88,137      78,117
                                           -------------------------------

EXPENSES:

Operating, administrative and general.....    7,543      7,786       6,897

Taxes, other than income taxes............      282        292         226

Depreciation and amortization of
 property, plant and equipment............      491        587         569
                                           -------------------------------
                                              8,316      8,665       7,692
                                           -------------------------------
                                             83,805     79,472      70,425

Interest expense..........................   17,922     15,195      18,355
                                           -------------------------------

INCOME FROM CONTINUING OPERATIONS
 BEFORE INCOME TAX BENEFIT................   65,883     64,277      52,070

Income tax benefit........................  (11,610)    (8,753)     (9,614)
                                           -------------------------------

Income from continuing operations.........   77,493     73,030      61,684
Loss from discontinued operations,
 net of income tax benefit................       --         --     (13,025)
                                           -------------------------------

NET INCOME................................ $ 77,493    $73,030    $ 48,659
                                           ===============================
</TABLE>

                                       57
<PAGE>
 
                      Hawaiian Electric Industries, Inc.
     SCHEDULE I-- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
              HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
                       CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                          Years ended December 31,
                                                                    -----------------------------------
(in thousands)                                                           1995        1994        1993
-------------------------------------------------------------------------------------------------------
<S>                                                                    <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations..................................    $ 77,493    $ 73,030    $ 61,684
Adjustments to reconcile income from
 continuing operations to net cash
 provided by operating activities
  Equity in income from continuing
   operations of subsidiaries......................................     (89,198)    (84,819)    (74,764)
  Common stock dividends received
   from subsidiaries...............................................      51,435      43,909      53,305
  Depreciation and amortization of
   property, plant and equipment...................................         491         587         569
  Other amortization...............................................         239         209         294
  Deferred income taxes and tax credits, net.......................      (1,236)        367         232
  Changes in assets and liabilities
   Decrease (increase) in accounts receivable......................         161       4,114      (6,211)
   Increase (decrease) in accounts payable.........................      (2,094)        385     (16,506)
   Changes in other assets and liabilities.........................       1,880     (15,485)     34,733
                                                                    -----------------------------------
                                                                         39,171      22,297      53,336
Cash flows from discontinued operations............................          --          36       2,525
                                                                    -----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES..........................      39,171      22,333      55,861
                                                                    -----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in advances to and
 notes receivable from subsidiaries................................     (12,880)    (16,141)      8,756
Capital expenditures...............................................        (486)       (177)       (193)
Additional investments in subsidiaries.............................     (39,610)    (25,510)    (65,000)
Other..............................................................          (2)         --          50
                                                                    -----------------------------------
NET CASH USED IN INVESTING ACTIVITIES..............................     (52,978)    (41,828)    (56,387)
                                                                    -----------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in advances from
 subsidiaries with original maturities
 of three months or less...........................................      (2,293)      2,293        (185)
Repayment of other short-term borrowings...........................          --          --     (36,000)
Net increase in commercial paper...................................      32,643      12,750          --
Proceeds from issuance of long-term debt...........................      30,000      35,000      37,000
Repayment of long-term debt........................................     (16,000)    (26,000)    (22,500)
Net proceeds from issuance of common stock.........................      19,322      13,602      88,658
Common stock dividends.............................................     (49,415)    (47,676)    (42,012)
Other..............................................................          --      (2,634)      1,949
                                                                    -----------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................      14,257     (12,665)     26,910
                                                                    -----------------------------------
Net increase (decrease) in cash and  equivalents...................         450     (32,160)     26,384
Cash and equivalents, beginning of year............................         223      32,383       5,999
                                                                    -----------------------------------
CASH AND EQUIVALENTS, END OF YEAR..................................    $    673    $    223    $ 32,383
                                                                    ===================================
</TABLE>

Supplemental disclosures of noncash activities:
  In 1995 and 1994, $1.3 million and $16.9 million, respectively, of HEI
advances to HEIDI were converted to equity in a noncash transaction.
  Common stock dividends reinvested by stockholders in HEI common stock in
noncash transactions amounted to $20 million in 1995, $18 million in 1994 and
$17 million in 1993.

                                       58
<PAGE>
 
                      Hawaiian Electric Industries, Inc.
                      and Hawaiian Electric Company, Inc.
               SCHEDULE II  --  VALUATION AND QUALIFYING ACCOUNTS
                  Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
=================================================================================================================================== 
                                        Col. A            Col. B             Col. C             Col. D              Col. E
-----------------------------------------------------------------------------------------------------------------------------------
 
                                                                  Additions
                                                       --------------------------------
                                                        Charged to                                        
                                      Balance at         costs and                                                 Balance at 
                                     beginning of         other            Charged to                                end of
(in thousands)                          period           expenses           accounts           Deductions            period
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>               <C>                <C>                <C>                 <C> 
           1995
           ----
Allowance for uncollectible
   accounts
   Hawaiian Electric Company,
     Inc. and subsidiaries.......    $  1,136            $  2,492          $  1,266            $  3,793           $   1,101
   Other companies...............         280                 400                --                  38                 642
                                    ---------           ---------         ---------           ---------           ---------
                                     $  1,416            $  2,892          $  1,266(a)         $  3,831(b)        $   1,743
                                    =========           =========         =========           =========           =========
Allowance for uncollectible
   interest (ASB)................    $  1,101            $    172          $     --            $    --            $   1,273
                                    =========           =========         =========           =========           =========
Allowance for losses
   for loans receivable (ASB)....    $  8,793            $  4,887          $    392(a)         $  1,156(b)        $  12,916
                                    =========           =========         =========           =========           =========

