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 (Fee Required)

                   For the fiscal year ended December 31, 1996

                                       or
   /   /        Transition Report Pursuant to Section 13 or 15(d)
             of the Securities Exchange Act of 1934 (No Fee Required)
                          Commission File No. 33-3353C

                           PARKER & PARSLEY 86-C, LTD.
             (Exact name of Registrant as specified in its charter)

               Texas                                          75-2142283
    (State or other jurisdiction of                        (I.R.S. Employer
    incorporation or organization)                      Identification Number)

303 West Wall, Suite 101, Midland, Texas                         79701
(Address of principal executive offices)                       (Zip code)

       Registrant's Telephone Number, including area code : (915) 683-4768
        Securities registered pursuant to Section 12(b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act:
                 Limited partnership interests ($1,000 per unit)

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 /

No  market  currently  exists  for  the  limited  partnership  interests  of the
Registrant.  Based on original  purchase  price the  aggregate  market  value of
limited  partnership  interests  owned by  non-affiliates  of the  Registrant is
$19,257,000.

As of March 8, 1997, the number of outstanding limited partnership interests was
19,317. The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: None

                               Page 1 of 30 pages.
                           -Exhibit index on page 30-


<PAGE>




Parts I and II of this Report contain  forward  looking  statements that involve
risks and uncertainties. Accordingly, no assurances can be given that the actual
events and results will not be materially different than the anticipated results
described  in the  forward  looking  statements.  See "Item 1.  Business"  for a
description of various factors that could  materially  affect the ability of the
Partnership to achieve the anticipated  results described in the forward looking
statements.

                                     PART I

ITEM 1.     Business

Parker &  Parsley  86-C,  Ltd.  (the  "Partnership")  is a  limited  partnership
organized  in 1986 under the laws of the State of Texas.  The  managing  general
partner is Parker & Parsley Development L.P. ("PPDLP").  PPDLP's general partner
is Parker & Parsley Petroleum USA, Inc. ("PPUSA").

A Registration  Statement,  as amended,  filed pursuant to the Securities Act of
1933,  registering limited partnership  interests  aggregating  $50,000,000 in a
series  of Texas  limited  partnerships  formed  under the  Parker & Parsley  86
Development  Drilling  Program,  was declared  effective by the  Securities  and
Exchange  Commission  on April 7, 1986.  On December 30,  1986,  the offering of
limited partnership  interests in the Partnership,  the third partnership formed
under such statement,  was closed, with interests aggregating  $19,317,000 being
sold to 1,466 subscribers.

The Partnership  engages primarily in oil and gas development and production and
is not  involved in any  industry  segment  other than oil and gas. See "Item 6.
Selected  Financial  Data" and "Item 8. Financial  Statements and  Supplementary
Data" of this  report for a summary  of the  Partnership's  revenue,  income and
identifiable assets.

The principal  markets during 1996 for the oil produced by the Partnership  were
refineries  and  oil  transmission  companies  that  have  facilities  near  the
Partnership's   oil  producing   properties.   The  principal  markets  for  the
Partnership's   gas  were  companies  that  have  pipelines   located  near  the
Partnership's gas producing  properties.  Of the Partnership's total oil and gas
revenues for 1996,  approximately  54%, 15% and 15% were  attributable  to sales
made to  Genesis  Crude Oil,  L.P.,  Western  Gas  Resources,  Inc.  and GPM Gas
Corporation, respectively.

The Partnership's revenues,  profitability,  cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by  numerous  factors  beyond  the  Partnership's  control.  Oil and gas  prices
historically  have been very volatile.  A substantial or extended decline in the
prices of oil or gas could have a material  adverse effect on the  Partnership's
revenues,  profitability and cash flow and could,  under certain  circumstances,
result in a reduction in the  carrying  value of the  Partnership's  oil and gas
properties.

Because of the demand for oil and gas, the Partnership does not believe that the
termination  of the  sales of its  products  to any one  customer  would  have a

                                        2

<PAGE>



material adverse impact on its operations. The loss of a particular customer for
gas may  have an effect if that  particular customer has the  only gas  pipeline
located  in the  areas  of  the  Partnership's  gas  producing  properties.  The
Partnership  believes,  however,  that  the  effect  would be  temporary,  until
alternative arrangements could be made.

Federal and state  regulation of oil and gas operations  generally  includes the
fixing of maximum prices for regulated categories of natural gas, the imposition
of maximum  allowable  production rates, the taxation of income and other items,
and the protection of the  environment.  Although the Partnership  believes that
its business operations do not impair  environmental  quality and that its costs
of complying with any  applicable  environmental  regulations  are not currently
significant,   the  Partnership  cannot  predict  what,  if  any,  effect  these
environmental regulations may have on its current or future operations.

The  Partnership  does not have any  employees  of its own.  PPUSA  employs  659
persons,  many of whom  dedicated  a part of their  time to the  conduct  of the
Partnership's  business  during the period for which this  report is filed.  The
Partnership's  managing  general  partner,  PPDLP  through  PPUSA,  supplies all
management functions.

Numerous  uncertainties  exist in estimating  quantities of proved  reserves and
future net revenues  therefrom.  The  estimates  of proved  reserves and related
future net revenues  set forth in this report are based on various  assumptions,
which may ultimately  prove to be inaccurate.  Therefore,  such estimates should
not be construed as estimates of the current  market value of the  Partnership's
proved reserves.

No material part of the  Partnership's  business is seasonal and the Partnership
conducts no foreign operations.

ITEM 2.     Properties

The  Partnership's  properties  consist  primarily  of  leasehold  interests  in
properties on which oil and gas wells are located.  Such property  interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.

Fractional  working  interests in  developmental  oil and gas prospects  located
primarily  in the  Spraberry  Trend  area of West  Texas  were  acquired  by the
Partnership,  resulting in the Partnership's participation in the drilling of 60
productive  oil and gas  wells.  Four wells were sold in 1996 and two wells were
abandoned  due to  uneconomical  operations;  one in 1995  and one in  1992.  At
December 31, 1996, 54 wells were producing.

For  information  relating  to the  Partnership's  estimated  proved oil and gas
reserves at December 31, 1996, 1995 and 1994, and changes in such quantities for
the years then ended,  see Note 7 of Notes to Financial  Statements  included in
"Item 8. Financial  Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of PPUSA with a review by an independent
petroleum consultant.

                                        3

<PAGE>



ITEM 3.     Legal Proceedings

The Partnership was a party to material  litigation which is described in Note 9
of Notes to Financial  Statements included in "Item 8. Financial  Statements and
Supplementary Data" below.

ITEM 4.     Submission of Matters to a Vote of Security Holders

There were no matters  submitted to a vote of security holders during the fourth
quarter of 1996.

                                        4

<PAGE>


                                     PART II

ITEM 5.   Market for Partnership's Common Equity and Related Stockholder Matters

At March 8, 1997, the Partnership  had 19,317  outstanding  limited  partnership
interests held of record by 1,477  subscribers.  There is no established  public
trading  market  for  the  limited  partnership  interests.  Under  the  limited
partnership   agreement,   PPDLP  has  made  certain   commitments  to  purchase
partnership interests at a computed value.

