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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 1995

                           Commission file number 1-82

                            PHELPS DODGE CORPORATION

                            (a New York corporation)

                                   13-1808503
                      (I.R.S. Employer Identification No.)

                 2600 N. Central Avenue, Phoenix, AZ 85004-3089

                  Registrant's telephone number: (602) 234-8100

           Securities registered pursuant to Section 12(b) of the Act:

                                                           Name of each exchange
      Title of each class                                   on which registered
      -------------------                                  ---------------------

Common Shares, $6.25 par value per share                 New York Stock Exchange

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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]

The aggregate  market value of Common Shares of the issuer held by nonaffiliates
at March 7, 1996, was approximately $4,238,753,100.

Number of Common Shares outstanding at March 7, 1996:  66,883,678 shares.

                      Documents Incorporated by Reference:

              Document                                        Location in 10-K
              --------                                        ----------------
Proxy Statement for 1996 Annual Meeting                           Part III

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<PAGE>
                            PHELPS DODGE CORPORATION

                         1995 Annual Report on Form 10-K

                                     Part I

Items 1. and 2.  Business and Properties
----------------------------------------

        Phelps  Dodge  Corporation,  incorporated  under the laws of New York in
1885, is among the world's largest producers of copper. In 1995, the Corporation
produced  712,700 tons of copper for its own account from its  worldwide  mining
operations and an additional 154,900 tons of copper for the accounts of minority
interest owners.  Gold, silver,  molybdenum,  copper chemicals and sulfuric acid
are also produced as by-products of the Corporation's copper operations.

        Production  of copper for the  Corporation's  own account  from its U.S.
operations  constituted over 25 percent of the copper mined in the United States
in 1995. Much of the Corporation's U.S. copper production,  after electrowinning
or smelting and refining, together with additional copper purchased from others,
is used by the Corporation to produce continuous-cast copper rod, the basic feed
for the  electrical  wire and cable  industry.  The  Corporation  is the world's
largest producer of copper rod.

        Phelps Dodge's  international  mining interests include Candelaria,  its
major new copper mine in Chile that  commenced  operations in October 1994,  and
other operations in Chile,  South Africa and Peru.  These  operations  produce a
variety of metals and minerals including copper, gold,  fluorspar,  silver, lead
and zinc.  Phelps Dodge also  explores for metals and  minerals  throughout  the
world.

        The Corporation also manufactures  engineered  products  principally for
the  transportation,  energy and  telecommunications  sectors through a group of
industrial  companies.  Columbian Chemicals Company is among the world's largest
producers of carbon black, a reinforcing  agent in natural and synthetic  rubber
that increases the service life of tires, hoses, belting and other products, for
the  rubber  industry.  It  also  produces  specialty  carbon  black  for  other
industrial  applications such as pigments for printing,  coatings,  plastics and
other  non-rubber  applications.  Accuride  Corporation  is  the  largest  North
American  manufacturer  of steel  wheels and rims for  medium and heavy  trucks,
trailers  and buses.  Phelps  Dodge  Magnet Wire  Company,  the world's  largest
manufacturer of magnet wire,  produces magnet wire and other copper products for
sale  principally  to original  equipment  manufacturers  for use in  electrical
motors, generators,  transformers and other products. Phelps Dodge International
Corporation  manufactures  telecommunication  and energy  cables  and  specialty
conductors  at  its  U.S.  and  international   operations.   Its  international
operations   comprise  joint  venture   associations  at  eight   majority-owned
subsidiaries  operating  in nine  countries,  and  minority  interests  in other
international wire and cable manufacturers  operating in six countries.  Through
several of these  companies,  the  Corporation is also active in the engineering
and installation of telephone lines.

        The  discussion  of the  business  and  properties  of  the  Corporation
contained  below in Items 1 and 2 of this  report is based on the  Corporation's
two business  segments:  (i) Phelps  Dodge Mining  Company and (ii) Phelps Dodge
Industries.  These  are  more  fully  described  in Note 20 to the  Consolidated
Financial  Statements  which also sets forth  financial  information  about such
segments.

     (i)    The Phelps Dodge Mining Company segment  includes the  Corporation's
            worldwide  copper  operations  from mining  through rod  production,
            marketing and sales,  other mining  operations and investments,  and
            worldwide mineral exploration and development programs.

     (ii)   The Phelps  Dodge  Industries  segment  includes  the  Corporation's
            carbon black  operations,  its wheel and rim business,  and its wire
            and cable operations.

        Information about sales and earnings of international  operations of the
Corporation  is  also  included  in  Note  20  to  the  Consolidated   Financial
Statements.

        Unless the context otherwise requires,  "Corporation" and "Phelps Dodge"
as used herein mean Phelps Dodge Corporation and its consolidated  subsidiaries.
All references to tons in this report are to short tons and references to ounces
are to troy ounces.

        The number of persons  employed by the Corporation on December 31, 1995,
was 15,343.

PHELPS DODGE MINING COMPANY
---------------------------

        Phelps Dodge Mining Company is an  international  business  comprising a
group of companies involved in vertically integrated copper operations including
mining,  concentrating,  electrowinning,  smelting and refining, rod production,
marketing and sales, and related activities.  Copper is sold primarily to others
as rod,  cathode  or  concentrates,  and as rod to the Phelps  Dodge  Industries
segment.  In addition,  Phelps Dodge Mining  Company at times smelts and refines
copper and produces  copper rod for others on a toll basis.  Phelps Dodge Mining
Company  also  produces  gold,  silver,   molybdenum  and  copper  chemicals  as
by-products,  and sulfuric acid from its air quality  control  facilities.  This
segment also includes the Corporation's  other mining operations and investments
(including  fluorspar,  silver,  lead and  zinc  operations)  and its  worldwide
mineral exploration and development programs.

Properties, Facilities and Production
-------------------------------------

        Copper Operations
        -----------------

        Phelps  Dodge  produces  copper  concentrates  from  open-pit  mines and
concentrators  located in Morenci,  Arizona;  Santa Rita,  New Mexico;  and near
Copiapo,  Chile.  The  Corporation  also produces copper  concentrates  from two
underground  mines and a  concentrator  located  near  Copiapo  through Ojos del
Salado which is a wholly owned Chilean  subsidiary of Phelps Dodge  Corporation.
In addition,  the Corporation  produces minor amounts of copper  precipitates at
various leaching operations.  Precipitates,  like concentrates,  must be smelted
and then electrolytically refined.

        The  Corporation  produces  electrowon  copper from  mine-for-leach  and
solution extraction/electrowinning (SX/EW) operations in Tyrone, New Mexico. The
Corporation  produced  copper  concentrates  at Tyrone until  February 1992 when
concentrator operations were indefinitely suspended because the higher-grade ore
reserves were substantially  depleted. In addition to the Tyrone operation,  the
Corporation  produces  electrowon copper from SX/EW plants at Morenci,  Arizona,
and Santa Rita, New Mexico.

        The Morenci complex in southeastern  Arizona comprises an open-pit mine,
two concentrators  and two SX/EW facilities,  one of which is the largest in the
world.  The  Corporation  owns an 85 percent  undivided  interest in the Morenci
complex;  the  remaining 15 percent  interest is owned by Sumitomo  Metal Mining
Arizona,  Inc.  (Sumitomo),  a jointly owned subsidiary of Sumitomo Metal Mining
Co., Ltd. and Sumitomo Corporation.  Phelps Dodge is the operator of the Morenci
properties.  Sumitomo takes in kind its share of Morenci production. The Morenci
complex is the largest copper producing operation in North America.

        The allocation of available  supplies of water among water users has for
several  years been the  subject of  litigation  in  Arizona,  where the amounts
claimed exceed  supplies.  Morenci water rights were  established many years ago
through state administrative proceedings and judicial decrees.  Nevertheless, in
recent years various  Indian tribes in Arizona have filed suits in federal court
claiming prior and paramount  rights to use waters that are presently being used
by many water users,  including  the  Corporation,  and damages for prior use in
derogation of their allegedly  paramount rights. In addition,  state proceedings
are currently under way to adjudicate  water rights on two principal  watersheds
in Arizona - the Gila River watershed and the Little Colorado  watershed.  These
suits and adjudication proceedings could adversely affect the water supplies for
the  Morenci  operation  and  other  prospective  producing  properties  of  the
Corporation in Arizona.  See "Legal Proceedings" for information  concerning the
status of these  proceedings and other legal  proceedings  that might affect the
Corporation's rights to use water.

        The open-pit copper mine, concentrator and SX/EW facility in Santa Rita,
New  Mexico,  and a smelter  in Hurley,  New  Mexico,  are owned by Chino  Mines
Company  (Chino),  a  general  partnership  in  which  the  Corporation  holds a
two-thirds  partnership  interest.   Heisei  Minerals  Corporation  (Heisei),  a
subsidiary of Mitsubishi Corporation and Mitsubishi Materials Corporation,  owns
the  remaining  one-third  interest  in Chino.  Phelps  Dodge  manages the Chino
operations.

        Candelaria,  Phelps  Dodge's newest mine, is located near Copiapo in the
Atacama  Desert  of  northern  Chile.  Phelps  Dodge  Mining  Company  completed
construction  and  commenced  operations  at  Candelaria  in October  1994,  and
achieved full  production  in 1995.  The project  consists of an open-pit  mine,
concentrator,  port and associated  facilities.  Phelps Dodge owns an 80 percent
interest in Candelaria  (through PD Candelaria,  Inc., a wholly owned subsidiary
of the  Corporation),  with a jointly owned  subsidiary of Sumitomo Metal Mining
Co.,  Ltd.  and Sumitomo  Corporation,  both of Japan,  owning the  remaining 20
percent interest.

        The Tyrone  mine-for-leach  operation near Silver City,  New Mexico,  is
wholly owned by Phelps Dodge Corporation. The SX/EW plant at Tyrone is owned and
operated by Burro Chief Copper Company (Burro Chief),  a wholly owned subsidiary
of the Corporation. Burro Chief also operates the SX/EW plant at Santa Rita.

        Phelps Dodge is the leading  producer of copper using the SX/EW process.
In 1995, the  Corporation  produced a total of 364,200 tons of cathode copper at
its SX/EW  facilities,  compared  with  325,800 tons in 1994 and 308,200 tons in
1993.  The SX/EW method is a  cost-effective  process of extracting  copper from
certain  types of  ores.  As used by the  Corporation  in  conjunction  with its
conventional  concentrating,  smelting and refining,  SX/EW is a major factor in
its continuing efforts to maintain internationally competitive costs.

        The Corporation  initiated SX/EW  production at Morenci in late 1987 and
has expanded  production  several times since then.  During the third quarter of
1995,  Phelps  Dodge  Mining  Company   completed   construction  and  commenced
operations at its $200 million Southside project (the  Corporation's  share will
be $170 million with the remainder provided by its co-participant,  Sumitomo) at
its Morenci  mine.  This project has  increased  Phelps  Dodge's share of annual
electrowon  copper  production  capacity at Morenci by approximately 130 million
pounds  to a new  total of  approximately  425  million  pounds.  The  expansion
involved the  development of the Southside ore deposit  adjacent to the existing
open-pit  mine  at  Morenci.  The  expansion  included  the  construction  of an
electrowinning  tankhouse, the expansion of existing solution extraction plants,
the upgrading of infrastructure systems and the addition of mining equipment.

        The Corporation initiated SX/EW production at its Burro Chief plant near
Tyrone in 1984. In early 1992, the Corporation  completed a fourth  expansion of
the plant that  increased  its  production  capacity  to 70,000  tons of cathode
copper per year.  The  Corporation  expects to operate the plant for the next 10
years or more; however, unless further reserves are identified,  production will
decline toward the latter part of that period.

        The Corporation initiated production at its SX/EW plant at Santa Rita in
August 1988.  The  Corporation  completed  its first  expansion of this plant in
April 1993,  increasing  design  capacity  to 60,000 tons of cathode  copper per
year.

        The  Corporation  owns and  operates a smelter in  Hidalgo  County,  New
Mexico,  and,  through Chino Mines  Company,  owns a two-thirds  interest in and
operates the Chino smelter in Hurley, New Mexico.  Phelps Dodge smelts virtually
all of its  share of its  U.S.  concentrate  production  and  occasionally  some
concentrate production from Candelaria, and serves as a custom smelter for other
mining companies.  It also refines its share of its anode copper production.  In
addition,  the Corporation purchases concentrates to keep its smelters operating
at  efficient  levels.  Such  purchases  are  expected to continue  whenever the
smelting  capacity of the Hidalgo and Chino smelters exceeds Phelps Dodge Mining
Company's share of its concentrate production.

        The  Corporation's  refinery  in El Paso,  Texas,  is one of the world's
largest  copper  refineries.  During  1995,  the  refinery  operated at capacity
producing  just over  450,000  tons of  electrolytic  copper.  This  capacity is
sufficient to refine all copper  produced by the  Corporation for its account at
its two operating smelters.  The El Paso refinery also produces gold, silver and
copper sulfate and recovers small amounts of selenium, platinum and palladium as
by-products of the copper refining process.

        Phelps Dodge is the world's largest producer of  continuous-cast  copper
rod,  the basic feed for the  electrical  wire and cable  industry.  Most of the
Corporation's   refined  copper,   and  additional   copper   purchased  by  the
Corporation,  is converted into rod at its continuous-cast copper rod facilities
in El Paso,  Texas, and Norwich,  Connecticut.  The two plants have a collective
annual  capacity to convert more than  650,000 tons of refined  copper into rod.
During 1995,  combined  production of rod and other refined copper products from
the two plants was 654,200 tons. In addition,  an Elizabeth,  New Jersey,  plant
fabricates  specialty copper and copper alloy products for use in the aerospace,
automotive, transportation and semiconductor industries.

        The following tables give the Corporation's  worldwide copper production
by source for the years 1991 through  1995;  aggregate  production  and delivery
(sales) data for copper,  gold, silver,  molybdenum and sulfuric acid from these
sources for the same years;  annual average copper prices;  and production  from
the Corporation's smelters and refinery.  Major changes in operations during the
five-year  period  included  (1)  increases  in capacity in 1992 and 1995 of the
SX/EW  facilities at Morenci and the 1992  expansion of the Burro Chief plant at
Tyrone;  (2)  indefinite  suspension  of  concentrator  operations  at Tyrone in
February  1992;  (3) expansion of the mill at Ojos del Salado in 1991 from 1,900
to 3,850 tons of ore per day; (4) commissioning of the Santa Gertrudis gold mine
in May  1991  and the  subsequent  sale  of the  Corporation's  interest  in the
property in the 1994 second quarter;  (5) at Morenci,  completion in 1992 of the
Northwest  Extension  and  the  1995  start  up of the  Southside  project;  (6)
expansion  of  Chino's  SX/EW  plant at Santa  Rita in April  1993;  (7)  severe
flooding  problems at Ojos del  Salado's  Santos  mine in 1993 that  resulted in
reduced production of copper concentrate;  and (8) commencement of operations at
Candelaria  in the 1994 fourth  quarter and  achievement  of full  production in
1995.
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------------

PHELPS DODGE COPPER PRODUCTION DATA, BY SOURCE
----------------------------------------------
(thousand tons)

<CAPTION>
                                                             1995        1994        1993        1992        1991
                                                             ----        ----        ----        ----        ----
<S>                                                        <C>         <C>         <C>         <C>         <C>    
MATERIAL MINED
 Morenci ..............................................    261,264     240,700     219,032     203,456     198,009
 Tyrone ...............................................     83,935      62,067      49,387      32,407      92,542
 Chino ................................................    115,821     105,057     108,568     103,081     103,198
 Candelaria ...........................................     72,068      17,842           -           -           -
 Ojos del Salado ......................................      1,855       1,712       1,438       1,564       1,612
                                                           -------     -------     -------     -------     -------
     Total material mined .............................    534,943     427,378     378,425     340,508     395,361
Less minority participants' shares ....................     92,211      74,692      69,044      64,878      64,100
                                                           -------     -------     -------     -------     -------
     Net Phelps Dodge share ...........................    442,732     352,686     309,381     275,630     331,261
                                                           =======     =======     =======     =======     =======

MILL ORE MINED
 Morenci ..............................................     44,284      45,240      46,990      46,562      44,529
 Tyrone ...............................................          -           -           -       1,293      15,708
 Chino ................................................     17,026      17,811      17,436      17,160      18,048
 Candelaria ...........................................     11,439       2,685           -           -           -
 Ojos del Salado ......................................      1,596       1,536       1,314       1,513       1,159
                                                           -------     -------     -------     -------     -------
     Total mill ore mined .............................     74,345      67,272      65,740      66,528      79,444
Less minority participants' shares ....................     14,606      13,260      12,861      12,704      12,695
                                                           -------     -------     -------     -------     -------
     Net Phelps Dodge share ...........................     59,739      54,012      52,879      53,824      66,749
                                                           =======     =======     =======     =======     =======

GRADE OF ORE MINED - PERCENT COPPER
  Morenci .............................................       0.64        0.65        0.67        0.67        0.69
  Tyrone ..............................................          -           -           -        0.69        0.58
  Chino ...............................................       0.76        0.69        0.73        0.68        0.70
  Candelaria ..........................................       1.88        1.27           -           -           -
  Ojos del Salado .....................................       1.40        1.38        1.43        1.77        2.26

RECOVERABLE COPPER (a)
 Morenci:
    Concentrate .......................................      211.6       217.3       233.3       226.5       222.8
    Electrowon ........................................      225.7       190.1       170.8       162.8       119.4
 Tyrone:
    Concentrate and precipitate .......................        4.3         4.2         6.0         8.5        62.6
    Electrowon ........................................       70.4        68.9        73.5        70.2        59.5
 Chino:
    Concentrate and precipitate .......................      100.6        92.7        95.6        94.9       102.2
    Electrowon ........................................       68.1        66.8        63.9        57.3        55.2
 Candelaria:
    Concentrate .......................................      165.7        31.0           -           -           -
 Ojos del Salado:
    Concentrate .......................................       19.6        18.6        16.7        24.4        20.0
 Bisbee precipitate and
    miscellaneous .....................................        1.6         3.6         1.6         1.4         0.1
                                                           -------     -------     -------     -------     -------
    Total recoverable copper ..........................      867.6       693.2       661.4       646.0       641.8
Less minority participants' shares ....................      154.9       120.4       113.7       109.0       103.7
                                                           -------     -------     -------     -------     -------
     Net Phelps Dodge share ...........................      712.7       572.8       547.7       537.0       538.1
                                                           =======     =======     =======     =======     =======

------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------------- 
PHELPS DODGE METAL PRODUCTION AND DELIVERIES (a)
------------------------------------------------
<CAPTION>
                                                       1995         1994         1993         1992        1991
                                                       ----         ----         ----         ----        ----
<S>                                                  <C>          <C>          <C>          <C>          <C>  

COPPER (THOUSAND TONS)
    Total production ..............................    867.6        693.2        661.4        646.0        641.8
    Less minority participants'
    shares ........................................    154.9        120.4        113.7        109.0        103.7
                                                     -------      -------      -------      -------      -------
     Net Phelps Dodge share .......................    712.7        572.8        547.7        537.0        538.1
                                                     =======      =======      =======      =======      =======

    Deliveries (b)                                     696.6        560.6        543.9        537.7        553.9
                                                     =======      =======      =======      =======      =======

GOLD (THOUSAND OUNCES) (c)
    Total production ..............................      151           93           85          105           85
    Less partners' shares .........................       31           28           29           38           25
                                                     -------      -------      -------      -------      -------
     Net Phelps Dodge share .......................      120           65           56           67           60
                                                     =======      =======      =======      =======      =======

    Deliveries (b)                                       125           47           54           59           57
                                                     =======      =======      =======      =======      =======

SILVER (THOUSAND OUNCES) (c)
    Total production ..............................    2,739        1,627        1,387        1,403        1,931
    Less partners' shares .........................      545          360          273          315          314
                                                     -------      -------      -------      -------      -------
     Net Phelps Dodge share .......................    2,194        1,267        1,114        1,088        1,617
                                                     =======      =======      =======      =======      =======

    Deliveries (b)                                     1,985        1,039        1,085        1,083        1,531
                                                     =======      =======      =======      =======      =======

MOLYBDENUM (THOUSAND POUNDS)
     Total production .............................    2,024          969        1,200        1,729        2,078
     Less minority participants'
     shares .......................................      507          226          394          528          501
                                                     -------      -------      -------      -------      -------
      Net Phelps Dodge share ......................    1,517          743          806        1,201        1,577
                                                     =======      =======      =======      =======      =======

     Deliveries                                        1,328          698          905        1,129        1,566
                                                     =======      =======      =======      =======      =======

SULFURIC ACID
(THOUSAND TONS) (d)
    Total production ..............................  1,252.6      1,276.7      1,379.4      1,230.0      1,301.7
    Less minority participant's
    share .........................................    181.3        191.5        193.9        184.4        183.0
                                                     -------      -------      -------      -------      -------
     Net Phelps Dodge share .......................  1,071.3      1,085.2      1,185.5      1,045.6      1,118.7
                                                     =======      =======      =======      =======      =======

     Deliveries                                        554.3        685.2        718.4        733.7        855.7
                                                     =======      =======      =======      =======      =======


----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                  1995         1994         1993         1992         1991
                                                  ----         ----         ----         ----         ----

<S>                                            <C>          <C>          <C>          <C>          <C> 
COMEX COPPER PRICE (e) ......................    $1.35         1.07         0.85         1.03         1.05

-------------------------------------------------------------------------------------------------------------------

PHELPS DODGE SMELTERS AND REFINERY - PRODUCTION
-----------------------------------------------

Smelters (f)
  Total copper (thousand tons) ..............    422.5        411.7        376.7        329.2        305.7
  Less minority participant's share .........     58.6         60.0         51.0         49.3         34.7
                                               -------      -------      -------      -------      -------
       Net Phelps Dodge share ...............    363.9        351.7        325.7        279.9        271.0
                                               =======      =======      =======      =======      =======
Refinery (g)
  Copper (thousand tons) ....................    453.0        453.8        432.4        388.1        386.0
  Gold (thousand ounces) ....................    145.4        118.0         85.8         78.8         56.8
  Silver (thousand ounces) ..................  3,441.5      2,672.3      3,144.7      2,377.0      2,199.1

-------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes to the preceding tables:
     (a)    Includes smelter  production from custom receipts and fluxes as well
            as tolling gains or losses.
     (b)    Excludes sales of purchased copper, silver and gold.
     (c)    Includes the Santa  Gertrudis  gold  project,  which was operated by
            Phelps Dodge from 1991 through the 1994 second quarter.
     (d)    Sulfuric acid  production  results from smelter air quality  control
            operations; deliveries do not include internal usage.
     (e)    New York  Commodity  Exchange  annual average spot price per pound -
            cathodes.
     (f)    Includes  production from purchased  concentrates and copper smelted
            for others on toll.
     (g)    Includes  production from purchased  material and copper refined for
            others on toll.

--------------------------------------------------------------------------------

        Other Mining Operations and Investments
        ---------------------------------------

        Phelps Dodge Mining (Pty.) Limited,  a wholly owned subsidiary of Phelps
Dodge  Corporation,  operates the Witkop  fluorspar mine and mill in the western
Transvaal,   South  Africa.   The  operation   produces   acid-grade   fluorspar
concentrates for customers in South Africa, the United States, Europe, Australia
and Asia. During 1995, the plant expanded its technical process,  allowing it to
produce  metallurgical-grade  fluorspar for the clear glass and stainless  steel
industries.  Fluorspar  demand  continued its recovery  during 1995 resulting in
improved revenues and profitability for the operation.

        Black Mountain  Mineral  Development  Company (Pty.) Limited  operates a
lead-silver-zinc-copper  mine and  concentrator  in the Cape  Province  of South
Africa.  The operation is owned 44.6 percent by Phelps Dodge and 55.4 percent by
the Gold Fields of South Africa group.  Phelps Dodge accounts for its investment
in Black Mountain on the equity basis.  Despite a continuation of favorable base
metal  prices in 1995,  profitability  declined as less than  average ore grades
caused an increase in operating  costs.  Phelps Dodge  received $5.7 million and
$2.9  million  in  dividend  payments  from  Black  Mountain  in 1995 and  1994,
respectively.  The 1994 dividend was the first received by the Corporation  from
Black Mountain since 1991.

        Phelps  Dodge owns a 13.9  percent  interest  in  Southern  Peru  Copper
Corporation (SPCC), which operates two copper mines, two concentrators, an SX/EW
facility,  a smelter and a refinery in Peru. The Corporation's  interest in SPCC
decreased  from the 16.25  percent  it held at the end of 1994 as a result of an
exchange  offering of SPCC common  shares  recently  consummated.  SPCC's  other
shareholders are ASARCO  Incorporated with a 54.1 percent interest and the Cerro
Trading  Company with a 17.8 percent  interest.  The common stock held by Phelps
Dodge,  ASARCO and Cerro Trading  Company is closely held and is not  registered
for trading.  The  remaining  14.2  percent  interest is publicly  held.  SPCC's
results are not  included in Phelps  Dodge's  earnings  because the  Corporation
accounts for its investment in SPCC on the cost basis. During 1995, Phelps Dodge
received  dividend  payments  of $13.6  million  from SPCC,  compared  with $3.5
million in 1994,  $2.9 million in 1993, $2.4 million in 1992 and $9.8 million in
1991.

Exploration & Development
-------------------------

        Phelps  Dodge  Exploration   Corporation's  primary  objectives  are  to
increase copper reserves  through  discoveries,  acquisitions and joint ventures
and, where appropriate,  to diversify into other metals, minerals and geographic
areas.  Phelps Dodge  Exploration  Corporation  operates  offices in  Australia,
Canada,  Chile,  Mexico,  Peru,  South Africa,  Thailand,  the United States and
Zambia.  During  1995,  new offices  were  established  in the  Philippines  and
Indonesia.

        The 1995 exploration  program  continued to place emphasis on the search
for and  delineation of large scale copper,  gold and other base metal deposits.
The  Corporation  expended $60.3 million on worldwide  exploration  during 1995,
compared with $40.0 million in 1994 and $43.4 million in 1993.  Approximately 32
percent of the 1995 expenditures occurred in the United States, compared with 55
percent in both 1994 and 1993. The balance of exploration expenditures was spent
principally in Chile, Canada, Peru, Mexico, Australia and Zambia.

        During 1995,  continuing  exploration  efforts at existing  Phelps Dodge
copper operations outlined significant additional copper resources.

        In the Morenci area, a  districtwide  exploration  program  continued in
1995. Additional drilling at the Garfield deposit,  located north of the Morenci
and Metcalf ore bodies,  has  delineated  a mineral  resource  now  estimated to
contain  approximately  1  billion  tons of  leach  material  at a grade of 0.27
percent  copper.  The  Corporation  anticipates  that the volume of this  copper
resource may double with further drilling now under way.

        Elsewhere in the United States,  the  Corporation  continued to evaluate
its mineral resources in the Safford district in eastern Arizona.  An evaluation
of the Dos Pobres deposit  indicates 330 million tons of milling material with a
grade of 0.65 percent  copper and 285 million tons of leachable  material with a
grade of 0.39  percent  copper.  A  feasibility  study and  permitting  for this
resource will begin in early 1996.  Other  resources  under study in the Safford
district include San Juan, Lone Star and the recently acquired Sanchez property.
The Safford  district  has the  potential  to add an  estimated  100,000 tons of
low-cost  cathode copper to the annual copper  production of Phelps Dodge Mining
Company in the future.

        Project  permitting  continued  at the  Seven-Up  Pete  joint  venture's
McDonald gold project near Lincoln,  Montana, with the regulatory review process
expected to be complete in 1997.  Phelps Dodge  Corporation owns a 72.25 percent
interest in the Seven-Up Pete joint venture and Canyon Resources  Corporation of
Golden, Colorado, holds the remaining 27.75 percent interest.

        Internationally,  the Corporation increased exploration efforts in Peru,
where it acquired and began initial  evaluation of copper resources at the Chapi
prospect near Arequipa.  Phelps Dodge controls 70 percent of the property, while
local  interests  share the  remaining  30 percent.  In  addition,  Phelps Dodge
Exploration  Corporation has entered into a number of joint venture associations
with mining and exploration companies to evaluate selected mineral opportunities
in various countries.

        Phelps Dodge is also  evaluating the Piedras Verdes  property in Sonora,
Mexico. The Corporation acquired a 70 percent interest in this property in 1995;
the remaining 30 percent  interest is held by Azco Mining,  Inc. In Zambia,  the
Corporation completed a preliminary feasibility study of copper resources in the
Lumwana region. The initial evaluation will be complete in 1996.

Ore Reserves
------------

        Ore  reserves at each of Phelps  Dodge's  copper  operations  and at Dos
Pobres have been estimated as follows:

-------------------------------------------------------------------------------

                         Estimated at December 31, 1995
                         ------------------------------
                          Milling                   Leaching
                          Reserves                  Reserves             Phelps
                      ----------------          ----------------          Dodge
                      Million        %        Million          %        Interest
                       Tons       Copper        Tons         Copper        (%)
                       ----       ------        ----         ------       -----

Morenci ...........   430.5         0.72     1,094.5         0.31         85.0
Chino .............   297.5         0.67       662.6         0.24         66.7
Tyrone ............       -            -       170.6         0.36        100.0
Candelaria ........   384.4         1.07           -            -         80.0
Dos Pobres ........   330.0         0.65       285.0         0.39        100.0
Ojos del Salado ...    13.7         1.32           -            -        100.0

----------------

        The  Candelaria  and Ojos del Salado  deposits are estimated to contain,
        respectively, 0.007 ounces and 0.008 ounces of gold per ton.