           1994
           ----
Allowance for uncollectible
   accounts
   Hawaiian Electric Company,
     Inc. and subsidiaries.......    $  1,357            $  2,177          $    674            $  3,072           $   1,136
   Other companies...............         220                 130                 2                  72                 280
                                    ---------           ---------         ---------           ---------           ---------
                                     $  1,577            $  2,307          $    676(a)         $  3,144(b)        $   1,416
                                    =========           =========         =========           =========           =========
Allowance for uncollectible
   interest (ASB)................    $    341            $    760          $     --            $     --           $   1,101
                                    =========           =========         =========           =========           =========
Allowance for losses for 
   loans receivable (ASB)........    $  5,314            $  3,983          $     67(a)         $    571(b)        $   8,793
                                    =========           =========         =========           =========           =========

           1993
           ----
Allowance for uncollectible 
   accounts
   Hawaiian Electric Company, 
      Inc. and subsidiaries......    $  1,120            $  1,521          $    815             $  2,099           $   1,357
   Other companies...............         172                 155                 1                  108                 220
                                    ---------           ---------         ---------           ---------           ---------
                                     $  1,292            $  1,676          $    816(a)          $  2,207(b)        $   1,577
                                    =========           =========         =========           =========           =========
Allowance for uncollectible
   interest (ASB)................    $    482            $     --          $     --             $    141           $     341
                                    =========           =========         =========           =========           =========
Allowance for losses for
   loans receivable (ASB)........    $  5,157            $    779          $     36(a)          $    658(b)        $   5,314
                                    =========           =========         =========           =========           =========
</TABLE>
(a)  Primarily bad debts recovered.
(b)  Bad debts charged off.

                                       59
<PAGE>
 
                               INDEX TO EXHIBITS

The exhibits designated by an asterisk (*) are filed herein. The exhibits not so
designated are incorporated by reference to the indicated filing. A copy of any
exhibit may be obtained upon written request for a $0.20 per page charge from
the HEI Stock Transfer Division, P.O. Box 730, Honolulu, Hawaii 96808-0730.
<TABLE>
<CAPTION>
 
EXHIBIT NO.                             DESCRIPTION
-----------                             -----------
<C>            <S> 

HEI:
----

  3(i).1       HEI's Restated Articles of Incorporation (Exhibit 4(b) to
               Registration No. 33-7895).
 
  3(i).2       Articles of Amendment of HEI filed June 30, 1990 (Exhibit 4(b)
               to Registration No. 33-40813).
 
  3(ii)        HEI's By-Laws (Exhibit 4(c) to Registration No. 33-21761).
 
  4.1          Agreement to provide the SEC with instruments which define the
               rights of holders of certain long-term debt of HEI and its
               subsidiaries (Exhibit 4.1 to HEI's Annual Report on Form 10-K for
               the fiscal year ended December 31, 1992, File No. 1-8503).

  4.2          Indenture, dated as of October 15, 1988, between HEI and
               Citibank, N.A., as Trustee (Exhibit 4 to Registration No. 33-
               25216).

  4.3          First Supplemental Indenture dated as of June 1, 1993 between HEI
               and Citibank, N.A., as Trustee, to Indenture dated as of October
               15, 1988 between HEI and Citibank, N.A., as Trustee (Exhibit 4(a)
               to HEI's Quarterly Report on Form 10-Q for the quarter ended
               September 30, 1993, File No. 1-8503).


  4.4          Officers' Certificate dated as of November 9, 1988, pursuant to
               Sections 102 and 301 of the Indenture, dated as of October 15,
               1988, between HEI and Citibank, N.A., as Trustee, establishing
               Medium-Term Notes, Series A (Exhibit 4.2 to HEI's Annual Report
               on Form 10-K for the fiscal year ended December 31, 1988, File
               No. 1-8503).
               
  4.5          Pricing Supplements Nos. 1 through 11 to the Registration
               Statement on Form S-3 of HEI (Registration No. 33-25216) filed in
               connection with the sale of Medium-Term Notes, Series A (filed
               under Rule 424(b) in connection with Registration No. 33-25216).

  4.6          Pricing Supplements Nos. 1 through 9 to the Registration
               Statement on Form S-3 of HEI (Registration No. 33-58820) filed in
               connection with the sale of Medium-Term Notes, Series B (Exhibit
               4(b) to HEI's Quarterly Report on Form 10-Q for the quarter ended
               September 30, 1993, File No. 1-8503).
 
  4.7          Pricing Supplement No. 10 to Registration Statement on Form S-3
               of HEI (Registration No. 33-58820) filed in connection with the
               sale of Medium-Term Notes, Series B (Exhibit 4.7 to HEI's Annual
               Report on Form 10-K for the fiscal year ended December 31, 1994,
               File No. 1-8503).
               
 *4.8          Pricing Supplement No. 11 to Registration Statement on Form S-3
               of HEI (Registration No. 33-58820) filed on December 1, 1995 in
               connection with the sale of Medium-Term Notes, Series B.
 
 *4.9          Pricing Supplement No. 12 to Registration Statement on Form S-3
               of HEI (Registration No. 33-58820) filed on February 12, 1996 in
               connection with the sale of Medium-Term Notes, Series B.
</TABLE> 

                                       60
<PAGE>
 
<TABLE> 
<CAPTION> 

EXHIBIT NO.                             DESCRIPTION
-----------                             -----------
<C>            <S> 

  4.10         Purchase Agreement dated March 7, 1991 among HEI and the
               Purchasers named therein, together with the Notes issued to such
               Purchasers, each dated March 7, 1991, pursuant to the Purchase
               Agreement (Exhibit 4.5 to HEI's Annual Report on Form 10-K for
               the fiscal year ended December 31, 1990, File No. 1-8503).

  4.11         Composite conformed copy of the Note Purchase Agreement dated as
               of December 16, 1991 among HEI and the Purchasers named therein
               (Exhibit 4.6 to HEI's Annual Report on Form 10-K for the fiscal
               year ended December 31, 1991, File No. 1-8503).
               
 10.1          PUC Order Nos. 7070, 7153, 7203 and 7256 in Docket No. 4337,
               including copy of "Conditions for the Merger and Corporate
               Restructuring of Hawaiian Electric Company, Inc." dated September
               23, 1982 (Exhibit 10 to Amendment No. 1 to Form U-1).

