SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                 1996 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, 1996         Commission file number 1-164
                          -----------------                                -----



                              ASARCO Incorporated

             (Exact name of registrant as specified in its charter)



         New Jersey                                        13-4924440
-------------------------------                        ------------------
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                        Identification No.)


                     180 Maiden Lane, New York, N. Y. 10038
              (Address of principal executive offices) (Zip Code)


Registrant's telephone number, including area code       (212) 510-2000


          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                     Name of each exchange on
      Title of each class                            which registered
Common Stock, without par value                  New York Stock Exchange

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]

As of February 28, 1997, there were of record 42,894,878 shares of Common Stock,
without par value, outstanding,  and the aggregate market value of the shares of
Common  Stock  (based upon the closing  price of Asarco  Common Stock on the New
York Stock Exchange - Composite  Transactions)  of ASARCO  Incorporated  held by
nonaffiliates was approximately $1.3 billion.

PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:

Part III:    Proxy statement in connection with the Annual Meeting to be held on
             April 30, 1997.
Part IV:     Exhibit index is on pages C1 through C4.



<PAGE>



A1
                                                          PART I

Item 1. Business

Asarco,  a New  Jersey  corporation  organized  in 1899,  is one of the  world's
leading producers of nonferrous metals,  principally copper,  lead, zinc, silver
and molybdenum.  Asarco also produces specialty chemicals and aggregates. Asarco
and its  subsidiaries  operate  mines in the  United  States,  Peru,  Canada and
Mexico.

All tonnages are in short tons.  All ounces are troy ounces.  Dollar amounts are
in U.S. dollars unless otherwise  indicated.  "Asarco" or "the Company" includes
Asarco and subsidiaries.

Asarco's  beneficial mined copper production reached one billion pounds in 1996,
including its share of Southern Peru Copper Corporation  (SPCC), a subsidiary of
the Company.  This record level of production  establishes  Asarco as the fourth
largest  private  sector copper  producer in the world.  Copper is Asarco's most
important product, representing 65% of total sales in 1996. Approximately 68% of
copper mine  production  comes from the  Company's  mines in the U.S.,  with the
balance from SPCC's mines in Peru.  Asarco has also developed one of the largest
copper ore reserve positions in the industry.

Asarco's lead and zinc  businesses  include a fully  integrated lead business in
Missouri,  a custom lead smelting  business and a zinc mining  business.  Asarco
produced nearly 220 million pounds of lead from its own mines in 1996. Zinc mine
production in 1996 totaled just over 170 million pounds.

Silver is produced as a by-product of the Company's other mining  operations and
from the mining  operations  conducted  through the  Company's  50% owned Silver
Valley  Resources which restarted  operations in 1996 at its two mines in Idaho.
The Company also has several  interesting  gold prospects,  principally in South
America, as a result of its worldwide exploration program.

Asarco's  specialty  chemicals  business,  owned since 1957,  and its aggregates
business,  owned since 1971, achieved record earnings in 1996.  Enthone-OMI is a
worldwide  leader in specialty  chemicals for the  electronics and metal plating
industries.  American  Limestone provides a variety of crushed stone and related
construction products.

Asarco realized $326 million from the sale of its investment in M.I.M.  Holdings
Limited  in 1996.  The  proceeds  from the sale were used to reduce  debt  which
helped to improve the  Company's  debt-to-capitalization  ratio to 26.7% at year
end and reduced annual interest expense by about $21 million.

Asarco also holds a 23.6%  interest in Grupo Mexico,  S.A. de C.V.,  the largest
Mexican copper mining company.  The Company plans to sell this investment  which
has a value of approximately $400 million.

Reference is made to the following  Financial  Statement  footnotes  included in
this report: Investments in Note 6, and Business Segments in Note 13.