Revenues which, in the sole judgement of the managing general  partner,  are not
required to meet the  Partnership's  obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement.  During
the years ended  December 31, 1996 and 1995,  distributions  of  $1,340,522  and
$594,990, respectively, were made to the limited partners.

ITEM 6.     Selected Financial Data

The  following  table sets forth  selected  financial  data for the years  ended
December 31:
<TABLE>
                                 1996          1995         1994         1993          1992
                             ----------    -----------   ----------   ----------    ----------
<S>                          <C>           <C>           <C>          <C>           <C>
Operating results:
 Oil and gas sales           $1,750,717    $ 1,423,091   $1,525,637   $1,972,283    $2,511,819
                              =========     ==========    =========    =========     =========
 Litigation settlement, net  $  704,864    $       -     $      -     $7,605,715    $      -
                              =========     ==========    =========    =========     =========
 Impairment of oil and
  gas properties             $  132,778    $   877,603   $      -     $      -      $      -
                              =========     ==========    =========    =========     =========
 Net income (loss)           $1,142,509    $(1,054,048)  $   (8,694)  $7,667,154    $  213,293
                              =========     ==========    =========    =========     =========
 Allocation of net income
  (loss):
   Managing general partner  $   11,425    $   (10,540)  $      (87)  $   76,627    $    2,133
                              =========     ==========    =========    =========     =========
   Limited partners          $1,131,084    $(1,043,508)  $   (8,607)  $7,590,527    $  211,160
                              =========     ==========    =========    =========     =========
 Limited partners' net
  income (loss) per limited
  partnership interest       $    58.55    $    (54.02)  $     (.45)  $   392.95    $    10.93
                              =========     ==========    =========    =========     =========
 Limited partners' cash
  distributions per limited
  partnership interest       $    69.40(a) $     30.80   $    35.84   $   410.60(a) $    72.18
                              =========     ==========    =========    =========     =========
At year end:
 Total assets                $4,193,447    $ 4,413,551   $6,049,557   $6,768,125    $7,657,490
                              =========     ==========    =========    =========     =========
</TABLE>
---------------
(a)   Including litigation settlement per limited partnership interest of $36.12
      in 1996 and $360.95 in 1993.
                                        5

<PAGE>



ITEM 7.     Management's Discussion and Analysis of Financial Condition and
              Results of Operations

Results of operations

1996 compared to 1995

The  Partnership's  1996  oil and gas  revenues  increased  to  $1,750,717  from
$1,423,091 in 1995, an increase of 23%. The increase in revenues resulted from a
27% increase in the average price  received per barrel of oil and a 46% increase
in the average price received per mcf of gas, offset by an 8% decline in barrels
of oil produced  and sold and a 6% decline in mcf of gas  produced and sold.  In
1996,  52,839 barrels of oil were sold compared to 57,498 in 1995, a decrease of
4,659  barrels.  In 1996,  246,386  mcf of gas were sold  compared to 261,087 in
1995,  a decrease of 14,701 mcf.  The sale of four oil and gas wells during 1996
had no material effect on the decreases in oil and gas production. The decreases
were primarily due to the decline  characteristics  of the Partnership's oil and
gas properties.  Because of these characteristics,  management expects a certain
amount  of  decline  in   production   to  continue  in  the  future  until  the
Partnership's economically recoverable reserves are fully depleted.

The average price received per barrel of oil increased $4.57 from $17.19 in 1995
to $21.76 in 1996.  The average  price  received per mcf of gas  increased  from
$1.67  in 1995 to  $2.44  in 1996.  The  market  price  for oil and gas has been
extremely  volatile in the past decade,  and management expects a certain amount
of  volatility  to continue  in the  foreseeable  future.  The  Partnership  may
therefore  sell its future oil and gas  production  at average  prices  lower or
higher than that received in 1996.

Salvage  income  of  $28,740  and  $4,257  was  received  during  1996 and 1995,
respectively, from the disposal of equipment on one fully depleted well.

A gain of  $29,739  from the sale of four oil and gas wells  and four  saltwater
disposal wells was recognized  during 1996,  attributable to proceeds of $31,623
received from the sale, less the write-off of remaining  capitalized  well costs
of $1,884.

On April 29, 1996,  Southmark,  PPDLP and the  Partnership  entered into a final
$7.4 million  settlement  agreement with Jack N. Price resolving all outstanding
litigation  between the parties.  As a result,  all of the pending  lawsuits and
judgments have been dismissed,  the supersedeas  bond released,  and the Reserve
released as collateral.  On June 28, 1996, a final  distribution was made to the
working interest  owners,including  $697,816,  or $36.12 per limited partnership
interest, to the Partnership and its partners.  See Note 9 of Notes to Financial
Statements incuded in "Item 8. Financial Statements and Supplementary Data".

Total  costs  and  expenses  decreased  in 1996 to  $1,380,816  as  compared  to
$2,489,655  in 1995, a decrease of  $1,108,839,  or 45%. The decrease was due to
the reduction in impairment of oil and gas properties,  in addition to decreases
in loss on  abandoned  property,  production  costs  and  depletion,  offset  by
increases in general and administrative  expenses ("G&A") and abandoned property
costs.
                                        6

<PAGE>



Production  costs were  $815,378 in 1996 and  $848,246 in 1995,  resulting  in a
$32,868  decrease,  or 4%. The  decrease was due to a decline in well repair and
maintenance costs.

G&A's  components are  independent  accounting and  engineering  fees,  computer
services,  postage and managing  general partner  personnel  costs.  During this
period,  G&A  increased,  in  aggregate,  23% from $42,693 in 1995 to $52,521 in
1996. The  Partnership  paid the managing  general  partner  $45,387 in 1996 and
$34,427 in 1995 for G&A incurred on behalf of the Partnership.

G&A is allocated,  in part, to the Partnership by the managing  general partner.
The  Partnership  agreement  limits  allocated  G&A to 3% of  gross  oil and gas
revenues. Such allocated expenses are determined by the managing general partner
based upon its judgement of the level of activity of the Partnership relative to
the managing  general  partner's  activities and other entities it manages.  The
method of allocation  has varied in certain years and may do so again  depending
on the activities of the managed entities.

The Partnership  adopted  Statement of Financial  Accounting  Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121")  effective as of October 1, 1995 (see Notes 2 and 3
of Notes to Financial  Statements included in "Item 8. Financial  Statements and
Supplementary Data"). As a result of the review and evaluation of its long-lived
assets for impairment,  the Partnership  recognized non-cash charges of $132,778
and  $877,603  related  to its oil and gas  properties  during  1996  and  1995,
respectively.

Depletion was $352,216 in 1996 compared to $594,478 in 1995. This  represented a
decrease of $242,262,  or 41%. This decrease was primarily  attributable  to the
following  factors:  (i) a reduction the Partnership's net depletable basis from
charges taken in accordance with SFAS 121, (ii) a reduction in oil production of
4,659  barrels in 1996 from 1995,  and (iii) an increase in oil and gas reserves
during 1996 as a result of higher commodity prices.

Incurred  expenses  of $27,923 for  abandoned  property  costs  during 1996 were
related to two of the four oil and gas wells sold and are  reflected  in the net
post-closing adjustment to proceeds from the sale of properties.