 10.2          Regulatory Capital Maintenance/Dividend Agreement dated May 26,
               1988, between HEI, HEIDI and the Federal Savings and Loan
               Insurance Corporation (by the Federal Home Loan Bank of Seattle)
               (Exhibit (28)-2 to HEI's Current Report on Form 8-K dated May 26,
               1988, File No. 1-8503).
               
 10.2(a)       OTS letter regarding release from Part II.B. of the Regulatory
               Capital Maintenance/Dividend Agreement dated May 26, 1988
               (Exhibit 10.3(a) to HEI's Annual Report on Form 10-K for the
               fiscal year ended December 31, 1992, File No. 1-8503).
               
 10.3          Executive Incentive Compensation Plan (Exhibit 10(a) to HEI's
               Annual Report on Form 10-K for the fiscal year ended December 31,
               1987, File No. 1-8503).
               
 10.4          HEI Executive's Deferred Compensation Plan (Exhibit 10.5 to HEI's
               Annual Report on Form 10-K for the fiscal year ended December 31,
               1990, File No. 1-8503).
 
 10.5          Retirement Benefit Agreement--Andrew T. F. Ing and HEI (Exhibit
               10(b) to HEI's Annual Report on Form 10-K for the fiscal year
               ended December 31, 1987, File No. 1-8503).
               
 10.6          1987 Stock Option and Incentive Plan of HEI as amended and
               restated effective April 21, 1992 (Exhibit A to Proxy Statement
               of HEI, dated March 6, 1992, for the Annual Meeting of
               Stockholders, File No. 1-8503).
               
 10.7          HEI Long-Term Incentive Plan (Exhibit 10.11 to HEI's Annual
               Report on Form 10-K for the fiscal year ended December 31, 1988,
               File No. 1-8503).
               
 10.8          HEI Supplemental Executive Retirement Plan effective January 1,
               1990 (Exhibit 10.9 to HEI's Annual Report on Form 10-K for the
               fiscal year ended December 31, 1990, File No. 1-8503).
               
 10.9          HEI Excess Benefit Plan (Exhibit 10.13 (Exhibit A) to HEI's
               Annual Report on Form 10-K for the fiscal year ended December 31,
               1989, File No. 1-8503).
               
 10.10         Change-in-Control Agreement (Exhibit 10.14 to HEI's Annual Report
               on Form 10-K for the fiscal year ended December 31, 1989, File
               No. 1-8503).
               
 10.11         Nonemployee Director Retirement Plan, effective as of October 1,
               1989 (Exhibit 10.15 to HEI's Annual Report on Form 10-K for the
               fiscal year ended December 31, 1989, File No. 1-8503).
               
</TABLE> 
                                       61
<PAGE>
 
<TABLE> 
<CAPTION> 

EXHIBIT NO.                             DESCRIPTION
-----------                             -----------
<C>            <S> 

 10.12         HEI 1990 Nonemployee Director Stock Plan (Exhibit 10(a) to HEI's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1990, File No. 1-8503).
               
 10.13         HEI Nonemployee Directors' Deferred Compensation Plan (Exhibit
               10.14 to HEI's Annual Report on Form 10-K for the fiscal year
               ended December 31, 1990, File No. 1-8503).
               
 10.14         HEI and HECO Executives' Deferred Compensation Agreement. The
               agreement pertains to and is substantially identical for all the
               HEI and HECO executive officers (Exhibit 10.15 to HEI's Annual
               Report on Form 10-K for the fiscal year ended December 31, 1991,
               File No. 1-8503).
               
 10.15         Settlement Agreement and General Release made and entered into on
               February 10, 1994, by and between the Insurance Commissioner as
               Rehabilitator/Liquidator, HIG and its subsidiaries, the Hawaii
               Insurance Guaranty Association, HEI, HEIDI and others. (Exhibit
               10.20 to HEI's Annual Report on Form 10-K for the fiscal year
               ended December 31, 1993, File No. 1-8503).
               
*11            Computation of Earnings per Share of Common Stock. Filed herein
               as page 67.
               
*12            Computation of Ratio of Earnings to Fixed Charges. Filed herein
               as pages 68 and 69.
               
 13            Pages 25 to 62 of HEI's 1995 Annual Report to Stockholders (with
               the exception of the data incorporated by reference in Part I,
               Part II, Part III and Part IV, no other data appearing in the
               1995 Annual Report to Stockholders is to be deemed filed as part
               of this Form 10-K Annual Report) (Exhibit 13 to HEI's Current
               Report on Form 8-K dated February 21, 1996, File No. 1-8503).
               
*21            Subsidiaries of HEI. Filed herein as page 71.
 
*23            Consent of Independent Auditors. Filed herein as page 73.
                                                    
*27.1          HEI and subsidiaries financial data schedule, December 31, 1995
               and year ended December 31, 1995.
               
HECO:
-----

  3(i).1       HECO's Certificate of Amendment of Articles of Incorporation
               (filed June 30, 1987) (Exhibit 3.1 to HECO's Annual Report on
               Form 10-K for the fiscal year ended December 31, 1988, File No.
               1-4955).
               
  3(i).2       Statement of Issuance of Shares of Preferred or Special Classes
               in Series for HECO Series R Preferred Stock filed December 15,
               1989 (Exhibit 3.1(a) to HECO's Annual Report on Form 10-K for the
               fiscal year ended December 31, 1989, File No. 1-4955).
               
  3(i).3       Articles of Amendment to HECO's Amended Articles of Incorporation
               filed December 21, 1989 (Exhibit 3.1(b) to HECO's Annual Report
               on Form 10-K for the fiscal year ended December 31, 1989, File No
               1-4955).
         
  3(ii)        HECO's By-Laws (Exhibit 3.2 to HECO's Annual Report on Form 10-K
               for the fiscal year ended December 31, 1988, File No. 1-4955).
               