Additional business information follows:


                                 PRIMARY METALS

                         Principal Products and Markets
Copper Business

The  primary  domestic  uses of  copper  are in the  building  and  construction
industry, electrical and electronic products and, to a lesser extent, industrial
machinery and equipment, consumer products and the automotive and transportation
industries. A substantial portion of Asarco's copper sales are made under annual
contracts to industrial users.



<PAGE>


A2

Asarco Copper Operations

Asarco's  North  American  copper  business  includes  the Mission mine south of
Tucson,  Arizona;  the Ray mine north of Kearny,  Arizona,  copper  smelters  in
Hayden,  Arizona and El Paso,  Texas; and a copper refinery in Amarillo,  Texas.
Asarco also owns a 49.9% interest in Montana Resources'  copper-molybdenum  mine
in Butte,  Montana, a 75% interest in the Silver Bell copper mine west of Tucson
where a new leaching and solvent  extraction/electrowinning (SX/EW) operation is
nearing  completion,  and an 84.3%  interest  in the Minto mine  project,  a new
copper-gold mine under development in the Yukon Territory, Canada. The Company's
Peruvian copper business,  conducted  through  Southern Peru Copper  Corporation
(SPCC),  a  subsidiary  of the Company,  produces  copper at the  Toquepala  and
Cuajone mines, the Ilo smelter and the Ilo refinery, all located in the southern
part of Peru.


Record Copper Production

For the first time in its history,  the Company's  beneficial  interest in mined
copper  production  exceeded one billion  pounds,  a 13% increase  over 1995. In
addition  to  production  gains,  the  Company's  beneficial  interest in SPCC's
production grew in 1996 as a result of a full year of increased  ownership.  The
Company acquired an additional 10.7% interest in SPCC in April 1995.

Production gains at the Company's  domestic  operations  resulted from increased
copper ore  production  and higher ore grades at both the Mission and Ray mines,
and at SPCC,  from  increased  ore  grades  at  Cuajone  and from a full  year's
operation of its SX/EW  facility,  which was placed in service late in 1995. The
Company's  beneficial  interest in refined  production of copper in 1996 was 1.3
billion pounds,  also a record.  The increase was a result of increased capacity
at SPCC's Ilo refinery,  the new SPCC SX/EW refined  copper  production  and the
increased ownership position in SPCC.


Metal Markets

Demand for copper in 1996 was at a record level for the 11th year in a row. As a
result,  despite increased worldwide  production of copper,  demand continued to
exceed supply and inventories declined for the third consecutive year.

Contrary to the positive  inventory trends, the copper price during most of 1996
was lower than the record level  realized in 1995. The copper price was affected
by  uncertainties  resulting  from  speculative  trading  activities  and by the
expectation of excess copper supplies due to increases in worldwide  production.
In 1996,  the copper price  averaged  $1.06 per pound on the New York  Commodity
Exchange  (COMEX) and $1.04 per pound on the London  Metal  Exchange  (LME).  In
1995, the copper price averaged $1.35 per pound on the COMEX and $1.33 per pound
on the LME.


Ore Reserves

Asarco's  beneficial  interest in copper ore  reserves  totals 3.4 billion  tons
containing 38 billion pounds of copper, one of the largest ore reserve positions
in the  industry.  Long-term  drilling  programs  completed  in  1996  increased
reserves  at  Mission,  extended  the life of the SX/EW  operation  at Ray,  and
increased reserves 44% at Cuajone.  Drilling programs continue at Mission,  Ray,
Cuajone and Toquepala.


Development of New Producing Properties

The Company is actively  expanding  and  modernizing  two  existing  properties,
developing  two new copper  properties  and is continuing a research  program on
another.


<PAGE>


A3

The Company's largest current project is an expansion of SPCC's Cuajone mine and
a modernization  and expansion of the Ilo smelter.  The mine will be expanded to
increase  annual copper  production by 19% or 130 million pounds and the smelter
modernization  will increase  capacity and modernize  facilities to meet current
international environmental guidelines. Engineering work is in progress on these
projects and long-term financing is being arranged.