                         Estimated at December 31, 1994
                         ------------------------------
                          Milling                   Leaching
                          Reserves                  Reserves             Phelps
                      ----------------          ----------------          Dodge
                      Million        %          Million        %        Interest
                       Tons       Copper        Tons         Copper        (%)
                       ----       ------        ----         ------       -----

Morenci ...........   477.7         0.72      1,193.2        0.32         85.0
Chino .............   315.4         0.67        720.5        0.24         66.7
Tyrone ............       -            -        230.2        0.35        100.0
Candelaria ........   399.1         1.09            -           -         80.0
Dos Pobres.........
Ojos del Salado ...    16.2         1.33            -           -        100.0

--------------------------------------------------------------------------------

        The Corporation's estimated share of aggregate ore reserves at the above
named properties at December 31 is as follows:

--------------------------------------------------------------------------------
                                        1995     1994     1993    1992     1991
                                        ----     ----     ----    ----     ----

Milling reserves (billion tons) .......  1.2      1.0      0.9     1.0      1.1

Leaching reserves (billion tons) ......  1.8      1.7      1.2     1.0      1.1

Commercially recoverable copper
  (million tons) ...................... 12.3     10.6     10.1    10.5     10.8

--------------------------------------------------------------------------------

        Ore  reserves at each of Phelps  Dodge's  other  mining  operations  and
investments at year-end 1995 are estimated as follows:
<TABLE>
-------------------------------------------------------------------------------------------------------------------

<CAPTION>
                        Ore                                                       Phelps
                      Reserves    Silver                                 %        Dodge
                      Million     Ounces      %         %       %     Calcium     Int.
                       Tons      Per Ton    Copper     Lead    Zinc   Fluoride    (%)
                      ------     --------   ------     ----    ----   -------     ----
<S>                 <C>            <C>       <C>       <C>      <C>    <C>       <C>
Black Mountain
  Broken Hill
   deposit             12.2        2.3       0.51      5.7      2.9        -      44.60

Southern Peru
  Copper
   Corporation *    1,294.4          -       0.74        -        -        -      13.90

Phelps Dodge
  Mining Limited       20.8          -          -        -        -    17.23     100.00

----------------

*       Southern Peru Copper Corporation deposits also contain approximately 155
        million tons of leach material at a grade of 0.27 percent copper.

-------------------------------------------------------------------------------------------------------------------
</TABLE>
        Ore  reserves  are  those  estimated   quantities  of  ore  that,  under
conditions anticipated by the Corporation, may be profitably mined and processed
for  extraction  of their  constituent  values.  Estimates of the  Corporation's
reserves  are based  upon the  Corporation's  engineering  evaluations  of assay
values  derived  from  samplings  of drill  holes  and  other  openings.  In the
Corporation's  opinion,  the sites for such  samplings  are spaced  sufficiently
close and the geologic  characteristics  of the deposits are  sufficiently  well
defined to render the estimates  reliable.  Stated tonnages and grades of ore do
not reflect waste dilution in mining or losses in processing.  Leaching reserves
include copper estimated to be recoverable  from leach reserves  remaining to be
mined at Morenci, Chino, Tyrone and Dos Pobres.  Commercially recoverable copper
includes copper estimated to be recoverable  from milling and leaching  reserves
and from existing stock piles of leach material at Morenci, Chino and Tyrone.
<PAGE>
        The  Corporation  holds  various  other  properties  containing  mineral
deposits  that it  believes  could be  brought  into  production  should  market
conditions  warrant.  Permitting and significant  capital  expenditures would be
required before  operations could commence at these  properties.  These deposits
are estimated to contain the following mineralization as of December 31, 1995:

<TABLE>
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                     Sulfide Material   Leach Material                   Phelps
                                     ----------------   --------------        Gold       Dodge
                                   Million     %       Million    %          Ounces      Interest
                     Location       Tons    Copper      Tons    Copper       Per Ton      (%)
                     --------      -----    ------     -----    ------       -------      ---

<S>                  <C>             <C>      <C>      <C>        <C>         <C>       <C>   
Ajo                  Arizona         160      0.56         -         -          -       100.00

Cochise              Arizona           -         -       210      0.40          -       100.00

Copper Basin         Arizona          70      0.53         -         -          -       100.00

Coronado             Arizona         180      0.69       310      0.29          -        85.00

Garfield             Arizona           -         -     1,000      0.27          -        85.00

Lone Star            Arizona           -         -     1,600      0.38          -       100.00

Sanchez              Arizona           -         -       230      0.29          -       100.00

San Juan             Arizona           -         -       270      0.28          -       100.00

Western Copper       Arizona         530      0.55       500      0.31          -        85.00

McDonald             Montana           -         -       205         -         0.025     72.25

Piedras Verdes       Mexico            -         -       150      0.41          -        70.00

Black Mountain *     South Africa     20         -         -         -          -        44.60

------------------

        *   The Black Mountain  deposit  contains an estimated 6.3 percent lead,
            1.16 percent zinc, 0.71 percent copper and 1.81 ounces of silver per
            ton.

-------------------------------------------------------------------------------------------------------------------
</TABLE>

Ownership of Real Property
--------------------------

        The  Corporation  owns  substantially  all the lands on which its copper
mines,  concentrators,  SX/EW facilities,  smelters,  refinery and rod mills are
located  and holds  the rest  under  lease.  The Chino  Mines  partnership  owns
substantially  all the  lands on which  its  copper  mine,  concentrator,  SX/EW
facility and smelter are located and holds the rest under lease.

Sales and Competition
---------------------

        A majority of Phelps Dodge's copper,  and additional copper purchased by
the  Corporation,  is cast  into  rod.  Rod  sales to  outside  wire  and  cable
manufacturers  constituted  approximately  55  percent  of Phelps  Dodge  Mining
Company's  sales in 1995.  Phelps Dodge also sells its copper as concentrate and
cathode.  Sales  of rod  and  cathode  are  made  directly  to  wire  and  cable
fabricators and brass mills under contracts  principally of a one-year duration.
Phelps Dodge rod also is used by the  Corporation's  magnet wire,  bare wire and
specialty conductor operations.

        The  Corporation  sells  its  copper  rod and  cathode  on the  basis of
premiums,  which are announced  from time to time by the  Corporation,  over New
York Commodity Exchange (COMEX) prices. It also sells copper  concentrates based
on the  prices on the COMEX or the London  Metal  Exchange  (LME).  From time to
time,   Phelps  Dodge  engages  in  hedging  programs  designed  to  enable  the
Corporation to realize  current  average prices for metal delivered or committed
to be delivered.  Other price protection  arrangements  also may be entered into
from time to time, depending on market circumstances,  to ensure a minimum price
for a  portion  of  the  Corporation's  expected  future  mine  production  (see
Management's  Discussion  and  Analysis  and Notes 1 and 19 to the  Consolidated
Financial Statements for a further discussion of such arrangements).

        Most of the refined  copper sold by Phelps  Dodge is  incorporated  into
electrical  wire  and  cable  products  worldwide  for use in the  construction,
electric utility,  communications and transportation industries. It is also used
in industrial machinery and equipment,  consumer products and a variety of other
electrical and electronic applications.

        In the sale of copper as rod, cathode and concentrates,  the Corporation
competes,  directly or indirectly,  with many other sellers,  including at least
four other U.S. primary producers, as well as numerous foreign producers,  metal
merchants,  custom refiners and scrap dealers.  Some major producers outside the
United States have cost advantages resulting from richer ore grades, lower labor
rates  and  in  some  cases  a  lack  of  strict  regulatory  requirements.  The
Corporation  believes  that its ongoing  programs  to contain  costs and improve
productivity  in its copper  operations have  significantly  narrowed these cost
advantages and have placed the Corporation in a favorable  competitive  position
with respect to a number of its international competitors.

        The  Corporation's  copper also competes with other  materials,  such as
aluminum,  plastics,  stainless steel and fiber optics,  that can be substituted
for copper in certain applications.

        The  Corporation's  principal  methods  of  competing  include  pricing,
product quality, customer service and dependability of supply.

Prices, Supply and Consumption
------------------------------

        Copper  is an  internationally  traded  commodity,  and its  prices  are
effectively  determined  by the two  major  metals  exchanges  -- the  New  York
Commodity  Exchange  (COMEX) and the London Metal Exchange (LME).  The prices on
these  exchanges  generally  reflect the worldwide  balance of copper supply and
demand,  but are also influenced  significantly from time to time by speculative
actions and by currency exchange values.

        A slowing  world  economy and higher  exports  from  formerly  socialist
countries  resulted in modest surpluses in 1991 and 1992. As a result, the COMEX
price decreased in 1991 resulting in an annual average price per pound of $1.05,
and  decreased  further in 1992 to an annual  average  price per pound of $1.03.
Excess inventories caused average copper prices to decline to 85 cents per pound
in 1993. In 1994, excess inventories that accumulated after 1992 were liquidated
as copper consumption  increased  reflecting solid economic growth in the United
States,  the beginning of an economic  recovery in Europe and  continued  strong
demand  from the  Pacific Rim region,  excluding  Japan.  As a result,  the 1994
annual average price per pound increased to $1.07.

        In 1995,  the price of copper as  reported on COMEX  averaged  $1.35 per
pound of copper  cathode,  28 cents more than the 1994 average price.  The price
increase was  attributable  to the strong  growth in demand  during 1994,  which
reduced copper  inventories  to low levels in 1995.  However,  worldwide  copper
consumption  rose by only 1.7 percent in 1995. In the United  States,  inventory
adjustments in copper-intensive  sectors such as construction and transportation
negatively impacted  consumption.  In addition,  a second year of improvement in
European  consumption was partially offset by the faltering recovery in Japan, a
sharp contraction of economic activity in Taiwan,  and signs of slowed growth in
South Korea. At the same time, copper production increased  significantly.  Even
in light of the modest consumption  growth and significant  production growth, a
modest  deficit of copper still  existed in 1995.  In 1996 through  March 7, the
COMEX price averaged $1.17 per pound reflecting increasing inventory levels.

Costs
-----

        The  Corporation's   unit  production  costs  of  copper  in  1995  were
approximately  the same as those in 1994  generally  reflecting  continued  high
levels  of  production,  the  first  full year  effects  of low cost  Candelaria
production, the cost containment programs put into place over the last few years
and significant amounts of copper obtained through the SX/EW process,  including
the start up of the  Southside  SX/EW  project at the  Morenci  mine in the 1995
third quarter, at favorable incremental costs.

Energy Supplies
---------------

        The principal sources of energy for the Corporation's  copper operations
are natural  gas,  petroleum  products,  waste heat  generated  in the  smelting
processes  and  electricity  purchased  from  public  utilities.   Each  of  the
Corporation's  mine power  plants and  smelters  uses natural gas as its primary
fuel,  and each is capable of being  converted to use oil as a substitute  fuel.
The  Corporation  has  experienced  no  difficulty  in recent years in obtaining
adequate fuel to maintain production.

Environmental and Other Regulatory Matters
------------------------------------------

        Federal and state environmental laws and regulations affect many aspects
of the Corporation's  mining  operations.  The federal Clean Air Act of 1970, as
amended (the Clean Air Act),  and  regulations  thereunder  to date have had the
most significant impact, particularly on the Corporation's smelters.

        The "solid wastes" of the Corporation's copper operations may be subject
to regulation  under the federal  Resource  Conservation and Recovery Act (RCRA)
and related  state laws and, to the extent these wastes affect  surface  waters,
under the federal Clean Water Act and relevant state water quality laws.  Mining
wastes  were  exempted  from the federal  "hazardous  waste"  regulations  under
Subtitle C of RCRA pending study by the  Environmental  Protection  Agency (EPA)
and promulgation of regulations governing hazardous mining waste. As a result of
that study, EPA determined in 1986 that "extraction" and "beneficiation"  wastes
did not warrant  "hazardous  waste"  regulation  under  Subtitle C of RCRA,  but
instead  should be regulated  as "solid  waste"  under  Subtitle D of RCRA.  EPA
determined in 1991 that 20 mineral  "processing" wastes also should be regulated
as "solid  waste" under RCRA  Subtitle D, rather than be regulated as "hazardous
waste"  under  RCRA  Subtitle  C.  Only  three  of  the  20  wastes  are  copper
"processing"  wastes.  Therefore,  the  generation  and  management of any other
mineral  smelting  and  refining  waste  could be subject to  "hazardous  waste"
regulation  if the waste  exhibits a hazardous  waste  characteristic  or if EPA
specifically  designates  it as a "listed  hazardous  waste." These changes were
effective in many states, including Arizona, New Mexico and Texas, by the end of
1991.  On  December  15,  1995,  EPA  signed a draft  supplemental  rule to RCRA
Subtitle C, creating  Phase IV Land Disposal  Restrictions  which may expand the
class of waste subject to "hazardous  waste"  regulation  under RCRA Subtitle C.
The  Corporation  has  taken  steps  to  address  the  potential  regulation  as
"hazardous  waste" of any of its wastes which no longer meet the  definition  of
exempt mineral  "processing"  wastes.  RCRA Subtitle D rules  governing  mineral
"extraction" and "beneficiation"  wastes and "processing" wastes that are exempt
from  RCRA  Subtitle  C have not yet been  promulgated  by EPA,  Arizona  or New
Mexico.  The  Corporation  cannot yet  estimate  the impact of such mining waste
regulations on its operations.

        The  Corporation's  copper  operations  are also  subject to federal and
state  laws and  regulations  protecting  both  surface  water  and  groundwater
quality.  The  Corporation  possesses,  has applied for, or is in the process of
applying for the necessary  permits or other  governmental  approvals  presently
required under these rules and regulations.

        At the Hidalgo  smelter at Playas,  New Mexico,  in accordance  with the
discharge plan approved by the New Mexico  Environment  Department  (NMED),  the
Corporation  continues  to  monitor  and  report to NMED  regarding  groundwater
quality in the vicinity of the smelter's compacted, clay-lined evaporation pond.
The  Corporation  is continuing  its efforts to assess the effect on groundwater
quality from operation of the evaporation  pond and will continue to investigate
and implement  appropriate  technologies  and contingency  plans to mitigate any
adverse  effect.  The  Corporation had also agreed during the term of an earlier
discharge plan to cease discharging  acidic solutions to the evaporation pond as
presently  constructed,  to neutralize or remove the acidic solutions present in
the evaporation pond, and to commence a groundwater  remediation program for any
existing  contamination.  Accordingly,  a neutralization  facility,  a series of
lined  impoundments,  and a series of pumpback wells have been installed and are
operated  to  begin  remediation  of  groundwater  adversely  affected  by  past
operation of the evaporation pond and to prevent future contamination.

        Effective  September  27,  1989,  Arizona  adopted  regulations  for its
aquifer  protection  permit (APP)  program,  which  replaced  the then  existing
Arizona groundwater quality protection permit regulations. The Corporation is in
compliance with the APP regulations,  pursuant to the transition  provisions for
existing facilities under those regulations. The APP regulations require permits
for new  facilities,  activities and structures  for mining,  concentrating  and
smelting. The APP may require mitigation and discharge reduction or elimination.
APP applications for existing facilities deemed to be in compliance with the new
regulations  are not  required  until  requested  by the State or unless a major
modification at the facility alters the existing discharge characteristics.  The
Corporation has conducted groundwater studies and submitted APP applications for
a closed  tailing pile in  Clarkdale,  Arizona,  and certain  facilities  at its
Copper  Queen  branch in Bisbee,  Arizona,  pursuant to a request by the Arizona
Department  of  Environmental   Quality  (ADEQ).  ADEQ  has  requested  and  the
Corporation  will  submit to ADEQ in the future an  application  covering  other
facilities  at the Copper  Queen  branch.  Also,  ADEQ has  published  a list of
site-specific  application  deadlines for all existing facilities known to ADEQ.
The list includes several of the Corporation's  properties,  which were assigned
deadlines ranging to October 30, 1996. It is not known what the APP requirements
for the listed facilities will be and, therefore, it is not possible to estimate
such costs.  The Corporation is likely to continue to have to make  expenditures
to comply with the APP program and regulations.

        On December 23, 1994,  Chino Mines  Company  (CMC),  which is two-thirds
owned by Phelps Dodge  Corporation  and is located near Silver City, New Mexico,
entered  into an  Administrative  Order on  Consent  (AOC)  with the New  Mexico
Environment  Department that will require CMC to study the environmental impacts
and potential health risks associated with portions of the CMC property affected
by historical mining  operations.  Phelps Dodge acquired CMC at the end of 1986.
Those studies  began in 1995 and,  until  completed,  it will not be possible to
determine the nature,  extent,  cost,  and timing of remedial work which will be
required under the AOC, although remedial work is expected to be required.

        In 1993 and 1994, the New Mexico and Arizona legislatures, respectively,
passed laws requiring the  reclamation  of mined lands in those states.  The New
Mexico Mining  Commission  adopted rules for the New Mexico program during 1994,
and  the   Corporation's   operations   began  submitting  the  required  permit
applications  in  December  1994.  The  Arizona  State Mine  Inspector  has been
directed to adopt rules  implementing  the Arizona law by June 30,  1996.  These
laws  and  regulations  will  likely  increase  the   Corporation's   regulatory
obligations and compliance  costs with respect to mine closure and  reclamation.
At this time,  it is not  possible  to  quantify  the impact of the new laws and
regulations on the Corporation.

        The 1990  Amendments to the federal Clean Air Act require EPA to develop
and  implement  many new  requirements,  and they allow states to establish  new
programs to implement some of the new requirements, such as the requirements for
operating  permits  under  Title V of the  1990  Amendments  and  hazardous  air
pollutants  under  Title  III of the 1990  Amendments.  Because  EPA has not yet
adopted or implemented all of the changes required by Congress,  the air quality
laws will  continue  to expand and change in coming  years as EPA  develops  new
requirements  and then  implements  them or allows the states to implement them.
Nevertheless,  most  states  have made or are in the  process of making  certain
required changes to their laws regarding Title V. In response to these new laws,
several of the Corporation's  subsidiaries  already have submitted or are in the
process of preparing  applications for Title V operating permits. These programs
will likely  increase the  Corporation's  regulatory  obligations and compliance
costs.  These costs could include  implementation of maximum  achievable control
technology for any of the  Corporation's  facilities  that is determined to be a
major source of federal hazardous air pollutants. Until more of the implementing
regulations are adopted, and more experience with the new programs is gained, it
is not  possible  to  determine  the  impact  of  the  new  requirements  on the
Corporation.

        The  Corporation  estimates that its share of capital  expenditures  for
programs to comply  with  applicable  environmental  laws and  regulations  that
affect its mining  operations will total  approximately  $25 million in 1996 and
from $20 million to $25 million in 1997;  $13 million was spent on such programs
in 1995. The Corporation also anticipates making  significant  capital and other
expenditures   beyond  1997  for  continued   compliance   with  such  laws  and
regulations.  In light of the frequent  changes in such laws and regulations and
the  uncertainty  inherent in this area,  the  Corporation is unable to estimate
accurately  the total amount of such  expenditures  over the longer term, but it
may be substantial. (See the discussion of "OTHER ENVIRONMENTAL MATTERS.")

        In  1995,   legislation  was  introduced  in  both  the  U.S.  House  of
Representatives and the U.S. Senate to amend the Mining Law of 1872. None of the
bills was enacted into law.  However,  mining law  amendments  were added to the
1996 budget bill, which is still the subject of negotiation between the Congress
and the President.  The  amendments  contained in the budget bill (i) impose a 5
percent net proceeds  royalty on minerals  extracted  from federal  lands,  (ii)
require  payment of fair market value for patenting  federal  lands,  (iii) make
permanent the existing claim  maintenance  fee and double the fee in the future,
and (iv) require that patented lands used for non-mining  purposes revert to the
federal  government.  While the effect of such changes on Phelps Dodge's current
operations and other currently owned mineral resources on private lands would be
minimal,  passage of the amendments  would result in additional  expenses in the
development and operation of new mines on federal lands.

        The   Corporation  is  also  subject  to  federal  and  state  laws  and
regulations pertaining to plant and mine safety and health conditions, including
the  Occupational  Safety and Health Act of 1970 and the Mine  Safety and Health
Act of 1977.  In  particular,  present and proposed  regulations  govern  worker
exposure to a number of substances and conditions  present in work environments,
including dust,  mist,  fumes,  heat and noise.  The Corporation has made and is
likely to continue to have to make  expenditures to comply with such legislation
and regulations.

        Phelps Dodge does not expect that the  additional  capital and operating
costs  associated  with  achieving  compliance  with the various  environmental,
health and safety laws and  regulations  will adversely  affect its  competitive
position  relative  to  other  U.S.  copper  producers,  which  are  subject  to
comparable  requirements.  However,  because copper is an internationally traded
commodity, these costs could significantly affect the Corporation in its efforts
to compete  globally with those foreign  producers  that are not subject to such
stringent requirements.

Labor Matters
-------------

        Employees in Phelps Dodge Mining Company's Arizona  operations,  El Paso
refinery,  Hidalgo smelter, Burro Chief Copper Company and Norwich rod mill, and
certain  employees at Chino are not represented by any unions.  In addition,  in
December 1994 employees in the Tyrone, New Mexico,  operations decertified their
union representation.  The labor contract at the El Paso rod mill expires on May
29, 1998.  Most  employees at Chino are covered by three-year  labor  agreements
that expire on June 30, 1996.  In Chile,  most  employees at Ojos del Salado are
covered by two-year  labor  agreements  that expire on June 13, 1996,  while the
mine division  employees at Candelaria are covered by two-year labor  agreements
that expire on October 31, 1996.

PHELPS DODGE INDUSTRIES
-----------------------

        Phelps  Dodge  Industries  is a business  segment  comprising a group of
companies   that   manufacture   engineered   products   principally   for   the
transportation,  energy and telecommunications sectors worldwide. Its operations
are  characterized  by products with significant  market share,  internationally
competitive cost and quality,  and specialized  engineering  capabilities.  This
business segment  includes the  Corporation's  carbon black  operations  through
Columbian  Chemicals  Company and its subsidiaries  (Columbian  Chemicals);  its
wheel and rim  operations  through  Accuride  Corporation  and its  subsidiaries
(Accuride);  and its  U.S.  and  international  wire  and  cable  and  specialty
conductor  operations through Phelps Dodge International  Corporation and Phelps
Dodge Magnet Wire Company and their subsidiaries and affiliates.

Operations
----------

        Columbian   Chemicals,   headquartered  in  Atlanta,   Georgia,   is  an
international  producer and marketer of carbon  blacks.  The company  produces a
full range of rubber and industrial carbon blacks in 11 plants  worldwide,  with
approximately  one-half of its production in North America and the other half at
facilities in the United  Kingdom,  Germany,  Italy,  Spain,  Hungary  (owned 60
percent by  Columbian  Chemicals),  and the  Philippines  (owned 88.2 percent by
Columbian  Chemicals).  Columbian's  rubber carbon blacks improve the tread wear
and  durability  of tires,  and extend the service life of many rubber  products
such as belts and hoses. The company's industrial carbon blacks are used in such
diverse applications as pigmentation of coatings, inks and plastics; ultraviolet
stabilization of plastics;  and as conductive insulation for wire and cable. The
Hungarian  plant began  production  in December  1993.  It is owned by Columbian
Tiszai Carbon Ltd. which in turn is owned 60 percent by Columbian  Chemicals and
40 percent by Tiszai Vegyi  Kombinat Rt., the largest  petrochemical  company in
Hungary. The plant in Santander, Spain, was acquired in 1994 from Repsol Quimica
S.A.  and is wholly owned by the  Corporation.  Coupled with the start up of the
Hungarian plant in late 1993, the Spanish plant improves Columbian's position in
Europe and  increases  the  company's  ability to service its key  international
customers.  The company also maintains  sales offices in ten countries and makes
use of  distributors  worldwide.  One of the  company's  carbon  black plants in
Germany,  the  Hamburg  plant,  was  closed in 1994 as a result of its high cost
structure  and  environmental  restrictions.  In addition,  the company sold its
synthetic  iron  oxide  plant  (MAPICO)  during  the 1995  first  quarter.  This
operation was peripheral to Columbian's core business.

        Extensive   research,   development  and  engineering  is  performed  by
Columbian  at  four  locations.  The  company's  Technology  Center  at  Swartz,
Louisiana,  is responsible  for studies  specific to both  industrial and rubber
applications  of carbon black.  Carbon black product and process  development at
the Technology  Center is supported by development  work at the company's  North
Bend, Louisiana, and Hamilton,  Ontario, plants. The European Central Laboratory
at  Avonmouth,  United  Kingdom,  provides  technical  support  for  Columbian's
European operations.  Columbian Chemicals also licenses rubber carbon technology
to other carbon black manufacturing companies in various countries.

        Accuride Corporation, headquartered in Henderson, Kentucky, manufactures
and markets wheels and rims for commercial trucks,  trailers and buses. Accuride
produces  a  wide  range  of  steel  tubeless  and  tube-type  disc  wheels  and
demountable  rims for the  mounting  systems of medium  and heavy  duty  trucks,
trailers and buses, as well as wheels for commercial  light trucks.  The company
also offers a line of forged  aluminum  wheels for medium and heavy duty trucks,
trailers  and  buses.  This  broad  product  line is sold at the North  American
original  equipment  manufacturer  level  and is  marketed  through  a U.S.  and
international  distribution network.  Accuride operates a manufacturing facility
and a design and test center in Henderson, Kentucky; a manufacturing facility in
London, Ontario,  Canada; and a customer service center in Taylor,  Michigan. In
addition, Accuride and The Goodyear Tire and Rubber Company of Akron, Ohio, each
own 50  percent  of AOT Inc.,  a  commercial  tire and wheel  assembly  facility
located  in  Springfield,  Ohio,  that  services  the  two  plants  of  Navistar
International Transportation Corporation.

        Phelps Dodge Magnet Wire Company,  headquartered in Fort Wayne, Indiana,
is an  international  producer of magnet wire,  the insulated  conductor used in
most electrical  systems.  Its products are manufactured in the United States at
plants  in  Fort  Wayne,  Indiana;  Hopkinsville,  Kentucky;  Laurinburg,  North
Carolina;  and El Paso,  Texas.  The plant in North  Carolina was added in March
1994  when  Phelps  Dodge  Magnet  Wire  Company  acquired  certain  assets of a
fine-gauge magnet wire  manufacturing  plant from Rea Magnet Wire Company,  Inc.
(Rea).  The plant in Texas was also added in March 1994 with the  acquisition of
certain assets of Texas Magnet Wire Company, a joint venture of Rea and Fujikura
International,  Inc.  Phelps Dodge Magnet Wire  Company  also  manufactures  its
products  at a plant in  Mureck,  Austria.  The  Austrian  operation  is a joint
venture with Eldra  Elektrodraht-Erzeugung  GmbH, a leading European magnet wire
manufacturer.  Phelps  Dodge owns a 51 percent  interest in the  venture;  Eldra
Elektrodraht-Erzeugung  GmbH owns the  remaining 49 percent.  In  addition,  the
company and Sumitomo Electric Industries, Ltd. each own a 50 percent interest in
SPD Magnet Wire  Company,  a joint venture  established  in 1990 that operates a
magnet wire plant in Edmonton,  Kentucky.  These plants draw and insulate copper
and  aluminum  wire  which  is  sold  as  magnet  wire  to  original   equipment
manufacturers for use in electric motors, generators, transformers, televisions,
automobiles and a variety of small  electrical  appliances.  Magnet wire is also
sold to electrical equipment repair shops through a network of distributors.

        The Corporation  has interests in companies that are primarily  involved
in  the  manufacture  of  telecommunication  and  energy  cables  and  specialty
conductors for international  markets through U.S.  operations and joint venture
associations  in 15  other  countries.  The  Corporation's  interests  in  these
companies are managed by Phelps Dodge International  Corporation, a wholly owned
subsidiary   headquartered  in  Coral  Gables,   Florida,  which  also  provides
management,   marketing  assistance,   technical  support  and  engineering  and
purchasing services to these companies. Through these companies, the Corporation
is also active in the engineering and  installation of telephone lines. In order
to supply the increasing demand for copper rod in certain countries, five of the
Corporation's international wire and cable companies have continuous-cast copper
rod facilities. The Corporation has majority interests in companies operating in
nine countries -- Chile, Costa Rica, Ecuador, El Salvador, Guatemala,  Honduras,
Panama,  Thailand and  Venezuela.  The  Corporation  has  minority  interests in
companies located in Hong Kong, Thailand,  China and the Philippines,  accounted
for on the equity basis, and in companies  located in Greece,  India and Zambia,
accounted for on the cost basis. In December 1994, the  Corporation  sold its 40
percent interest in its Mexican associate company, CONELEC S.A. de C.V.