  4.1          Agreement to provide the SEC with instruments which define the
               rights of holders of certain long-term debt of HECO, HELCO and
               MECO (Exhibit 4 to HECO's Annual Report on Form 10-K for the
               fiscal year ended December 31, 1988, File No. 1-4955).
               
  4.2          Indenture dated as of December 1, 1993 between HECO and The Bank
               of New York, as Trustee (Exhibit 4(a) to Registration No. 33-
               51025).
               
</TABLE> 

                                       62
<PAGE>
 
<TABLE> 
<CAPTION> 

EXHIBIT NO.                             DESCRIPTION
-----------                             -----------
<C>            <S> 

  4.3          Indenture dated as of December 1, 1993 among MECO, HECO, as
               guarantor, and The Bank of New York, as Trustee (Exhibit 4(b) to
               Registration No. 33-51025).
               
  4.4          Indenture dated as of December 1, 1993 among HELCO, HECO, as
               guarantor, and The Bank of New York, as Trustee (Exhibit 4(c) to
               Registration No. 33-51025).
               
  4.5          Officers' Certificate dated as of December 22, 1993, pursuant to
               Sections 102 and 301 of the Indenture dated as of December 1,
               1993 between HECO and The Bank of New York, as Trustee,
               establishing the $20,000,000 Notes, 5.15% Series Due 1996
               (Exhibit 4.5 to HECO's Annual Report on Form 10-K for the fiscal
               year ended December 31, 1993, File No. 1-4955)
               
  4.6          Officers' Certificate dated as of December 22, 1993, pursuant to
               Sections 102 and 301 of the Indenture dated as of December 1,
               1993 between HECO and The Bank of New York, as Trustee,
               establishing the $30,000,000 Notes, 5.83% Series Due 1998
               (Exhibit 4.6 to HECO's Annual Report on Form 10-K for the fiscal
               year ended December 31, 1993, File No. 1-4955).
               
  4.7          Officers' Certificate dated as of December 22, 1993, pursuant to
               Sections 102 and 301 of the Indenture dated as of December 1,
               1993 among MECO, HECO, as guarantor, and The Bank of New York, as
               Trustee, establishing the $10,000,000 Notes, 5.15% Series Due
               1996 (Exhibit 4.7 to HECO's Annual Report on Form 10-K for the
               fiscal year ended December 31, 1993, File No. 1-4955).
               
  4.8          Officers' Certificate dated as of December 22, 1993, pursuant to
               Sections 102 and 301 of the Indenture dated as of December 1,
               1993 among HELCO, HECO, as guarantor, and The Bank of New York,
               as Trustee, establishing the $10,000,000 Notes, 4.85% Series Due
               1995 (Exhibit 4.8 to HECO's Annual Report on Form 10-K for the
               fiscal year ended December 31, 1993, File No. 1-4955).
               
 10.1          Power Purchase Agreement between Kalaeloa Partners, L.P., and
               HECO dated October 14, 1988 (Exhibit 10(a) to HECO's Quarterly
               Report on Form 10-Q for the quarter ended September 30, 1988,
               File No. 1-4955).
               
 10.1(a)       Amendment No. 1 to Power Purchase Agreement between HECO and
               Kalaeloa Partners, L.P., dated June 15, 1989 (Exhibit 10(c) to
               HECO's Quarterly Report on Form 10-Q for the quarter ended June
               30, 1989, File No. 1-4955).
               
 10.1(b)       Lease Agreement between Kalaeloa Partners, L.P., as Lessor, and
               HECO, as Lessee, dated February 27, 1989 (Exhibit 10(d) to HECO's
               Quarterly Report on Form 10-Q for the quarter ended June 30,
               1989, File No. 1-4955).
               
 10.1(c)       Restated and Amended Amendment No. 2 to Power Purchase Agreement
               between HECO and Kalaeloa Partners, L.P., dated February 9, 1990
               (Exhibit 10.2(c) to HECO's Annual Report on Form 10-K for the
               fiscal year ended December 31, 1989, File No. 1-4955).
 
 10.1(d)       Agreement to Extend the "Cancellation Window" in the Kalaeloa
               Power Purchase Agreement dated June 21, 1990 (Exhibit 10(e) to
               HECO's Quarterly Report on Form 10-Q for the quarter ended June
               30, 1990, File No. 1-4955).
               
 10.1(e)       Amendment No. 3 to Power Purchase Agreement between HECO and
               Kalaeloa Partners, L.P., dated December 10, 1991 (Exhibit 10.2(e)
               to HECO's Annual Report on Form 10-K for the fiscal year ended
               December 31, 1991, File No. 1-4955).

</TABLE> 

                                       63
<PAGE>
 
<TABLE> 
<CAPTION> 

EXHIBIT NO.                             DESCRIPTION
-----------                             -----------         
<C>            <S> 

 10.2          Purchase Power Agreement between AES Barbers Point, Inc. and
               HECO, entered into on March 25, 1988 (Exhibit 10(a) to HECO's
               Quarterly Report on Form 10-Q for the quarter ended March 31,
               1988, File No. 1-4955).
               
 10.2(a)       Agreement between HECO and AES Barbers Point, Inc., pursuant to
               letters dated May 10, 1988 and April 20, 1988 (Exhibit 10.4 to
               HECO's Annual Report on Form 10-K for fiscal year ended December
               31, 1988, File No. 1-4955).
               
 10.2(b)       Amendment No. 1 to the Purchase Power Agreement between AES
               Barbers Point, Inc. and HECO (Exhibit 10 to HECO's Quarterly
               Report on Form 10-Q for the quarter ended September 30, 1989,
               File No. 1-4955).
               
 10.2(c)       HECO's Conditional Notice of Acceptance to AES Barbers Point,
               Inc. dated January 15, 1990 (Exhibit 10.3(c) to HECO's Annual
               Report on Form 10-K for the fiscal year ended December 31, 1989,
               File No. 1-4955).
               