In January 1996, the Company began  construction of an SX/EW plant at its Silver
Bell mine.  When completed in mid 1997, the project,  in which Mitsui & Co. Ltd.
has a 25% interest,  is expected to produce 36 million  pounds of refined copper
annually.

In April 1996,  the  Company  announced  development  of the Minto mine which is
expected to produce 27 million  pounds of copper and 10 thousand  ounces of gold
in concentrate annually when production begins in 1998.

Test  work  continued  through  1996 at the Santa  Cruz  In-Situ  Copper  Mining
Research  Project  in Casa  Grande,  Arizona.  Santa  Cruz  is a joint  venture,
50%-owned  with  Freeport-McMoRan  Copper & Gold Co. and managed by Asarco.  The
project has been funded 25% by the partners  and 75% by the federal  government.
The objective of the project is to recover  copper from deep  mineralized  zones
through surface injection and recovery of leach solutions.  While copper-bearing
solutions  were recovered  from the specially  engineered  wells during 1996 and
copper was  produced in the pilot  SX/EW  plant in early  1997,  it is still too
early to determine if the technology will be commercially viable.


New Management Processes Implemented

In recent years, as Asarco has become an integrated producer of copper and lead,
increased emphasis has been placed upon the importance of operating  consistency
at each of the Company's  properties.  Each element of the  production  process,
from mine to smelter to refinery, is interdependent and, therefore, must operate
in a predictable way and at predictable  rates. As a result,  increased focus is
being placed on operational  planning,  maintenance practices and management and
employee training.

Adopting   practices   used  in  the  Company's   successful  ISO  9002  quality
certification at the Amarillo copper refinery, an Asarco management standard has
been  established  and extended to all Company  operations.  Practices under the
standard  apply  not only to the  management  of  production,  but also to other
management processes such as productivity  improvement,  maintenance,  planning,
environmental protection, worker health and safety and administration.

The  maintenance  management  processes,  which entail well defined,  documented
preventative and predictive  maintenance  practices provide increased  operating
availability and reduced maintenance and operating costs.

The management  processes and supporting  systems developed by Asarco have begun
to yield  results.  Operating  consistency  has  improved and  accounted  for an
important  part  of  the  1996  production  gains.  Equipment  availability  has
increased  and  maintenance  costs  have  declined.  Employee  satisfaction  and
attention to  environmental  responsibilities  and safe work practices have also
improved.




<PAGE>


A4

North American Copper Operations

The Company's North American copper operations  established  several  production
records in 1996, including total mine production of 714 million pounds.

Copper  production  at the  Mission  mine  increased  16% from  1995.  Mined ore
production  increased  and ore grade also  improved as a result of higher  grade
ores  from  the new  underground  mine  during  the  second  half  of the  year.
Development  drilling,  increased  ore  reserves  by  7%  to  535  million  tons
containing  7.4  billion  pounds  of  copper.  The  drilling  defined  long-term
stripping  requirements  which led to a decision to install an overland conveyor
to move 58  million  tons of waste  per  year.  The  conveyor  will be placed in
operation in early 1997. To improve efficiency and handle the additional Mission
mine tonnage,  two  60-cubic-yard-  capacity  shovels were  purchased to replace
three  15-cubic-yard-capacity  shovels in 1996.  The  smaller  shovels are sized
appropriately for the Silver Bell mine and were moved there.

Copper  production at Ray improved as a result of increased ore  production  and
higher ore grades.  The increased  production and access to higher grade ore was
made possible by the eleven month accelerated  stripping  program  undertaken in
1994 and 1995. During that program ore processing at the Hayden concentrator was
reduced.  Production at the Hayden concentrator was again partially curtailed in
the fourth quarter of 1996 to reduce  concentrate  inventory.  During the Hayden
curtailments,  mining equipment  normally used for ore production is utilized to
move overburden, adding additional flexibility to future mining operations.