        Phelps Dodge International Corporation also manages U.S. operations that
manufacture and market specialty high-performance  conductors for the aerospace,
automotive, biomedical, computer and consumer electronics markets. The principal
products  are highly  engineered  conductors  of copper  and  copper  alloy wire
electroplated with silver,  tin or nickel for  sophisticated,  specialty product
niches. These manufacturing operations consist of plants located in Inman, South
Carolina, and Trenton, Georgia.

        See Note 20 to the  Consolidated  Financial  Statements for  information
concerning Phelps Dodge  Industries'  sales by its carbon black,  wheel and rim,
and wire and cable operations.

Competition and Markets
-----------------------

        The principal competitive factors in the various markets in which Phelps
Dodge  Industries  competes  are  price,  product  quality,   customer  service,
dependability  of  supply,  delivery  lead time,  breadth  of  product  line and
research and development.

        Columbian  Chemicals  is among the world's  largest  producers of carbon
black.  Approximately  90 percent  of the carbon  black  produced  by  Columbian
Chemicals  is used in rubber  applications,  75  percent of which is used in the
tire  industry.  The major tire  manufacturers  in the United States and Western
Europe account for a substantial  portion of Columbian  Chemicals'  carbon black
sales. In addition,  Columbian Chemicals maintains a strong competitive position
in  mechanical  rubber  goods  markets  based on its  commitment  to quality and
service.  The  Corporation is not aware of any product that could be substituted
for carbon black to a significant  extent in any of its principal  applications.
Including Columbian  Chemicals,  there are a total of six carbon black producers
in the United States, two in Canada and three major producers in Western Europe.
The carbon black industry is highly competitive, particularly in the U.S. rubber
black market.  The company has expanded its production and marketing position by
entry  into the  emerging  market  in  Central  Europe  through  the start up of
operations of Columbian  Tiszai Carbon Ltd. in Hungary in late 1993, and further
enhanced its presence in  international  markets  through the  acquisition  of a
carbon black plant in Spain in late 1994.

        The  Corporation  believes that Accuride is the largest  producer of rim
and wheel products for commercial  trucks,  trailers and buses in North America.
Accuride's  sales are  primarily in the United  States,  where a majority of the
truck,  trailer and bus manufacturers are located, and in Canada. The demand for
its products fluctuates with the level of original equipment truck,  trailer and
bus  manufacturing  activity.  In the last five  years,  Accuride's  10  largest
customers  have  accounted  for  approximately  65 percent  of its total  sales.
Accuride  principally  competes with three U.S.  companies and one major foreign
company.

        With the 1994  acquisition of plants in El Paso,  Texas, and Laurinburg,
North Carolina,  the Corporation  believes that Phelps Dodge Magnet Wire Company
is the world's largest manufacturer of magnet wire. It principally competes with
four U.S.  manufacturers.  The company  also has  expanded  its  production  and
marketing   position  by  acquiring  a  majority   interest  in  a  magnet  wire
manufacturing  company in Austria primarily to serve the operations in Europe of
its U.S. customers.

        The  Corporation's  international  telecommunication  and  energy  cable
companies sell a majority of their products to  contractors,  distributors,  and
public  and  private  utilities.  Their  products  are used in  lighting,  power
distribution, telecommunications and other electrical applications. In addition,
the companies  provide  engineering and installation of telephone lines in South
America. The Corporation's specialty  high-performance  conductors are primarily
sold   to   intermediators   (insulators,    assemblers,    subcontractors   and
distributors).  More  than  half  of  these  products  are  ultimately  sold  to
commercial  and military  aerospace  companies for use in  airframes,  avionics,
space  electronics,  radar  systems and ground  control  electronics.  Specialty
high-performance  conductors  are  also  used  in  appliances,  instrumentation,
computers, telecommunications, military electronics, medical equipment and other
products.  The  Corporation  has one primary U.S.  competitor  in the  specialty
conductor  market;  however,  in those few markets  where it  competes  for high
volume products, it faces competition from several U.S. fabricators.

Raw Materials
-------------

        Carbon black primarily is produced from heavy residual oil, a by-product
of the crude oil refining process.  Columbian Chemicals purchases  substantially
all of its  feedstock  on a spot basis at prices that  fluctuate  with world oil
prices.  The cost of  feedstock  is a  significant  factor in the cost of carbon
black. To achieve  satisfactory  financial  results during periods of increasing
oil prices,  Columbian  Chemicals  must be able to pass through to customers any
increase in its feedstock costs.

        Accuride  manufactures  a majority of its products from either flat roll
or section steel, except for certain finished aluminum products  manufactured to
its specifications and designs by a third party.

        The principal raw materials  used by Phelps Dodge Magnet Wire  Company's
manufacturing  operations are copper, aluminum and various electrical insulating
materials.

        The  principal  raw materials  used by the  Corporation's  international
telecommunication and energy cable companies are copper, copper alloy, aluminum,
copper-clad steel and various  electrical  insulating  materials.  The specialty
conductor product line is usually plated with silver,  nickel or tin. A majority
of the materials used by these companies is purchased from others.

        Phelps Dodge Magnet Wire  Company  acquires  most of its copper from the
Corporation.  Phelps Dodge  Industries  purchases its residual oil feedstock and
other raw materials from various other  suppliers.  It does not believe that the
loss of any one supplier  would have a material  adverse effect on its financial
conditions or on the results of its operations.

Energy
------

        Phelps Dodge Industries'  operations generally use purchased electricity
and natural gas as their principal  sources of energy.  Phelps Dodge Magnet Wire
Company's  principal  manufacturing  equipment  that  uses  natural  gas is also
equipped to burn alternative fuels.

Environmental Matters
---------------------

        Environmental   laws  and   regulations   affect  many  aspects  of  the
Corporation's industrial operations.  Phelps Dodge Industries estimates that its
capital  expenditures for programs to comply with applicable  environmental laws
and regulations will total approximately $20 million in 1996 and from $5 million
to $10  million in 1997;  $8 million was spent on these  programs  in 1995.  The
Corporation also anticipates making  significant  capital and other expenditures
beyond 1997 for continued compliance with such laws and regulations. In light of
the frequent  changes in such laws and regulations and the uncertainty  inherent
in this area, the Corporation is unable to estimate  accurately the total amount
of such expenditures  over the longer term, but it may be substantial.  (See the
discussion of "OTHER ENVIRONMENTAL MATTERS.")

Labor Agreements
----------------

        Phelps Dodge Industries has labor  agreements  covering most of its U.S.
and  international  plants.  Phelps  Dodge  Magnet Wire Company has a three-year
agreement  covering  approximately 360 employees at its Hopkinsville,  Kentucky,
plant that  expires on October 11,  1996.  Columbian  Chemicals  has  three-year
agreements covering approximately 100 employees at its El Dorado,  Arkansas, and
Marshall,  West  Virginia,  plants that expire on March 31,  1996,  and June 15,
1996, respectively. Columbian Chemicals also has agreements at its operations in
England and Germany that expire on May 8, 1996, and June 30, 1996, respectively.
Phelps  Dodge  International  Corporation  has  agreements  expiring  in 1996 at
associate company plants in Venezuela and El Salvador.

Ownership of Real Property
--------------------------

        Phelps  Dodge  Industries  owns all of its  plants and the land on which
they are located except for the  facilities of Accuride at Henderson,  which are
leased, and the land, which also is leased, on which five  international  plants
are located.

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

        The Corporation  conducts research and development  programs relating to
exploration  for  minerals,  recovery  of metals  from  ores,  concentrates  and
solutions,  smelting and refining of copper,  and metal  processing  and product
development.  It also conducts research and development  programs related to its
carbon black products through its Columbian Chemicals subsidiary,  its wheel and
rim products through its Accuride subsidiary,  its wire insulating processes and
materials through Phelps Dodge Magnet Wire Company,  and conductor materials and
processes through Phelps Dodge International  Corporation.  Expenditures for all
of these  research and  development  programs,  together with  contributions  to
industry  and  government-supported  programs,  totaled  $15.8  million in 1995,
compared with $15.9 million in 1994 and $16.3 million in 1993.

OTHER ENVIRONMENTAL MATTERS
---------------------------

        The  Corporation  is subject to federal,  state and local  environmental
laws, rules and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA or Superfund),  as amended by the
Superfund  Amendments and  Reauthorization  Act of 1986.  Under  Superfund,  the
Environmental  Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review,  ranking and possible  inclusion on the
National   Priorities  List  (NPL)  for  possible  response.   Among  the  sites
identified, EPA has included 13 sites owned by the Corporation.  The Corporation
believes that most, if not all, of its sites so identified  will not qualify for
listing on the NPL.

        In addition,  the Corporation may be required to remove  hazardous waste
or remediate  the alleged  effects of hazardous  substances  on the  environment
associated with past disposal  practices at sites not owned by the  Corporation.
The Corporation has received notice that it is a potentially  responsible  party
from EPA and/or  individual  states  under CERCLA or a state  equivalent  and is
participating in environmental  assessment and remediation activity at 36 sites.
For further information about these proceedings,  see Item 3. Legal Proceedings,
Part IV.

        At December 31, 1995, the Corporation had reserves of $144.1 million for
remediation  of certain of the sites  referred to above and other  environmental
costs in  accordance  with its policy to record  liabilities  for  environmental
expenditures  when it is probable  that  obligations  have been incurred and the
costs reasonably can be estimated.  The  Corporation's  estimates of these costs
are based upon currently  available facts,  existing  technology,  and presently
enacted laws and regulations.  Where the available  information is sufficient to
estimate  the  amount of  liability,  that  estimate  has been  used;  where the
information is only sufficient to establish a range of probable liability and no
point within the range is more likely than any other, the lower end of the range
has been used.

        The amounts of these  liabilities  are very difficult to estimate due to
such factors as the unknown extent of the remedial  actions that may be required
and, in the case of sites not owned by the  Corporation,  the unknown  extent of
the Corporation's  probable liability in proportion to the probable liability of
other  parties.  Moreover,  the  Corporation  has other  probable  environmental
liabilities  that in its judgment  cannot  reasonably be  estimated,  and losses
attributable to remediation  costs are reasonably  possible at other sites.  The
Corporation  cannot now estimate the total additional loss it may incur for such
environmental liabilities, but such loss could be substantial.

        The  possibility  of recovery of some of the  environmental  remediation
costs from insurance companies or other parties exists; however, the Corporation
does not  recognize  these  recoveries in its  financial  statements  until they
become probable.

        The Corporation's  operations are subject to myriad  environmental  laws
and  regulations  in  jurisdictions  both  in the  United  States  and in  other
countries in which it does  business.  For further  discussion of these laws and
regulations,  please  see  "Environmental  and  Other  Regulatory  Matters"  and
"Environmental Matters." The estimates given in those discussions of the capital
expenditures  for  programs to comply  with  applicable  environmental  laws and
regulations in 1996 and 1997, and the  expenditures  for those programs in 1995,
are separate from the reserves and estimates described above.

        The  Environmental,   Health  and  Safety  Committee  of  the  Board  of
Directors,  comprising six non-employee directors,  was established in 1991. The
Committee  met  three  times  in  1995  to  review,   among  other  things,  the
Corporation's policies with respect to environmental, health and safety matters,
and the adequacy of management's  programs for implementing those policies.  The
Committee  reports on such  reviews and makes  recommendations  with  respect to
those policies to the Board of Directors and to management.

Item 3.  Legal Proceedings
--------------------------

        I. The Corporation is participating,  either directly as a party or as a
member of certain trade associations, in several legal challenges to air quality
rules or guidance  documents issued by EPA. This litigation  primarily  involves
the  establishment or amendment of national ambient air quality  standards,  the
requirements  for the  construction  or major  modification  of major sources of
criteria  pollutants,  Title V  operating  permits,  and the status of  fugitive
emissions under the Title V and federal hazardous air pollutants programs.

        In August 1983, EPA proposed regulations (48 Fed. Reg. 38,742) which, if
adopted,  would  have  substantially  implemented  a  February  1982  settlement
agreement  dealing  with  fugitive  emissions,  but on  October  26,  1984,  EPA
promulgated  final regulations  inconsistent  with the August 1983 proposal.  In
December 1984, the Corporation,  the American Mining Congress and several mining
and energy  development  companies  filed a petition  (No.  84-1609) in the U.S.
Court of Appeals  for the  District  of  Columbia  for review of the October 26,
1984,  regulations,  asserting  that the terms of the settlement  agreement,  to
which they were party,  had not been  carried out. The court stayed the petition
pending the outcome of further EPA rulemakings.

        The further EPA rulemakings  were also challenged by the American Mining
Congress and others in federal court  actions  filed in 1989 and 1993.  The U.S.
Court of Appeals for the District of Columbia Circuit decided two of the appeals
in 1995. In National  Mining  Association v. EPA, 59 F.3d 1351 (D.C. Cir. 1995),
the court  agreed with EPA that,  under the  federal  hazardous  air  pollutants
program, collocated facilities should be considered as part of the same emitting
"source"  and fugitive  emissions  must be counted  when  determining  whether a
source is a "major source." The court agreed with the industry  petitioners that
a source could avoid "major  source"  status by using  effective  air  pollution
controls, even if the controls are not "federally enforceable."

        In Chemical  Manufacturers  Association et al. v. EPA, No. 89-1514, Slip
op. (D.C. Cir. 1995), the court agreed with the industry petitioners and vacated
and  remanded  EPA's  rules  which  did not allow  facilities  to  consider  air
pollution  controls  when  determining  whether a permit  is  needed  for new or
increased emissions of criteria pollutants,  unless the controls were "federally
enforceable." In response,  EPA has asserted that its rules nevertheless  remain
in effect and that it may cure the defect in the rules merely by issuing written
guidance in the near future.  The industry  petitioners have requested the court
to enforce its original mandate against the agency.

        The effect of these decisions on the Corporation's  facilities will vary
on a case-by-case  basis. They will have no effect on some facilities;  they may
cause some  facilities  to be  regulated  as "major  sources"  under one or more
federal programs;  and they may allow some sources to avoid regulation as "major
sources" by using air pollution  controls that are  enforceable  under  federal,
state or local laws.

        II.  Reference  is  made to Part  I,  Items 1 and 2 of this  report  for
information   regarding   proceedings   that   pertain  to  water  used  by  the
Corporation's Morenci, Arizona, operations.

                A. The following state water rights adjudication proceedings are
     pending in Arizona Superior Court:

                   1. In re the General  Adjudication of All Rights to Use Water
     in the Little Colorado River System and Source, No. 6417 (Superior Court of
     Arizona, Apache County).

                         (a) Petition was filed by the  Corporation  on or about
           February  17,  1978,  and process  has been  served on all  potential
           claimants. Virtually all statements of claimant have been filed.

                         (b)  The   principal   parties,   in  addition  to  the
           Corporation,  are the State of Arizona,  the Navajo Tribe of Indians,
           the Hopi Indian Tribe,  the San Juan Southern Paiute group of Indians
           and the United States on its own behalf and on behalf of those Indian
           tribes.  In this  adjudication and in the  adjudications  reported in
           items  2.(a),  (b) and (c) below,  the  United  States and the Indian
           tribes seek to have  determined  and  quantified  their rights to use
           water arising  under  federal law on the basis that,  when the Indian
           reservations and other federal  reservations  were established by the
           United States,  water was reserved from appropriation under state law
           for the use of those reservations.

                         (c) This proceeding  could affect,  among other things,
           the  Corporation's  rights to impound water in Show Low Lake and Blue
           Ridge  Reservoir and to transport  this water into the Salt River and
           Verde River  watersheds for exchange with the Salt River Valley Water
           Users' Association.  The Corporation has filed statements of claimant
           for these and other water claims.  This  litigation is stayed pending
           the outcome of current settlement negotiations. The Court has not set
           a final  schedule  of cases to go to  trial,  should  the  litigation
           resume.

                  2. In re the General  Adjudication  of All Rights to Use Water
        in the Gila River System and Source,  Nos. W-1 (Salt River),  W-2 (Verde
        River),  W-3 (Gila River) and W-4 (San Pedro River)  (Superior  Court of
        Arizona,  Maricopa  County).  As a result of consolidation  proceedings,
        this action now includes general  adjudication  proceedings with respect
        to the following three principal river systems and sources:

                         (a) The Gila River System and Source Adjudication:

                                    (i) Petition was filed by the Corporation on
               February 17, 1978.  Process has been served on water claimants in
               the upper and lower  reaches of the  watershed  and virtually all
               statements of claimant have been filed.

                                    (ii) The principal  parties,  in addition to
               the Corporation, are the Gila Valley Irrigation District, the San
               Carlos  Irrigation and Drainage  District,  the State of Arizona,
               the San Carlos Apache Tribe,  the Gila River Indian Community and
               the  United  States on its own  behalf and on behalf of the tribe
               and the community.

                                    (iii) This  proceeding  could affect,  among
               other things, the Corporation's  claim to the approximately 3,000
               acre-feet  of water that it diverts  annually  from Eagle  Creek,
               Chase  Creek  or the  San  Francisco  River  and  its  claims  to
               percolating  groundwater  that is pumped from wells located north
               of its  Morenci  Branch  operations  in the Mud  Springs  and Bee
               Canyon areas and in the  vicinity of the New  Cornelia  Branch at
               Ajo.  The  Corporation  has filed  statements  of  claimant  with
               respect to waters that it diverts from these sources.

                                    (iv) By a letter  agreement  dated September
               7, 1990, the  Corporation  and the San Carlos Apache Tribe agreed
               upon  principles  to  settle  the  water  claims  of that  Tribe.
               Legislation  authorizing  that settlement was enacted into law on
               October  30,  1992.  A  comprehensive   settlement  agreement  is
               presently  being  negotiated.  Congress  has  approved  a  second
               one-year extension to that law so that the settlement will become
               effective  if it is approved by the  Arizona  Superior  Court and
               certain conditions are met by December 31, 1996.

                         (b) The Salt River System and Source Adjudication:

                                    (i)  Petition  was  filed by the Salt  River
               Valley  Water  Users'  Association  on or about  April 25,  1974.
               Process has been served,  and  statements  of claimant  have been
               filed by virtually all claimants.

                                    (ii) Principal  parties,  in addition to the
               Corporation, include the petitioner, the State of Arizona and the
               United States,  on its own behalf and on behalf of various Indian
               tribes and communities including the White Mountain Apache Tribe,
               the San Carlos  Apache  Tribe,  the Fort  McDowell  Mohave-Apache
               Indian Community,  the Salt River Pima-Maricopa  Indian Community
               and the Gila River Indian Community.

                                    (iii) The  Corporation has filed a statement
               of  claimant  to  assert  its  interest  in  the  water  exchange
               agreement with the Salt River Valley Water Users'  Association by
               virtue of which it diverts from the Black River water  claimed by
               the Association  and repays the Association  with water impounded
               in Show Low Lake and Blue Ridge  Reservoir on the Little Colorado
               River Watershed, and to assert its interest in "water credits" to
               which the Corporation is entitled as a result of its construction
               of the Horseshoe Dam on the Verde River.

                                    (iv) The  Salt  River  Pima-Maricopa  Indian
               Community,  Salt  River  Valley  Water  Users'  Association,  the
               principal  Salt River  Valley  Cities,  the State of Arizona  and
               others have  negotiated a settlement as among  themselves for the
               Verde and Salt River system.  The settlement has been approved by
               Congress, the President and the Arizona Superior Court. Under the
               settlement,  the Salt River Pima-Maricopa Indian Community waived
               all  water  claims  it has  against  all  other  water  claimants
               (including the Corporation) in Arizona.

                                    (v) Active proceedings with respect to other
               claimants have not yet commenced in this adjudication.

                         (c) The Verde River System and Source Adjudication:

                                    (i)  Petition  was  filed by the Salt  River
               Valley Water Users'  Association  on or about  February 24, 1976,
               and process has been served. Virtually all statements of claimant
               have been filed.

                                    (ii) The principal  parties,  in addition to
               the   Corporation,   are  the   petitioner,   the  Fort  McDowell
               Mohave-Apache  Indian Community,  the Payson Community of Yavapai
               Apache Indians,  the Salt River  Pima-Maricopa  Indian Community,
               the Gila River  Indian  Community,  the United  States on its own
               behalf and on behalf of those Indian  communities,  and the State
               of Arizona.

                                    (iii) This  proceeding  could affect,  among
               other things,  the  Corporation's  Horseshoe Dam "water  credits"
               with the Salt River  Valley Water  Users'  Association  resulting
               from its  construction  of the  Horseshoe Dam on the Verde River.
               (See the Black River  water  exchange  referred  to in  Paragraph
               II.A.  2.(b)(iii) above.) The Corporation has filed statements of
               claimant   with  respect  to  Horseshoe   Dam  and  water  claims
               associated with the former operations of the United Verde Branch.

                                    (iv) The Fort McDowell  Mohave-Apache Indian
               Community,  Salt  River  Valley  Water  Users'  Association,  the
               principal  Salt River  Valley  Cities,  the State of Arizona  and
               others have  negotiated a settlement as among  themselves for the
               Verde  River  system.   This  settlement  has  been  approved  by
               Congress,  the President and the Arizona  Superior  Court.  Under
               this settlement, the Fort McDowell Mohave-Apache Indian Community
               waived all water claims it has against all other water  claimants
               (including the Corporation) in Arizona.

                B. The following proceedings involving water rights adjudication
     are pending in the U.S. District Court for the District of Arizona:

                   1. On June 29, 1988, the Gila River Indian  Community filed a
        complaint-in-intervention  in United  States v. Gila  Valley  Irrigation
        District,  et al., Globe Equity No. 59 (D. Ariz.). The underlying action
        was  initiated  by the  United  States  in  October  1925  to  determine
        conflicting claims to water rights in certain portions of the Gila River
        watershed.  Although the Corporation was named and served as a defendant
        in that action,  it was  dismissed  without  prejudice as a defendant in
        March 1935. In June 1935,  the Court entered a decree  setting forth the
        water rights of numerous parties, but not those of the Corporation.  The
        Court   retained,   and  still  has,   jurisdiction  of  the  case.  The
        complaint-in-intervention  does not name the Corporation as a defendant;
        however,  it  does  name  the  Gila  Valley  Irrigation  District  as  a
        defendant.  Therefore,  the  complaint-in-intervention  could affect the
        approximately  3,000  acre-feet  of water that the  Corporation  diverts
        annually  from  Eagle  Creek,  Chase  Creek or the San  Francisco  River
        pursuant to the agreement  between the  Corporation  and the Gila Valley
        Irrigation  District.  In April 1990, the Court entered Findings of Fact
        and    Conclusions   of   Law   on   four   of   the   counts   in   the
        complaint-in-intervention.  Trial on additional issues (primarily issues
        raised  by  plaintiff-in-intervention   San  Carlos  Apache  Tribe)  was
        conducted  in November  1991.  In November  1992,  after  submission  of
        post-trial  briefs,  the Court  entered  a  judgment  on the  additional
        issues.  The  Corporation  believes that neither the Findings of Fact or
        the Conclusions of Law entered in 1990 nor the judgment  entered in 1992
        should affect the 3,000 acre-feet of water that the Corporation  diverts
        annually  pursuant  to the  agreement  with the Gila  Valley  Irrigation
        District.  An appeal of the 1992 judgment,  however, has been noticed by
        the Gila Valley Irrigation District and others.

                   The major users on the  mainstream of the Gila River (decreed
        right   holders)  had  engaged  in   continuing   mandatory   settlement
        discussions  under the supervision of the Court until those  discussions
        terminated  during the summer of 1994. Some remaining  issues were tried
        in November 1994. The Court's rulings entered April 14, 1995,  regarding
        water quality, limitations on industrial uses, the definition of subflow
        and the plaintiff-in-intervention's right to natural flows from the Gila
        River, could affect the approximately  3,000 acre-feet of water that the
        Corporation  diverts  annually from Eagle Creek,  Chase Creek or the San
        Francisco  River pursuant to the agreement  between the  Corporation and
        the Gila Valley Irrigation District.

                   Additional  issues  remain,  some of  which  may go to  trial
                   during 1996.

                   2. On December  30,  1982,  the Gila River  Indian  Community
        initiated an action  styled Gila River  Indian  Community v. Gila Valley
        Irrigation  District,  et al., No. CIA 82-2185 (D.  Ariz.),  complaining
        about allegedly  improper uses by approximately  17,000 named defendants
        of "water from within the Gila River  watershed."  The  Corporation  was
        named as a defendant  in the  complaint,  but it has not yet been served
        with process. The complaint seeks an injunction  restraining future uses
        of water that  interfere with the alleged prior rights of the Gila River
        Indian  Community,  as well as compensatory  and punitive  damages in an
        unspecified amount.

                   3.  Prior to  December  1982,  various  Indian  tribes  filed
        several  suits in the U.S.  District  Court for the  District of Arizona
        claiming  prior and  paramount  rights to use waters which are presently
        being used by many water users, including the Corporation,  and claiming
        damages for prior use in derogation of their allegedly paramount rights.
        These federal proceedings have been stayed pending final adjudication in
        the state courts.

        III. Prior to the mid-1960s,  a predecessor of Phelps Dodge  Industries,
Inc. (PDI), a subsidiary of the  Corporation,  manufactured  and sold some cable
and wire products that were insulated  with material  containing  asbestos.  PDI
believes that the use of its products did not result in significant  releases of
airborne asbestos fibers.  PDI and the Corporation are collectively  referred to
below as PDI.

        Since  the  late  1980s,   PDI  has  been  served  with   complaints  in
asbestos-related  actions  filed on behalf of over  16,350  claimants.  In these
proceedings,  plaintiffs have alleged bodily injury or death caused by purported
exposure  to  asbestos  and have  claimed  damages  based on  theories of strict
liability and negligence.  Over 12,500 of those  claimants were  participants in
the Ingalls Shipyard asbestos litigation filed in Pascagoula,  Mississippi. Each
claimant  in  that  litigation   sought  from  $2  million  to  $20  million  in
compensatory  and  punitive  damages  from a group of  approximately  100 to 150
defendants,  which  included PDI.  During 1993 and 1994,  PDI was  successful in
obtaining  dismissal of all claims against it in Mississippi  with the exception
of one wrongful death claim.

        A total of 197 claims  against PDI were  dismissed in 1995.  During that
year, 2,559 new asbestos-related claims were filed against PDI in ten states. As
of December  31,  1995,  a total of 2,701  asbestos-related  claims were pending
against PDI in 15  jurisdictions.  PDI is  vigorously  contesting  and defending
these asbestos-related claims.

        In December  1995,  Phelps Dodge and its insurers  executed an agreement
embodying a cost sharing arrangement for defense and indemnity costs arising out
of the asbestos litigation.

        IV. Claims under CERCLA and related state acts involving the Corporation
have been raised with respect to the  remediation of 36 waste disposal and other
sites. Most are sites where the Corporation has received information requests or
other  indications that the Corporation may be a Potentially  Responsible  Party
(PRP) under CERCLA.  CERCLA is intended to expedite the remediation of hazardous
substances  without regard to fault.  Responsible  parties for each site include
present  and former  owners,  operators,  transporters,  and  generators  of the
substances at the site. Liability is strict,  joint and several.  Because of the
ambiguity of the  regulations,  the  difficulty of identifying  the  responsible
parties for any particular  site,  the complexity of allocating the  remediation
costs  among  them,  the  uncertainty  as  to  the  most  desirable  remediation
techniques  and amount of  remediation  costs,  and the time period during which
such costs may be incurred, the Corporation is unable to reasonably estimate the
full cost of compliance with CERCLA or equivalent state statutes.

        With  respect  to  these  36  sites,   based  on   currently   available
information,  which in many cases is preliminary and incomplete, the Corporation
has no reason to believe that its ultimate  responsibility for remediation costs
will exceed $1.0  million at any site and  believes  most will be  substantially
under $0.1 million.  While  additional  costs to the  Corporation are reasonably
possible, that cost is not expected to exceed $10.0 million.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

        No matters were submitted during the fourth quarter of 1995 to a vote of
security holders, through the solicitation of proxies or otherwise.

Executive Officers of Phelps Dodge Corporation
----------------------------------------------

        The executive  officers of Phelps Dodge Corporation are elected to serve
at the pleasure of its Board of  Directors.  As of March 1, 1996,  the executive
officers of Phelps Dodge Corporation were as follows:

                         Age at                                 Officer of the
         Name            3/1/96            Position           Corporation since
         ----            ------            --------           -----------------

Douglas C. Yearley          60     Chairman of the Board,  
                                     President and Chief 
                                     Executive Officer                1981

Manuel J. Iraola            47     Senior Vice President              1995

Thomas M. St. Clair         60     Senior Vice President and
                                     Chief Financial Officer          1989

J. Steven Whisler           41     Senior Vice President              1987

        Except as stated  below,  all of the above have been  officers of Phelps
Dodge Corporation for the past five years.

        Mr. Iraola was elected Senior Vice  President in January 1995.  Prior to
his  election,   Mr.   Iraola  was  President  of  Phelps  Dodge   International
Corporation,  the largest Phelps Dodge Industries'  company,  a position he held
since 1992. Prior to that time, he was Senior Vice President and Chief Financial
Officer of Columbian Chemicals Company, acquired by Phelps Dodge in 1986.
<PAGE>
                                     Part II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
Matters
--------------------------------------------------------------------------------

        The information called for by Item 5 appears in Management's  Discussion
and Analysis in this report.