A loss on abandoned  property of $112,613 was recognized  during 1995. This loss
resulted  from the  write-off of remaining  capitalized  well costs of $144,704,
less proceeds received of $32,091 from equipment salvage on abandoned  property.
Expenses incurred in 1995 to plug and abandon one well totaled $14,022.

1995 compared to 1994

The  Partnership's  1995  oil and gas  revenues  decreased  to  $1,423,091  from
$1,525,637  in 1994, a decrease of 7%. The decrease in revenues  resulted from a
12% decline in barrels of oil  produced and sold and a 10% decline in mcf of gas
produced and sold,  offset by an 8% increase in the average  price  received per
barrel of oil. In 1995,  57,498  barrels of oil were sold  compared to 65,208 in
1994,  a  decrease  of 7,710  barrels.  In 1995,  261,087  mcf of gas were  sold
compared  to 289,443 in 1994,  a decrease  of 28,356  mcf.  The  decreases  were
primarily due to the decline  characteristics  of the  Partnership's oil and gas
properties.
                                        7

<PAGE>



The average price received per barrel of oil increased $1.25 from $15.94 in 1994
to $17.19 in 1995.  The average  price  received per mcf of gas  decreased  from
$1.68 in 1994 to $1.67 in 1995.

Salvage income of $4,257 was received during 1995 from the disposal of equipment
on one fully depleted well.  Salvage income from equipment  disposals of $27,933
for 1994 consisted of equipment  credits received of $210 on a well abandoned in
a prior year and $27,723 received on one fully depleted well.

Total  costs  and  expenses  increased  in 1995 to  $2,489,655  as  compared  to
$1,568,731 in 1994, an increase of $920,924,  or 59%. The increase was primarily
the result of the impairment of oil and gas properties, in addition to increases
in abandoned property costs and loss on abandoned property,  offset by decreases
in production costs, depletion and G&A.

Production  costs were  $848,246 in 1995 and  $901,212 in 1994,  resulting  in a
$52,966  decrease,  or 6%. The  decrease was due to a decline in well repair and
maintenance  costs,  offset by an increase in  workover  expense  incurred in an
effort to stimulate well production.

G&A's  components are  independent  accounting and  engineering  fees,  computer
services,  postage and managing  general partner  personnel  costs.  During this
period, G&A decreased, in aggregate, 7% from $45,769 in 1994 to $42,693 in 1995.
The Partnership paid the managing general partner $34,427 in 1995 and $34,454 in
1994 for G&A incurred on behalf of the Partnership.

The  Partnership  adopted SFAS 121  effective as of October 1, 1995 (see Notes 2
and 3 of Notes to Financial Statements included in "Item 8. Financial Statements
and  Supplementary  Data").  As a result of the  review  and  evaluation  of its
long-lived assets for impairment,  the Partnership  recognized a non-cash charge
of $877,603  related to its oil and gas properties  during the fourth quarter of
1995.

Depletion was $594,478 in 1995 compared to $621,750 in 1994. This  represented a
decrease of $27,272, or 4%. Oil production  decreased 7,710 barrels in 1995 from
1994, while oil reserves of barrels were revised downward by 34,442 barrels,  or
5%.

A loss on abandoned  property of $112,613 was recognized  during 1995. This loss
was the result of the write-off of remaining capitalized well costs of $144,704,
less proceeds received of $32,091 from equipment salvage on abandoned  property.
Expenses  incurred to plug and abandon one well  totaled  $14,022.  There was no
abandonment activity during 1994.

Impact of inflation and changing prices on sales and net income

Inflation  impacts  the fixed  overhead  rate  charges  of the  lease  operating
expenses for the  Partnership.  During 1994,  the annual  change in the index of
average weekly earnings of crude petroleum and gas production  workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics  increased by 4.8%. The
1995  annual  change  in  average  weekly  earnings  increased  by 4.4%  and was

                                        8

<PAGE>



implemented  April 1, 1995. The 1996 index  (effective  April 1, 1996) increased
4.1%. The impact of inflation for other lease operating expenses is small due to
the current economic condition of the oil industry.

The oil and gas industry  experienced  volatility during the past decade because
of the fluctuation of the supply of most fossil fuels relative to the demand for
such  products  and  other  uncertainties  in the world energy  markets  causing
significant  fluctuations  in oil and gas  prices.  During  1996,  the price per
barrel for oil production similar to the Partnership's ranged from approximately
$18.00 to $25.00. For February 1997, the average price for the Partnership's oil
was $22.00.

Prices for natural gas are subject to ordinary seasonal  fluctuations,  and this
volatility of natural gas prices may result in production  being  curtailed and,
in some cases, wells being completely shut-in.

Liquidity and capital resources

Net Cash Provided by Operating Activities

Net cash provided by operating  activities  increased  $882,379  during the year
ended  December 31, 1996 from the year ended December 31, 1995. The increase was
primarily due to the receipt of  litigation  proceeds (as discussed in Note 9 of
Notes to Financial  Statements  included in "Item 8.  Financial  Statements  and
Supplementary Data") and an increase in oil and gas sales, offset by an increase
in abandoned property costs paid.

Net Cash Provided by Investing Activities

The Partnership's  investing activities during 1996 and 1995 were related to the
addition or disposal of oil and gas equipment on active properties.

Proceeds from salvage income on equipment disposals of $28,740 and $4,257 during
1996 and  1995,  respectively,  resulted  from the  sale of  equipment  on fully
depleted wells.

Proceeds of $32,091  were  received  from the salvage of  equipment  on one well
abandoned during 1995.

Proceeds of $31,623 were received  during 1996 from the sale of four oil and gas
wells and four saltwater disposal wells.

Net Cash Used in Financing Activities

Cash was sufficient in 1996 for  distributions  to the partners of $1,354,063 of
which  $1,340,522  was  distributed  to the limited  partners and $13,541 to the
managing general partner.  In 1995, cash was sufficient for distributions to the
partners of $601,000 of which $594,990 was  distributed to the limited  partners
and $6,010 to the managing general partner.

Cash  distributions to the partners of $1,354,063 for 1996 included  $697,816 to
the limited partners and $7,048 to the managing  general partner  resulting from

                                        9

<PAGE>



proceeds  received in the litigation  settlement as discussed in Note 9 of Notes
to  Financial   Statements  included  in  "Item  8.  Financial   Statements  and
Supplementary Data".

It is expected that future net cash  provided by  operations  will be sufficient
for any capital  expenditures and any distributions.  As the production from the
properties declines, distributions are also expected to decrease.

ITEM 8.     Financial Statements and Supplementary Data

The Partnership's audited financial statements are included elsewhere herein.

ITEM 9.     Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure

None.



                                       10

<PAGE>



                                    PART III


ITEM 10.     Directors and Executive Officers of the Partnership

The  Partnership  does not have any  officers  or  directors.  Under the limited
partnership  agreement,  the Partnership's  managing general partner,  PPDLP, is
granted the exclusive right and full authority to manage, control and administer
the  Partnership's  business.  PPUSA,  the sole general  partner of PPDLP,  is a
wholly-owned subsidiary of Parker & Parsley Petroleum Company (the "Company"), a
publicly-traded corporation on the New York Stock Exchange.