Ray  increased  its  mining   efficiency  in  1996  by  further   improving  the
effectiveness   of  its  mine  equipment   maintenance   process.   Truck  fleet
availability was improved 5% and shovel  availability by 6%. Efficiency was also
improved  by adding  one  56-cubic-yard-capacity  shovel  and  idling  two older
15-cubic-yard-capacity shovels. Three new 240-ton-capacity trucks were purchased
to improve the efficiency of the Ray fleet.  Six 170-ton trucks were transferred
from Ray for use at the Silver  Bell mine.  During the latter  part of the year,
the mine began performance  testing of a  310-ton-capacity  truck. With a nearly
30% increase in capacity,  such trucks may represent the next technological step
to increase mine productivity.

The  Hayden,  Arizona  smelter  achieved  record  copper  production  because of
improved equipment  availability.  Continuous  availability of the flash furnace
and ancillary facilities allowed uninterrupted production throughout 1996, other
than for  scheduled  maintenance.  Modernization  of the  smelter's gas handling
system and process  control  system is expected  to increase  future  production
rates and decrease operating costs.

At El Paso,  design and maintenance  improvements  to the CONTOP  furnace,  have
resulted in the reliable operation of this new furnace technology.  A project to
refurbish  the acid  plant  was  completed  in 1996,  and  additional  equipment
upgrades  planned for 1997 are expected to improve  overall plant  availability,
increase production levels and reduce costs.

The Amarillo  copper refinery  extended the scope of its ISO-9002  certification
from electrolytic refined cathode production,  continuous cast rod manufacturing
and  precious  metals  electro-refining  to  include  semi-continuous  cast cake
production and other by-product processes. An upgrade to the continuous cast rod
mill was completed in January 1997 increasing capacity by 17%.

A six-year  labor  contract  was signed  covering  employees at the Ray mine and
concentrators  and  SX/EW  operation.  The  new  contract  continues  the  labor
management  cooperative  programs  that began in 1993.  A portion of the savings
realized  under  the  cooperative  programs  is  returned  to the  employees  in
gainsharing payments under a program begun in 1995.



<PAGE>


A5


Peruvian Copper Operations

Asarco's  equity  interest  in  SPCC  is  currently  54.1%.  The  Company  began
consolidating  SPCC in its financial  statements  effective  January 1,1995 as a
result of acquiring an additional 10.7% interest in 1995.

In December  1995,  SPCC  completed an exchange  offer of new common  shares for
labor shares which had been issued to its workers  under prior law in Peru.  Its
common  shares are now listed on the New York Stock  Exchange and the Lima Stock
Exchange. Subsequently, SPCC purchased labor shares in open market transactions.
SPCC owns a 97.2% interest in the Peruvian Branch, which comprises substantially
all of SPCC's  operations.  Labor  shares  represent a 2.8%  interest.  Asarco's
beneficial interest in SPCC, after the labor share interest,  at the end of 1996
was 52.6%.

In 1996,  SPCC  produced  678  million  pounds of copper  from its mines,  a 22%
increase over 1995.  Copper  production  at the Cuajone mine  increased 14% from
1995, to 332 million pounds, a result of higher ore grades. Development drilling
at Cuajone has  increased  sulfide and leachable ore reserves 44% to 1.4 billion
tons  containing  18.4 billion  pounds of copper.  As a result of the very large
reserve position at Cuajone, it is now planned to expand milling capacity by 50%
to increase annual copper production by 130 million pounds.  Engineering work on
this project has begun.

Toquepala  mine  copper  production  in  concentrates  was 253  million  pounds,
slightly  lower  than  1995 as a  result  of lower  ore  grades.  The  Toquepala
concentrator  achieved record annual throughput  partially offsetting the effect
of the lower ore grade.

SPCC also produced 93 million pounds of copper from its new low cost SX/EW plant
located at Toquepala and commissioned in November 1995.

In 1996,  SX/EW  production  exceeded the design  capacity of the facility.  The
SX/EW  facility  produces  refined copper  cathodes from solutions  leached from
mostly low grade ores stockpiled at both the Toquepala and Cuajone mines.