 10.3          Amended and Restated Power Purchase Agreement between Hilo Coast
               Processing Company and HELCO dated March 24, 1995 (Exhibit 10 to
               HECO's Quarterly Report on Form 10-Q for the quarter ended March
               31, 1995, File No. 1-4955).
               
 10.4          Agreement between MECO and Hawaiian Commercial & Sugar Company
               pursuant to letters dated November 29, 1988 and November 1, 1988
               (Exhibit 10.8 to HECO's Annual Report on Form 10-K for the fiscal
               year ended December 31, 1988, File No. 1-4955).
               
 10.4(a)       Amended and Restated Power Purchase Agreement by and between A&B-
               Hawaii, Inc., through its division, Hawaiian Commercial & Sugar
               Company, and MECO, dated November 30, 1989 (Exhibit 10(e) to
               HECO's Quarterly Report on Form 10-Q for the quarter ended
               September 30, 1990, File No. 1-4955).
               
 10.4(b)       First Amendment to Amended and Restated Power Purchase Agreement
               by and between A&B-Hawaii, Inc., through its division, Hawaiian
               Commercial & Sugar Company, and MECO, dated November 1, 1990,
               amending the Amended and Restated Power Purchase Agreement dated
               November 30, 1989 (Exhibit 10(f) to HECO's Quarterly Report on
               Form 10-Q for the quarter ended September 30, 1990, File No. 1-
               4955).
               
 10.5          Purchase Power Contract between HELCO and Thermal Power Company,
               dated March 24, 1986 (Exhibit 10(a) to HECO's Quarterly Report on
               Form 10-Q for the quarter ended June 30, 1989, File No. 1-4955).
               
 10.5(a)       Firm Capacity Amendment between HELCO and Puna Geothermal Venture
               (assignee of AMOR VIII, who is the assignee of Thermal Power
               Company), dated July 28, 1989, amending Purchase Power Contract
               between HELCO and Thermal Power Company, dated March 24, 1986
               (Exhibit 10(b) to HECO's Quarterly Report on Form 10-Q for the
               quarter ended June 30, 1989, File No. 1-4955).
               
*10.5(b)       Performance Agreement and Fourth Amendment, dated February 12,
               1996, to the Purchase Power Contract dated March 24, 1986 as
               Amended between HELCO and Puna Geothermal Venture.
               
 10.6          Purchase Power Contract between HECO and the City and County of
               Honolulu dated March 10, 1986 (Exhibit 10.9 to HECO's Annual
               Report on Form 10-K for the fiscal year ended December 31, 1989,
               File No. 1-4955).

</TABLE> 

                                       64
<PAGE>
 
<TABLE> 
<CAPTION> 

EXHIBIT NO.                             DESCRIPTION
-----------                             -----------
<C>            <S> 

 10.6(a)       Firm Capacity Amendment, dated April 8, 1991, to Purchase Power
               Contract, dated March 10, 1986, by and between HECO and the City
               & County of Honolulu (Exhibit 10 to HECO's Quarterly Report on
               Form 10-Q for the quarter ended March 31, 1991, File No. 1-4955).
               
 10.7          Purchase Power Contract between MECO and Zond Pacific, Inc.,
               dated May 24, 1991 (Exhibit 10 to HECO's Quarterly Report on Form
               10-Q for the quarter ended June 30, 1991, File No. 1-4955).
               
*10.8          Low Sulfur Fuel Oil Supply Contract by and between CUSA and HECO
               dated as of November 20, 1995.

*10.9          Inter-Island Industrial Fuel Oil and Diesel Fuel Contract by and
               between CUSA and HECO, MECO, HELCO, HTB and YB dated as of
               November 20, 1995.
               
*10.10         Facilities and Operating Contract by and between CUSA and HECO
               dated as of November 20, 1995.
               
*10.11         Low Sulfur Fuel Oil Supply Contract between BHP and HECO dated
               December 5, 1995.
               
*10.12         Inter-Island Industrial Fuel Oil and Diesel Fuel Oil Contract by
               and between BHP and HECO, MECO and HELCO dated December 5, 1995.
               
 10.13         Low Sulfur Fuel Oil Sale/Purchase Contract between HECO and C.
               Itoh & Co. (America), Inc. dated June 7, 1990 (Exhibit 10(c) to
               HECO's Quarterly Report on Form 10-Q for the quarter ended June
               30, 1990, File No. 1-4955).
               
 10.14         Contract of private carriage by and between HITI and HELCO dated
               November 10, 1993 (Exhibit 10.13 to HECO's Annual Report on Form
               10-K for the fiscal year ended December 31, 1993, File No. 1-
               4955).
               
*10.14(a)      Extension, dated December 18, 1995, of the contract of private
               carriage by and between HITI and HELCO dated November 10, 1993.
               
 10.15         Contract of private carriage by and between HITI and MECO dated
               November 12, 1993 (Exhibit 10.14 to HECO's Annual Report on Form
               10-K for the fiscal year ended December 1, 1993, File No. 1-
               4955).
               
*10.15(a)      Extension, dated December 18, 1995, of the contract of private
               carriage by and between HITI and MECO dated November 12, 1993.
               
 10.16         HECO Nonemployee Directors' Deferred Compensation Plan (Exhibit
               10.16 to HECO's Annual Report on Form 10-K for the fiscal year
               ended December 31, 1990, File No. 1-4955).
               
 10.17         HEI and HECO Executives' Deferred Compensation Agreement. The
               agreement pertains to and is substantially identical for all the
               HEI and HECO executive officers (Exhibit 10.15 to HEI's Annual
               Report on Form 10-K for the fiscal year ended December 31, 1991,
               File No. 1-8503).
               
 *11           Computation of Earnings Per Share of Common Stock. See note on
               page 2 of HECO's 1995 Annual Report to Stockholder attached as
               HECO Exhibit 13 hereto.
               