<TABLE>
Item 6.  Selected Financial Data
--------------------------------
(In millions except per share amounts)
<CAPTION>
                                    1995         1994 (a)     1993        1992         1991
                                    ----         --------     ----        ----         ----
<S>                            <C>             <C>          <C>          <C>          <C>    
Sales and other
 operating revenues ........   $  4,185.4      3,289.2      2,595.9      2,579.3      2,434.3

Income before cumulative
 effect of accounting
  changes (b) ..............   $    746.6        271.0        187.9        301.6        272.9

  Per common share (c) .....   $    10.65         3.81         2.66         4.28         3.93

Cumulative effect of
 accounting changes (d) ....   $        -            -            -        (79.9)           -

  Per common share (c) .....   $        -            -            -        (1.13)           -

Net income (b) .............   $    746.6        271.0        187.9        221.7        272.9

  Per common share (c) .....   $    10.65         3.81         2.66         3.15         3.93

Total assets ...............   $  4,645.9      4,133.8      3,720.9      3,441.2      3,051.2

Long-term debt .............   $    613.1        622.3        547.3        373.8        382.0

Dividends per common
 share: (c) ................   $     1.80         1.69         1.65         1.61         1.50

(a)     Reported  1994 net income of $271.0  million  ($3.81  per common  share)
        includes  income  of  $362.7  million  ($5.10  per  common  share)  less
        non-recurring  after-tax  charges in the fourth  quarter  totaling $91.7
        million ($1.29 per common share)  reflecting  additional  provisions for
        estimated  future  costs  associated  with  environmental   matters  and
        estimated losses on the disposition of certain operating facilities.

(b)     1992 includes a  non-taxable  gain of $36.4 million (52 cents per common
        share) on a  subsidiary's  stock  issuance from two Sumitomo  companies'
        acquisition of a 20 percent interest in the Candelaria copper project in
        Chile.

(c)     All  per  share  amounts  reflect  average  shares  outstanding  for the
        respective  periods after giving effect to a two-for-one  stock split in
        May 1992.

(d)     Includes  one-time,  after-tax  charges in 1992 for the  adoption of new
        accounting methods for postretirement and postemployment  benefits (SFAS
        No. 106 and SFAS No. 112) and income taxes (SFAS No. 109).

Note:   See Management's  Discussion and Analysis for a discussion of the effect
        on the  Corporation's  results  of  material  changes  in the  price the
        Corporation receives for copper or in its unit production costs.

</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------

Phelps Dodge reported 1995 consolidated net income of $746.6 million,  or $10.65
per common share.  This amount compares with 1994 income of $362.7  million,  or
$5.10 per  common  share,  less  non-recurring  after-tax  charges in the fourth
quarter of $91.7 million,  or $1.29 per common share, that reduced reported 1994
net income to $271.0 million,  or $3.81 per common share. The 1994 non-recurring
charges  primarily  reflected  additional  provisions for estimated future costs
associated  with   environmental   matters  and  for  estimated  losses  on  the
disposition  of  certain  operating  facilities.  Note  2  to  the  Consolidated
Financial  Statements  contains further information to which reference should be
made for a fuller understanding of the 1994 non-recurring charges.

        The Corporation reported 1993 consolidated net income of $187.9 million,
or $2.66 per common share,  including after-tax revenues of $26.0 million, or 37
cents per common share, from copper price protection arrangements. Net income in
1993 was adversely affected by the passage of the Omnibus Budget  Reconciliation
Act of 1993 in the third quarter that retroactively raised the maximum corporate
income tax rate from 34 percent to 35 percent  effective  January 1, 1993.  As a
result,  the  Corporation  raised its 1993 tax provision by  approximately  $9.0
million, or 13 cents per common share.

        The  Corporation's  consolidated  financial  results  for the last three
years are summarized below (in millions except per common share amounts):

--------------------------------------------------------------------------------

                                                  1995         1994         1993
                                                  ----         ----         ----

Sales and other operating revenues ........  $ 4,185.4      3,289.2      2,595.9
Operating income ..........................  $ 1,100.5        400.4        326.5
Net income ................................  $   746.6        271.0        187.9
Net income per common share ...............  $   10.65         3.81         2.66

--------------------------------------------------------------------------------

        A significant  factor influencing the Corporation's 1995 results was the
improved price of copper,  the  Corporation's  principal  product.  The New York
Commodity  Exchange  (COMEX) spot price per pound of copper cathode,  upon which
the Corporation bases its selling price,  averaged $1.35 in 1995,  compared with
$1.07 in 1994 and 85 cents in 1993. The COMEX price averaged $1.17 per pound for
the first two months of 1996, and closed at $1.18 on March 7, 1996.

        Any material change in the price the Corporation receives for copper, or
in its unit  production  costs,  has a significant  effect on the  Corporation's
results.  The Corporation's  present share of annual production is approximately
1.4 billion pounds of copper.  Accordingly,  each 1 cent per pound change in the
average  annual copper price received by the  Corporation,  or in average annual
unit  production  costs,  causes a variation in annual  operating  income before
taxes of approximately $14 million.

        The Corporation  enters into price protection  arrangements from time to
time, depending on market circumstances, to ensure a minimum price for a portion
of its expected future mine  production.  With respect to 1995  production,  the
Corporation had contracts that provided minimum  quarterly  average London Metal
Exchange (LME) prices of 80 cents per pound for approximately 640 million pounds
of copper.  These  contracts  expired on December 31, 1995,  without  payment to
Phelps Dodge. In addition,  the Corporation had contracts that provided  minimum
(approximately 95 cents) and maximum  (approximately $1.33) LME prices per pound
for  approximately  650 million  pounds of copper.  These  contracts  expired on
December 31, 1995,  with Phelps Dodge making  payments  totaling $1.3 million to
the financial  institutions  involved.  During 1994, contracts that provided the
Corporation  with  minimum  average LME copper  prices of 75 cents per pound for
about 21 percent of that year's  production  expired  without  payment to Phelps
Dodge.  During 1993, the Corporation  received  revenues of $39.4 million before
taxes ($26.0  million,  or 37 cents per common share,  after taxes) from similar
arrangements.

        With respect to 1996  production,  as of March 7, 1996, the  Corporation
had entered into contracts with several financial  institutions that provide for
a combination of minimum and maximum  prices based on the quarterly  average LME
price. These contracts are summarized in the following table:

--------------------------------------------------------------------------------

                         Contracts Providing      Contracts Providing Minimum
                           Minimum Prices            and Maximum Prices
                           --------------            ------------------
                        Copper    Cathode       Copper Price (LME)     Cathode
                        Price     Pounds        -----------------       Pounds
                        (LME)   (millions)      Minimum    Maximum    (millions)
                        -----   ----------      -------    -------    ----------

First Quarter ........  $0.95      170           $0.95      $1.47        170
Second Quarter .......  $0.95       90           $0.95      $1.42        170
Third Quarter ........  $0.95       40           $0.90      $1.40        145
Fourth Quarter .......               -           $0.95      $1.36        190
                                 ------                                 -----
                                   300                                   675
                                 ======                                 =====

----------------

Note:   If average quarterly LME prices exceed the maximum prices,  Phelps Dodge
        will be obligated to pay the  difference to the  financial  institutions
        involved; if average quarterly LME prices fall below the minimum prices,
        the  financial  institutions  will be  obligated to pay Phelps Dodge the
        difference.

-------------------------------------------------------------------------------

        The Corporation  periodically  enters into forward exchange contracts to
hedge certain recorded transactions denominated in foreign currencies and enters
into  currency  option  contracts to hedge  certain firm  commitments  and other
anticipated foreign currency  transactions.  The Corporation does not hold these
financial  instruments for trading purposes.  The objective of the Corporation's
foreign currency hedging  activities is to protect the Corporation from the risk
that the  eventual  equivalent  dollar cash flows  resulting  from  transactions
denominated  in foreign  currencies  will be  adversely  affected  by changes in
exchange  rates.   During  1995,   recorded  and  anticipated  foreign  currency
transactions  that the  Corporation  had hedged did not exceed $85  million  and
totaled  $73  million at year end.  The  Corporation  did not have any  deferred
unrealized  gains or losses on its foreign  exchange  contracts  at December 31,
1995,  compared with deferred  unrealized losses of $0.9 million at December 31,
1994. Notes 1 and 19 to the Consolidated  Financial  Statements  contain further
information to which reference should be made for a fuller  understanding of the
Corporation's policy for hedging foreign currency transactions.

        Consolidated 1995 revenues were $4,185.4 million, compared with $3,289.2
million in 1994. This increase  principally  resulted from higher average copper
prices, increased volumes of copper sold from mine production, and higher prices
and  sales  volumes  for  carbon  black,  wheels  and  rims,  and wire and cable
products. The increase in consolidated revenues from $2,595.9 million in 1993 to
$3,289.2  million in 1994  primarily  resulted from higher average copper prices
and higher sales  volumes of copper  (including  copper  purchased  for resale),
wheels and rims, wire and cable products  (including  magnet wire sales from two
U.S. plants acquired in early 1994) and carbon black.

        Phelps  Dodge's  results  for  1995,  1994 and 1993 can be  meaningfully
compared by separate  reference to its reporting  segments,  Phelps Dodge Mining
Company and Phelps Dodge  Industries.  Phelps Dodge Mining Company  includes the
Corporation's  worldwide  copper  operations from mining through rod production,
marketing and sales,  other mining  operations  and  investments,  and worldwide
mineral exploration and development  programs.  Phelps Dodge Industries includes
the Corporation's carbon black operations,  its wheel and rim business,  and its
wire and cable operations.

        Within  each such  segment,  significant  events and  transactions  have
occurred which, as indicated in the separate  discussions  presented  below, are
material  to  an  understanding  of  the  particular  year's  results  and  to a
comparison  with  results  of the  other  periods.  Note 20 to the  Consolidated
Financial  Statements  contains further information to which reference should be
made  for a fuller  understanding  of the  following  discussion  and  analysis.
Statistics on reserves and  production  can be found in Part I, Items 1 and 2 of
this report.

RESULTS OF PHELPS DODGE MINING COMPANY

Phelps Dodge Mining Company is an international  business  comprising a group of
companies involved in vertically  integrated copper operations including mining,
concentrating,  electrowinning, smelting and refining, rod production, marketing
and sales,  and related  activities.  Copper is sold primarily to others as rod,
cathode or concentrates,  and as rod to the Phelps Dodge Industries  segment. In
addition,  Phelps  Dodge Mining  Company at times smelts and refines  copper and
produces copper rod for others on a toll basis. Phelps Dodge Mining Company also
produces gold,  silver,  molybdenum  and copper  chemicals as  by-products,  and
sulfuric  acid  from its air  quality  control  facilities.  This  segment  also
includes the Corporation's  other mining  operations and investments  (including
fluorspar,   silver,  lead  and  zinc  operations)  and  its  worldwide  mineral
exploration and development programs.

--------------------------------------------------------------------------------

                                                        1995      1994      1993
                                                        ----      ----      ----
Copper (from own mines - thousand tons) *
   Production ..............................           712.7     572.8     547.7
   Deliveries ..............................           696.6     560.6     543.9
COMEX average spot copper price
   per pound - cathodes ....................     $      1.35      1.07      0.85

                                                        (millions of dollars)

Sales and other operating revenues .........     $   2,488.7   1,820.7   1,320.3
Operating income ...........................     $     896.8     326.4     227.2

----------------

*       The  Corporation's  worldwide copper  production and deliveries shown in
        the above table exclude the amounts  attributable  to (i) the 15 percent
        undivided interest in the Morenci,  Arizona,  copper mining complex held
        by Sumitomo Metal Mining Arizona,  Inc.  (Sumitomo),  (ii) the one-third
        partnership interest in Chino Mines Company in New Mexico held by Heisei
        Minerals  Corporation  (Heisei),  and (iii) the 20 percent  interest  in
        Candelaria  held by SMMA  Candelaria,  Inc.,  a jointly  owned  indirect
        subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo  Corporation.
        Excluded  production  amounts for 1995,  1994 and 1993 were 65,600 tons,
        61,000  tons and 60,500  tons  produced  at Morenci  for the  account of
        Sumitomo and 56,200 tons,  53,200 tons and 53,200 tons produced at Chino
        for the account of Heisei. Excluded production amounts for 1995 and 1994
        at  Candelaria  for the account of  Sumitomo  were 33,100 tons and 6,200
        tons.

--------------------------------------------------------------------------------

        Phelps Dodge Mining  Company  reported 1995  operating  income of $896.8
million.  This compares with 1994 operating income of $420.8 million,  which was
reduced to $326.4  million  after  reflecting  $94.4  million of fourth  quarter
non-recurring  pre-tax charges applicable to its operations,  and $227.2 million
in 1993.  The increase in 1995 operating  earnings  resulted from higher average
copper prices and higher volumes of copper sold from mine production, especially
from  Candelaria  which  commenced  operation in the 1994 fourth  quarter.  Unit
production  costs  for  1995  were  approximately  the  same as those in 1994 as
certain costs  associated with higher copper prices were offset by the favorable
effects of  higher-than-average  ore grades mined at Candelaria and the start up
of the  Southside  solution  extraction/electrowinning  (SX/EW)  project  at the
Morenci mine. The increase in operating earnings in 1994 compared with 1993 also
resulted from higher average copper prices and sales volumes of copper sold from
mine production.

        The  Candelaria  mine is located near  Copiapo in the Atacama  Desert of
northern Chile. Phelps Dodge Mining Company completed construction and commenced
operations at Candelaria in October 1994, and achieved full  production in 1995.
Phelps  Dodge owns an 80 percent  interest  in  Candelaria  and a jointly  owned
indirect subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation,
both of Japan, owns a 20 percent  interest.  The project consists of an open-pit
mine, concentrator, port and associated facilities.

        During the third quarter of 1995,  Phelps Dodge Mining Company completed
construction and commenced operations at its $200 million Southside project (the
Corporation's  share  was  $170  million  with  the  remainder  provided  by its
co-participant,  Sumitomo) at its Morenci  mine in  southeastern  Arizona.  This
project  has  increased  Phelps  Dodge's  share  of  annual   electrowon  copper
production  capacity by approximately 130 million pounds. The expansion involved
the development of the Southside ore deposit  adjacent to the existing  open-pit
mine at Morenci.  The expansion  included the construction of an  electrowinning
tankhouse,  the expansion of existing solution  extraction plants, the upgrading
of infrastructure systems and the addition of mining equipment.

        Copper  unit  production  costs  generally  have  been  stable  for  the
three-year period ended December 31, 1995,  primarily as a result of high levels
of production of low-cost  cathode  copper at SX/EW plants in Morenci,  Arizona;
Tyrone,  New Mexico;  and Santa Rita, New Mexico; and as a result of the closure
of the higher cost concentrator  operations at Tyrone in February 1992. In 1995,
the Corporation  produced a total of 364,200 tons of cathode copper at its SX/EW
facilities,  compared  with 325,800  tons in 1994 and 308,200 tons in 1993.  The
SX/EW method is a cost-effective process of extracting copper from certain types
of  ores.  As used by the  Corporation  in  conjunction  with  its  conventional
concentrating,  smelting and refining, SX/EW is a major factor in its continuing
efforts to maintain internationally competitive costs.

        Concentrate  production  at  Tyrone,  which  historically   approximated
100,000 tons of copper  annually,  was  indefinitely  suspended in February 1992
because  the  higher  grade  sulfide  copper  ore  reserves  were  substantially
depleted.  However,  in order to operate the Burro Chief SX/EW plant near Tyrone
at capacity, the Corporation has undertaken mine-for-leach  operations. In early
1992,  the  Corporation  completed  a  fourth  expansion  of  the  SX/EW  plant,
increasing  its  production  capacity to 70,000 tons of cathode copper per year.
The  Corporation  expects  to  operate  the plant for the next 10 years or more;
however, unless further reserves are identified,  production will decline toward
the latter part of that period.

        The Corporation has additional sources of copper that could be placed in
production  should market  circumstances  warrant.  Permitting  and  significant
capital  expenditures  would be required,  however,  to develop such  additional
production capacity.

RESULTS OF PHELPS DODGE INDUSTRIES

Phelps Dodge  Industries is a business  segment  comprising a group of companies
that manufacture engineered products principally for the transportation,  energy
and  telecommunications  sectors worldwide.  Its operations are characterized by
products with  significant  market share,  internationally  competitive cost and
quality,  and  specialized  engineering  capabilities.   This  business  segment
includes the Corporation's  carbon black operations through Columbian  Chemicals
Company and its subsidiaries (Columbian Chemicals); its wheel and rim operations
through Accuride Corporation and its subsidiaries  (Accuride);  and its wire and
cable and specialty  conductor  operations  through  Phelps Dodge  International
Corporation  and Phelps  Dodge Magnet Wire  Company and their  subsidiaries  and
affiliates.

--------------------------------------------------------------------------------

                                                   1995         1994        1993
                                                   ----         ----        ----
                                                      (millions of dollars)

Sales and other operating revenues .....  $     1,696.7      1,468.5     1,275.6
Operating income .......................  $       243.3        106.1       129.1

--------------------------------------------------------------------------------

        Phelps Dodge Industries reported 1995 operating income of $243.3 million
including a pre-tax gain of $26.8  million from the sale of Columbian  Chemicals
Company's  synthetic iron oxide division (MAPICO),  compared with 1994 operating
income of $150.7  million that was reduced to $106.1 million by $44.6 million of
1994 fourth quarter  non-recurring pre-tax charges applicable to its facilities.
Operating  income in 1993 was $129.1  million.  Higher 1995  operating  earnings
primarily  reflected  continued  excellent  results in the carbon black business
which saw higher average  worldwide  prices and higher sales volumes both in the
United States and Europe, especially from new operations in Hungary and recently
acquired  operations in Spain.  Increased 1995  operating  income also reflected
higher  prices  and sales  volumes in the wire and cable  businesses  and in the
wheel and rim business  (which  experienced a modest decline in sales volumes in
the 1995 fourth quarter). Earnings increases in 1994 over 1993 were attributable
to the  continuing  economic  recovery  in North  America,  particularly  in the
automotive  sector,  as well as improved  economic  conditions  in Europe.  This
resulted  in higher  sales  volumes of wheels and rims,  magnet  wire and carbon
black.

        Columbian  Chemicals'  1995 earnings were higher than in 1994  primarily
because of higher sales in both North America,  as overall capacity continued to
tighten in the industry,  and Europe.  Margins in North  America were  favorably
affected by high operating rates and improved prices. European sales volumes and
prices improved during the course of the year as European economies continued to
recover from the recent  recession.  Columbian  Chemicals'  1994  earnings  were
higher  than in 1993  primarily  because of higher  sales  volumes and prices in
North  America  and  Europe.  The  1994  earnings  were  offset  in  part  by  a
non-recurring pre-tax provision of approximately $9.0 million for the closure of
its plant in Hamburg,  Germany,  reflecting that plant's high cost structure and
environmental restrictions.  This charge was included in the 1994 fourth quarter
reserve discussed in Note 2 to the Consolidated Financial Statements.

        In  December  1994,  Columbian  Chemicals,   through  its  wholly  owned
subsidiary, Columbian Carbon Spain, S.A., acquired for approximately $25 million
the assets of a carbon black plant in Santander, Spain, from Repsol Quimica S.A.
The acquisition of this plant increases the presence of Phelps Dodge  Industries
in the European  market and extends the ability of Columbian  Chemicals to serve
customers in Spain and Portugal.

        In late 1993, Columbian Chemicals and its joint venture partner,  Tiszai
Vegyi Kombinat (TVK), began operation through Columbian Tiszai Carbon Ltd. (CTC)
of the  first  carbon  black  manufacturing  plant in  Hungary.  Located  in the
northeastern  Hungarian  city  of  Tiszaujvaros,  CTC has an  annual  production
capacity  sufficient  to supply the entire  Hungarian  carbon black  market.  In
excess of 80 percent of CTC's production is exported.  Columbian Chemicals holds
a 60 percent  interest in CTC; TVK,  Hungary's  largest  petrochemical  company,
holds the remaining 40 percent interest.

        Accuride's  1995 earnings  exceeded its 1994 earnings  principally  as a
result of higher  sales  volumes and prices.  North  American  demand for light,
medium and heavy  trucks and  trailers  continued to be strong for most of 1995.
Industry  build rates for  commercial  light trucks,  heavy trucks and trailers,
which were at near-record levels for most of 1994 and 1995, began to decrease in
the 1995 fourth quarter.  This late-1995  decrease in new and backlogged  orders
may be an  indication  of a predicted  cyclical  softening of this  market.  The
increase in 1994 earnings over those in 1993 resulted from a 16 percent increase
in sales volume of wheels, rims and components in response to strong demand.

        Higher 1995  earnings  from Phelps Dodge Magnet Wire were  primarily the
result of an increase in sales volumes and improved  margins.  In addition to an
increase in selling  prices,  margins also  benefited from producing at capacity
and the effects of certain cost  reduction  programs.  Earnings in 1994 exceeded
1993  earnings as a result of sales volume  increases  and  improved  margins in
North  America.  Demand in the  housing,  automotive  and major  home  appliance
industries  allowed the company to operate at capacity  throughout  1994.  Sales
volumes  benefited from the  acquisition  in early 1994 of two U.S.  magnet wire
facilities.

        In  March  1994,   Phelps  Dodge   Magnet  Wire  Company   acquired  for
approximately  $52.0  million  certain  assets  of  a  plant  that  manufactures
fine-gauge  magnet  wire in  Laurinburg,  North  Carolina,  from Rea Magnet Wire
Company,  Inc. (Rea), and certain assets of a magnet wire manufacturing plant in
El Paso, Texas, from Texas Magnet Wire Company, an affiliate of Rea and Fujikura
International,  Inc. The capacity of the  Laurinburg  and El Paso  facilities is
expected  to  increase  by  60  percent  and  100  percent,  respectively,  upon
completion of plant expansion projects currently under way.

        In response to demand by Japanese subsidiary  companies located in North
America,  SPD Magnet Wire  Company,  a joint venture of Phelps Dodge Magnet Wire
Company  and  Sumitomo  Electric  Industries,  Ltd.,  each  owning a 50  percent
interest,  expanded  its  plant in  Edmonton,  Kentucky.  The  capacity  of this
facility has  increased by 75 percent  after new equipment was installed in late
1995.

        In  March  1993,   Phelps  Dodge   Magnet  Wire  Company   expanded  its
international presence with the acquisition of Elektrodraht Mureck, Phelps Dodge
Eldra GmbH.  The magnet  wire joint  venture  with Eldra  Elektrodraht-Erzeugung
GmbH,  a leading  European  magnet  wire  manufacturer,  is  located  in Mureck,
Austria.  Phelps  Dodge  holds  a 51  percent  interest  in the  company;  Eldra
Elektrodraht-Erzeugung GmbH holds the remaining 49 percent.

        The 1995 earnings of Phelps Dodge International  Corporation were higher
than those in 1994  primarily  as a result of higher  sales  volumes and prices.
Earnings  increased  despite the  continuation  of the economic  difficulties in
Venezuela  and the  opening of  traditionally  local Latin  American  markets to
global  competition.  Sales volumes  benefited from the continued  growth of the
telephone  cable and energy  cable  markets  in  Thailand  while the  Venezuelan
business  benefited from  increased  demand for energy cable from that country's
oil industry.  Earnings for the U.S. specialty  conductor business also improved
in  1995  as  manufacturing   cost  reduction  programs  and  an  administrative
reorganization  began to take  effect.  Earnings  in 1994 were  lower  than 1993
earnings  primarily  because  of the  economic  difficulties  in  Venezuela  and
economic slowdowns in Mexico and Chile. These conditions  resulted in additional
costs associated with complying with strict foreign exchange controls instituted
in June 1994 by the Venezuelan government, and a pre-tax loss of $7.0 million on
the sale of the  Corporation's  40 percent  interest  in its  Mexican  associate
company,  CONELEC  S.A.  de C.V.  Earnings  in 1994  also  reflected  a  pre-tax
provision  of $20.0  million for the  impairment  of value of the  Corporation's
wholly  owned U.S.  specialty  conductor  operations.  This charge  reflected an
unfavorable  change in market  conditions,  particularly  in the defense sector,
that is now  considered  permanent.  The  loss on the  sale of  CONELEC  and the
provision  for  impairment  of value of the  specialty  conductor  business  are
included  in  the  1994  fourth  quarter  reserve  discussed  in  Note  2 to the
Consolidated  Financial Statements.  The effect of these charges on earnings was
offset in part by higher sales volumes,  particularly in Thailand where earnings
benefited  from strong demand for telephone  cables.  Earnings in 1993 reflected
the integration of a group of Venezuelan wire and cable manufacturing  companies
acquired in late 1992, and the continued growth of telephone cable,  power cable
and commercial wire sales in other markets.

        In 1995,  operations  outside the United  States  provided 51 percent of
Phelps Dodge Industries' sales,  compared with 48 percent in 1994 and 51 percent
in 1993. During the year,  operations  outside the United States  contributed 53
percent of the segment's  operating income (after  excluding from U.S.  earnings
the $26.8  million  pre-tax  gain on the sale of Columbian  Chemicals  Company's
MAPICO division), compared with 52 percent in 1994 and 66 percent in 1993.

OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS

The Corporation reported net interest expense in 1995 of $62.0 million, compared
with  $36.6  million  in 1994 and  $37.0  million  in 1993.  Increased  1995 net
interest expense  principally  resulted from the cessation of  capitalization of
interest costs for the Candelaria  project in Chile  reflecting the  substantial
completion of construction and development in the 1994 fourth quarter.  The 1995
increase  also  reflected  interest  expense on second half 1994  borrowings  at
Candelaria that remain outstanding, and interest expense on increased short-term
borrowings  at the  Corporation's  international  wire and cable  operations  to
finance working capital  requirements.  Partially  offsetting the 1995 increases
were  foreign   currency   exchange   gains  of  $8.1  million   reflecting  the
remeasurement of Venezuelan local currency debt after a major devaluation of the
Bolivar. Reported net interest expense remained relatively constant between 1994
and 1993 despite a $49.7 million  increase in debt in 1994 and a $158.7  million
increase in debt in 1993.  This  resulted  from the  capitalization  of interest
charges  (totaling  $20.7 million in 1994,  compared with $17.5 million in 1993)
primarily  relating to the construction and development of two major projects --
Candelaria and the carbon black project in Hungary.  Capitalization  of interest
charges for the carbon black plant in Hungary ceased at the end of 1993.

        The  Corporation's  1995  miscellaneous  income,  net  of  miscellaneous
expense,  was $37.2  million,  compared  with  $11.3  million  in 1994 and $16.4
million in 1993.  The increase in 1995 primarily  resulted from higher  interest
income earned on cash and short-term  investments.  Miscellaneous income in 1995
also  included an  increase  of $10.1  million in  dividends  received  from the
Corporation's   13.9  percent   minority   interest  in  Southern   Peru  Copper
Corporation. The decrease in 1994 from 1993 principally reflected losses of $6.3
million from changes in currency  exchange  rates,  especially in countries with
highly inflationary economies (particularly Venezuela).

        For the year  ended  December  31,  1995,  the  Corporation  recorded  a
provision for taxes of $322.7 million (an effective rate of  approximately  30.0
percent).  This compares with a 1994  provision for taxes of $104.7  million (an
effective  rate of  approximately  27.9 percent) and a 1993  provision of $105.9
million (an effective rate of  approximately  34.6 percent).  The 1995 effective
rate was higher than 1994 primarily as a result of a decrease in the tax benefit
for percentage depletion. Despite higher average realized copper prices in 1995,
the benefit from the Corporation's  allowable deduction for percentage depletion
decreased  from  1994  due to the  first  full  year  of  operating  results  at
Candelaria  which are not subject to percentage  depletion.  The 1994  effective
rate was lower than the 1993  effective  rate as a result of an  increase in the
tax  benefit  for  percentage  depletion,  resulting  in large part from  higher
average realized copper prices.  The 1993 effective rate was adversely  affected
by  the  passage  of  the  Omnibus  Budget   Reconciliation  Act  of  1993  that
retroactively  raised the maximum U.S.  corporate tax rate from 34 percent to 35
percent  effective January 1, 1993. In addition to the effect of the increase in
the maximum tax rate on 1993 earnings,  the  Corporation was required to provide
an additional $6.0 million for deferred taxes on temporary  differences existing
at December 31, 1992. (See Note 6 to the Consolidated Financial Statements for a
reconciliation of the Corporation's effective tax rates to statutory rates.)

        The  Corporation's  federal income tax returns for the years 1992,  1993
and 1994 are currently under examination.  The Corporation has received proposed
assessments  from the Internal  Revenue  Service  relating to the  Corporation's
federal  income tax liability for the years 1990 and 1991 and will contest those
proposals  with the  appropriate  authorities.  The  Corporation  has  reached a
tentative  agreement  with the Internal  Revenue  Service to settle the proposed
assessment  relating to the  Corporation's  federal income tax liability for the
years 1988 and 1989.  Management believes that it has made adequate provision so
that the final resolution of the issues involved, including application of those
determinations to subsequent open years, will not have a material adverse effect
on  the  consolidated  financial  condition  or  results  of  operations  of the
Corporation. It is possible, however, that settlement of these issues may have a
material effect on the timing and extent of its tax payments.