The Ilo  smelter  processed a record 1.2 million  tons of  concentrate  in 1996,
following  successful  startup of a new El Teniente converter in October 1995. A
new acid  plant,  which  became  operational  concurrent  with  the El  Teniente
converter  in 1995,  also  operated  successfully  during  1996.  SPCC  began an
expansion of the  sulfuric  acid plant in 1996 to increase the capture of sulfur
dioxide  emissions  from 18% to 30% by  1998.  SPCC  also  announced  a  smelter
modernization  program which will increase capacity and modernize  facilities to
meet international environmental guidelines.

The  production  capacity of the Ilo  refinery,  purchased by SPCC in 1994,  was
increased  20% in 1996 to an annual  capacity of 494  million  pounds of refined
copper.  Electrolytic  cells were expanded and the  electrical  current  density
increased resulting in record production.

Labor  agreements  were reached in Peru with all nine  unions.  The pacts are of
five-years duration.




<PAGE>


A6

Lead, Zinc, and Silver Businesses

Asarco is a major  producer of lead and zinc in the U.S.  The  Company  produces
silver as a by-product of its copper, lead and zinc mining operations.  It has a
50% interest in Silver Valley Resources which resumed operations in May 1996.

Lead

The primary  domestic uses of lead are for automotive  and industrial  batteries
and, to a lesser extent,  for lead oxide for glass,  solder and other industrial
uses.  A  substantial  portion of  Asarco's  lead  sales are made  under  annual
contracts to industrial users.  Remaining lead sales are sold as an intermediate
product to lead refineries outside the United States.

Asarco's  Missouri  lead  business  consists  of two  mines  and a  smelter  and
refinery. The Company's Sweetwater and West Fork mines provide approximately 90%
of the feed for the Glover  smelter and  refinery  with the balance  coming from
purchased lead concentrates.  Zinc is an important co-product of the lead mining
operations.  Production  of mined lead and zinc  declined in 1996  compared with
recent years due to lower ore grades.  All of the  Company's  lead  smelting and
refining operations have faced increasingly stringent environmental requirements
for air and water  emissions.  To meet these  requirements,  in late  1996,  the
Company  completed  construction of a $16 million  modernization  project at its
Glover lead smelter.  The Company was able to maintain operations at the smelter
and  refinery  while  the  project  was under  construction,  but  refined  lead
production  was  reduced  from  1995  levels.  With this  modernization  project
complete, the Glover facility should now meet ambient air standards.

Asarco's  custom lead  business has  consisted of its East Helena,  Montana lead
smelter and its Omaha,  Nebraska lead  refinery.  This  business  depends on the
availability of precious metal bearing lead concentrates from the U.S. and Latin
America.  Low prices for gold and silver in recent years have reduced the supply
of these materials, and as a result, treatment fees have declined and the custom
lead  business  has not been  profitable.  The  Company has also been faced with
large capital investments to meet environmental  standards. In 1996, the Company
completed  a $26  million  modernization  project  at East  Helena to bring that
facility into environmental compliance. In 1995, however, the Company decided it
could not justify a $40 million investment  required to bring the Omaha refinery
into  compliance.  As a  consequence,  the Omaha  refinery will be closed.  Lead
refining  operations  ended in June 1996 and all  metallurgical  operations will
cease in June 1997.  The Company is working with the City of Omaha and the state
of  Nebraska  to convert  the site into a park.  The  Company now sells the lead
bullion produced at East Helena to refineries located outside the U.S.

The Company manages the Leadville mine in Colorado which produces lead, zinc and
silver.

Zinc

Zinc is primarily used in the United States to make  galvanized  metal products,
zinc-based  alloys,  brass  products,  zinc  oxide,  rolled  zinc and for  other
industrial  uses.  The  Company's  zinc  production  is  sold  in  the  form  of
concentrates under contracts of one to three years duration.