 *12           Computation of Ratio of Earnings to Fixed Charges. Filed herein
               as page 70.
 </TABLE>
                                       65
<PAGE>
 
<TABLE> 
<CAPTION> 

EXHIBIT NO.                             DESCRIPTION
-----------                             -----------
<C>            <S> 

 *13           Pages 2 to 31 and 33 of HECO's 1995 Annual Report to Stockholder
               (with the exception of the data incorporated by reference in Part
               I, Part II, Part III and Part IV, no other data appearing in the
               1995 Annual Report to Stockholder is to be deemed filed as part
               of this Form 10-K Annual Report).
               
 *21           Subsidiaries of HECO. Filed herein as page 72.
 
 *27.2         HECO and subsidiaries financial data schedule, December 31, 1995
               and year ended December 31, 1995.
               
 *99           Reconciliation of electric utility operating income per HEI and
               HECO Consolidated Statements of Income. Filed herein as page 74.

</TABLE>

                                       66
<PAGE>
 
                                                                  HEI Exhibit 11


                       Hawaiian Electric Industries, Inc.
                       COMPUTATION OF EARNINGS PER SHARE
                                OF COMMON STOCK
            Years ended December 31, 1995, 1994, 1993, 1992 and 1991

<TABLE>
<CAPTION>


(in thousands,
except per share amounts)                  1995       1994       1993        1992       1991
----------------------------------------------------------------------------------------------
<S>                                        <C>        <C>        <C>         <C>        <C>
NET INCOME (LOSS)

Continuing operations..................  $77,493    $73,030    $ 61,684    $ 61,715    $55,620
Discontinued operations................      --         --      (13,025)    (73,297)      (794)
                                         -------    -------    --------    --------    -------

                                         $77,493    $73,030    $ 48,659    $(11,582)   $54,826
                                         =======    =======    ========    ========    =======

WEIGHTED AVERAGE NUMBER OF COMMON
 SHARES OUTSTANDING....................   29,187     28,137      25,938      24,275     22,882
                                         =======    =======    ========    ========    =======

EARNINGS (LOSS) PER COMMON SHARE

Continuing operations..................  $  2.66    $  2.60    $   2.38    $   2.54    $  2.43
Discontinued operations................      --         --        (0.50)      (3.02)     (0.03)
                                         -------    -------    --------    --------    -------

                                         $  2.66    $  2.60    $   1.88    $  (0.48)   $  2.40
                                         =======    =======    ========    ========    =======
</TABLE>
Note: The dilutive effect of stock options is not material.

                                       67
<PAGE>
 
                                                    HEI Exhibit 12 (page 1 of 2)


                       Hawaiian Electric Industries, Inc.
               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
            Years ended December 31, 1995, 1994, 1993, 1992 and 1991


<TABLE>
<CAPTION>
 
 
                                                   1995                     1994                   1993
                                        ------------------------   --------------------    -------------------
     (dollars in thousands)                   (1)         (2)         (1)         (2)         (1)        (2)
     ---------------------------------------------------------------------------------------------------------
     <S>                                   <C>         <C>         <C>         <C>         <C>         <C>
     FIXED CHARGES
     Total interest charges
      The Company (3).................     $117,494    $206,790    $ 82,306    $158,815    $ 68,254    $145,905
       Proportionate share of
        fifty-percent-owned persons...          867         867         539         539         564         564
     Interest component of rentals....        3,857       3,857       3,819       3,819       3,944       3,944
     Pretax preferred stock dividend
      requirements of subsidiaries....       11,433      11,433      11,899      11,899      11,018      11,018
                                           --------    --------    --------    --------    --------    --------
 
     TOTAL FIXED CHARGES..............     $133,651    $222,947    $ 98,563    $175,072    $ 83,780    $161,431
                                           ========    ========    ========    ========    ========    ========

     EARNINGS
     Pretax income from continuing
      operations......................     $133,233    $133,233    $126,049    $126,049    $108,770    $108,770
     Fixed charges, as shown..........      133,651     222,947      98,563     175,072      83,780     161,431
     Interest capitalized
      The Company.....................       (6,337)     (6,337)     (4,924)     (4,924)     (3,881)     (3,881)
      Proportionate share of
       fifty-percent-owned persons....         (867)       (867)       (539)       (539)       (408)       (408)
                                           --------    --------    --------    --------    --------    --------
 
     EARNINGS AVAILABLE FOR FIXED
      CHARGES.........................     $259,680    $348,976    $219,149    $295,658    $188,261    $265,912
                                           ========    ========    ========    ========    ========    ========
 
     RATIO OF EARNINGS TO FIXED CHARGES        1.94        1.57        2.22        1.69        2.25        1.65
                                           ========    ========    ========    ========    ========    ========
</TABLE>

(1) Excluding interest on ASB deposits.

(2) Including interest on ASB deposits.

(3) Total interest charges exclude interest on nonrecourse debt from leveraged
    leases which is not included in interest expense in HEI's consolidated
    statements of income.

                                       68
<PAGE>
 
                                                    HEI Exhibit 12 (page 2 of 2)


                       Hawaiian Electric Industries, Inc.
               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
      Years ended December 31, 1995, 1994, 1993, 1992 and 1991--Continued

<TABLE>
<CAPTION>
                                                   1992                      1991
                                           --------------------    ------------------------
     (dollars in thousands)                  (1)         (2)         (1)             (2)
     --------------------------------------------------------------------------------------
     <S>                                   <C>         <C>         <C>             <C> 
     FIXED CHARGES
     Total interest charges
      The Company (3)...................   $ 67,559    $161,756    $ 69,957        $168,691
       Proportionate share of
        fifty-percent-owned persons.....      1,051       1,051       1,875           1,875
     Interest component of rentals......      3,254       3,254       2,231           2,231
     Pretax preferred stock dividend
      requirements of subsidiaries......      9,606       9,606      10,449          10,449
                                           --------    --------    --------        --------