        Under  current   financial   accounting   standards,   any   significant
year-to-year  movement  in the  rate  of  interest  on  long-term,  high-quality
corporate bonds necessitates a change in the discount rate used to calculate the
actuarial  present  value of the  Corporation's  accumulated  pension  and other
postretirement  benefit  obligations.  As a  result  of  the  1995  decrease  in
long-term  interest rates, the Corporation  decreased its discount rate from 8.5
percent at  December  31,  1994,  to 7.25  percent at  December  31,  1995.  The
Corporation's  estimated  pension  obligations  increased  by a net $68  million
primarily  as a  result  of this  discount  rate  decrease.  The  effect  of the
decreased  discount  rate on these  pension  obligations  was  offset  mostly by
better-than-expected  returns on plan  assets.  Other  estimated  postretirement
benefit  obligations  of the  Corporation  increased  by a net $14  million as a
result of the discount rate decrease.  The effect of the decreased discount rate
on this estimated  obligation was offset mostly by a 1 percentage point decrease
for each year in the  assumed  annual rate of increase in the per capita cost of
covered  health care  benefits.  For a further  discussion of these issues,  see
Notes 15 and 16 to the Consolidated Financial Statements.

CHANGES IN FINANCIAL CONDITION; CAPITALIZATION

At the end of 1995,  the  Corporation  had cash and  short-term  investments  of
$608.5  million,  compared with $286.9 million at the beginning of the year. The
Corporation's  operating  activities  provided $959.0 million of cash during the
year which was more than adequate to cover dividend payments on its common stock
and its investing activities.

        The  Corporation  also used cash  provided by  operating  activities  to
purchase  2,760,600  of its  common  shares  at a total  cost  of $163  million,
including  2,675,600 shares under a 5 million share buy-back program  authorized
on March 7, 1995,  and 85,000 shares under the  superseded  program.  There were
68,593,300 common shares outstanding on December 31, 1995. On March 6, 1996, the
Corporation  announced  that its current share purchase  authorization  had been
increased from 5 million shares to a total of 10 million  shares.  Through March
7, 1996,  the  Corporation  purchased a total of 4,424,900 of its common  shares
under the  program,  leaving  an  additional  5,575,100  shares  authorized  for
purchase.  The Corporation will continue to make purchases in the open market as
circumstances  warrant,  and will also consider  purchasing  shares in privately
negotiated transactions.

        Investing activities during 1995 included capital expenditures of $404.9
million,  compared with $355.0  million in 1994 and $387.2  million in 1993. The
1995 capital  expenditures  included $40 million for certain  mining  properties
owned by Azco Mining, Inc. and its subsidiaries, comprising the Sanchez property
in southeastern Arizona and a 70 percent interest in the Piedras Verdes property
in Mexico.  Investing  activities  in 1995 also  included cash proceeds of $45.0
million for the  divestiture  of Columbian  Chemicals  Company's  synthetic iron
oxide facility (MAPICO). The $32.2 million decrease in 1994 capital expenditures
from 1993 principally  reflected higher 1993 spending on the Candelaria project,
substantially  completed in October 1994, and the Hungarian  carbon black plant,
substantially  completed in late 1993.  These 1994  decreases  in spending  were
offset  partially  by  increased  spending  on  Phelps  Dodge  Mining  Company's
Southside  expansion at its Morenci mine.  Investments in  subsidiaries  in 1994
included the acquisition of two U.S.  magnet wire  facilities for  approximately
$52.0  million  and the  acquisition  of a  carbon  black  plant  in  Spain  for
approximately  $25.0  million.  Investing  activities in 1994 also included cash
proceeds of $15.0 million from the divestiture of the  Corporation's  40 percent
interest in its  Mexican  associate  company,  CONELEC  S.A.  de C.V.,  and $8.0
million  from  the  issuance  of  shares  of  the  Corporation's  majority-owned
affiliate in Venezuela.

        The Corporation expects capital outlays in 1996 to be approximately $300
million for Phelps  Dodge  Mining  Company and  approximately  $125  million for
Phelps Dodge Industries. These capital outlays will be funded from cash reserves
and operating cash flow or, if necessary, from other borrowings.

        The $6.4  million  increase  in dividend  payments on the  Corporation's
common  shares,  from  $119.2  million  in  1994  to  $125.6  million  in  1995,
principally  resulted from a 9 percent increase in the dividend rate in the 1994
fourth quarter (from 41.25 cents per common share to 45 cents per common share).

        The  Corporation's  total debt was $696.5  million at December  31, 1995
(including $66.6 million of foreign short-term borrowings), compared with $696.9
million  at the end of 1994  (including  $49.3  million  of  foreign  short-term
borrowings). Total debt remained virtually unchanged as short-term borrowings at
the  Corporation's  international  wire and cable  operations to finance working
capital  requirements  were  offset by  payments  on the  Corporation's  foreign
long-term debt. The ratio of total debt to total capitalization was 20.2 percent
at the end of 1995, compared with 23.6 percent at the end of 1994.

        During  the  1995  second  quarter,  the  Corporation's   majority-owned
subsidiary,   Compania  Contractual  Minera  Candelaria  (CCMC),  satisfied  all
operating,  financial,  construction and legal tests and conditions as set forth
in the completion agreement associated with the $290.0 million project financing
of its Candelaria mine in Chile.  Borrowings under these debt facilities are now
non-recourse  to Phelps Dodge.  Financing  agreements  for the $290 million debt
were executed  during 1993. The debt carries a 13-year  maturity,  and comprises
$200 million of floating rate dollar denominated debt, $60 million of fixed rate
dollar  denominated  debt, and $30 million of floating rate debt  denominated in
Chilean  pesos.  The  agreements  provide for a nine and one-half year repayment
period,  which starts in 1997. As the Corporation  consolidates  its interest in
majority-owned  mining  joint  ventures  using  the  proportional  consolidation
method,  only 80 percent of this debt and related  financing  charges  have been
reflected  in  the  Corporation's   consolidated   financial   statements.   The
Corporation also caused CCMC to enter into an interest rate protection agreement
with certain financial institutions to limit the effect of increases in the cost
of the $200 million of floating rate debt. Under the terms of the agreement, the
project will receive  payments from these  institutions if the six-month  London
Interbank Offered Rate (LIBOR) exceeds 9 percent prior to December 31, 2001, and
11 percent during the two subsequent years ending December 31, 2003.

        During 1993, the Corporation's  60-percent-owned  Hungarian  subsidiary,
Columbian  Tiszai Carbon Ltd.,  borrowed $33.5 million under facilities from the
Overseas  Private  Investment  Corporation  (OPIC)  and the  European  Bank  for
Reconstruction and Development (EBRD) to finance  construction of a carbon black
manufacturing  plant.  Both facilities are with recourse to Columbian  Chemicals
Company  until  satisfaction  of  certain  completion  tests,  and  non-recourse
thereafter.

        During  1994,  the  Corporation  issued  $81.1  million  of  tax-exempt,
unsecured 5.45 percent obligations due in 2009. The proceeds from the issue were
used to retire the  Corporation's  5.75 percent to 6.25  percent  Series A and B
notes due in the years 1994 through 2004.

        In  February  1993,  the  Corporation  sold $90  million of  tax-exempt,
unsecured 6.50 percent  refunding bonds due April 1, 2013. The proceeds from the
sale of these bonds were used in April 1993 to repay the Corporation's 7 percent
Installment Sale Obligations due in the years 1993 through 2003.

        An existing  revolving  credit  agreement  between the  Corporation  and
several  lenders was amended on October 31,  1994.  The  agreement,  as amended,
permits borrowings of up to $200 million from time to time until its maturity on
October 31, 1999.  Interest is payable at a fluctuating  rate based on the agent
bank's prime rate or a fixed rate,  based on the  Eurodollar  Interbank  Offered
Rate or at  fixed  rates  offered  independently  by the  several  lenders,  for
maturities of from seven to 360 days. This agreement provides for a facility fee
of one-eighth  of 1 percent of total  commitments.  The  agreement  requires the
Corporation  to  maintain  a  minimum  consolidated  tangible  net worth of $1.1
billion   and  limits   indebtedness   to  40  percent  of  total   consolidated
capitalization. There were no borrowings under this agreement at either December
31, 1995, or December 31, 1994.

        The  Corporation  had other lines of credit  totaling  $100.0 million at
December 31,  1995,  and December  31,  1994.  These  facilities  are subject to
agreement  as to  availability,  terms  and  amount.  There  were no  borrowings
outstanding under these lines of credit at either December 31, 1995, or December
31, 1994.

        The Corporation had $66.6 million in short-term  borrowings,  all by its
international  operations,  at December 31, 1995, compared with $49.3 million at
December 31, 1994. The weighted  average  interest rate on this debt at December
31,  1995,   and  December  31,  1994,   was  18.5  percent  and  14.9  percent,
respectively.

        Accuride  Canada  Inc.  has a revolving  credit  facility  that  permits
borrowings of up to U.S. $25.0 million.  Interest on these borrowings is payable
at a  fluctuating  rate based on the agent bank's Base Rate  Canada,  or a fixed
rate based on LIBOR,  for  maturities of one week to six months.  This facility,
which is subject to renewal  annually,  provides for a standby fee of one-eighth
of 1 percent of the $25.0 million.  There were no borrowings  outstanding  under
this facility at either December 31, 1995, or December 31, 1994.

        The current portion of the Corporation's  long-term debt,  scheduled for
payment in 1996, is $16.8 million  including $13.7 million for its international
manufacturing  operations,  $2.2  million  for its  mining  operations  and $0.9
million for other Corporate obligations.

        During  1995,  increases  in  current  assets  (exclusive  of  cash  and
short-term   investments)   together  with  decreases  in  current   liabilities
(exclusive of current debt)  resulted in an $84.2 million  change in net working
capital  (exclusive of adjustments for foreign currency  exchange rate changes).
This  change  principally  resulted  from a $55.5  million  decrease in accounts
payable,  a $29.5  million  decrease in accrued  income  taxes,  a $15.8 million
increase in  inventories  and an $11.9 million  increase in supplies,  partially
offset by a $36.8  million  increase  in  accrued  expenses.  The $55.5  million
decrease in accounts payable  primarily  resulted from lower copper  concentrate
purchase  requirements by Phelps Dodge Mining Company's  smelter  operations and
the timing of raw material purchases by the Phelps Dodge Industries  businesses.
The $29.5 million decrease in accrued income taxes was principally the result of
approximately  $22 million in additional  federal income taxes paid in the first
quarter of 1995 with the Corporation's 1994 income tax return. The $15.8 million
increase in  inventories  was  attributable  to higher  inventories of copper at
Phelps Dodge Mining Company,  partially offset by lower inventories at Accuride.
The $11.9 million increase in supplies was the result of increases at Candelaria
and Accuride.  The $36.8 million increase in accrued expenses primarily resulted
from higher accruals for copper  conversion and freight charges and accruals for
certain  costs  associated  with higher  copper  prices at Phelps  Dodge  Mining
Company  (higher  conversion  and freight  accruals are due to the higher copper
inventory  balances at the end of 1995),  and an increase in the current portion
of  Corporate-wide  pension  liabilities  due to an increase  in  expected  plan
funding in 1996  resulting  from  certain  provisions  of the  recently  enacted
General Agreement on Tariffs and Trade (GATT).

        During  1994,  increases  in  current  assets  (exclusive  of  cash  and
short-term  investments) exceeded increases in current liabilities (exclusive of
current debt) by $36.0 million. This change in net working capital (exclusive of
adjustments for foreign  currency  exchange rate changes)  principally  resulted
from a $138.6  million  increase  in  accounts  receivable  and a $35.4  million
increase  in  inventories,  partially  offset by a $110.3  million  increase  in
accounts  payable and accrued  expenses and a $32.2 million  increase in accrued
income taxes. The $138.6 million  increase in accounts  receivable was primarily
the result of higher  copper  sales  prices and volumes in 1994 and higher sales
volumes of carbon  black,  magnet  wire and wheels and rims.  The $35.4  million
increase in inventories was attributable to higher inventories of copper, silver
and gold at Phelps Dodge Mining  Company and higher  inventories of aluminum and
other raw  materials at Phelps Dodge  Industries,  especially  in Thailand.  The
$110.3 million  increase in accounts  payable and accrued  expenses  principally
resulted  from the timing of raw material  and  equipment  purchases.  The $32.2
million increase in accrued income taxes primarily  resulted from higher pre-tax
income in 1994 and a lower  year-end  balance at December 31, 1993, due to $26.6
million  of  additional   federal   income  taxes  paid  during  1993  with  the
Corporation's amended 1991 income tax return.

        The  Corporation  is subject to federal,  state and local  environmental
laws, rules and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA or Superfund),  as amended by the
Superfund  Amendments and  Reauthorization  Act of 1986.  Under  Superfund,  the
Environmental  Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review,  ranking and possible  inclusion on the
National   Priorities  List  (NPL)  for  possible  response.   Among  the  sites
identified, EPA has included 13 sites owned by the Corporation.  The Corporation
believes that most, if not all, of its sites so identified  will not qualify for
listing on the NPL.

        In addition,  the Corporation may be required to remove  hazardous waste
or remediate  the alleged  effects of hazardous  substances  on the  environment
associated with past disposal  practices at sites not owned by the  Corporation.
The Corporation has received notice that it is a potentially  responsible  party
from EPA and/or  individual  states  under CERCLA or a state  equivalent  and is
participating in environmental  assessment and remediation activity at 36 sites.
For further information about these proceedings,  see Item 3. Legal Proceedings,
Part IV.

        The 1990  Amendments to the federal Clean Air Act require EPA to develop
and  implement  many new  requirements,  and they allow states to establish  new
programs to implement some of the new requirements, such as the requirements for
operating  permits  under  Title V of the  1990  Amendments  and  hazardous  air
pollutants  under  Title  III of the 1990  Amendments.  Because  EPA has not yet
adopted or implemented all of the changes required by Congress,  the air quality
laws will  continue  to expand and change in coming  years as EPA  develops  new
requirements  and then  implements  them or allows the states to implement them.
Nevertheless,  most  states  have made or are in the  process of making  certain
required changes to their laws regarding Title V. In response to these new laws,
several of the Corporation's  subsidiaries  already have submitted or are in the
process of preparing  applications for Title V operating permits. These programs
will likely  increase the  Corporation's  regulatory  obligations and compliance
costs.  These costs could include  implementation of maximum  achievable control
technology for any of the  Corporation's  facilities  that is determined to be a
major source of federal hazardous air pollutants. Until more of the implementing
regulations are adopted, and more experience with the new programs is gained, it
is not  possible  to  determine  the  impact  of  the  new  requirements  on the
Corporation.

        At December 31, 1995, the Corporation had reserves of $144.1 million for
remediation  of certain of the sites  referred to above and other  environmental
costs in  accordance  with its policy to record  liabilities  for  environmental
expenditures  when it is probable  that  obligations  have been incurred and the
costs reasonably can be estimated.  The  Corporation's  estimates of these costs
are based upon currently  available facts,  existing  technology,  and presently
enacted laws and regulations.  Where the available  information is sufficient to
estimate  the  amount of  liability,  that  estimate  has been  used;  where the
information is only sufficient to establish a range of probable liability and no
point within the range is more likely than any other, the lower end of the range
has been used.

        The amounts of the Corporation's liabilities for remedial activities are
very  difficult  to estimate  due to such  factors as the unknown  extent of the
remedial actions that may be required and, in the case of sites not owned by the
Corporation,  the unknown  extent of the  Corporation's  probable  liability  in
proportion  to the probable  liability of other  parties.  The  Corporation  has
probable  environmental  liabilities  that in its judgment cannot  reasonably be
estimated,  and losses attributable to remediation costs are reasonably possible
at other sites. The Corporation cannot now estimate the total additional loss it
may  incur  for  such  environmental   liabilities,   but  such  loss  could  be
substantial.

        The  possibility  of recovery of some of the  environmental  remediation
costs from insurance companies or other parties exists; however, the Corporation
does not  recognize  these  recoveries in its  financial  statements  until they
become probable.

        The Corporation's  operations are subject to myriad  environmental  laws
and  regulations  in  jurisdictions  both  in the  United  States  and in  other
countries in which it does  business.  For further  discussion of these laws and
regulations,  please  see  "Environmental  and  Other  Regulatory  Matters"  and
"Environmental  Matters" in Part I, Items 1 and 2 of this report.  The estimates
given in those  discussions of the capital  expenditures  for programs to comply
with  applicable  environmental  laws and  regulations in 1996 and 1997, and the
expenditures  for those  programs in 1995,  are  separate  from the reserves and
estimates described above.

        On December 23, 1994,  Chino Mines  Company  (CMC),  which is two-thirds
owned by Phelps Dodge  Corporation  and is located near Silver City, New Mexico,
entered  into an  Administrative  Order on  Consent  (AOC)  with the New  Mexico
Environment  Department that will require CMC to study the environmental impacts
and potential health risks associated with portions of the CMC property affected
by historical mining  operations.  Phelps Dodge acquired CMC at the end of 1986.
Those studies  began in 1995 and,  until  completed,  it will not be possible to
determine the nature,  extent,  cost,  and timing of remedial work which will be
required under the AOC, although remedial work is expected to be required.

        In 1993 and 1994, the New Mexico and Arizona legislatures, respectively,
passed laws requiring the  reclamation  of mined lands in those states.  The New
Mexico Mining  Commission  adopted rules for the New Mexico program during 1994,
and  the   Corporation's   operations   began  submitting  the  required  permit
applications  in  December  1994.  The  Arizona  State Mine  Inspector  has been
directed to adopt rules  implementing  the Arizona law by June 30,  1996.  These
laws  and  regulations  will  likely  increase  the   Corporation's   regulatory
obligations and compliance  costs with respect to mine closure and  reclamation.
At this time,  it is not  possible  to  quantify  the impact of the new laws and
regulations on the Corporation.

        In  1995,   legislation  was  introduced  in  both  the  U.S.  House  of
Representatives and the U.S. Senate to amend the Mining Law of 1872. None of the
bills was enacted into law.  However,  mining law  amendments  were added to the
1996 budget bill, which is still the subject of negotiation between the Congress
and the President.  The  amendments  contained in the budget bill (i) impose a 5
percent net proceeds  royalty on minerals  extracted  from federal  lands,  (ii)
require  payment of fair market value for patenting  federal  lands,  (iii) make
permanent the existing claim  maintenance  fee and double the fee in the future,
and (iv) require that patented lands used for non-mining  purposes revert to the
federal  government.  While the effect of such changes on Phelps Dodge's current
operations and other currently owned mineral resources on private lands would be
minimal,  passage of the amendments  would result in additional  expenses in the
development and operation of new mines on federal lands.

CAPITAL OUTLAYS

The Corporation's  capital outlays in each of the past three years are set forth
in the  following  table.  These capital  outlays are  exclusive of  capitalized
interest and the portions of the  expenditures at Morenci,  Chino and Candelaria
payable by minority interest holders.

--------------------------------------------------------------------------------

                                                  1995         1994         1993
                                                  ----         ----         ----
                                                     (millions of dollars)

Phelps Dodge Mining Company:
  Southside project (Morenci mine) .....  $      112.6         49.6            -
  Azco acquisition .....................          40.2            -            -
  Candelaria ...........................          15.1        137.9        189.8
  Other ................................         153.7        111.7         95.6
                                               -------      -------      -------
                                                 321.6        299.2        285.4
Phelps Dodge Industries ................          82.3         55.1        101.2
Corporate and other ....................           1.0          0.7          0.6
                                               -------      -------      -------
                                          $      404.9        355.0        387.2
                                               =======      =======      =======

--------------------------------------------------------------------------------

INFLATION

During the last three years, the principal impact of general  inflation upon the
financial  results  of the  Corporation  has  been  on  unit  production  costs,
especially supply costs, at the Corporation's mining and industrial  operations.
In  considering  the impact of changing  prices on the financial  results of the
Corporation,  it is  important  to  recognize  that  the  selling  price  of the
Corporation's principal product,  copper, does not necessarily parallel the rate
of inflation or deflation.
<PAGE>
DIVIDENDS AND MARKET PRICE RANGES

Phelps  Dodge's  common  shares are listed on the New York Stock  Exchange,  the
principal  market on which they are traded.  At March 6, 1996, there were 11,894
holders of record of the  Corporation's  common  shares.  The  Corporation  paid
quarterly  dividends of 41.25 cents on each common share throughout 1993 and for
the first three  quarters of 1994.  In the 1994 fourth  quarter,  the  quarterly
dividend  was  increased  9  percent  to 45 cents on each  common  share and has
continued at that rate.

        The table below sets forth the high,  low and closing  prices per common
share (composite quotation) in the periods indicated.

--------------------------------------------------------------------------------

Market Price Ranges *
---------------------

                                High               Low               Close
                                ----               ----               ----
1995:
---- 
 First Quarter ....  $         63.00              51.88              56.88
 Second Quarter ...            60.25              52.50              59.00
 Third Quarter ....            70.50              58.50              62.75
 Fourth Quarter ...            69.50              59.75              62.25

1994:
---- 
 First Quarter ....  $         59.50              47.63              52.25
 Second Quarter ...            60.88              50.50              57.00
 Third Quarter ....            65.00              55.88              62.00
 Fourth Quarter ...            64.00              54.38              61.88

1993:
---- 
 First Quarter ....  $         55.63              47.75              50.38
 Second Quarter ...            50.75              41.50              44.63
 Third Quarter ....            49.25              39.13              39.75
 Fourth Quarter ...            50.88              40.00              48.75

---------------

* The market price ranges reflect actual share prices as reported for each day's
trading.

--------------------------------------------------------------------------------
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA
(In millions except per common share amounts)

-------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                  First       Second         Third      Fourth
                                                 Quarter      Quarter       Quarter     Quarter
                                                 -------      -------       -------     -------
<S>                                        <C>                <C>          <C>          <C>    
1995 (a)
----    

 Sales and other operating revenues .....  $     1,033.5      1,024.2      1,076.7      1,051.0

 Operating income .......................          271.3        239.1        311.4        278.7

 Net income .............................          185.3        159.5        211.8        190.0

 Net income per common share ............           2.61         2.28         3.03         2.73

1994 (b)
----    

 Sales and other operating revenues .....  $       694.3        780.4        813.7      1,000.8

 Operating income .......................           81.1         94.5        139.1         85.7

 Net income .............................           48.6         64.6         94.2         63.6

 Net income per common share ............           0.69         0.91         1.33         0.89

---------------

        (a)    Operating  income  in the 1995  first  quarter  included  a $26.8
               million  pre-tax  gain  from  the  sale  of  Columbian  Chemicals
               Company's MAPICO division.  MAPICO produces synthetic iron oxides
               at a  plant  in  St.  Louis,  Missouri,  and  was  peripheral  to
               Columbian's  core business.  The gain on the sale of these assets
               was $16.6 million after taxes, or 24 cents per common share.

        (b)    The  1994  fourth  quarter   included  a  non-recurring   pre-tax
               provision  for  environmental  costs  and asset  dispositions  of
               $140.2  million in operating  income with an after-tax  effect of
               $91.7 million, or $1.29 per common share, on net income. The 1994
               second quarter operating income included a non-recurring  pre-tax
               provision  of $17.5  million  for the  sale of the  Corporation's
               interest in the Santa  Gertrudis  gold property in Mexico and the
               Olinghouse  gold  property in Nevada.  The  combined  loss had an
               after-tax effect of $11.2 million,  or 16 cents per common share,
               on net income.

-------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

        The  consolidated  balance sheet at December 31, 1995 and 1994,  and the
related  consolidated  statements  of  income,  of  cash  flows  and  of  common
shareholders'  equity for each of the three years in the period  ended  December
31,  1995,  and  notes  thereto,  together  with  the  report  thereon  of Price
Waterhouse LLP dated January 22, 1996,  follow.  The  additional  financial data
referred to below should be read in conjunction with these financial statements.
Schedules not included with these  additional  financial  data have been omitted
because  they are not  applicable  or the required  information  is shown in the
financial  statements or notes thereto.  The individual  financial statements of
the  Corporation  have been  omitted  because the  Corporation  is  primarily an
operating  company and all subsidiaries  included in the consolidated  financial
statements,  in the  aggregate,  do not have minority  equity  interests  and/or
indebtedness  to any  person  other  than the  Corporation  or its  consolidated
subsidiaries  in amounts which together  exceed 5 percent of total  consolidated
assets at December 31, 1995.  Separate financial  statements of subsidiaries not
consolidated  and 50 percent or less owned  persons  accounted for by the equity
method, other than those for which summarized financial  information is provided
in Note 3 to the Consolidated  Financial Statements,  have been omitted because,
if considered in the aggregate,  such  subsidiaries and 50 percent or less owned
persons would not constitute a significant subsidiary.




                            ADDITIONAL FINANCIAL DATA

Financial  statement  schedule for the years ended  December 31, 1995,  1994 and
1993:

    VIII - Valuation and qualifying accounts and reserves.


REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of Phelps Dodge Corporation

Our audits of the consolidated  financial  statements  referred to in our report
dated  January 22,  1996  appearing  on page 54 of this report also  included an
audit of the Financial  Statement  Schedule listed in the foregoing index titled
"Additional  Financial Data." In our opinion,  this Financial Statement Schedule
presents  fairly,  in all material  respects,  the information set forth therein
when read in conjunction with the related consolidated financial statements.

PRICE WATERHOUSE LLP

Phoenix, Arizona
January 22, 1996



REPORT OF MANAGEMENT

The  management of Phelps Dodge  Corporation  is  responsible  for preparing the
consolidated  financial statements presented in this annual report and for their
integrity and objectivity.  The statements have been prepared in accordance with
generally accepted accounting principles  appropriate in the circumstances,  and
include  amounts that are based on  management's  best  estimates and judgments.
Management also has prepared the other  information in this annual report and is
responsible for its accuracy and consistency with the financial statements.

        Management  maintains a system of internal controls,  including internal
accounting controls, which in management's opinion provides reasonable assurance
that assets are  safeguarded  and that  transactions  are properly  recorded and
executed in accordance  with  management's  authorization.  The system  includes
formal  policies  and  procedures  that  are   communicated  to  employees  with
significant  roles in the financial  reporting process and updated as necessary.
The system  also  includes  the careful  selection  and  training  of  qualified
personnel, an organization that provides a segregation of responsibilities and a
program of internal  audits that  independently  assesses the  effectiveness  of
internal controls and recommends possible improvements.

        The Audit Committee, currently consisting of six non-employee directors,
meets at least  three  times a year to review,  among  other  matters,  internal
control  conditions and internal and external audit plans and results.  It meets
periodically with senior officers, internal auditors and independent accountants
to  review  the  adequacy  and  reliability  of  the  Corporation's  accounting,
financial reporting and internal controls.

        The  consolidated  financial  statements have also been audited by Price
Waterhouse LLP, our independent  accountants,  whose appointment was ratified by
the  shareholders.  The Price  Waterhouse LLP  examination  included a study and
evaluation  of internal  accounting  controls to  establish a basis for reliance
thereon in determining  the nature,  extent and timing of audit tests applied in
the examination of the financial statements.