The  Company  mines  zinc at four  mines near  Knoxville,  Tennessee  as well as
producing  zinc as a co-product  at its Missouri and  Leadville  mines.  Low ore
grades reduced zinc output at the Tennessee  mines 14% from 1995. Due to the low
zinc prices  prevailing in 1996,  the Tennessee  mines  operated at a loss.  The
Company  decided  to  suspend  operations  at its New  Market  mine in 1996.  An
exploration program is underway at New Market to identify higher grade ore which
might permit reopening the mine.  Early results are  encouraging.  In late 1996,
zinc prices began to improve.  If this improvement is sustained,  results should
improve in 1997.




<PAGE>


A7

Silver

The  principal  uses for  silver  in the  United  States  are for  photographic,
electrical and electronic  products and, to a lesser extent,  brazing alloys and
solder, jewelry, coinage, silverware and catalysts. Silver is sold under monthly
contracts or in spot sales principally to industrial users.

Asarco owns a 50%  interest in Silver  Valley  Resources.  Coeur  d'Alene  Mines
Corporation owns the other half interest. Silver Valley Resources owns the Coeur
and Galena  silver  mines in Idaho both of which have been on standby due to low
silver prices.  Production resumed in May 1996 at the Coeur mine and an expanded
development  program was begun at the Galena mine.  Operating  results  exceeded
expectations  throughout the year with lower costs and higher silver grades than
planned.  The  development  program  which  began in 1995 has  increased  silver
contained in ore reserves by 61%. Silver Valley Resources is expected to produce
3 million ounces of silver annually when operations resume at the Galena mine in
July 1997.

The Company also owns a 75% interest in the Troy,  Montana  silver-copper  mine,
which is currently on standby.  The Company plans to restart Troy in conjunction
with the development of the nearby Rock Creek  silver-copper  deposit.  The Rock
Creek project has been in the  permitting  process for 10 years.  The Company is
preparing  a  supplemental  environmental  impact  statement  and the process is
expected  to take  another  two  years.  The Troy  mine has  remaining  reserves
adequate for six years of  production  and could  produce 1.3 million  ounces of
silver a year.


Specialty Chemicals and Aggregates Businesses

In recent  years  Asarco has sought to develop  businesses  which will provide a
source of earnings from non-metals operations.

Specialty Chemicals

Enthone-OMI  produces specialty  chemicals and manufactures  coating systems for
plastics and metals.  Enthone-OMI's  products  include  chemicals for industrial
plating and for applications in the electronics and computer  industries.  Rapid
technological  advances  require the continual  development  of new products for
these growing industries. Enthone-OMI's product development programs in the high
technology   area  are  expected  to  continue  to  contribute  to  its  growth.
Enthone-OMI's pre-tax profit increased to a record $24 million in 1996.

Aggregates

American  Limestone  Company  produces  construction   aggregates,   ready-mixed
concrete,  and  agricultural  limestone  at  four  locations  in  Tennessee  and
Virginia.  American  Limestone  had record  earnings for the fourth  consecutive
year, realizing pre-tax profits of $10 million in 1996.


Exploration

Asarco's  international  exploration  program  emphasizes the identification and
acquisition  of ore  reserves  and  advanced  exploration  projects for gold and
copper.  Including  expenditures  made by SPCC, the Company spent $27 million on
exploration in 1996. More than 85% was spent outside the United States.




<PAGE>


A8

Environment, Safety and Health

Asarco is committed to protecting the environment.  It is Asarco's objective not
only  to  comply  with  existing  environmental,  safety  and  health  laws  and
regulations,  but to support other  activities that contribute to  environmental
protection,  responsible  resource  management,  and the  safety  and  health of
employees  customers  and  members of the  community.  With its nearly  100-year
history  of  operations,  Asarco  has  in  recent  years  committed  significant
resources to the  remediation  of old sites,  a number of which have been closed
for many decades.  The Company has undertaken this work while making substantial
investments at its continuing  operations in order to meet current environmental
rules and standards.