Set forth below are the names, ages and positions of the directors and executive
officers of PPUSA. Directors of PPUSA are elected to serve until the next annual
meeting of stockholders or until their successors are elected and qualified.

                           Age at
                         December 31,
       Name                 1996                     Position
       ----             ------------                 --------

Scott D. Sheffield           44          President, Chairman of the Board,
                                          Chief Executive Officer and
                                          Director

Timothy A. Leach             37          Executive Vice President and Director

Steven L. Beal               37          Senior Vice President, Chief Financial
                                          Officer and Director

Mark L. Withrow              49          Senior Vice President, Secretary and
                                          Director

David A. Chroback            41          Senior Vice President and Director

         Scott D. Sheffield.   Mr. Sheffield,  a graduate  of  The University of
Texas with a Bachelor of Science degree in Petroleum  Engineering,  has been the
President and a Director of the Company since May 1990 and has been the Chairman
of the Board and Chief  Executive  Officer  since October  1990.  Mr.  Sheffield
joined the Company as a petroleum engineer in 1979. Mr. Sheffield served as Vice
President - Engineering of the Company from September 1981 until April 1985 when
he was elected  President  and a Director  of the  Company.  In March 1989,  Mr.
Sheffield was elected  Chairman of the Board and Chief Executive  Officer of the
Company.  On January 1, 1995,  Mr.  Sheffield  resigned as  President  and Chief
Executive Officer of PPUSA, but remained Chairman of the Board and a Director of
PPUSA.  On January 1, 1996, Mr.  Sheffield  reassumed the positions of President
and Chief Executive Officer of PPUSA. Before joining the Company,  Mr. Sheffield
was principally occupied for more than three years as a production and reservoir
engineer for Amoco Production Company.

                                       11

<PAGE>



         Timothy A. Leach.  Mr. Leach, a graduate of Texas A&M University with a
Bachelor of Science degree in Petroleum  Engineering and the University of Texas
of the  Permian  Basin  with a Master of  Business  Administration  degree,  was
elected Executive Vice President - Engineering of the Company on March 21, 1995.
Mr. Leach had been serving as Senior Vice President Engineering since March 1993
and served as Vice  President - Engineering  of the Company from October 1990 to
March 1993. Mr. Leach was elected Executive Vice President and Director of PPUSA
on December 1, 1995.  He had joined the Company as Vice  President - Engineering
in  September  1989.  Prior to joining the  Company,  Mr.  Leach was employed as
Senior Vice President and Director of First City Texas - Midland, N.A.

         Steven L. Beal.  Mr. Beal, a graduate of the University of Texas with a
Bachelor of Business  Administration degree in Accounting and a certified public
accountant,  was  elected  Senior  Vice  President  - Finance of the  Company in
January 1995 and Chief  Financial  Officer of the Company on March 21, 1995. Mr.
Beal was elected Senior Vice President and Chief  Financial  Officer of PPUSA on
January  1, 1995 and was  elected a Director  of PPUSA on  January  2, 1996.  He
served as Treasurer  of PPUSA from  January 1, 1995 to June 12,  1996.  Mr. Beal
joined the Company as Treasurer  in March 1988 and was elected Vice  President -
Finance in October 1991. Prior to joining the Company,  Mr. Beal was employed as
an audit manager for Price Waterhouse.

         Mark  L.  Withrow.   Mr.  Withrow,  a  graduate  of  Abilene  Christian
University  with a  Bachelor  of  Science  degree in  Accounting  and Texas Tech
University with a Juris Doctorate  degree,  was Vice President - General Counsel
of the Company from February 1991 to January 1995, when he was appointed  Senior
Vice President - General  Counsel,  and has been the Company's  Secretary  since
August 1992. On January 1, 1995,  Mr.  Withrow was elected Senior Vice President
and  Secretary  of PPUSA and was elected a Director of PPUSA on January 2, 1996.
Mr.  Withrow  joined the Company in January 1991.  Prior to joining the Company,
Mr.  Withrow was the managing  partner of the law firm of Turpin,  Smith,  Dyer,
Saxe & MacDonald, Midland, Texas.

         David A. Chroback.  Mr. Chroback,  a graduate of Hanover College with a
Bachelor  of Science  degree in Geology,  and a graduate  of  Southern  Illinois
University at Carbondale with a Master of Science degree in Geology, was elected
Senior Vice President of the Company and PPUSA on October 7, 1996. On January 2,
1996,  Mr.  Chroback  was  elected  Director  of  PPUSA.  He had  served as Vice
President - Geology of the Company since February  1993.  Mr.  Chroback has been
the  Geological  Manager  since June  1992,  and prior to that has been a Senior
Geologist with the Company since January 1988.  Before  joining the Company,  he
was a  project  geologist  with  Indian  Wells Oil  Company.  Mr.  Chroback  was
previously  employed by Amoco Production  Company as a petroleum  geologist from
1980 through 1984.

ITEM 11.     Executive Compensation

The  Partnership  does not have any  directors  or officers.  Management  of the
Partnership is vested in PPDLP, the managing  general  partner.  The Partnership
participates in oil and gas activities  through an income tax  partnership  (the
"Program") pursuant to the Program agreement. Under the Program agreement, PPDLP
pays approximately 10% of the Partnership's acquisition, drilling and completion

                                       12

<PAGE>



costs and  approximately  25% of its  operating  and general and  administrative
expenses.  In return, PPDLP is allocated  approximately 25% of the Partnership's
revenues.  See Notes 6 and 10 of Notes to Financial Statements included in "Item
8. Financial Statements and Supplementary Data" below for information  regarding
fees and  reimbursements  paid to the managing general partner or its affiliates
by the Partnership.

The Partnership does not directly pay any salaries of the executive  officers of
PPUSA, but does pay a portion of PPUSA's general and administrative  expenses of
which these  salaries are a part.  See Note 6 of Notes to  Financial  Statements
included in "Item 8. Financial Statements and Supplementary Data" below.

ITEM 12.     Security Ownership of Certain Beneficial Owners and Management

(a)      Beneficial owners of more than five percent

The Partnership is not aware of any person who  beneficially  owns 5% or more of
the outstanding limited partnership interests of the Partnership. PPDLP owned 60
limited partner interests at January 1, 1997.

(b)      Security ownership of management

The Partnership  does not have any officers or directors.  The managing  general
partner of the Partnership, PPDLP, has the exclusive right and full authority to
manage,  control and administer the  Partnership's  business.  Under the limited
partnership  agreement,  limited  partners holding a majority of the outstanding
limited partnership interests have the right to take certain actions,  including
the removal of the managing  general partner or any other general  partner.  The
Partnership  is not aware of any current  arrangement or activity which may lead
to such  removal.  The  Partnership  is not aware of any  officer or director of
PPUSA who beneficially owns limited partnership interests in the Partnership.