     TOTAL FIXED CHARGES................   $ 81,470    $175,667    $ 84,512        $183,246
                                           ========    ========    ========        ========
 
     EARNINGS
     Pretax income from continuing
      operations........................   $ 91,244    $ 91,244    $ 87,953        $ 87,953
     Undistributed earnings from less
      than fifty-percent-owned persons..       (244)       (244)       (278)           (278)
     Fixed charges, as shown............     81,470     175,667      84,512         183,246
     Interest capitalized
      The Company.......................     (2,104)     (2,104)     (1,945)         (1,945)
      Proportionate share of
       fifty-percent-owned persons......       (803)       (803)     (1,875)         (1,875)
                                           --------    --------    --------        --------
 
     EARNINGS AVAILABLE FOR FIXED 
      CHARGES...........................   $169,563    $263,760    $168,367        $267,101
                                           ========    ========    ========        ========
 
     RATIO OF EARNINGS TO FIXED CHARGES.       2.08        1.50        1.99            1.46
                                           ========    ========    ========        ========
</TABLE>

(1) Excluding interest on ASB deposits.

(2) Including interest on ASB deposits.

(3) Total interest charges exclude interest on nonrecourse debt from leveraged
    leases which is not included in interest expense in HEI's consolidated
    statements of income.

                                       69
<PAGE>
 
                                                                 HECO Exhibit 12


                        Hawaiian Electric Company, Inc.
               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
            Years ended December 31, 1995, 1994, 1993, 1992 and 1991

<TABLE>
<CAPTION>
         (dollars in thousands)              1995        1994        1993        1992        1991
---------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>         <C>         <C>
FIXED CHARGES
Total interest charges.................    $ 44,377    $ 37,340    $ 35,287    $ 33,011    $ 33,248
Interest component of rentals..........         672         808         970       1,070       1,130
Pretax preferred stock dividend
  requirements of subsidiaries.........       4,494       4,651       3,425       3,117       3,409
                                        -----------------------------------------------------------
 
TOTAL FIXED CHARGES....................    $ 49,543    $ 42,799    $ 39,682    $ 37,198    $ 37,787
                                        ===========================================================
 
EARNINGS
Income before preferred stock
  dividends of HECO....................    $ 77,023    $ 65,961    $ 56,126    $ 53,678    $ 46,210
Fixed charges, as shown................      49,543      42,799      39,682      37,198      37,787
Income taxes (see note below)..........      50,198      43,588      36,897      23,843      23,816
Allowance for borrowed funds used
  during construction..................      (5,112)     (4,043)     (3,869)     (2,095)     (1,307)
                                        -----------------------------------------------------------
 
EARNINGS AVAILABLE FOR FIXED CHARGES...    $171,652    $148,305    $128,836    $112,624    $106,506
                                        ===========================================================
 
RATIO OF EARNINGS TO FIXED CHARGES.....        3.46        3.47        3.25        3.03        2.82
                                        ===========================================================
 
NOTE:
Income taxes is comprised of the
 following
   Income tax expense relating to
     operating income for regulatory
     purposes..........................    $ 50,719    $ 43,820    $ 37,007    $ 26,254    $ 24,137
   Income tax benefit relating to
     nonoperating loss.................        (521)       (232)       (110)     (2,411)       (321)
                                        -----------------------------------------------------------
 
                                           $ 50,198    $ 43,588    $ 36,897    $ 23,843    $ 23,816
                                        ===========================================================
 
</TABLE>

                                       70
<PAGE>
 
                                                                  HEI Exhibit 21


                       Hawaiian Electric Industries, Inc.
                         SUBSIDIARIES OF THE REGISTRANT



The following is a list of all subsidiary corporations of the registrant as of
March 19, 1996:

<TABLE>
<CAPTION>


            Name                                     Place of incorporation
--------------------------------------------------------------------------------
<S>                                                  <C>

Hawaiian Electric Company,
 Inc., including subsidiaries Maui Electric
 Company, Limited and Hawaii Electric
 Light Company, Inc. .........................          State of Hawaii

HEI Investment Corp. .........................          State of Hawaii

Lalamilo Ventures, Inc. ......................          State of Hawaii

Malama Pacific Corp., including subsidiaries
 Malama Waterfront Corp., Malama Property
 Investment Corp., Malama Development
 Corp., Malama Realty Corp., Malama Elua
 Corp., TMG Service Corp., Malama Hoaloha
 Corp., Malama Mohala Corp. and Baldwin*Malama
 (a limited partnership in which Malama
 Development Corp. is the sole general
 partner).....................................          State of Hawaii

Hawaiian Tug & Barge
 Corp., including subsidiary Young Brothers,
 Limited......................................          State of Hawaii

HEI Diversified, Inc.,
 including subsidiary American Savings Bank,
 F.S.B. and its subsidiaries, American             State of Hawaii (except
 Savings Investment Services Corp., ASB             American Savings Bank,
 Service Corporation, AdCommunications, Inc.      F.S.B., which is federally
 and Associated Mortgage, Inc. ...............           chartered)

Pacific Energy Conservation Services, Inc. ...          State of Hawaii

HEI Power Corp. ..............................          State of Hawaii
</TABLE>

                                       71
<PAGE>
 
                                                                 HECO Exhibit 21


                        Hawaiian Electric Company, Inc.
                         SUBSIDIARIES OF THE REGISTRANT



The following is a list of all subsidiary corporations of the registrant as of
March 19, 1996:

<TABLE>
<CAPTION>
 
            Name                                     Place of incorporation
--------------------------------------------------------------------------------
<S>                                                  <C> 
Maui Electric Company, Limited................          State of Hawaii
 
Hawaii Electric Light Company, Inc. ..........          State of Hawaii
 
 
</TABLE>

                                       72
<PAGE>
 
[KPMG Peat Marwick letterhead]
                                                                  HEI Exhibit 23



The Board of Directors
Hawaiian Electric Industries, Inc.:

We consent to incorporation by reference in Registration Statement Nos. 33-56561
and 33-58820 on Form S-3 and in Registration Statement Nos. 33-65234 and 33-
52911 on Form S-8 of Hawaiian Electric Industries, Inc. of our report dated
January 25, 1996, relating to the consolidated balance sheets of Hawaiian
Electric Industries, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, retained earnings and cash flows
for each of the years in the three-year period ended December 31, 1995, which
report is incorporated by reference in the 1995 annual report on Form 10-K of
Hawaiian Electric Industries, Inc. We also consent to incorporation by reference
of our report dated January 25, 1996 relating to the financial statement
schedules of Hawaiian Electric Industries, Inc. in the aforementioned 1995
annual report on Form 10-K, which report is included in said Form 10-K.