At certain  locations such as at the Globe plant in Colorado and the East Helena
lead  smelter  in  Montana,  Asarco  has  continued  to  operate  under  current
environmental laws, while remediating the effects of historic  operations.  Such
projects have included soil  reclamation  and replacement in the vicinity of the
plants and the remediation of areas within the plant sites.

In Leadville, Colorado, the Company has continued to operate the Leadville mine,
as well as a water treatment plant completed in 1989 to treat mine drainage from
a tunnel which outflows on the Leadville  mine property.  Asarco has also worked
closely with EPA and others to develop and implement plans to remediate old mine
sites, mill tailings and smelter sites in the Leadville area.

In  Tacoma,  Washington,  Asarco  is  working  with EPA and local  officials  to
remediate and redevelop its former smelter site to form an urban park.

Some of Asarco's projects are included in the federal Superfund program.  Asarco
also is  participating  in  voluntary  programs  to deal with the impact of past
mining related  activities in several states. In 1996, Asarco was recognized for
its  voluntary  cleanup  programs  at  two  of  these  sites.  Asarco  has  also
established and funded community  programs to test children's  exposure to lead,
educate parents about lead in the environment  and direct  remediation  projects
focused at reducing the exposure of children to lead.

Asarco's environmental management programs involve the use of a state-of-the-art
computer system and a specialized and highly trained staff. Management oversight
is provided at a senior level.  These programs  include  internal  environmental
audits,   environmental   awareness  training  for  all  employees,   and  close
communications  with the  communities and  governmental  agencies with which the
Company works.  The Company has also developed a commercial  recycling  business
and a hydrological consulting and remediation business.

Safety is everybody's business at Asarco and a great deal of management emphasis
is placed on the Company's  safety and health program.  The Company's Safety and
Health  Policy  Review  Committee  oversees an  internal  review  process  which
examines safety  processes,  practices and results at all Asarco  locations.  At
each operation,  management, safety staff personnel and employees regularly meet
and review safety and health matters.

The Company's  safety and health  program  includes  recognition  of good safety
performance at its operating units.


Investment in Grupo Mexico, S.A. de C.V.

Asarco holds a 23.6% interest in Grupo Mexico,  the largest publicly held mining
company in Mexico.  Grupo Mexico owns 13 mines and nine metallurgical plants and
is a major producer of copper,  lead, zinc,  silver,  molybdenum and gold. Grupo
Mexico  reported  profits in 1996 of US$338.1  million  converted at the average
exchange rate.



<PAGE>


A9

Grupo  Mexico pays no dividend  and the  Company  records no earnings  from this
investment.  In order to  realize  current  value for Asarco  shareholders,  the
Company will seek to sell at least part of its holdings. Under a 1994 agreement,
Asarco became free from  restrictions  on the sale of the majority of its shares
in August 1996. Asarco holdings in Grupo Mexico are valued at approximately $400
million at December 31, 1996.


                               BACKLOG OF ORDERS

Substantially  all of the  Company's  metal  production  is  sold  under  annual
contracts. To the extent not sold under annual contracts, production can be sold
on  commodities  exchanges  or to  merchants  or consumers on a spot sale basis.
Final sales values are determined  based on prevailing  commodity prices for the
scheduled month of delivery or shipment according to the terms of the contracts.
The backlog for other product classes and services is not material.


                             COMPETITIVE CONDITIONS

In the  United  States  and  abroad,  Asarco  and  its  foreign  nonconsolidated
associated  companies are subject to  competition  from other  nonferrous  metal
producers. Asarco's metal products also compete with other materials,  including
aluminum, stainless steel, plastics, glass and wood.

Competition  in nonferrous  metals is  principally on a price and service basis,
with  price  being  by far the most  important  consideration.  In  construction
aggregates,  geographic  location  of  facilities  in  relation  to the point of
consumption,  and price are by far the most important  competitive  factors.  In
specialty  chemicals,  Asarco competes against a substantial number of large and
small companies both in the United States and overseas.