ITEM 13.          Certain Relationships and Related Transactions

Transactions with the managing general partner or its affiliates

Pursuant to the limited partnership agreement, the Partnership had the following
related party  transactions  with the managing general partner or its affiliates
during the years ended December 31:
                                                 1996        1995        1994
                                               --------    --------    --------

Payment of lease operating and supervision
  charges in accordance with standard
  industry operating agreements                $332,708    $351,625    $361,221

Reimbursement of general and
  administrative expenses                      $ 45,387    $ 34,427    $ 34,454

Receipt of proceeds for the salvage
  value of retired oil and gas equipment       $ 12,336    $ 58,340    $ 28,348

                                       13

<PAGE>




Under the limited partnership agreement, the managing general partner pays 1% of
the  Partnership's  acquisition,  drilling  and  completion  costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the  Partnership's  revenues.  Also, see Notes 6 and 10 of Notes to Financial
Statements  included in "Item 8. Financial  Statements and  Supplementary  Data"
below,  regarding  the  Partnership's  participation  with the managing  general
partner in oil and gas activities of the Program.



                                       14

<PAGE>



                                     PART IV

ITEM 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)   1.   Financial statements

           The following are filed as part of this annual report:

               Independent Auditors' Report

               Balance sheets as of December 31, 1996 and 1995

               Statements of operations for the years ended December 31, 1996,
                 1995 and 1994

               Statements of partners' capital for the years ended December 31,
                 1996, 1995 and 1994

               Statements of cash flows for the years ended December 31, 1996,
                 1995 and 1994

               Notes to financial statements

      2.   Financial statement schedules

           All  financial  statement  schedules  have been omitted  since the
           required  information  is in the  financial  statements  or  notes
           thereto, or is not applicable nor required.

(b)   Reports on Form 8-K

      None.

(c)   Exhibits

      The exhibits  listed on the  accompanying  index to exhibits are filed or
      incorporated by reference as part of this annual report.


                                       15

<PAGE>



                               S I G N A T U R E S

       Pursuant to the requirements of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                               PARKER & PARSLEY 86-C, LTD.

Dated: March 24, 1997          By:   Parker & Parsley Development L.P.,
                                       Managing General Partner

                                     By:   Parker & Parsley Petroleum USA, Inc.
                                           ("PPUSA"), General Partner


                                     By:   /s/ Scott D. Sheffield
                                           -----------------------------
                                           Scott D. Sheffield, President

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



/s/ Scott D. Sheffield      President, Chairman of the Board,    March 24, 1997
-----------------------     Chief Executive Officer and
Scott D. Sheffield          Director of PPUSA


/s/ Timothy A. Leach        Executive Vice President and         March 24, 1997
-----------------------     Director of PPUSA
Timothy A. Leach


/s/ Steven L. Beal          Senior Vice President, Chief         March 24, 1997
-----------------------     Financial Officer and Director
Steven L. Beal              of PPUSA


/s/ Mark L. Withrow         Senior Vice President, Secretary     March 24, 1997
-----------------------     and Director of PPUSA
Mark L. Withrow 


/s/ David A. Chroback       Senior Vice President and            March 24, 1997
-----------------------     Director of PPUSA
David A. Chroback

                                       16

<PAGE>





                          INDEPENDENT AUDITORS' REPORT




The Partners
Parker & Parsley 86-C, Ltd.
  (A Texas Limited Partnership):

We have  audited the  financial  statements  of Parker & Parsley  86-C,  Ltd. as
listed in the accompanying  index under Item 14(a).  These financial  statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Parker & Parsley 86-C, Ltd. as
of December 31, 1996 and 1995,  and the results of its  operations  and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.

As  discussed  in Notes 2 and 3 to the  financial  statements,  the  Partnership
adopted the provisions of the Financial  Accounting  Standards Board's Statement
of Financial  Accounting  Standards No. 121,  "Accounting  for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in 1995.




                                             KPMG Peat Marwick LLP


Midland, Texas
March 21, 1997


                                       17

<PAGE>



                           PARKER & PARSLEY 86-C, LTD.
                          (A Texas Limited Partnership)

                                 BALANCE SHEETS
                                   December 31


                                                     1996             1995
                                                 ------------     ------------
                  ASSETS

Current assets:
  Cash and cash equivalents, including
    interest bearing deposits of $193,384
    in 1996 and $73,587 in 1995                  $    205,207     $     73,796
  Accounts receivable - oil and gas sales             265,255          151,051
                                                  -----------      -----------
          Total current assets                        470,462          224,847
                                                  -----------      -----------
Oil and gas properties - at cost, based on
  the successful efforts accounting method         14,551,413       15,562,115
Accumulated depletion                             (10,828,428)     (11,373,411)
                                                  -----------      -----------
          Net oil and gas properties                3,722,985        4,188,704
                                                  -----------      -----------
                                                 $  4,193,447     $  4,413,551
                                                  ===========      ===========

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:
  Accounts payable - affiliate                   $    104,535     $    113,085

Partners' capital:
  Limited partners (19,317 interests)               4,049,331        4,258,769
  Managing general partner                             39,581           41,697
                                                  -----------      -----------
                                                    4,088,912        4,300,466
                                                  -----------      -----------
                                                 $  4,193,447     $  4,413,551
                                                  ===========      ===========


   The accompanying notes are an integral part of these financial statements.

                                       18

<PAGE>



                           PARKER & PARSLEY 86-C, LTD.
                          (A Texas Limited Partnership)

                            STATEMENTS OF OPERATIONS
                         For the years ended December 31


                                        1996          1995           1994
                                     ----------    -----------    ----------
Revenues:
  Oil and gas                        $1,750,717    $ 1,423,091    $1,525,637
  Interest                                9,265          8,259         6,467
  Salvage income from equipment
    disposals                            28,740          4,257        27,933
  Gain on sale of assets                 29,739            -             -
  Litigation settlement                 704,864            -             -
                                      ---------     ----------     ---------
                                      2,523,325      1,435,607     1,560,037
                                      ---------     ----------     ---------
Costs and expenses:
  Oil and gas production                815,378        848,246       901,212
  General and administrative             52,521         42,693        45,769
  Impairment of oil and gas
    properties                          132,778        877,603           -
  Depletion                             352,216        594,478       621,750
  Abandoned property                     27,923         14,022           -
  Loss on abandoned property                -          112,613           -
                                      ---------     ----------     ---------
                                      1,380,816      2,489,655     1,568,731
                                      ---------     ----------     ---------
Net income (loss)                    $1,142,509    $(1,054,048)   $   (8,694)
                                      =========     ==========     =========
Allocation of net income (loss):
  Managing general partner           $   11,425    $   (10,540)   $      (87)
                                      =========     ==========     =========
  Limited partners                   $1,131,084    $(1,043,508)   $   (8,607)
                                      =========     ==========     =========
Net income (loss) per limited
  partnership interest               $    58.55    $    (54.02)   $     (.45)
                                      =========     ==========     =========

   The accompanying notes are an integral part of these financial statements.

                                       19

<PAGE>



                           PARKER & PARSLEY 86-C, LTD.
                          (A Texas Limited Partnership)

                         STATEMENTS OF PARTNERS' CAPITAL




                                          Managing
                                          general     Limited
                                          partner     partners        Total
                                         ---------   -----------   -----------

Partners' capital at January 1, 1994     $  65,329   $ 6,598,251   $ 6,663,580

   Distributions                            (6,995)     (692,377)     (699,372)

   Net loss                                    (87)       (8,607)       (8,694)
                                          --------    ----------    ----------

Partners' capital at December 31, 1994      58,247     5,897,267     5,955,514

   Distributions                            (6,010)     (594,990)     (601,000)

   Net loss                                (10,540)   (1,043,508)   (1,054,048)
                                          --------    ----------    ----------

Partners' capital at December 31, 1995      41,697     4,258,769     4,300,466

   Distributions                           (13,541)   (1,340,522)   (1,354,063)

   Net income                               11,425     1,131,084     1,142,509
                                          --------    ----------    ----------

Partners' capital at December 31, 1996   $  39,581   $ 4,049,331   $ 4,088,912
                                          ========    ==========    ==========



   The accompanying notes are an integral part of these financial statements.