        Management  also  recognizes its  responsibility  for fostering a strong
ethical climate so that the Corporation's affairs are conducted according to the
highest  standards of personal and corporate  conduct.  This  responsibility  is
characterized  and reflected in the  Corporation's  code of business  ethics and
policies,  which is distributed throughout the Corporation.  The code of conduct
addresses,  among other things,  the  necessity of ensuring  open  communication
within the  Corporation;  potential  conflicts of interest;  compliance with all
applicable  laws,  including  those  relating to financial  disclosure;  and the
confidentiality  of  proprietary   information.   The  Corporation  maintains  a
systematic program to assess compliance with these policies.
<PAGE>
<AUDIT-REPORT>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Phelps Dodge Corporation

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated  statements  of income,  of cash flows and of common  shareholders'
equity  present  fairly,  in all material  respects,  the financial  position of
Phelps Dodge Corporation and its subsidiaries at December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended  December 31, 1995, in conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Corporation's  management;  our responsibility is to express an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  which
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,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Phoenix, Arizona
January 22, 1996
</AUDIT-REPORT>
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED INCOME
--------------------------------
(In thousands except per share data)
<CAPTION>
                                                   1995            1994            1993
                                                   ----            ----            ----

<S>                                         <C>                 <C>             <C>      
SALES AND OTHER OPERATING REVENUES .......  $   4,185,400       3,289,200       2,595,900
                                                ---------       ---------       ---------
OPERATING COSTS AND EXPENSES
 Cost of products sold ...................      2,691,400       2,375,700       1,921,800
 Depreciation, depletion and
  amortization ...........................        223,500         195,300         187,100
 Selling and general administrative
  expense ................................        123,600         107,100         103,700
 Exploration and research expense ........         73,200          53,000          56,800
 Provision for environmental costs and
  (gains) losses on asset dispositions ...        (26,800)        157,700               -
                                                ---------       ---------       ---------
                                                3,084,900       2,888,800       2,269,400
                                                ---------       ---------       ---------
OPERATING INCOME .........................      1,100,500         400,400         326,500
 Interest expense ........................        (65,100)        (57,300)        (54,500)
 Capitalized interest ....................          3,100          20,700          17,500
 Miscellaneous income and expense, net ...         37,200          11,300          16,400
                                                ---------       ---------       ---------
INCOME BEFORE TAXES, MINORITY
 INTERESTS AND EQUITY IN NET EARNINGS
 OF AFFILIATED COMPANIES .................      1,075,700         375,100         305,900
 Provision for taxes .....................       (322,700)       (104,700)       (105,900)
 Minority interests in consolidated
  subsidiaries ...........................        (12,900)         (8,000)        (12,100)
 Equity in net earnings of affiliated
  companies ..............................          6,500           8,600               -
                                                ---------       ---------       ---------
NET INCOME ...............................  $     746,600         271,000         187,900
                                                =========       =========       =========


EARNINGS PER SHARE .......................  $       10.65            3.81            2.66



AVERAGE NUMBER OF SHARES OUTSTANDING .....         70,100          71,100          70,600


See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEET
--------------------------
(In thousands except per share values)
                                                        December        December
                                                           31,             31,
                                                          1995            1994
                                                          ----            ----
ASSETS
 Current assets:
  Cash and short-term investments, at cost .......  $    608,500        286,900
  Accounts receivable, less allowance for
   doubtful accounts (1995 - $12,000;
    1994 - $11,800) ..............................       483,700        489,500
  Inventories ....................................       281,500        266,300
  Supplies .......................................       121,400        110,700
  Prepaid expenses ...............................        15,500         15,900
  Deferred income taxes ..........................        44,600         38,600
                                                       ---------      ---------
   Current assets ................................     1,555,200      1,207,900
  Investments and long-term accounts receivable ..        79,000         82,000
  Property, plant and equipment, net .............     2,728,700      2,566,400
  Other assets and deferred charges ..............       283,000        277,500
                                                       ---------      ---------
                                                    $  4,645,900      4,133,800
                                                       =========      =========

LIABILITIES
 Current liabilities:
  Short-term debt ................................  $     66,600         49,300
  Current portion of long-term debt ..............        16,800         25,300
  Accounts payable and accrued expenses ..........       504,800        528,500
  Income taxes ...................................        16,800         46,600
                                                       ---------      ---------
   Current liabilities ...........................       605,000        649,700
  Long-term debt .................................       613,100        622,300
  Deferred income taxes ..........................       358,100        243,600
  Other liabilities and deferred credits .........       318,700        365,300
                                                       ---------      ---------
                                                       1,894,900      1,880,900
                                                       ---------      ---------
COMMITMENTS AND CONTINGENCIES
 (SEE NOTES 17 AND 18)

MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ..        73,300         65,300
                                                       ---------      ---------
COMMON SHAREHOLDERS' EQUITY
 Common shares, par value $6.25; 100,000
   shares authorized; 68,593 outstanding
   (1994 - 70,672) after deducting 6,595 shares
   (1994 - 4,503) held in treasury ...............       428,700        441,700
 Capital in excess of par value ..................             -         84,500
 Retained earnings ...............................     2,360,100      1,770,300
 Cumulative translation adjustments ..............       (93,900)       (93,800)
 Other ...........................................       (17,200)       (15,100)
                                                       ---------      ---------
                                                       2,677,700      2,187,600
                                                       ---------      ---------
                                                    $  4,645,900      4,133,800
                                                       =========      =========

See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(In thousands)
<CAPTION>
                                                                      1995               1994               1993
                                                                   ---------           --------           --------
<S>                                                                <C>                 <C>                <C>

OPERATING ACTIVITIES
 Net income .....................................................  $ 746,600            271,000            187,900
 Adjustments to reconcile net income to cash
 provided by operating activities:
  Depreciation, depletion and amortization ......................    223,500            195,300            187,100
  Deferred income taxes .........................................    107,600            (28,300)            29,500
  Equity earnings net of dividends received .....................       (400)            (4,400)               400
  Provision for environmental costs and asset dispositions ......          -            140,200                  -
  Changes in current assets and liabilities:
    (Increase) decrease in accounts receivable ..................     (2,300)          (138,600)              (600)
    (Increase) decrease in inventories ..........................    (15,800)           (35,400)            (2,400)
    (Increase) decrease in supplies .............................    (11,900)             1,600             (1,100)
    (Increase) decrease in prepaid expenses .....................        100             (3,400)             3,000
    (Increase) decrease in deferred income taxes ................     (6,000)            (3,200)            (2,800)
    Increase (decrease) in interest payable .....................       (100)               500              1,100
    Increase (decrease) in other accounts payable ...............    (55,500)            88,200             30,500
    Increase (decrease) in income taxes .........................    (29,500)            32,200            (20,600)
    Increase (decrease) in other accrued expenses ...............     36,800             22,100            (14,400)
  (Gains) losses on asset dispositions ..........................    (26,800)            17,500                  -
  Other adjustments, net ........................................     (7,300)           (12,700)           (12,600)
                                                                   ---------           --------           --------
    Net cash provided by operating activities ...................    959,000            542,600            385,000
                                                                   ---------           --------           --------
INVESTING ACTIVITIES
 Capital outlays ................................................   (404,900)          (355,000)          (387,200)
 Capitalized interest ...........................................     (3,100)           (20,700)           (17,500)
 Investment in subsidiaries .....................................       (300)           (77,300)            (3,800)
 Proceeds from asset sales ......................................     40,900             19,300              4,200
 Other ..........................................................          -              7,200              3,700
                                                                   ---------           --------           --------
    Net cash used in investing activities .......................   (367,400)          (426,500)          (400,600)
                                                                   ---------           --------           --------
FINANCING ACTIVITIES
 Increase in debt ...............................................     30,800            185,600            313,700
 Payment of debt ................................................    (22,800)          (137,100)          (153,000)
 Common dividends ...............................................   (125,600)          (119,200)          (116,100)
 Purchase of common shares ......................................   (162,700)            (3,900)            (5,600)
 Debt issue costs ...............................................          -             (7,500)           (25,800)
 Other ..........................................................     10,300             (2,900)             7,000
                                                                   ---------           --------           --------
    Net cash provided by (used in) financing activities .........   (270,000)           (85,000)            20,200
                                                                   ---------           --------           --------
INCREASE IN CASH AND SHORT-TERM INVESTMENTS .....................    321,600             31,100              4,600
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR ............    286,900            255,800            251,200
                                                                   ---------           --------           --------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR ..................  $ 608,500            286,900            255,800
                                                                   =========           ========           ========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF COMMON SHAREHOLDERS' EQUITY
----------------------------------------
(In thousands)

<CAPTION>
                                                   Common Shares                                          Cumulative
                                                   -------------           Capital in                     Translation     Common
                                                Number        At Par        Excess of        Retained     Adjustments  Shareholders'
                                              of Shares        Value        Par Value        Earnings      and Other      Equity
                                              ---------        -----        ---------        --------      ---------      ------

<S>                                           <C>           <C>            <C>            <C>              <C>           <C>       
BALANCE AT DECEMBER 31, 1992 ............       70,374      $ 439,800      $  80,600      $ 1,546,700      ($ 94,700)    $1,972,400
  Stock options exercised ...............          236          1,500          2,100                                          3,600
  Tax benefit from stock options ........                                      3,200                                          3,200
  Common shares purchased ...............         (130)          (800)        (4,800)                                        (5,600)
  Restricted shares issued, net .........           51            300          2,000                          (1,400)           900
  Net income ............................                                                     187,900                       187,900
  Dividends on common shares ............                                                    (116,100)                     (116,100)
  Translation adjustment ................                                                                    (12,200)       (12,200)
  Additional pension liability ..........                                                                    (12,000)       (12,000)
                                              --------      ---------      ---------      -----------      ---------      ----------
BALANCE AT DECEMBER 31, 1993 ............       70,531        440,800         83,100        1,618,500       (120,300)     2,022,100
  Stock options exercised ...............          216          1,400            700                                          2,100
  Tax benefit from stock options ........                                      3,900                                          3,900
  Common shares purchased ...............          (76)          (500)        (3,400)                                        (3,900)
  Restricted shares issued, net .........           14            100            700                             700          1,500
  Restricted shares terminated ..........          (13)          (100)          (500)                            600              -
  Net income ............................                                                     271,000                       271,000
  Dividends on common shares ............                                                    (119,200)                     (119,200)
  Translation adjustment ................                                                                      7,400          7,400
  Additional pension liability ..........                                                                      3,000          3,000
  Other .................................                                                                       (300)          (300)
                                              --------      ---------      ---------      -----------      ---------      ----------
BALANCE AT DECEMBER 31, 1994 ............       70,672        441,700         84,500        1,770,300       (108,900)     2,187,600
  Stock options exercised ...............          455          2,800         10,000                                         12,800
  Tax benefit from stock options ........                                      6,100                                          6,100
  Common shares purchased ...............       (2,761)       (17,300)      (114,200)         (31,200)                     (162,700)
  Restricted shares issued, net .........          186          1,200         11,200                         (10,800)         1,600
  Employee stock bonus award ............           41            300          2,400                                          2,700
  Net income ............................                                                     746,600                       746,600
  Dividends on common shares ............                                                    (125,600)                     (125,600)
  Translation adjustment ................                                                                       (100)          (100)
  Additional pension liability ..........                                                                      8,000          8,000
  Other .................................                                                                        700            700
                                              --------      ---------      ---------      -----------      ---------      ----------
BALANCE AT DECEMBER 31, 1995 ............       68,593      $ 428,700      $       -      $ 2,360,100      ($111,100)    $2,677,700
                                              ========      =========      =========      ===========      =========     ==========

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Dollar amounts in tables stated in thousands except as noted)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of  Consolidation.  The  consolidated  financial  statements  include  the
accounts of the Corporation and its  majority-owned  subsidiaries.  Interests in
mining  joint  ventures in which the  Corporation  owns more than 50 percent are
reported  using  the  proportional  consolidation  method.  Interests  in  other
majority-owned  subsidiaries are reported using the full  consolidation  method;
the  consolidated  financial  statements  include  100 percent of the assets and
liabilities  of these  subsidiaries  and the  ownership  interests  of  minority
participants are recorded as "Minority interests in consolidated  subsidiaries."
All material intercompany balances and transactions are eliminated.

         Investments in  unconsolidated  companies  owned 20 percent or more are
recorded on an equity basis. Investments in companies less than 20 percent owned
are carried at cost.

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

Foreign Currency Translation.  Except as noted below, the assets and liabilities
of foreign  subsidiaries are translated at current exchange rates while revenues
and  expenses  are  translated  at average  rates in effect for the period.  The
related  translation  gains and losses are  included in a separate  component of
common shareholders'  equity. For the translation of the financial statements of
certain foreign subsidiaries dealing predominantly in U.S. dollars and for those
affiliates  operating in highly inflationary  economies,  assets and liabilities
receivable or payable in cash are  translated  at current  exchange  rates,  and
inventories  and other  non-monetary  assets and  liabilities  are translated at
historical rates.  Gains and losses resulting from translation of such financial
statements are included in operating  results,  as are gains and losses incurred
on foreign currency transactions.

Statement of Cash Flows. For the purpose of preparing the Consolidated Statement
of Cash Flows,  the Corporation  considers all highly liquid  investments with a
maturity of three months or less when purchased to be cash equivalents.

Inventories  and Supplies.  Inventories  and supplies are stated at the lower of
cost or market.  Cost for  substantially  all  inventories  is determined by the
last-in,  first-out  method  (LIFO).  Cost for  substantially  all  supplies  is
determined by a moving-average method.

Property,  Plant and  Equipment.  Property,  plant and  equipment are carried at
cost. Cost of significant assets includes  capitalized  interest incurred during
the  construction  and development  period.  Expenditures  for  replacements and
betterments are capitalized;  maintenance and repair expenditures are charged to
operations as incurred.

        The principal depreciation method used for mining, smelting and refining
operations is the units of production method. Buildings, machinery and equipment
for other  operations  are  depreciated  using  the  straight-line  method  over
estimated  lives of five to 40 years,  or the estimated life of the operation if
shorter. Upon disposal of assets depreciated on a group basis, cost less salvage
is charged to accumulated depreciation.

        Values for  mining  properties  represent  mainly  acquisition  costs or
pre-1932 engineering valuations.  Depletion of mines is computed on the basis of
an overall unit rate applied to the pounds of principal  products sold from mine
production.

        Mine exploration costs and development  costs to maintain  production of
operating  mines  are  charged  to  operations  as  incurred.  Mine  development
expenditures at new mines and major development  expenditures at operating mines
that are expected to benefit future  production are capitalized and amortized on
the units of  production  method  over the  estimated  commercially  recoverable
minerals.

Environmental   Expenditures.   Environmental   expenditures   are  expensed  or
capitalized depending upon their future economic benefits.  Liabilities for such
expenditures  are  recorded  when it is  probable  that  obligations  have  been
incurred and the costs reasonably can be estimated.  The Corporation's estimates
of these costs are based upon currently  available facts,  existing  technology,
and presently enacted laws and regulations.  Where the available  information is
sufficient  to estimate the amount of  liability,  that  estimate has been used;
where the  information  is only  sufficient  to  establish  a range of  probable
liability and no point within the range is more likely than any other, the lower
end of the range has been used.  The  possibility  of  recovery of some of these
costs from insurance companies or other parties exists; however, the Corporation
does not  recognize  these  recoveries in its  financial  statements  until they
become probable.

Goodwill. Included in "Other assets and deferred charges" are costs in excess of
the net  assets  of  businesses  acquired.  These  amounts  are  amortized  on a
straight-line  basis over periods of 15 to 40 years.  The Corporation  evaluates
for  impairment  its long-term  assets to be held and used and its  identifiable
intangible assets when events or changes in economic  circumstances indicate the
carrying  amount of such assets may not be recoverable.  Long-term  assets to be
disposed  of are  carried  at the lower of cost or fair  value less the costs of
disposal.

Hedging  Programs.  The Corporation  does not acquire,  hold or issue derivative
financial instruments for trading purposes. Derivative financial instruments are
used to manage well-defined commodity price and foreign exchange risks.

        The Corporation may periodically  use various price protection  programs
to mitigate the risk of adverse  price  fluctuations  on a portion of its copper
production.  The  costs of  programs  that  guarantee  a  minimum  price  over a
specified period are amortized on a straight-line basis over that period.  Gains
and losses from  programs  that  effectively  establish  price ranges for future
production  are  recognized  in income  during  the  periods  affected.  Any net
premiums paid for programs that  effectively  establish  price ranges for future
production are amortized on a  straight-line  basis over the period the hedge is
designed to protect.

        The Corporation  periodically  enters into forward exchange contracts to
hedge certain recorded transactions denominated in foreign currencies and enters
into  currency  option  contracts to hedge  certain firm  commitments  and other
anticipated  foreign currency  transactions.  The objective of the Corporation's
foreign  currency  hedging program is to protect the  Corporation  from the risk
that the  eventual  equivalent  dollar cash flows  resulting  from  transactions
denominated  in foreign  currencies  will be  adversely  affected  by changes in
exchange rates.  Deferred gains and losses on option contracts are recognized in
income when the underlying hedged transaction is recognized or when a previously
anticipated  transaction is no longer expected to occur. Changes in market value
of  forward  exchange   contracts  and  certain  option   contracts   protecting
anticipated transactions are recognized in the period incurred.

        The  Corporation  may enter into interest  rate  agreements to limit the
effect of increases in the interest  rates on any floating rate debt.  The costs
associated with such agreements are amortized to interest  expense over the term
of the agreement.

Stock  Compensation.  The Corporation has elected early adoption of Statement of
Financial  Accounting  Standards  (SFAS) No. 123,  "Accounting  for  Stock-Based
Compensation."   In  accordance  with  the  provisions  of  SFAS  No.  123,  the
Corporation applies APB Opinion 25 and related Interpretations in accounting for
its stock option plans and, accordingly,  does not recognize  compensation cost.
Note 14 to the Consolidated  Financial  Statements contains a summary of the pro
forma  effects to reported net income and earnings per share for 1995,  1994 and
1993 if the Corporation had elected to recognize  compensation cost based on the
fair value of the options granted at grant date as prescribed by SFAS No. 123.

Income Taxes. In addition to charging income for taxes actually paid or payable,
the provision for taxes reflects deferred income taxes resulting from changes in
temporary  differences between the tax bases of assets and liabilities and their
reported  amounts in the  financial  statements.  The effect on deferred  income
taxes of a change  in tax rates is  recognized  in  income  in the  period  that
includes the enactment date.

Pension Plans.  The  Corporation  has trusteed,  non-contributory  pension plans
covering  substantially all of its U.S. employees and in some cases employees of
international  subsidiaries.  The  benefits are based on, in the case of certain
plans,  final  average  salary  and years of service  and,  in the case of other
plans, a fixed amount for each year of service. The Corporation's funding policy
provides  that  payments  to the pension  trusts  shall be at least equal to the
minimum funding  requirements of the Employee  Retirement Income Security Act of
1974 for U.S. plans or, in the case of international  subsidiaries,  the minimum
legal requirements in that particular  country.  Additional payments may also be
provided by the Corporation from time to time.

Postretirement  Benefits  Other  Than  Pensions.  The  Corporation  has  several
postretirement health care and life insurance benefit plans covering most of its
U.S.  employees  and in some  cases  employees  of  international  subsidiaries.
Postretirement  benefits vary among plans and many plans  require  contributions
from employees. The Corporation accounts for these benefits on an accrual basis.
The Corporation's  funding policy provides that payments shall be at least equal
to its cash basis  obligation,  plus additional  amounts that may be approved by
the Corporation from time to time.

Postemployment  Benefits.  The  Corporation has certain  postemployment  benefit
plans  covering  most of its  U.S.  employees  and in some  cases  employees  of
international subsidiaries. The benefit plans may provide severance, disability,
supplemental  health  care,  life  insurance  or  other  welfare  benefits.  The
Corporation  accounts for these benefits on an accrual basis. The  Corporation's
funding policy  provides that payments shall be at least equal to its cash basis
obligation, plus additional amounts that may be approved by the Corporation from
time to time.

Earnings  per  Share.  Earnings  per share  amounts  are  computed  based on the
weighted  average number of shares actually  outstanding  during the period plus
the shares that would be  outstanding  assuming the  exercise of dilutive  stock
options,  which are  considered  to be common stock  equivalents.  The number of
equivalent  shares  that would be issued from the  exercise of stock  options is
computed using the treasury stock method. Note 14 to the Consolidated  Financial
Statements  contains a summary of the pro forma effects to reported earnings per
share  for 1995,  1994 and 1993 if the  Corporation  had  elected  to  recognize
compensation  cost in accordance with SFAS No. 123,  "Accounting for Stock-Based
Compensation."

Reclassification. For comparative purposes, certain prior year amounts have been
reclassified to conform with the current year presentation.

2.   PROVISION FOR ENVIRONMENTAL COSTS AND ASSET DISPOSITIONS
During the 1995 first quarter,  the Corporation  recognized a $26.8 million gain
before taxes from the sale of Columbian Chemicals Company's synthetic iron oxide
facility in St.  Louis,  Missouri  (MAPICO).  This gain  increased net income by
$16.6 million,  or 24 cents per common share, after taxes. MAPICO was peripheral
to Columbian's core business.

        In the 1994  fourth  quarter,  the  Corporation  recorded  non-recurring
pre-tax  charges of $140.2  million  reflecting  additional  provisions of $98.7
million before taxes for estimated  future costs  associated with  environmental
matters  primarily in Phelps Dodge Mining Company and $41.5 million before taxes
for estimated losses,  primarily in Phelps Dodge Industries,  on the disposition
of certain  operating  facilities.  These  charges  reduced  net income by $91.7
million, or $1.29 per common share, after taxes.

        The  pre-tax  charge  of  $98.7  million  for  estimated   future  costs
associated with  environmental  matters  comprised  $88.9 million  applicable to
Phelps Dodge Mining Company,  $8.6 million applicable to Phelps Dodge Industries
and $1.2 million  applicable to Corporate  and other.  As a result of these 1994
environmental  charges and balances  remaining from previously  provided charges
for  environmental  costs,  the  Corporation's  reserves for such costs  totaled
$144.1  million and $168.9  million at December 31, 1995, and December 31, 1994,
respectively  (see Note 1 to the Consolidated  Financial  Statements for further
information  concerning  the  Corporation's  policy for recording  environmental
obligations).

        The pre-tax charge of $41.5 million  associated  with the disposition of
certain operating  facilities included $36.0 million for Phelps Dodge Industries
and $5.5  million for Phelps  Dodge Mining  Company  issues.  The portion of the
charge  attributable to Phelps Dodge  Industries  comprised a provision of $20.0
million for the impairment of value of Hudson International  Conductors,  a loss
of $7.0  million on the sale of the  Corporation's  40 percent  interest  in its
Mexican associate company, CONELEC S.A. de C.V., and a provision of $9.0 million
for the closure of Columbian Chemicals Company's plant in Hamburg, Germany.

        Also  included  in the  provision  for  environmental  costs  and  asset
dispositions for the full year 1994 was a second quarter  provision for the sale
of Phelps Dodge Mining  Company's  interest in its Santa Gertrudis gold property
in Mexico and its Olinghouse  gold property in Nevada.  The combined net loss on
the sale of these interests was $17.5 million before taxes.  This charge reduced
net income by $11.2 million, or 16 cents per common share, after taxes.

3.   EQUITY EARNINGS AND INVESTMENTS AND LONG-TERM RECEIVABLES
Equity earnings (losses) were as follows:

--------------------------------------------------------------------------------

                                                  1995         1994        1993
                                                  ----         ----        ----

International wire and cable
 manufacturers ..........................   $    1,000        1,700       3,300
Black Mountain ..........................        4,500        6,000        (600)
Santa Gertrudis .........................            -         (600)     (3,300)
Other ...................................        1,000        1,500         600
                                               -------      -------      -------
                                            $    6,500        8,600           -
                                               =======      =======      =======

--------------------------------------------------------------------------------

     Dividends were received as follows:

--------------------------------------------------------------------------------
                                                 1995         1994         1993
                                                 ----         ----         ----

Equity investments:
 International wire and cable
  manufacturers .........................  $      300        1,400          400
 Black Mountain .........................       5,700        2,900            -
 Other ..................................         100            -            -
                                              -------      -------      -------
                                           $    6,100        4,300          400
                                              =======      =======      =======
Cost basis investments:
 Southern Peru Copper 
  Corporation (13.9%) ...................  $   13,600        3,500        2,900
 Other ..................................         300          400          600
                                              -------      -------      -------
                                           $   13,900        3,900        3,500
                                              =======      =======      =======

--------------------------------------------------------------------------------
<PAGE>
        Investments and long-term receivables were as follows:
--------------------------------------------------------------------------------

                                                 1995         1994         1993
                                                 ----         ----         ----
Equity basis:
 International wire and cable
  manufacturers ........................   $   18,200       18,500       38,300
 Black Mountain ........................       11,300       12,800       10,200
 Santa Gertrudis .......................            -            -        3,000
 Other .................................       12,200       11,100        9,300
Cost basis:
 Southern Peru Copper 
 Corporation (13.9%) ...................       13,200       13,200       13,200
 Other .................................       24,100       26,400       41,400
                                              -------      -------      -------
                                           $   79,000       82,000      115,400
                                              =======      =======      =======

--------------------------------------------------------------------------------

     Retained  earnings of the  Corporation  include  undistributed  earnings of
equity investments of (in millions): 1995 - $59.0; 1994 - $58.6; 1993 - $54.3.

        Condensed  financial  information for companies in which the Corporation
has equity basis investments  together with majority-owned  foreign subsidiaries
previously accounted for on an equity basis is as follows:

--------------------------------------------------------------------------------

                                               1995          1994          1993
                                               ----          ----          ----

Sales ................................  $   771,200       637,200       637,200
Net income ...........................       42,000        46,000        36,700
--------------------------------------------------------------------------------

Net current assets ...................  $    66,600        63,300        44,700
Fixed assets, net ....................      259,100       249,500       292,300
Long-term debt .......................      (40,500)      (39,000)      (64,900)
Other assets, net ....................       (3,900)       (2,500)       27,500
                                           --------      --------      --------
Net assets ...........................  $   281,300       271,300       299,600
                                           ========      ========      ========

--------------------------------------------------------------------------------

4.   INTEREST EXPENSE, NET OF AMOUNT CAPITALIZED
The Corporation reported net interest expense in 1995 of $62.0 million, compared
with  $36.6  million  in 1994 and  $37.0  million  in 1993.  Increased  1995 net
interest expense  principally  resulted from the cessation of  capitalization of
interest costs for the Candelaria  project in Chile  reflecting the  substantial
completion of  construction  and  development in the 1994 fourth  quarter.  Also
included in 1995 interest expense were foreign  currency  exchange gains of $8.1
million  reflecting the  remeasurement of Venezuelan local currency debt after a
major devaluation of the Bolivar.

5.   MISCELLANEOUS INCOME AND EXPENSE, NET
Interest   income   totaled  $31.5  million  in  1995,   principally   from  the
Corporation's  short-term  investments,  compared  with $11.0  million and $10.9
million  in 1994 and  1993,  respectively.  Miscellaneous  income  in 1995  also
included  pre-tax  dividends  of  $13.6  million  on its 13.9  percent  minority
interest in Southern  Peru Copper  Corporation,  compared  with $3.5 million and
$2.9  million in 1994 and 1993,  respectively.  Losses from  changes in currency
exchange rates,  especially in Venezuela and Chile, amounted to $10.2 million in
1995,  compared  with losses of $6.3  million and $0.1 million in 1994 and 1993,
respectively.

6.   INCOME TAXES
The  Corporation  reports  its income  taxes in  accordance  with SFAS No.  109,
"Accounting  for Income  Taxes."  SFAS No. 109  mandates an asset and  liability
approach for financial  accounting  and  reporting of income  taxes.  One of the
principal  requirements of the standard is that changes in tax rates and laws be
reflected in income from operations in the period such changes are enacted. SFAS
No. 109 also requires  balance  sheet  classification  of deferred  income taxes
according to the balance sheet classification of the asset or liability to which
the temporary difference is related.

     Geographic sources of income before taxes, minority interests and equity in
net earnings of  affiliated  companies  for the years ended  December 31 were as
follows:

--------------------------------------------------------------------------------

                                               1995         1994         1993
                                               ----         ----         ----

United States .................  $          816,200      298,900      258,200
Foreign .......................             259,500       76,200       47,700
                                          ---------      -------      -------
                                 $        1,075,700      375,100      305,900
                                          =========      =======      =======

--------------------------------------------------------------------------------

        The  provisions for income taxes for the years ended December 31 were as
follows:

--------------------------------------------------------------------------------

                                          1995             1994             1993
                                          ----             ----             ----
Currently payable:
   Federal ...................       $ 157,800           94,000           49,900
   State .....................          23,900           14,000            8,400
   Foreign ...................          38,100           25,000           18,100
                                     ---------        ---------        ---------
                                       219,800          133,000           76,400
                                     ---------        ---------        ---------
Deferred:
   Federal ...................          78,400          (27,100)          24,700
   State .....................             400           (2,500)           2,700
   Foreign ...................          24,100            1,300            2,100
                                     ---------        ---------        ---------
                                       102,900          (28,300)          29,500
                                     ---------        ---------        ---------
                                     $ 322,700          104,700          105,900
                                     =========        =========        =========

--------------------------------------------------------------------------------

     A  reconciliation  of the  U.S.  statutory  tax  rate to the  Corporation's
effective tax rate is as follows:

--------------------------------------------------------------------------------

                                         1995            1994           1993
                                         ----            ----           ----

Statutory tax rate .................     35.0  %         35.0           35.0
Depletion ..........................     (5.3)          (10.6)          (4.7)
State and local income taxes .......      1.5             2.0            2.5
Rate increase effect on existing    
 temporary differences .............        -               -            2.0
Other items, net ...................     (1.2)            1.5           (0.2)
                                        -----           -----          -----
Effective tax rate                       30.0  %         27.9           34.6
                                        =====           =====          =====

--------------------------------------------------------------------------------

        The Corporation paid federal,  state,  local and foreign income taxes of
approximately $247 million in 1995,  compared with approximately $114 million in
1994 and  approximately  $113  million in 1993.  As of December  31,  1995,  the
Corporation had  alternative  minimum tax credits of  approximately  $87 million
available for carryforward for federal income tax purposes. These credits can be
carried forward indefinitely, but may only be used to the extent the regular tax
exceeds the  alternative  minimum  tax.  The  Corporation  also has  alternative
minimum  foreign tax credit  carryforwards  for federal  income tax  purposes of
approximately $30 million, which begin to expire in 1996.

        The  Corporation's  federal income tax returns for the years 1992,  1993
and 1994 are currently under examination.  The Corporation has received proposed
assessments  from the Internal  Revenue  Service  relating to the  Corporation's
federal  income tax liability for the years 1990 and 1991 and will contest those
proposals  with the  appropriate  authorities.  The  Corporation  has  reached a
tentative  agreement  with the Internal  Revenue  Service to settle the proposed
assessment  relating to the  Corporation's  federal income tax liability for the
years 1988 and 1989.  Management believes that it has made adequate provision so
that the final resolution of the issues involved, including application of those
determinations to subsequent open years, will not have a material adverse effect
on  the  consolidated  financial  condition  or  results  of  operations  of the
Corporation. It is possible, however, that settlement of these issues may have a
material effect on the timing and extent of its tax payments.