/s/ KPMG Peat Marwick LLP

Honolulu, Hawaii
March 19, 1996

                                       73
<PAGE>
 
                                                                 HECO Exhibit 99

                        Hawaiian Electric Company, Inc.
                  RECONCILIATION OF ELECTRIC UTILITY OPERATING
                      INCOME PER HEI AND HECO CONSOLIDATED
                              STATEMENTS OF INCOME


                                               Years ended December 31,
                                        -----------------------------------
(in thousands)                               1995        1994        1993
---------------------------------------------------------------------------


[S]                                        [C]         [C]         [C]
Operating income from regulated
 and nonregulated activities
 before income taxes (per HEI              
 Consolidated Statements of Income)....    $159,043    $136,628    $119,565




Deduct:
 Income taxes on regulated activities..     (50,719)    (43,820)    (37,007)
 Revenues from nonregulated activities.      (6,732)     (6,411)     (5,100)


Add:
 Expenses from nonregulated activities.       1,130         915         627
                                        -----------------------------------

Operating income from regulated
 activities after income taxes
 (per HECO Consolidated Statements
 of Income)............................    $102,722    $ 87,312    $ 78,085
                                        ===================================

                                       74
<PAGE>
 
                                   SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrants have duly caused this report to be signed on their
behalf by the undersigned, thereunto duly authorized. The signatures of the
undersigned companies shall be deemed to relate only to matters having reference
to such companies and any subsidiaries thereof.

 
HAWAIIAN ELECTRIC INDUSTRIES, INC.               HAWAIIAN ELECTRIC COMPANY, INC.
                      (Registrant)                                  (Registrant)
 
 
By  /s/ Robert F. Mougeot                         By  /s/ Paul Oyer
   ----------------------                           ---------------------
    Robert F. Mougeot                                 Paul A. Oyer
    Financial Vice President and                      Financial Vice President,
     Chief Financial Officer of HEI                   Treasurer and Director
    (Principal Financial Officer of HEI)              of HECO (Principal 
                                                      Financial Officer of HECO)

Date:  March 19, 1996                             Date:  March 19, 1996
 

     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
registrants and in the capacities indicated on March 19, 1996. The signature of
each of the undersigned shall be deemed to relate only to matters having
reference to the above-named companies and any subsidiaries thereof.

 SIGNATURE                 TITLE
------------------------   --------------------------------------------
 
/s/ Robert F. Clarke       President and Director of HEI
------------------------   Chairman of the Board of Directors of HECO 
Robert F. Clarke           (Chief Executive Officer of HEI)            
                           
 
 
/s/ T. Michael May         Director of HEI
------------------------   President and Director of HECO   
T. Michael May             (Chief Executive Officer of HECO) 
                           
 
 
/s/ Robert F. Mougeot      Financial Vice President and
------------------------     Chief Financial Officer of HEI 
Robert F. Mougeot          (Principal Financial Officer of HEI)
 
 
/s/ Curtis Y. Harada       Controller of HEI
------------------------   (Principal Accounting Officer of HEI) 
Curtis Y. Harada           
 
 
/s/ Paul Oyer              Financial Vice President, Treasurer and
------------------------     Director of HECO                     
Paul A. Oyer               (Principal Financial Officer of HECO) 
                           

                                       75
<PAGE>
 
                             SIGNATURES (CONTINUED)
 
  SIGNATURE                TITLE
------------------------   -----------------------------------------
 
 
/s/ Ernest T. Shiraki      Controller of HECO
------------------------   (Principal Accounting Officer of HECO)
Ernest T. Shiraki          
 
 
/s/ Don E. Carroll         Director of HEI
------------------------
Don E. Carroll
 
 
/s/ Edwin L. Carter        Director of HEI and HECO
------------------------
Edwin L. Carter
 
 
/s/ John D. Field          Director of HEI
------------------------
John D. Field
 
 
/s/ Richard Henderson      Director of HEI and HECO
------------------------
Richard Henderson
 
 
/s/ Mildred D. Kosaki      Director of HECO
------------------------
Mildred D. Kosaki
 
 
                           Director of HEI
------------------------
Victor Hao Li
 
 
/s/ Bill D. Mills          Director of HEI
------------------------
Bill D. Mills
 
 
                           Director of HEI
------------------------
A. Maurice Myers
 
 
/s/ Ruth M. Ono            Director of HEI
------------------------
Ruth M. Ono

                                       76
<PAGE>
 
                             SIGNATURES (CONTINUED)
                             ----------------------
 
 
 SIGNATURE                   TITLE
--------------------------   -----------------------------
 
 
/s/ Diane J. Plotts          Director of HEI and HECO
--------------------------
Diane J. Plotts
 
 
/s/ James K. Scott           Director of HEI
--------------------------
James K. Scott
 
 
                             Director of HEI
--------------------------
Oswald K. Stender
 
 
/s/ Kelvin H. Taketa         Director of HEI
--------------------------
Kelvin H. Taketa
 
 
/s/ Jeffrey N. Watanabe      Director of HEI
--------------------------
Jeffrey N. Watanabe
 
 
/s/ Paul C. Yuen             Director of HECO
--------------------------
Paul C. Yuen

                                       77