                                       20

<PAGE>



                           PARKER & PARSLEY 86-C, LTD.
                          (A Texas Limited Partnership)

                            STATEMENTS OF CASH FLOWS
                         For the years ended December 31

                                             1996          1995          1994
                                          -----------   -----------   ---------
Cash flows from operating activities:
 Net income (loss)                        $ 1,142,509   $(1,054,048)  $  (8,694)
 Adjustments to reconcile net income
  (loss) to net cash provided by
  operating activities:
    Impairment of oil and gas properties      132,778       877,603         -
    Depletion                                 352,216       594,478     621,750
    Salvage income from equipment
      disposals                               (28,740)       (4,257)    (27,933)
    Loss on abandoned property                    -         112,613         -
    Gain on sale of assets                    (29,739)          -           -
 Changes in assets and liabilities:
    (Increase) decrease in accounts
      receivable                             (114,204)       13,081      14,568
    Increase (decrease) in accounts
      payable                                 (10,548)       22,423     (13,299)
                                           ----------    ----------    --------
       Net cash provided by operating
         activities                         1,444,272       561,893     586,392
                                           ----------    ----------    --------
Cash flows from investing activities:
 (Additions) disposals of oil and gas
   properties                                 (19,161)        9,250       3,209
 Proceeds from salvage income on
   equipment disposals                         28,740         4,257      27,933
 Proceeds from equipment salvage on
   abandoned property                             -          32,091         -
 Proceeds from sale of assets                  31,623           -           -
                                           ----------    ----------    --------
       Net cash provided by investing
         activities                            41,202        45,598      31,142
                                           ----------    ----------    --------
Cash flows from financing activities:
 Cash distributions to partners            (1,354,063)     (601,000)   (699,372)
                                           ----------    ----------    --------
Net increase (decrease) in cash and
  cash equivalents                            131,411         6,491     (81,838)
Cash and cash equivalents at beginning
  of year                                      73,796        67,305     149,143
                                           ----------    ----------    --------
Cash and cash equivalents at end of year  $   205,207   $    73,796   $  67,305
                                           ==========    ==========    ========

   The accompanying notes are an integral part of these financial statements.

                                       21

<PAGE>



                           PARKER & PARSLEY 86-C, LTD.
                          (A Texas Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994

Note 1.     Organization and nature of operations

       Parker & Parsley 86-C, Ltd.  (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas.

       The  Partnership  engages  primarily  in  oil  and  gas  development  and
production  in Texas and is not involved in any industry  segment other than oil
and gas.

Note 2.     Summary of significant accounting policies

       A summary of the significant  accounting policies consistently applied in
the preparation of the accompanying financial statements follows:

       Impairment of long-lived assets - Commencing in 1995,  in accordance with
Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of"
("SFAS 121"), the Partnership  reviews its long-lived assets to be held and used
on an individual property basis,  including oil and gas properties accounted for
under  the  successful   efforts  method  of  accounting,   whenever  events  or
circumstances  indicate  that the  carrying  value of  those  assets  may not be
recoverable.  An impairment  loss is indicated if the sum of the expected future
cash flows is less than the carrying amount of the assets. In this circumstance,
the  Partnership  recognizes  an  impairment  loss for the  amount  by which the
carrying amount of the asset exceeds the fair value of the asset.

       The Partnership  accounts for long-lived  assets to be disposed of at the
lower of their carrying  amount or fair value less costs to sell once management
has committed to a plan to dispose of the assets.

       Prior to the  adoption  of SFAS 121 in the fourth  quarter  of 1995,  the
Partnership's aggregate oil and gas properties were stated at cost not in excess
of total  estimated  future net revenues and the estimated fair value of oil and
gas assets not being depleted.

       Oil and gas properties - The Partnership  utilizes the successful efforts
method of accounting for its oil and gas  properties  and equipment.  Under this
method, all costs associated with productive wells and nonproductive development
wells are  capitalized  while  nonproductive  exploration  costs  are  expensed.
Capitalized   costs  relating  to  proved  properties  are  depleted  using  the
unit-of-production  method on a  property-by-property  basis based on proved oil
(dominant  mineral)  reserves as determined by the engineering staff of Parker &
Parsley  Petroleum  USA, Inc.  ("PPUSA"),  the sole general  partner of Parker &
Parsley Development L.P. ("PPDLP"),  the Partnership's managing general partner,
and reviewed by  independent  petroleum  consultants.  The  carrying  amounts of
properties  sold  or  otherwise  disposed  of and  the  related  allowances  for
depletion are  eliminated  from the accounts and any gain or loss is included in
operations.
                                       22

<PAGE>



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

       Net  income  (loss)  per  limited  partnership  interest - The net income
(loss) per limited  partnership  interest is  calculated  by using the number of
outstanding limited partnership interests.

       Income taxes - A Federal  income tax  provision  has not been included in
the  financial  statements as the income of the  Partnership  is included in the
individual Federal income tax returns of the respective partners.

       Statements of cash flows - For purposes of reporting cash flows, cash and
cash equivalents include depository accounts held by banks.

       General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing  general partner or its
affiliates.  Such  allocated  expenses are  determined  by the managing  general
partner  based upon its  judgement  of the level of activity of the  Partnership
relative to the managing  general  partner's  activities  and other  entities it
manages.  The method of  allocation  has  varied in certain  years and may do so
again depending on the activities of the managed entities.

       Environmental  - The Partnership is subject to extensive  federal,  state
and local  environmental laws and regulations.  These laws, which are constantly
changing,  regulate  the  discharge of materials  into the  environment  and may
require the Partnership to remove or mitigate the  environmental  effects of the
disposal  or release of  petroleum  or  chemical  substances  at various  sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit.  Expenditures  that relate to an existing  condition caused by
past  operations  and  that  have no  future  economic  benefits  are  expensed.
Liabilities  for   expenditures  of  a  noncapital   nature  are  recorded  when
environmental  assessment and/or  remediation is probable,  and the costs can be
reasonably estimated.

Note 3.     Impairment of long-lived assets

      The  Partnership  adopted SFAS 121 effective  October 1, 1995. In order to
determine  whether an impairment  had occurred,  the  Partnership  estimated the
expected  future  cash flows of its oil and gas  properties  and  compared  such
future  cash  flows to the  carrying  amount  of the oil and gas  properties  to
determine  if the  carrying  amount  was  recoverable.  For  those  oil  and gas
properties  for which the carrying  amount  exceeded the  estimated  future cash
flows,  an  impairment  was  determined  to exist;  therefore,  the  Partnership
adjusted the carrying amount of those oil and gas properties to their fair value
as determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry.  As a result of the review
and  evaluation  of  its  long-lived  assets  for  impairment,  the  Partnership
recognized  non-cash charges of $132,778 and $877,603 related to its oil and gas
properties in 1996 and 1995.
                                       23

<PAGE>



Note 4.     Income taxes

      The  financial  statement  basis  of  the  Partnership's  net  assets  and
liabilities was $1,709,975 greater than the tax basis at December 31, 1996.