        Deferred income tax assets and (liabilities)  comprised the following at
December 31:

--------------------------------------------------------------------------------

                                                            1995           1994
                                                            ----           ----

Minimum tax credits ..............................     $  86,700        119,000
Postretirement and postemployment benefits .......        52,500         49,300
Reserves .........................................        89,600         85,800
Mining costs .....................................        33,100         19,800
Other ............................................         6,400         13,100
                                                       ---------      ---------
  Deferred tax assets ............................       268,300        287,000
                                                       ---------      ---------
Depreciation .....................................      (540,600)      (452,000)
Mining properties ................................        (9,300)       (13,500)
Exploration and mine development costs ...........        (8,300)        (8,800)
Pensions .........................................       (25,000)       (15,500)
Inventories ......................................         1,400         (2,200)
                                                       ---------      ---------
  Deferred tax liabilities .......................      (581,800)      (492,000)
                                                       ---------      ---------
                                                       $(313,500)      (205,000)
                                                       =========      =========

--------------------------------------------------------------------------------

        Income  taxes have not been  provided on the  Corporation's  share ($398
million) of undistributed  earnings of those  manufacturing and mining interests
abroad  over which the  Corporation  has  sufficient  influence  to control  the
distribution  of such earnings and has  determined  that such earnings have been
reinvested  indefinitely.  These earnings could become subject to additional tax
if they were  remitted  as  dividends,  if foreign  earnings  were loaned to the
Corporation or a U.S. affiliate,  or if the Corporation should sell its stock in
the  subsidiaries.  It is estimated that  repatriation of these foreign earnings
would generate  additional  foreign tax withholding and U.S. tax, net of foreign
tax credit, in the amounts of $61 million and $31 million, respectively.

7.   INVENTORIES AND SUPPLIES
Inventories at December 31 were as follows (in millions):
--------------------------------------------------------------------------------

                                                             1995           1994
                                                             ----           ----

Metals and other raw materials ..................       $   200.4          176.6
Work in process .................................            14.6           15.3
Finished manufactured goods .....................            61.4           69.4
Other ...........................................             5.1            5.0
                                                          -------         ------
                                                        $   281.5          266.3
                                                          =======         ======

--------------------------------------------------------------------------------

        Inventories  valued by the  last-in,  first-out  method  would have been
greater  if valued at  current  costs by  approximately  $115  million  and $111
million at December 31, 1995 and 1994, respectively.

        Supplies in the amount of $121.4  million and $110.7 million at December
31, 1995 and 1994, respectively, are stated net of a reserve for obsolescence of
$10.5 million and $14.0 million, respectively.

8.   PROPERTY, PLANT AND EQUIPMENT
Property,  plant and  equipment  at  December 31  comprised  the  following  (in
millions):

--------------------------------------------------------------------------------

                                                              1995          1994
                                                              ----          ----

Buildings, machinery and equipment ................     $  4,296.2       4,060.9
Mining properties .................................          173.2         129.1
Capitalized mine development ......................          284.8         283.9
Land and water rights .............................           66.6          72.5
                                                          --------       -------
                                                           4,820.8       4,546.4
Less accumulated depreciation, depletion
 and amortization .................................        2,092.1       1,980.0
                                                          --------       -------
                                                        $  2,728.7       2,566.4
                                                          ========       =======

        The net increases in property,  plant and equipment of $162.3 million in
1995 and $226.2 million in 1994 are summarized below (in millions):

--------------------------------------------------------------------------------

                                                              1995         1994
                                                              ----         ----

Balance at beginning of year ......................     $  2,566.4      2,340.2
                                                          --------      -------
Capital expenditures ..............................          404.9        355.0
Depreciation, depletion and amortization ..........         (218.7)      (190.2)
Property, plant and equipment of acquired
 companies ........................................              -         69.8
Asset sales, currency translation adjustments
 and other ........................................          (23.9)        (8.4)
                                                          --------      -------
                                                             162.3        226.2
                                                          --------      -------
Balance at end of year ............................     $  2,728.7      2,566.4
                                                          ========      =======

--------------------------------------------------------------------------------

9.   OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges at December 31 were as follows (in millions):

--------------------------------------------------------------------------------

                                                                1995        1994
                                                                ----        ----

Goodwill, less accumulated amortization
 (1995 - $34.5; 1994 - $30.1) .......................       $   120.8      125.2
Employee benefit plans ..............................           108.8       95.8
Debt issue costs ....................................            29.2       32.8
Intangible pension asset ............................            18.0       18.0
Other intangible assets .............................             4.0        4.1
Other ...............................................             2.2        1.6
                                                              -------     ------
                                                            $   283.0      277.5
                                                              =======     ======

--------------------------------------------------------------------------------
10.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts  payable  and  accrued  expenses  at  December  31 were as follows  (in
millions):
--------------------------------------------------------------------------------

                                                            1995         1994
                                                            ----         ----

Accounts payable ....................................   $  247.5        303.5
Employee benefit plans ..............................       55.8         39.5
Insurance and loss reserves .........................       12.3         11.4
Salaries, wages and other compensation ..............       36.5         30.3
Environmental reserves ..............................       51.1         42.1
Smelting, refining and freight ......................       25.9         15.1
Other accrued taxes .................................       17.6         14.6
Shutdown, relocation and restructuring ..............        7.1         11.4
Interest * ..........................................       13.6         12.4
Candelaria development ..............................          -          6.8
Returnable containers ...............................        3.3          4.9
Other ...............................................       34.1         36.5
                                                          ------       ------
                                                        $  504.8        528.5
                                                          ======       ======
---------------

     * Interest paid by the Corporation in 1995 was $70.4 million, compared with
$58.5 million in 1994 and $54.9 million in 1993.

--------------------------------------------------------------------------------

11.  OTHER LIABILITIES AND DEFERRED CREDITS
Other  liabilities  and  deferred  credits at  December  31 were as follows  (in
millions):

--------------------------------------------------------------------------------

                                                                 1995       1994
                                                                 ----       ----

Postretirement and postemployment benefit plans .........     $  148.8     139.4
Other employee benefit plans ............................         39.9      63.9
Environmental reserves ..................................         92.1     124.9
Shutdown, relocation and restructuring ..................         11.2      13.1
Insurance and loss reserves .............................         20.7      20.9
Other ...................................................          6.0       3.1
                                                                ------    ------
                                                              $  318.7     365.3
                                                                ======    ======

--------------------------------------------------------------------------------

12.  LONG-TERM DEBT AND OTHER FINANCING
Long-term debt at December 31 is summarized below (in millions):

--------------------------------------------------------------------------------

                                                               1995        1994
                                                               ----        ----

7.75% Notes due 2002 ..................................   $   100.0       100.0
7.96% Notes due 1998-2000 .............................        50.0        50.0
Air Quality Control Obligations:
 5.45% Notes due 2009 .................................        81.1        81.1
 6.50% Installment sale obligations due 2013 ..........        90.0        90.0
Candelaria ............................................       237.4       235.4
Ojos del Salado .......................................         8.0        10.4
Columbian Tiszai Carbon Ltd. ..........................        30.0        33.5
Columbian Carbon Spain, S.A ...........................        14.1        13.0
Phelps Dodge International Corporation ................        13.3        24.3
Other .................................................         6.0         9.9
                                                            -------      ------
Long-term debt before current portion .................       629.9       647.6
Less current portion ..................................        16.8        25.3
                                                            -------      ------
Long-term debt after current portion ..................   $   613.1       622.3
                                                            =======      ======

--------------------------------------------------------------------------------

        Annual  maturities  of debt  outstanding  at December 31,  1995,  are as
follows (in millions):  1996 - $16.8;  1997 - $38.5; 1998 - $51.9; 1999 - $56.1;
2000 - $48.7.

        During  1994,  the  Corporation  issued  $81.1  million  of  tax-exempt,
unsecured 5.45 percent obligations due in 2009. The proceeds from the issue were
used to retire the  Corporation's  5.75 percent to 6.25  percent  Series A and B
notes due in the years 1994 through 2004.

        An existing  revolving  credit  agreement  between the  Corporation  and
several  lenders was amended on October 31,  1994.  The  agreement,  as amended,
permits borrowings of up to $200 million from time to time until its maturity on
October 31, 1999.  Interest is payable at a fluctuating  rate based on the agent
bank's prime rate or a fixed rate,  based on the  Eurodollar  Interbank  Offered
Rate or at  fixed  rates  offered  independently  by the  several  lenders,  for
maturities of from seven to 360 days. This agreement provides for a facility fee
of one-eighth  of 1 percent of total  commitments.  The  agreement  requires the
Corporation  to  maintain  a  minimum  consolidated  tangible  net worth of $1.1
billion   and  limits   indebtedness   to  40  percent  of  total   consolidated
capitalization. There were no borrowings under this agreement at either December
31, 1995, or December 31, 1994.

        Accuride  Canada  Inc.  has a revolving  credit  facility  that  permits
borrowings of up to U.S. $25.0 million.  Interest on these borrowings is payable
at a  fluctuating  rate based on the agent bank's Base Rate  Canada,  or a fixed
rate based on the London Interbank  Offered Rate (LIBOR),  for maturities of one
week to six  months.  This  facility,  which is  subject  to  renewal  annually,
provides  for a standby  fee of  one-eighth  of 1 percent of the $25.0  million.
There were no borrowings  outstanding under this facility at either December 31,
1995, or December 31, 1994.

        The  Corporation  had other lines of credit  totaling  $100.0 million at
December 31, 1995,  and at December 31, 1994.  These  facilities  are subject to
agreement  as to  availability,  terms  and  amount.  There  were no  borrowings
outstanding under these lines of credit at either December 31, 1995, or December
31, 1994.

        The Corporation had $66.6 million in short-term  borrowings,  all by its
international  operations,  at December 31, 1995, compared with $49.3 million at
December 31, 1994. The weighted  average  interest rate on this debt at December
31,  1995,   and  December  31,  1994,   was  18.5  percent  and  14.9  percent,
respectively.

        The   Corporation's   80-percent-owned   Compania   Contractual   Minera
Candelaria (CCMC)  subsidiary  borrowed $290 million under its project financing
agreements to finance  construction  of the Candelaria  copper project in Chile.
Under the proportional consolidation method, the Corporation reflects 80 percent
of this amount in its financial statements. These borrowings became non-recourse
to the Corporation  subsequent to the  satisfaction of certain  completion tests
during  the  second  quarter of 1995.  This $290  million  of 13-year  financing
comprises  $200 million of floating  rate dollar  denominated  debt (with a rate
based on the  six-month  LIBOR),  $60 million of fixed rate  dollar  denominated
debt, and $30 million of floating rate debt denominated in Chilean pesos (with a
rate based on the 90-day Tasa Activa  Bancaria),  with a nine and one-half  year
repayment  period that starts in 1997. The Corporation also caused CCMC to enter
into an interest rate protection  agreement with certain financial  institutions
to limit the effect of  increases  in the cost of the $200  million of  floating
rate dollar denominated debt. Under the terms of the agreement, the project will
receive  payments  from these  institutions  if the  six-month  LIBOR  exceeds 9
percent  prior to December 31, 2001,  and 11 percent  during the two  subsequent
years ending December 31, 2003.

        The  Corporation's  60-percent-owned  Hungarian  subsidiary,   Columbian
Tiszai Carbon Ltd.,  borrowed $33.5 million under  facilities  from the Overseas
Private  Investment  Corporation (OPIC) and the European Bank for Reconstruction
and Development (EBRD) to finance  construction of a carbon black  manufacturing
plant.  Both facilities are with recourse to Columbian  Chemicals  Company until
satisfaction of certain completion tests, and non-recourse thereafter.  The OPIC
facility is a $24.5 million fixed rate dollar  borrowing  bearing interest rates
of between  8.01  percent and 9.15  percent,  and the EBRD $9 million  loan is a
fixed rate  dollar  borrowing  bearing an  interest  rate of 8.30  percent.  The
balances due on these borrowings mature in the years 1996 through 2001.

13.  SHAREHOLDERS' EQUITY
During 1995, the Corporation purchased 2,760,600 of its common shares at a total
cost of $163 million.  These purchases  included  2,675,600 shares under a new 5
million share  buy-back  program  authorized on March 7, 1995, and 85,000 shares
under the superseded program. There were 68,593,300 common shares outstanding on
December 31, 1995.

        During 1994, the Corporation purchased 76,000 of its common shares under
a 4 million common share buy-back  program  initiated in September 1989 (numbers
of shares have been revised to give effect to the two-for-one stock split in May
1992). The Corporation purchased a total of 2,449,000 of its common shares under
this program through  December 31, 1994. These purchased shares were restored to
the treasury.

        The Corporation  has 6,000,000  authorized  preferred  shares with a par
value of $1.00 each; no shares were  outstanding at either December 31, 1995, or
December 31, 1994.

        In 1988, the Corporation  adopted a Preferred Share Purchase Rights Plan
and  declared a dividend of one right on each of its common  shares.  In certain
circumstances,  if a person  or group of  persons  acquires  or  tenders  for 20
percent or more of the  Corporation's  outstanding  common shares,  these rights
vest and  entitle the holder to certain  share  purchase  rights.  Until 10 days
after vesting, the rights may be modified or redeemed by the Board of Directors.

14.  STOCK OPTION PLANS; RESTRICTED STOCK
Executives and other key employees have been granted  options to purchase common
shares under stock option plans  adopted in 1979,  1987 and 1993.  In each case,
the option price equals the fair market value of the common shares on the day of
the grant and an  option's  maximum  term is ten  years.  Options  granted  vest
ratably over a three-year period. The options include limited stock appreciation
rights  under which an optionee has the right,  in the event  common  shares are
purchased  pursuant  to a third party  tender  offer or in the event a merger or
similar  transaction  in which the  Corporation  shall not survive as a publicly
held corporation is approved by the  Corporation's  shareholders,  to relinquish
the option and to receive from the  Corporation an amount per share equal to the
excess of the price payable for a common share in such offer or transaction over
the option price per share.

        The  Corporation  has elected  early  adoption of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based  Compensation,"
issued in October 1995. In accordance  with the  provisions of SFAS No. 123, the
Corporation applies APB Opinion 25 and related Interpretations in accounting for
its stock option plans and, accordingly,  does not recognize  compensation cost.
If the Corporation had elected to recognize  compensation cost based on the fair
value of the options  granted at grant date as  prescribed  by SFAS No. 123, net
income and earnings  per share would have been reduced to the pro forma  amounts
indicated in the table below (in millions except per share amounts):

--------------------------------------------------------------------------------

                                                 1995         1994         1993
                                                 ----         ----         ----
Net income - as reported ...............      $ 746.6        271.0        187.9
Net income - pro forma .................        741.6        266.8        184.7

Earnings per share - as reported .......        10.65         3.81         2.66
Earnings per share - pro forma .........        10.60         3.76         2.62

--------------------------------------------------------------------------------
                                                                      

        The fair value of each option  grant is  estimated  on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:

        Expected dividend yield                           3.34%
        Expected stock price volatility                   22.1%
        Risk-free interest rate                           6.00%
        Expected life of options                          3 years

The  weighted  average fair value of options  granted  during 1995 is $11.04 per
share.

        The 1993 plan provides (and the 1987 plan provided) for "reload"  option
grants to executives and other key employees. If an optionee exercises an option
under the 1993 or 1987 plan with  already-owned  shares of the Corporation,  the
optionee  receives a reload  option that  restores the option  opportunity  on a
number of common  shares  equal to the  number of shares  used to  exercise  the
original  option.  A reload  option  has the same terms as the  original  option
except that it has an exercise price per share equal to the fair market value of
a common share on the date the reload option is granted and is  exercisable  six
months after the date of grant.

        The 1993 plan provides (and the 1987 plan  provided) for the issuance to
executives  and other key  employees,  without  any  payment by them,  of common
shares subject to certain restrictions  (Restricted Stock). The 1993 plan limits
the award of Restricted Stock to 1,000,000 shares.

        Under a stock  option plan adopted in 1989,  options to purchase  common
shares  have  been  granted  to  directors  who have not been  employees  of the
Corporation or its  subsidiaries for one year or are not eligible to participate
in any plan of the  Corporation or its  subsidiaries  entitling  participants to
acquire stock, stock options or stock appreciation rights.

        At December  31, 1995,  options for 627,187  shares,  38,643  shares and
826,272 shares were exercisable  under the 1987 plan, the 1989 plan and the 1993
plan, respectively, at average prices of $43.46, $39.82 and $52.70 per share. In
addition,  225,925  shares of  Restricted  Stock issued under the 1993 plan were
outstanding at December 31, 1995.  Also at December 31, 1995,  2,650,259  shares
were available for option grants  (including  761,258 shares as restricted stock
awards)  under the 1993 plan  (plus an  additional  600,999  shares  that may be
issued as reload  options) and 92,403  shares were  available  for option grants
under the 1989 plan. These amounts are subject to future adjustment.  No further
options may be granted under the 1987 plan.

        Changes  during  1993,  1994 and  1995 in  options  outstanding  for the
combined plans were as follows:

--------------------------------------------------------------------------------

                                                                 Average option
                                                       Shares    price per share
                                                       ------   ----------------

Outstanding at December 31, 1992 ................    1,975,850    $   36.78
  Granted .......................................      831,896        45.11
  Exercised .....................................     (377,203)       28.03
  Expired or terminated .........................      (50,982)       41.37
                                                     ---------
Outstanding at December 31, 1993 ................    2,379,561        40.88
  Granted .......................................      961,087        58.35
  Exercised .....................................     (479,660)       37.32
  Expired or terminated .........................      (28,802)       44.34
                                                     ---------
Outstanding at December 31, 1994 ................    2,832,186        47.38
  Granted .......................................      953,838        66.37
  Exercised .....................................     (635,881)       38.19
  Expired or terminated .........................     (110,345)       51.03
                                                     ---------
Outstanding at December 31, 1995 * ..............    3,039,798        55.13
                                                     =========
------------

*       Exercise prices for options outstanding at December 31, 1995, range from
        a minimum of  approximately  $27 per share to a maximum of approximately
        $68 per share. The average remaining maximum term of options outstanding
        is approximately 8 years.

--------------------------------------------------------------------------------

        Changes during 1993, 1994 and 1995 in Restricted Stock were as follows:

--------------------------------------------------------------------------------

                                                                         Shares
                                                                         ------

Outstanding at December 31, 1992 ..................................      79,600
  Granted .........................................................      51,000
  Released ........................................................     (30,400)
                                                                       --------
Outstanding at December 31, 1993 ..................................     100,200
  Granted .........................................................      14,226
  Terminated ......................................................     (13,000)
  Released ........................................................     (33,400)
                                                                       --------
Outstanding at December 31, 1994 ..................................      68,026
  Granted .........................................................     186,516
  Released ........................................................     (28,617)
                                                                       --------
Outstanding at December 31, 1995 ..................................     225,925
                                                                       ========

--------------------------------------------------------------------------------

15.  PENSION PLANS
The Corporation has several  non-contributory  employee  defined benefit pension
plans  covering  substantially  all U.S.  employees  (the U.S.  pension  plans).
Employees  covered under the salaried defined benefit pension plans are eligible
to  participate  upon the  completion  of one year of service,  and benefits are
based upon final average  salary and years of service.  Employees  covered under
the  remaining  plans  are  generally  eligible  to  participate  at the time of
employment,  and benefits are generally based on a fixed amount for each year of
service.  Employees  are vested in the plans  after five years of  service.  The
Corporation also maintains  pension plans for certain employees of international
subsidiaries following the legal requirements in those countries.

        In a number of these  plans,  the plan  assets  exceed  the  accumulated
benefit  obligations  (overfunded  plans) and in the remainder of the plans, the
accumulated benefit obligations exceed the plan assets (underfunded plans).

        The  status  of  employee  pension  benefit  plans  at  December  31  is
summarized below (in millions):

--------------------------------------------------------------------------------

                                                  Overfunded       Underfunded
                                                     Plans            Plans
                                                -------------     -------------
                                                1995     1994     1995     1994
                                                ----     ----     ----     ----
Actuarial  present value of projected  benefit
 obligation,  based on employment service to
 date and current salary levels:
  Vested employees .........................   $ 335      254      194      205
  Non-vested employees .....................      18       14       17       17
                                               -----    -----    -----    -----
  Accumulated benefit obligation ...........     353      268      211      222
  Additional amounts related to projected
   salary increases ........................      39       31        5        7
                                               -----    -----    -----    -----
  Total projected benefit obligation .......     392      299      216      229

Plan assets at fair value ..................     448      357      178      176
                                               -----    -----    -----    -----
Projected pension benefit obligation in
 excess of (less than) plan assets .........     (56)     (58)      38       53
Unamortized net asset (liability)
  existing at January 1, 1985 ..............      10       13       (3)      (4)
Unrecognized prior service cost ............     (14)     (15)     (15)     (13)
Unrecognized net loss from
 actuarial experience ......................     (12)     (10)     (11)     (17)
                                               -----    -----    -----    -----
Accrued (prepaid) pension cost .............   $ (72)     (70)       9       19
                                               =====    =====    =====    =====

--------------------------------------------------------------------------------

        The  Corporation's  pension plans were valued between  November 1, 1994,
and January 1, 1995, and the obligations  were projected to, and the assets were
valued as of, the end of 1995.  Of its 21 U.S.  pension  plans at  December  31,
1995, eight were overfunded while 13 were  underfunded.  Of the Corporation's 18
U.S.  pension  plans at December 31, 1994,  five were  overfunded  while 13 were
underfunded. The majority of plan assets are invested in a diversified portfolio
of  stocks,  bonds and cash or cash  equivalents.  A small  portion  of the plan
assets is invested in pooled real estate and other private corporate  investment
funds.

       The  components  of net  periodic  pension  cost  were  as  follows  (in
millions):

--------------------------------------------------------------------------------

                                                         1995     1994     1993
                                                         ----     ----     ----

Benefits earned during the year .................    $   11.2     12.6     10.8
Interest accrued on projected benefit
 obligation .....................................        42.9     40.1     40.8
Return on assets - actual .......................      (119.6)    (0.4)   (68.0)
                 - unrecognized gain (loss) .....        66.6    (51.2)    17.5
Net amortization ................................         1.0      1.2      0.5
                                                       ------   ------   ------
   Net periodic pension cost for the year .......    $    2.1      2.3      1.6
                                                       ======   ======   ======

--------------------------------------------------------------------------------

        Assumptions  used to develop the net periodic  pension cost  included an
8.5 percent discount rate in 1995,  compared with discount rates of 7.25 percent
and 8.5 percent in 1994 and 1993,  respectively.  An expected  long-term rate of
return on assets of 9.5 percent and a rate of increase in compensation levels of
4 percent were used for 1995 and 1994,  compared  with rates of 10 percent and 5
percent,  respectively,  for 1993. For the valuation of pension obligations, the
discount rate at the end of 1995 was 7.25 percent, decreased from 8.5 percent in
1994 and  equivalent  to the discount  rate at the end of 1993,  and the rate of
increase in compensation levels was 4 percent, the same as 1994 and 1993.

        The  Corporation   recognizes  a  minimum  liability  in  its  financial
statements for its underfunded  plans.  "Other liabilities and deferred credits"
at December 31, 1995,  included $26 million relating to this minimum  liability,
compared with $40 million at December 31, 1994. This amount was offset by an $18
million  intangible  asset,  a $5 million  reduction  in  "Common  Shareholders'
Equity" and a $3 million  deferred tax benefit at December  31,  1995,  compared
with an $18  million  intangible  asset,  a $13  million  reduction  in  "Common
Shareholders'  Equity" and a $9 million  deferred  tax  benefit at December  31,
1994.

        The  Corporation  intends to fund at least the minimum  amount  required
under the Employee  Retirement Income Security Act of 1974 for U.S. plans or, in
the case of international  subsidiaries,  the minimum legal requirements in that
particular  country.   The  excess  of  amounts  accrued  over  minimum  funding
requirements,  together with such excess  amounts  accrued in prior years,  have
been  included in "Other  liabilities  and deferred  credits."  The  anticipated
funding  for the  current  year is  included  in  "Accounts  payable and accrued
expenses."

16.  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The  Corporation  records its  obligation  for  postretirement  medical and life
insurance benefits in accordance with SFAS No. 106,  "Employers'  Accounting for
Postretirement  Benefits Other Than Pensions." SFAS No. 106 requires recognition
of these benefits on an accrual basis. One of the principal  requirements of the
method is that the expected cost of providing  such  postretirement  benefits be
accrued during the years employees render the necessary service.

        Substantially  all of the Corporation's  U.S.  employees who retire from
active  service on or after  normal  retirement  age of 65 are eligible for life
insurance benefits. The Corporation also provides  postretirement life insurance
for  employees  of  international  subsidiaries  in some cases.  Life  insurance
benefits also are available under certain early retirement  programs or pursuant
to the terms of certain collective  bargaining  agreements.  The majority of the
costs of such benefits were paid out of a previously established fund maintained
by an  insurance  company;  however,  a  portion  was paid  through  an  insured
contract.  Health care  insurance  benefits also are provided for many employees
retiring  from active  service.  The coverage is provided on a  non-contributory
basis for certain  groups of  employees  and on a  contributory  basis for other
groups. The majority of these benefits are paid by the Corporation.

        The status of employee  postretirement  benefit  plans at December 31 is
summarized below (in millions):

--------------------------------------------------------------------------------

                                                                1995      1994
                                                                ----      ----
Accumulated Postretirement Benefit Obligation:
  Retirees ..............................................      $  80        69
  Fully eligible active plan participants ...............         10         8
  Other active plan participants ........................         61        56
                                                               -----     -----
  Total accumulated postretirement benefit
   obligation ...........................................        151       133

Plan assets at fair value ...............................         11        11
                                                               -----     -----
Accumulated postretirement benefit obligation in
 excess of plan assets ..................................        140       122
Unrecognized prior service cost .........................          7         5
Unrecognized net gain (loss) from actuarial
 experience .............................................        (10)        1
                                                               -----     -----
Accrued postretirement benefit cost .....................      $ 137       128
                                                               =====     =====

--------------------------------------------------------------------------------

        The  components  of net  periodic  postretirement  benefit  cost were as
follows (in millions):

--------------------------------------------------------------------------------

                                                       1995      1994      1993
                                                       ----      ----      ----
Benefits attributed to service during
 the year ........................................     $  4         4         3
Interest cost on accumulated postretirement
 benefit obligation ..............................       11        10        10
Return on assets - actual ........................       (1)       (1)       (1)
Net amortization .................................       (1)       (1)       (1)
                                                       ----      ----      ----
Net periodic postretirement benefit cost
 for the year ....................................     $ 13        12        11
                                                       ====      ====      ====

--------------------------------------------------------------------------------

        For 1995  measurement  purposes,  annual  rates of  increase  in the per
capita cost of covered  health care  benefits  were assumed to average 9 percent
for 1996 decreasing gradually to 5.3 percent by 2010 and remaining at that level
thereafter.  For 1994 measurement purposes,  annual rates of increase in the per
capita cost of covered  health care  benefits were assumed to average 11 percent
for 1995 decreasing gradually to 6.3 percent by 2010 and remaining at that level
thereafter.  The health care cost trend rate assumption has a significant effect
on the amounts reported. To illustrate,  increasing the assumed health care cost
trend rates by 1 percentage  point in each year would  increase the  accumulated
postretirement  benefit  obligation  as of December 31, 1995,  by  approximately
$14.0 million and the  aggregate of the service and interest cost  components of
net   periodic   postretirement   benefit  cost  for  the  year  then  ended  by
approximately $1 million.

        The weighted  average  discount rate used in determining the accumulated
postretirement  benefit obligation was 7.25 percent for 1995,  compared with 8.5
percent used for 1994. The expected  long-term rate of return on plan assets was
8  percent  for  both   years.   Assumptions   used  to  develop  net   periodic
postretirement  benefit  cost  included  an 8.5 percent  discount  rate in 1995,
increased  from 7.25 percent in 1994 and equivalent to the discount rate used in
1993.

17.  COMMITMENTS
Rent expense for the years 1995, 1994 and 1993 was (in millions):  $18.8,  $23.5
and $26.6,  respectively.  Future minimum lease  payments for all  noncancelable
operating  leases  having a remaining  term in excess of one year totaled  $61.3
million at  December  31,  1995.  These  commitments  for future  periods are as
follows (in millions):  1996 - $14.2;  1997 - $11.9;  1998 - $8.6;  1999 - $7.6;
2000 - $5.3; 2001 and thereafter - $13.7.

        The Corporation  enters into price protection  arrangements from time to
time, depending on market circumstances, to ensure a minimum price for a portion
of its  expected  future  mine  production.  See  Note  19 to  the  Consolidated
Financial   Statements  to  which   reference   should  be  made  for  a  fuller
understanding of these arrangements with respect to expected 1996 production.

18.  CONTINGENCIES
The Corporation is from time to time involved in various legal  proceedings of a
character normally incident to its past and present businesses.  Management does
not believe that the outcome of these  proceedings  will have a material adverse
effect on the financial condition or results of operations of the Corporation on
a consolidated basis.

        The  Corporation  is subject to federal,  state and local  environmental
laws, rules and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA or Superfund),  as amended by the
Superfund  Amendments and  Reauthorization  Act of 1986.  Under  Superfund,  the
Environmental  Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review,  ranking and possible  inclusion on the
National   Priorities  List  (NPL)  for  possible  response.   Among  the  sites
identified, EPA has included 13 sites owned by the Corporation.  The Corporation
believes that most, if not all, of its sites so identified  will not qualify for
listing on the NPL.

        In addition,  the Corporation may be required to remove  hazardous waste
or remediate  the alleged  effects of hazardous  substances  on the  environment
associated with past disposal  practices at sites not owned by the  Corporation.
The Corporation has received notice that it is a potentially  responsible  party
from EPA and/or  individual  states  under CERCLA or a state  equivalent  and is
participating in environmental assessment and remediation activity at 36 sites.

        The amounts of the Corporation's liabilities for remedial activities are
very  difficult  to estimate  due to such  factors as the unknown  extent of the
remedial actions that may be required and, in the case of sites not owned by the
Corporation,  the unknown  extent of the  Corporation's  probable  liability  in
proportion  to the probable  liability of other  parties.  The  Corporation  has
probable  environmental  liabilities  that in its judgment cannot  reasonably be
estimated,  and losses attributable to remediation costs are reasonably possible
at other sites. The Corporation cannot now estimate the total additional loss it
may incur for such environmental liabilities, but such loss could be substantial
(see  Notes  1  and 2 to  the  Consolidated  Financial  Statements  for  further
information concerning the Corporation's environmental obligations).

        In 1993 and 1994, the New Mexico and Arizona legislatures, respectively,
passed laws requiring the  reclamation  of mined lands in those states.  The New
Mexico Mining  Commission  adopted rules for the New Mexico program during 1994,
and  the   Corporation's   operations   began  submitting  the  required  permit
applications  in  December  1994.  The  Arizona  State Mine  Inspector  has been
directed to adopt rules  implementing  the Arizona law by June 30,  1996.  These
laws  and  regulations  will  likely  increase  the   Corporation's   regulatory
obligations and compliance  costs with respect to mine closure and  reclamation.
At this time,  it is not  possible  to  quantify  the impact of the new laws and
regulations on the Corporation.

19.  DERIVATIVE  FINANCIAL  INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING AND
FAIR VALUE OF FINANCIAL  INSTRUMENTS 
The Corporation does not acquire, hold or issue derivative financial instruments
for  trading  purposes.  Derivative  financial  instruments  are used to  manage
well-defined commodity price, foreign exchange and, to a lesser extent, interest
rate risks, that arise out of the Corporation's  core business  activities.  The
fair values of the Corporation's  derivative financial  instruments are based on
quoted market prices for similar financial instruments.  A summary of derivative
financial instruments held by the Corporation is as follows:

        Copper Price  Protection  Agreements - The Corporation may  periodically
use various  price  protection  programs to mitigate  the risk of adverse  price
fluctuations  on its copper  production.  With respect to 1995  production,  the
Corporation had contracts that provided minimum  quarterly  average London Metal
Exchange (LME) prices of 80 cents per pound for approximately 640 million pounds
of copper.  These  contracts  expired on December 31, 1995,  without  payment to
Phelps Dodge. In addition,  the Corporation had contracts that provided  minimum
(approximately 95 cents) and maximum  (approximately $1.33) LME prices per pound
for  approximately  650 million  pounds of copper.  These  contracts  expired on
December 31, 1995,  with Phelps Dodge making  payments  totaling $1.3 million to
the financial  institutions  involved.  During 1994, contracts that provided the
Corporation  with  minimum  average LME copper  prices of 75 cents per pound for
about 21 percent of that year's  production  expired  without  payment to Phelps
Dodge.  During 1993, the Corporation  received  revenues of $39.4 million before
taxes ($26.0  million,  or 37 cents per common share,  after taxes) from similar
arrangements.

        With  respect to 1996  production,  the  Corporation  has  entered  into
contracts with several financial  institutions that provide for a combination of
minimum and  maximum  prices  based on the  quarterly  average LME price.  These
contracts are summarized in the following table:

----------------------------------------------------------------------------

                              Contracts Providing   Contracts Providing Minimum
                                  Minimum Prices        and Maximum Prices
                                  --------------        ------------------
                                                                               
                                  Copper   Cathode   Copper Price (LME) Cathode
                                   Price   Pounds    ------------------  Pounds
                                   (LME) (millions)  Minimum  Maximum (millions)
                                    ---   --------   -------  -------  --------

First Quarter ...............     $ 0.95    170      $ 0.95   $ 1.47      170
Second Quarter ..............     $ 0.95     90      $ 0.95   $ 1.42      170
Third Quarter ...............     $ 0.95     40      $ 0.90   $ 1.40      145
Fourth Quarter ..............                 -      $ 0.95   $ 1.36      190
                                          -----                           ---
                                            300                           675
                                          =====                           ===

----------------

Note:   If average quarterly LME prices exceed the maximum prices,  Phelps Dodge
        will be obligated to pay the  difference to the  financial  institutions
        involved; if average quarterly LME prices fall below the minimum prices,
        the  financial  institutions  will be  obligated to pay Phelps Dodge the
        difference.

--------------------------------------------------------------------------------

        Foreign Exchange  Contracts - The Corporation  periodically  enters into
forward exchange contracts to hedge certain recorded transactions denominated in
foreign  currencies and enters into currency  option  contracts to hedge certain
firm  commitments  and other  anticipated  foreign  currency  transactions.  The
objective of the Corporation's foreign currency hedging activities is to protect
the  Corporation  from the risk that the eventual  equivalent  dollar cash flows
resulting from transactions  denominated in foreign currencies will be adversely
affected  by  changes  in  exchange  rates.   In  hedging  a  transaction,   the
Corporation's  foreign exchange hedging strategy may, in certain  circumstances,
involve the use of a number of offsetting  currency option contracts to minimize
the cost of the underlying hedge.  Thus, the notional  principal  amount,  which
represents  the  arithmetic  sum of all  outstanding  foreign  currency  hedging
instruments,  is not a measurement  of risk to the  Corporation  from the use of
derivative  financial  instruments.  At December 31, 1995, the  Corporation  had
protection in place for  approximately  $73 million of recorded and  anticipated
foreign currency  transactions through the use of currency option contracts with
an  aggregate  notional  principal  amount of  approximately  $80  million.  The
currency option  contracts  acquired by the Corporation  have maturities of less
than one year. The  Corporation  did not have any deferred  unrealized  gains or
losses on its foreign  exchange  contracts at December 31, 1995,  compared  with
deferred unrealized losses of $0.9 million at December 31, 1994.

        Interest  Rate  Protection  Agreement - The  Corporation  has caused its
80-percent-owned  Candelaria  copper  project in Chile to enter into an interest
rate  protection  agreement  with certain  financial  institutions  to limit the
effect of  increases  in the interest  rate on its $200  million  floating  rate
dollar  denominated  debt.  Under the terms of the  agreement,  the project will
receive  payments  from these  institutions  if the six-month  London  Interbank
Offered  Rate  (LIBOR)  exceeds 9 percent  prior to December  31,  2001,  and 11
percent during the two subsequent years ending December 31, 2003.

        Credit Risk - The  Corporation is exposed to credit loss in the event of
nonperformance by  counterparties to its price protection,  foreign exchange and
interest rate  protection  agreements.  To minimize the risk of credit loss, the
Corporation deals only with highly rated financial institutions and monitors the
credit  worthiness of these  institutions on a continuing basis. The Corporation
does not anticipate nonperformance by any of these counterparties.

        The methods  and  assumptions  used to  estimate  the fair value of each
class of financial  instrument  for which it is  practicable to estimate a value
are as follows:

        Cash and short-term  investments -- the carrying  amount is a reasonable
        estimate  of the fair  value  because  of the  short  maturity  of those
        instruments.

        Investments  and  long-term  receivables  -- the  fair  values  of  some
        investments  are  estimated  based on quoted  market prices for those or
        similar  investments.  The fair values of other types of instruments are
        estimated by  discounting  the future cash flows using the current rates
        at which similar  instruments  would be made with similar credit ratings
        and for the same remaining maturities.

        Long-term  debt  --  the  fair  value  of   substantially   all  of  the
        Corporation's  long-term  debt is estimated  based on the quoted  market
        prices for the same or similar issues or on the current notes offered to
        the Corporation for debt of the same remaining maturities.

        Standby letters of credit and financial guarantees -- the fair values of
        guarantees and letters of credit are based on fees currently charged for
        similar  agreements  or on the  estimated  cost  to  terminate  them  or
        otherwise  settle  the  obligations  with  the   counterparties  at  the
        reporting date. The Corporation has guaranteed the borrowings of certain
        subsidiaries  totaling  $59.4  million.  There is no  market  for  these
        guarantees  or standby  letters of credit and they were  issued  without
        explicit cost. Therefore,  it is not practicable to establish their fair
        value.

        The estimated fair values of the Corporation's  financial instruments as
of December 31, 1995, were as follows (in millions):

--------------------------------------------------------------------------------

                                                    Carrying      Fair
                                                     Amount      Value
                                                    --------     -----

Cash and short-term investments ................   $  608.5      608.5
Price protection arrangements
 (copper price guarantees) .....................        4.7       (0.4)
Investments and long-term receivables (including
 amounts due within one year) for which it is
 practicable to estimate fair value * ..........       34.7      201.7
Long-term debt (including amounts due
 within one year) ..............................      629.9      659.3
Interest rate protection agreements ............        2.5        1.2
Foreign currency exchange contracts ............        0.6        0.3

-----------

        *   The  Corporation's  largest  cost basis  investment  is its minority
            interest  in  Southern  Peru  Copper  Corporation  (SPCC),  which is
            carried at a book value of $13.2 million. Phelps Dodge's interest in
            SPCC was  reduced  from  16.25  percent to 13.9  percent  through an
            exchange  offering of SPCC common shares recently  completed whereby
            14.2 percent of SPCC's equity  capital was registered for trading on
            the New York and Lima Stock  Exchanges.  Based on the New York Stock
            Exchange  closing market price of those shares as of January 5, 1996
            (the  first  day  of  trading),  the  estimated  fair  value  of the
            Corporation's  investment  in SPCC is  approximately  $180  million.
            Phelps  Dodge's  ownership  interest in SPCC is  represented  by its
            share  of a class  of SPCC  common  stock  which  is  currently  not
            registered for trading on any public exchange.

--------------------------------------------------------------------------------

20.  BUSINESS SEGMENT DATA
The Corporation's business consists of two segments, Phelps Dodge Mining Company
and Phelps  Dodge  Industries.  The  principal  activities  of each  segment are
described below,  and the accompanying  tables present results of operations and
other financial information by segment and by significant geographic area.

        Phelps Dodge Mining Company is an  international  business  comprising a
group of companies involved in vertically integrated copper operations including
mining,  concentrating,  electrowinning,  smelting and refining, rod production,
marketing and sales, and related activities.  Copper is sold primarily to others
as rod,  cathode  or  concentrates,  and as rod to the Phelps  Dodge  Industries
segment.  In addition,  Phelps Dodge Mining  Company at times smelts and refines
copper and produces  copper rod for others on a toll basis,  and produces  gold,
silver,  molybdenum and copper chemicals as by-products,  and sulfuric acid from
its air quality control facilities. This segment also includes the Corporation's
other mining operations and investments  (including fluorspar,  silver, lead and
zinc operations) and its worldwide mineral exploration and development programs.

        Phelps  Dodge  Industries  is a business  segment  comprising a group of
companies   that   manufacture   engineered   products   principally   for   the
transportation,  energy and telecommunications sectors worldwide. Its operations
are  characterized  by products with significant  market share,  internationally
competitive cost and quality,  and specialized  engineering  capabilities.  This
business segment  includes the  Corporation's  carbon black  operations  through
Columbian  Chemicals Company and its subsidiaries;  its wheel and rim operations
through Accuride  Corporation and its  subsidiaries;  and its wire and cable and
specialty conductor  operations through Phelps Dodge  International  Corporation
and Phelps Dodge Magnet Wire Company and their subsidiaries and affiliates.

        The  Corporation's  total 1995 sales  included  exports of $93.7 million
from U.S.  operations to  unaffiliated  foreign  customers,  compared with $76.2
million  in 1994 and $60.3  million  in 1993.  Intersegment  sales  reflect  the
transfer of copper from Phelps Dodge Mining  Company to Phelps Dodge  Industries
at the same prices charged to outside customers.

        The  following  tables  give a summary  of  financial  data by  business
segment and geographic area for the years 1993 through 1995. Major unusual items
during the three-year  period  included (i) a 1995 pre-tax gain of $26.8 million
included  in Phelps  Dodge  Industries'  operating  income  from the sale by its
carbon black operations of a synthetic iron oxide facility,  (ii) a 1994 pre-tax
charge of $94.4 million to Phelps Dodge Mining  Company's  operating  income for
costs associated with environmental matters and asset dispositions,  and (iii) a
1994  pre-tax  charge of $44.6  million to Phelps  Dodge  Industries'  operating
income for costs associated with environmental  matters and asset  dispositions,
including  $17.6 million for carbon black  facilities and $27.0 million for wire
and cable and specialty  conductor  facilities.  (See Note 2 to the Consolidated
Financial Statements for a further discussion of these issues.)

<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------------
FINANCIAL DATA BY BUSINESS SEGMENT
(In millions)

<CAPTION>
                                                             Phelps Dodge Industries
                                        Phelps        --------------------------------
                                         Dodge      Carbon    Wheels     Wire            Corporate
                                        Mining       Black    & Rims    & Cable   Total   & Other     Total
                                        ------      ------    ------    -------  -----    -------     -----
<S>                                   <C>            <C>       <C>       <C>     <C>        <C>      <C>    
1995
 Sales and other operating revenues:
   Unaffiliated customers .........   $  2,488.7     420.8     357.8     918.1   1,696.7        -    4,185.4

   Intersegment ...................        275.0         -         -       0.6       0.6        -      275.6

 Operating income (loss) ..........        896.8     103.9      45.6      93.8     243.3    (39.6)   1,100.5

 Identifiable assets at
  December 31 .....................      2,839.2     424.0     299.5     632.0   1,355.5    451.2    4,645.9

 Depreciation, depletion and
  amortization ....................        134.0      33.2      21.1      33.9      88.2      1.3      223.5

 Capital outlays ..................        321.6      22.6       6.9      52.8      82.3      1.0      404.9

 Equity earnings ..................          4.5         -       0.3       1.7       2.0        -        6.5
------------------------------------------------------------------------------------------------------------
1994
 Sales and other operating revenues:
   Unaffiliated customers .........   $  1,820.7     335.0     333.6     799.9   1,468.5        -    3,289.2

   Intersegment ...................        218.5         -         -       1.7       1.7        -      220.2

 Operating income (loss) ..........        326.4      20.0      42.3      43.8     106.1    (32.1)     400.4

 Identifiable assets at
  December 31 .....................      2,450.2     439.9     341.8     621.5   1,403.2    280.4    4,133.8

 Depreciation, depletion and
  amortization ....................        105.1      34.1      20.5      34.5      89.1      1.1      195.3

 Capital outlays ..................        299.2      19.6       6.4      29.1      55.1      0.7      355.0

 Equity earnings ..................          5.6       0.3       0.3       2.4       3.0        -        8.6
------------------------------------------------------------------------------------------------------------
                                                                                                  
1993
 Sales and other operating revenues:
   Unaffiliated customers .........   $  1,320.3     311.8     281.9     681.9   1,275.6        -    2,595.9

   Intersegment ...................        171.0         -         -       2.7       2.7        -      173.7

 Operating income (loss) ..........        227.2      33.3      25.2      70.6     129.1    (29.8)     326.5

 Identifiable assets at
  December 31 .....................      2,105.5     396.2     322.8     616.7   1,335.7    279.7    3,720.9

 Depreciation, depletion and
  amortization ....................        104.9      30.0      20.3      30.8      81.1      1.1      187.1

 Capital outlays ..................        285.4      45.8       9.9      45.5     101.2      0.6      387.2

 Equity earnings (losses) .........         (3.5)     (0.3)     (0.2)      4.0       3.5        -          -
------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL DATA BY GEOGRAPHIC AREA
(In millions)

---------------------------------------------------------------------------

                                              1995        1994         1993
                                              ----        ----         ----

SALES AND OTHER OPERATING REVENUES:
 Unaffiliated customers
  United States ...................     $  3,072.6     2,485.9      1,918.7
  Latin America ...................          537.3       346.7        274.0
  Other ...........................          575.5       456.6        403.2
                                          --------     -------      -------
                                        $  4,185.4     3,289.2      2,595.9
                                          ========     =======      =======
 Intergeographic areas
  United States ...................     $     13.1        19.3         17.1
  Latin America ...................           23.7           -            -
  Other ...........................           47.9        54.4         53.6
                                          --------     -------      -------
                                        $     84.7        73.7         70.7
                                          ========     =======      =======
OPERATING INCOME:
 United States ....................     $    810.4       337.2        267.7
 Latin America ....................          196.8        30.0         17.7
 Other ............................           93.3        33.2         41.1
                                          --------     -------      -------
                                        $  1,100.5       400.4        326.5
                                          ========     =======      =======
IDENTIFIABLE ASSETS AT DECEMBER 31:
 United States ....................     $  3,157.1     2,789.0      2,581.2
 Latin America ....................          931.3       798.2        653.3
 Other ............................          557.5       546.6        486.4
                                          --------     -------      -------
                                        $  4,645.9     4,133.8      3,720.9
                                          ========     =======      =======

---------------------------------------------------------------------------

Item 9.  Disagreements on Accounting and Financial Disclosure
---------------------------------------------------------------------------

        Not applicable.

                                    Part III

Items 10, 11, 12 and 13.
------------------------

        The  information  called  for by Part III  (Items  10, 11, 12 and 13) is
incorporated  herein by reference from the material  included under the captions
"Election  of  Directors,"  "Beneficial  Ownership  of  Securities,"  "Executive
Compensation" and "Other Matters" in Phelps Dodge Corporation's definitive proxy
statement  (to be filed  pursuant to Regulation  14A) for its Annual  Meeting of
Shareholders to be held May 1, 1996 (the 1996 Proxy Statement),  except that the
information  regarding  executive  officers called for by Item 401 of Regulation
S-K is  included in Part I of this  report.  The 1996 Proxy  Statement  is being
prepared  and will be filed with the  Securities  and  Exchange  Commission  and
furnished to shareholders on or about April 1, 1996.

                                     Part IV

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

(a)  1.  Financial Statements.

     2.  Financial Statement Schedules.

     3.  Exhibits:

     3.1    Restated Certificate of Incorporation of the Corporation,  effective
            June 16,  1987  (incorporated  by  reference  to Exhibit  3.1 to the
            Corporation's  Form 10-Q for the  quarter  ended June 30,  1987 (SEC
            File  No.   1-82)).   Certificate  of  Amendment  of  such  Restated
            Certificate  of   Incorporation,   effective  August  4,  1988,  and
            Certificate   of  Amendment   of  such   Restated   Certificate   of
            Incorporation,  effective August 9, 1988  (incorporated by reference
            to  Exhibits  3.1 and 3.2 to the  Corporation's  Form  10-Q  for the
            quarter  ended  September  30, 1988 (SEC File No.  1-82)).  Complete
            composite  copy  of  the   Certificate  of   Incorporation   of  the
            Corporation as amended to date (incorporated by reference to Exhibit
            3.1 to the Corporation's 1992 Form 10-K (SEC File No. 1-82)).

     3.2    By-Laws of the Corporation,  as amended effective  September 1, 1994
            (incorporated by reference to Exhibit 3.2 to the Corporation's  Form
            10-Q for the quarter ended September 30, 1994 (SEC File No. 1-82)).

     4.1    Reference is made to Exhibits 3.1 and 3.2 above.

     4.3    Rights Agreement, dated as of July 29, 1988 and Amended and Restated
            as of December 6, 1989,  between the  Corporation  and Chemical Bank
            (formerly  Manufacturers Hanover Trust Company),  which includes the
            form of  Certificate  of  Amendment  setting  forth the terms of the
            Junior  Participating  Cumulative  Preferred Shares, par value $1.00
            per share, as Exhibit A, the form of Right  Certificate as Exhibit B
            and the Summary of Rights to Purchase  Preferred Shares as Exhibit C
            (incorporated by reference to Exhibit 1 to the Corporation's Current
            Report on Form 8-K filed on December 7, 1989 (SEC File No. 1-82)).

            Note:  Certain  instruments  with respect to  long-term  debt of the
            Corporation have not been filed as Exhibits to this Report since the
            total amount of securities authorized under any such instrument does
            not exceed 10 percent of the total assets of the Corporation and its
            subsidiaries  on a consolidated  basis.  The  Corporation  agrees to
            furnish  a  copy  of  each  such  instrument  upon  request  of  the
            Securities and Exchange Commission.

     10.    Management contracts and compensatory plans and agreements.

     10.1   The  Corporation's  1987 Stock Option and Restricted Stock Plan (the
            1987 Plan),  as amended to and including  June 3, 1992,  and form of
            Stock Option Agreement and form of Reload Option Agreement,  both as
            modified through June 3, 1992  (incorporated by reference to Exhibit
            10.2 of the  Corporation's  Form 10-Q for the quarter ended June 30,
            1992 (SEC File No. 1-82)). Form of Restricted Stock letter under the
            1987  Plan  (incorporated  by  reference  to  Exhibit  10.1  to  the
            Corporation's  1990  10-K  (SEC File No.  1-82))  and the  amendment
            thereto  dated June 25, 1992  (incorporated  by reference to Exhibit
            10.2 to the Corporation's 1992 Form 10-K (SEC File No. 1-82)).

     10.2   The  Corporation's  1989  Directors  Stock  Option  Plan  (the  1989
            Directors   Plan),   as  amended  to  and  including  June  3,  1992
            (incorporated by reference to Exhibit 10.3 to the Corporation's Form
            10-Q for the quarter ended June 30, 1992 (SEC File No. 1-82)).  Form
            of  Stock   Option   Agreement   under  the  1989   Directors   Plan
            (incorporated  by  reference  to  the   Corporation's   Registration
            Statement on Form S-8 (Reg. No. 33-34363)).

     10.3   The  Corporation's  1993 Stock Option and Restricted Stock Plan (the
            1993  Plan),  as  amended  through  December  1,  1993,  and form of
            Restricted  Stock  letter  under  the  1993  Plan  (incorporated  by
            reference to Exhibit 10.4 to the  Corporation's  1993 Form 10-K (SEC
            File No. 1-82)).  Form of Stock Option  Agreement and form of Reload
            Option  Agreement,  both as amended through  November 2, 1994, under
            the 1993 Plan  (incorporated  by  reference  to Exhibit  10.3 to the
            Corporation's 1994 Form 10-K (SEC File No.  1-82)).

            Note: Omitted from filing pursuant to the Instruction to Item 601(b)
            (10) are actual Stock Option Agreements  between the Corporation and
            certain officers, under the 1987 Plan and the 1993 Plan, and certain
            Directors,   under   the  1989   Directors   Plan,   which   contain
            substantially  similar  provisions to Exhibits  10.1,  10.2 and 10.3
            above.

     10.4   Description  of  the  Corporation's   Incentive   Compensation  Plan
            (incorporated by reference to Exhibit 10.5 to the Corporation's 1993
            Form 10-K (SEC File No. 1-82)).

     10.5   Deferred  Compensation  Plan for the  Directors of the  Corporation,
            amended and restated as of July 31, 1992  (incorporated by reference
            to Exhibit 10 to the  Corporation's  Form 10-Q for the quarter ended
            September 30, 1992 (SEC File No. 1-82)).

     10.6   Form of  Change-of-Control  Agreement  between the  Corporation  and
            certain executives,  including all of the current executive officers
            to be listed in the  summary  compensation  table to the 1996  Proxy
            Statement   (incorporated  by  reference  to  Exhibit  10.7  to  the
            Corporation's 1992 Form 10-K (SEC File No. 1-82)).

     10.7   Form of  Severance  Agreement  between the  Corporation  and certain
            executives,  including all of the current  executive  officers to be
            listed in the summary compensation table to the 1996 Proxy Statement
            (incorporated  by  reference to Exhibit  10.11 to the  Corporation's
            1988 Form 10-K (SEC File No. 1-82)).

     10.8   The Corporation's  Retirement Plan for Directors,  effective January
            1,  1988   (incorporated  by  reference  to  Exhibit  10.13  to  the
            Corporation's 1987 Form 10-K (SEC File No. 1-82)).

     10.9   The Corporation's  Comprehensive  Executive Nonqualified  Retirement
            and Savings Plan (the  Nonqualified  Plan),  as amended  November 7,
            1990   (incorporated   by   reference   to  Exhibit   10.14  to  the
            Corporation's  1990  Form  10-K  (SEC  File No.  1-82)).  Amendment,
            effective January 1, 1991, to the Nonqualified Plan (incorporated by
            reference  to Exhibit  10.2 to the  Corporation's  Form 10-Q for the
            quarter ended June 30, 1991 (SEC File No. 1-82)).  Four  amendments,
            one  effective as of January 1, 1991,  one  effective as of November
            15, 1993 (both  incorporated  by reference  to Exhibit  10.13 of the
            Corporation's  1993 Form 10-K (SEC File No. 1-82)), one effective as
            of September 7, 1994  (incorporated by reference to Exhibit 10.11 of
            the  Corporation's  1994 Form 10-K  (SEC  File No.  1-82)),  and one
            effective June 7, 1995  (incorporated  by reference to Exhibit 10.11
            of the  Corporation's  Form 10-Q for the quarter ended June 30, 1995
            (SEC File No. 1-82)).

     10.10  Deferred  Compensation  Agreement dated January 27, 1988 between Dr.
            Patrick J. Ryan and the  Corporation  (incorporated  by reference to
            Exhibit  10.6 to the  Corporation's  1987  Form  10-K  (SEC File No.
            1-82))  and  amendment  to  such  agreement  dated  March  17,  1989
            (incorporated by reference to Exhibit 10.7 to the Corporation's 1988
            Form 10-K (SEC File No. 1-82)).

     10.11  Retirement  Agreement dated as of June 20, 1995, between Dr. Patrick
            J. Ryan and the  Corporation  (incorporated  by reference to Exhibit
            10.13 of the Corporation's  Form 10-Q for the quarter ended June 30,
            1995 (SEC File No. 1-82)).

     10.12  Consulting  Agreement dated as of June 20, 1995, between Dr. Patrick
            J. Ryan and the  Corporation  (incorporated  by reference to Exhibit
            10.14 of the Corporation's  Form 10-Q for the quarter ended June 30,
            1995 (SEC File No. 1-82)).

     12     Statement  re   computation   of  ratios  of  total  debt  to  total
            capitalization.

     21     List of Subsidiaries and Investments.

     23     Consent of Price Waterhouse LLP.

     24     Powers of Attorney  executed by certain  officers and  directors who
            signed this Annual Report on Form 10-K.

            Note:  Shareholders  may obtain copies of Exhibits by making written
            request to the Secretary of the Corporation and paying copying costs
            of 10 cents per page, plus postage.

(b)  Reports on Form 8-K:

     No current  Reports on Form 8-K were  filed by the  Corporation  during the
     quarter ended December 31, 1995.
<PAGE>
<TABLE>
Schedule VIII

PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
-------------------------------------------------------------------------------------

(In thousands)
<CAPTION>
                                                  Additions
                                            ------------------
                               Balance at   Charged to                        Balance
                               beginning    costs and              Deduc-     at end
                               of period    expenses     Other     tions     of period
                               ---------    --------     -----     -----     ---------


Reserve deducted in
balance sheet from the
asset to which applicable:
<S>                            <C>           <C>         <C>          <C>        <C>   
Accounts Receivable:
 December 31, 1995 .......     $11,800       2,000        (800)       1,000      12,000

 December 31, 1994 .......      12,200       1,900           -        2,300      11,800

 December 31, 1993 .......      10,700       1,800         600          900      12,200



Supplies:

 December 31, 1995 .......     $14,000         600         200        4,300      10,500

 December 31, 1994 .......      12,700         700       3,100        2,500      14,000

 December 31, 1993 .......      16,700       3,600         200        7,800      12,700

</TABLE>
<PAGE>

                                   SIGNATURES
                                   ----------

        Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             PHELPS DODGE CORPORATION
                                             ------------------------
                                                    (Registrant)

March 20, 1996                               By:    Thomas M. St. Clair
                                                    --------------------
                                                    Thomas M. St. Clair
                                                    Senior Vice President
                                                    and Chief Financial Officer

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

                           Chairman of the Board, President,
                           Chief Executive Officer
                           and Director
Douglas C. Yearley         (Principal Executive Officer)          March 20, 1996
-------------------
Douglas C. Yearley

                           Senior Vice President
                           and Chief Financial Officer
Thomas M. St. Clair        (Principal Financial Officer)          March 20, 1996
-------------------
Thomas M. St. Clair

                           Vice President and Controller
Thomas M. Foster           (Principal Accounting Officer)         March 20, 1996
-------------------
Thomas M. Foster

Edward L. Addison, Robert N. Burt, Paul W. Douglas,     )
William A. Franke, Paul Hazen, Marie L. Knowles,        )         March 20, 1996
Robert D. Krebs, Southwood J. Morcott, Gordon R. Parker,)
J. Steven Whisler, Directors                            )

By:     Thomas M. St. Clair
        -------------------
        Thomas M. St. Clair
        Attorney-in-fact