      The following is a  reconciliation  of net income (loss) per statements of
operations  with the net income per  Federal  income tax  returns  for the years
ended December 31:
                                              1996         1995         1994
                                           ----------   -----------   --------
 Net income (loss) per statements
   of operations                           $1,142,509   $(1,054,048)  $ (8,694)
 Depletion and depreciation provisions
   for tax reporting purposes under 
   amounts for financial reporting
   purposes                                   343,527       567,874    298,329
 Impairment of oil and gas properties
   for financial reporting purposes           132,778       877,603         -
 Other                                           (833)      160,182      2,954
                                            ---------    ----------    -------
        Net income per Federal
          income tax returns               $1,617,981   $   551,611   $292,589
                                            =========    ==========    =======

Note 5.     Oil and gas producing activities

       The following is a summary of the costs incurred,  whether capitalized or
expensed,  related to the Partnership's oil and gas producing activities for the
years ended December 31:

                                             1996          1995         1994
                                          ----------    ----------    --------

     Development costs                    $   20,343    $  (34,957)   $   (412)
                                           =========     =========     =======

       Capitalized oil and gas properties consist of the following:

                                           1996          1995         1994
                                       ------------  ------------  ------------
     Proved properties:
       Property acquisition costs      $    645,990  $    698,973  $    699,703
       Completed wells and equipment     13,905,423    14,863,142    15,164,476
                                        -----------   -----------   -----------
                                         14,551,413    15,562,115    15,864,179
     Accumulated depletion              (10,828,428)  (11,373,411)  (10,046,059)
                                        -----------   -----------   -----------
           Net capitalized costs       $  3,722,985  $  4,188,704  $  5,818,120
                                        ===========   ===========   ===========

       During 1996 and  1995,  the Partnership  recognized  non-cash  charges of
$132,778 and $877,603 in accordance with SFAS 121. See Note 3.

                                       24

<PAGE>



Note 6.     Related party transactions

       Pursuant to the limited  partnership  agreement,  the Partnership had the
following  related party  transactions  with the managing general partner or its
affiliates during the years ended December 31:
                                                 1996        1995        1994
                                               --------    --------    --------
 Payment of lease operating and supervision
   charges in accordance with standard
   industry operating agreements               $332,708    $351,625    $361,221

 Reimbursement of general and administrative
   expenses                                    $ 45,387    $  34,427   $ 34,454

 Receipt of proceeds for the salvage value
   of retired oil and gas equipment            $ 12,336    $ 58,340    $ 28,348

     The Partnership  participates  in oil and gas activities  through an income
tax partnership (the "Program") pursuant to the Program agreement. PPDLP and the
Partnership are parties to the Program agreement.

     The  costs and  revenues  of the  Program  are  allocated  to PPDLP and the
Partnership as follows:
                                                    PPDLP (1)       Partnership
                                                    ---------       -----------
Revenues:
  Proceeds from disposition of depreciable
    properties                                       9.09091%        90.90909%
  All other revenues                                24.242425%       75.757575%

Costs and expenses:
  Lease acquisition costs, drilling and
    completion costs and all other costs             9.09091%        90.90909%
  Operating costs, direct costs and general
    and administrative expenses                     24.242425%       75.757575%

   (1)   Excludes PPDLP's 1% general partner ownership which is allocated at th
         Partnership level and 60 limited partner interests owned by PPDLP.

Note 7.     Oil and gas information (unaudited)

       The following table presents  information  relating to the  Partnership's
estimated  proved oil and gas reserves at December  31, 1996,  1995 and 1994 and
changes in such quantities during the years then ended. All of the Partnership's
reserves  are proved and located  within the United  States.  The  Partnership's
reserves are based on an evaluation  prepared by the engineering  staff of PPUSA
and reviewed by an independent petroleum consultant,  using criteria established
by  the  Securities  and  Exchange  Commission.  Reserve  value  information  is
available  to  limited  partners  pursuant  to the  Partnership  agreement  and,
therefore, is not presented.
                                       25

<PAGE>



                                                    Oil (bbls)       Gas (mcf)
                                                    ----------       ---------
   Net proved reserves at January 1, 1994             864,880        5,127,182
   Revisions                                          (61,421)      (1,314,117)
   Production                                         (65,208)        (289,443)
                                                      -------         --------
   Net proved reserves at December 31, 1994           738,251        3,523,622
   Revisions                                          (34,442)        (108,877)
   Production                                         (57,498)        (261,087)
                                                      -------         --------
   Net proved reserves at December 31, 1995           646,311        3,153,658
   Revisions                                          124,741          728,870
   Sale of reserves                                    (3,398)         (21,832)
   Production                                         (52,839)        (246,386)
                                                      -------         --------
   Net proved reserves at December 31, 1996           714,815        3,614,310
                                                      =======        =========

       The estimated  present  value of future net revenues of proved  reserves,
calculated  using December 31, 1996 prices of $24.83 per barrel of oil and $3.65
per mcf of gas, discounted at 10% was approximately  $7,217,000 and undiscounted
was $14,627,000 at December 31, 1996.

       The  Partnership   emphasizes  that  reserve   estimates  are  inherently
imprecise  and,  accordingly,  the  estimates  are  expected to change as future
information becomes available.

Note 8.     Major customers

       The following table reflects the major customers of the Partnership's oil
and gas sales  (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:

                                            1996       1995       1994
                                           ------     ------     ------
     Genesis Crude Oil, L.P.                 54%        56%        55%
     GPM Gas Corporation                     15%        13%        27%
     Western Gas Resources Inc.              15%        14%         -

       The  above  customers  represent  80%  of  total  accounts  receivable at
December 31, 1996.

       PPDLP is party to a  long-term  agreement  pursuant  to which  PPDLP  and
affiliates are to sell to Basis Petroleum,  Inc. (formerly Phibro Energy,  Inc.)
substantially  all crude oil (including  condensate)  which any of such entities
have the right to market from time to time.  On September  23,  1996,  PPDLP and
Basis Petroleum,  Inc. entered into an agreement that supersedes the prior crude
oil purchase  agreement  between the parties and  provides  for  adjusted  terms
effective  December 1, 1995. On November 25, 1996, the Company  consented to the
assignment of the agreement to Genesis  Crude Oil, L.P.  ("Genesis"),  a limited
partnership formed by Basis Petroleum, Inc. and Howell Corporation. The price to
be paid by Genesis for oil purchased under the agreement  ("Genesis  Agreement")

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is to be  competitive  with prices paid by other  substantial  purchasers in the
same areas who are significant  competitors of Genesis. The price to be paid for
oil purchased under the Genesis Agreement  includes a market-related  bonus that
may vary from month to month  based  upon spot oil  prices at various  commodity
trade points. The term of the Genesis Agreement is through June 30, 1998, and it
may continue  thereafter  subject to  termination  rights  afforded  each party.
Salomon,  Inc., the parent company of Basis  Petroleum,  Inc. and a subordinated
limited partner in Genesis,  secures the payment  obligations  under the Genesis
Agreement with a $25 million payment guarantee.  Accounts receivable-oil and gas
sales included $121,902 due from Genesis at December 31, 1996.

Note 9.     Contingencies

       On May 25, 1993, a final settlement agreement was negotiated, drafted and
finally  executed,  ending litigation which had begun on September 5, 1989, when
the Partnership filed suit along with other parties against Dresser  Industries,
Inc.;  Titan  Services,  Inc.;  BJ-Titan  Services  Company;  BJ-Hughes  Holding
Company;  Hughes Tool Company;  Baker Hughes Production  Tools,  Inc.; and Baker
Hughes  Incorporated  alleging that the defendants had  intentionally  failed to
provide the materials and services  ordered and paid for by the  Partnership and
other parties in connection with the fracturing and acidizing of 523 wells,  and
then  fraudulently  concealed  the  shorting  practice  from  Parker  &  Parsley
Development L.P. ("PPDLP").  The May 25, 1993 settlement  agreement called for a
payment  of  $115  million  in  cash  by  the  defendants,  and  Southmark,  the
Partnership,  and the other  plaintiffs  indemnified the defendants  against the
claims of Jack N.  Price.  The  managing  general  partner  received  the funds,
deducted incurred legal expenses,  calculated  accrued interest,  determined the
general  partner's  portion of the funds and  calculated  any  inter-partnership
allocations.

       On May 3, 1993,  Jack N. Price,  the  attorney  who  represented  Gary G.
"Zeke"  Lancaster  in the Federal  Court  lawsuit,  filed suit in State Court in
Beaumont  against all of the plaintiff  partnerships,  including the Partnership
and others, alleging his entitlement to 12% of the settlement proceeds.  Price's
lawsuit  claim for  approximately  $13.8  million was  predicated on a purported
contract  entered  into with  Southmark  Corporation  in August 1988 in which he
allegedly bound the Partnership and the other defendants,  as well as Southmark.
Although PPDLP believed the lawsuit to be without merit and vigorously  defended
it,  PPDLP  held in reserve  approximately  12.5% of the total  settlement  (the
"Reserve") pending final resolution of the litigation.

       A distribution  of $91,000,000 was made to the working  interest  owners,
including the Partnership, on July 30, 1993. The limited partners received their
distribution  of $6,972,477,  or $360.95 per limited  partnership  interest,  in
September 1993. The allocation of the lawsuit settlement amount was based on the
original  verdict  entered on October 26, 1990.  The  allocation  to the working
interest owners in each well (including the Partnership) was based on a ratio of
the relative  amount of damages due to  overcharges  for services and  materials
("Materials") and damages for loss of past and future production ("Production"),
each as determined in that initial judgment. Within the Partnership, damages for
Materials  were allocated  between the partners based on their original  sharing
percentages for costs of acquiring and/or drilling of wells. Similarly,  damages
related to Production were allocated to the partners in the Partnership based on
their respective share of revenues from the subject wells.

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       As a condition of the purchase by Parker & Parsley  Petroleum  Company of
Parker & Parsley  Development  Company ("PPDC"),  which was merged into PPDLP on
January 1, 1995,  from its former  parent in May 1989,  PPDC's  interest  in the
lawsuit  and   subsequent   settlement   was  retained  by  the  former  parent.
Consequently,  all of PPDC's share of the  settlement  related to its separately
held  interests  in the wells and its  partnership  interests  in the  sponsored
partnerships  (except that portion allocable to interests acquired by PPDC after
May 1989) was paid to the former parent.

       On  September  20,  1995,  the  Beaumont  trial  judge  entered a summary
judgment against  Southmark for the $13,790,000  contingent fee sought by Price,
together  with  prejudgment  interest,  and  also  awarded  Price  an additional
$5,498,525 in attorneys'  fees. On January 22, 1996,  the trial judge entered an
interlocutory  summary judgment against Dresser  Industries and Baker Hughes for
an  amount  to be  determined.  Pursuant  to their  indemnity  obligations,  the
Partnership, Southmark, PPDLP and other original plaintiffs vigorously protected
the rights of both Dresser and Baker Hughes.  Southmark  vigorously  pursued its
appeal of the  judgment,  and posted a  supersedeas  bond  using the  Reserve as
collateral. On April 29, 1996, all of the parties, including the Partnership and
Southmark,  entered  into a $7.4 million  settlement  with Price which fully and
finally  resolved  all of the  litigation  and  disputes  between  the  parties,
including the Partnership's indemnity obligations to Dresser and Baker Hughes.

       Pursuant to the  settlement  agreement,  all of the pending  lawsuits and
judgments have been dismissed,  the supersedeas  bond released,  and the Reserve
released as collateral.  On June 28, 1996, a final  distribution was made to the
working interest owners,  including $697,816,  or $36.12 per limited partnership
interest to the Partnership and its partners.

Note 10.     Organization and operations

       The Partnership was organized December 30, 1986 as a limited  partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties.  The following is a brief summary of the more
significant provisions of the limited partnership agreement:

       Managing  general  partner - The general  partner of the  Partnership  is
       PPDLP.  PPDLP, the managing general partner,  has the power and authority
       to manage,  control and administer  all  Partnership  affairs.  Under the
       limited  partnership  agreement,  the managing general partner pays 1% of
       the  Partnership's  acquisition,  drilling and completion costs and 1% of
       its operating and general and administrative  expenses.  In return, it is
       allocated 1% of the Partnership's revenues.

       Limited  partner  liability  - The  maximum  amount of  liability  of any
       limited partner is the total contributions of such partner plus his share
       of any undistributed profits.

       Initial  capital  contributions  -  The  limited  partners  entered  into
       subscription   agreements   for  aggregate   capital   contributions   of
       $19,317,000.  PPDLP is  required  to  contribute  amounts  equal to 1% of

                                       28


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       initial   Partnership  capital  less  commission  and  offering  expenses
       allocated to the limited partners and to contribute  amounts necessary to
       pay costs and expenses allocated to it under the Partnership agreement to
       the extent its share of revenues does not cover such costs.

Note 11.     Disposition of Assets

       During 1996, a gain of $29,739 was realized from the sale of four oil and
gas wells and four saltwater disposal wells to Costilla Energy,  L.L.C. The gain
resulted from  proceeds  received from the sale of $31,623 less the write-off of
remaining capitalized well costs of $1,884.

                                       29

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                           PARKER & PARSLEY 86-C, LTD.

                                INDEX TO EXHIBITS




       The following documents are incorporated by reference in response to Item
14(c):

Exhibit No.                     Description                         Page
-----------                     -----------                         ----

    3(a)            Amended and Restated Certificate of               -
                    Limited Partnership of Parker & Parsley
                    86-C, Ltd.

    4(a)            Agreement of Limited Partnership of               -
                    Parker & Parsley 86-C, Ltd.

    4(b)            Form of Subscription Agreement and                -
                    Power of Attorney

    4(c)            Specimen Certificate of Limited                   -
                    Partnership Interest

   10(a)            Operating Agreement                               -

   10(b)            Exploration and Development Program               -
                    Agreement

   99.1             Mutual Release and Indemnity Agreement
                    dated May 25, 1993                                -


                                       30

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