                                   EMPLOYEES

At December 31, 1996,  Asarco excluding SPCC,  employed about 6,900 persons,  of
whom about 3,800 were covered by contracts  with various  unions,  most of which
were affiliated with the AFL-CIO. At December 31, 1996 SPCC employed about 4,900
persons, substantially all of whom were covered by labor contracts.


                                 ENERGY MATTERS

Asarco's energy  requirements are met from a variety of sources,  including fuel
oil, diesel fuel,  gasoline,  natural gas, coke and electric power. Asarco has a
large number of contracts of varying  duration for its energy  needs,  typically
negotiated  on an  individual  basis  from time to time.  Generally,  substitute
sources are available except where  requirements are guaranteed by local utility
companies.  No reductions or interruptions  of any operations  because of energy
shortages were experienced in 1996.


                    ENVIRONMENTAL, SAFETY AND HEALTH MATTERS

Asarco's operations are subject to environmental  regulation by various federal,
state, local, and foreign  governments.  Asarco's principal  involvement in this
area concerns  compliance by its existing and former operations with federal and
state air and water  quality  and solid and  hazardous  waste  regulations.  The
Company  believes that its operations  are currently in  substantial  compliance
with applicable environmental laws and regulations.



<PAGE>


A10

The Company anticipates  spending $47 million for environmental  control capital
expenditures at its operating units in 1997.  Capital  expenditures by Asarco at
its  operating   mines,   smelters  and  refineries  in  order  to  comply  with
environmental  standards  in the past  three  years  have  been  (in  millions):
1996-$71; 1995-$93; 1994-$23. Recurring costs associated with managing hazardous
substances and environmental  issues in ongoing operations including interest on
environmental  improvement  bonds  and other  debt  incurred  for  environmental
control  facilities,  reduced  pre-tax  earnings  by (in  millions):  1996-$113;
1995-$103; 1994-$88.

Environmental  matters,  including a  discussion  of the  Company's  reserve for
closed plants and  environmental  costs, are set forth in the  Contingencies and
Litigation Note 8 to the Financial Statements and in Management's Discussion and
Analysis of Operations and Financial  Condition and are  incorporated  herein by
reference.

On March 24, 1995, the  Environmental  Protection Agency ("EPA") issued a Record
of Decision ("ROD") for the Company's Tacoma smelter site in Tacoma, Washington,
under the Comprehensive  Environmental Response,  Compensation and Liability Act
of 1980 ("CERCLA" or "Superfund").  The smelter site is part of the Commencement
Bay Superfund  site.  The ROD calls for  excavation  and disposal of soils,  and
demolition debris in an on-site containment facility, capping of the site with a
low  permeability  cap,  demolition of remaining  buildings,  replacement of the
surface water drainage system and diversion of groundwater and off-site  surface
water.  The  remediation  selected in the ROD is consistent with an agreement in
principle  entered  into between the  Company,  the City of Tacoma,  the Town of
Ruston and the Metropolitan Park District concerning a master redevelopment plan
for the site. A Consent  Decree between the Company and the EPA to carry out the
ROD was entered by the United States District Court on January 3, 1997.

At Ruston, Washington,  also part of the Commencement Bay Superfund site, on May
2, 1995, a Consent  Decree between the Company and EPA was entered by the United
States  District  Court in Tacoma,  Washington,  pursuant  to which the  Company
agreed to sample and, if necessary,  remediate the residential  area surrounding
the Tacoma smelter site. To date, approximately 326 residential and right-of-way
properties have been remediated.

In November 1994, at the Bunker Hill  Superfund  site in Idaho,  the Company and
two other mining companies entered into a Consent Decree with the EPA, which was
approved by the United  States  District  Court.  Pursuant  to the  Decree,  the
companies have remediated  approximately 943 residential  yards.  Remediation of
other yards continues.

On March 22, 1996, the United States government filed an action in United States
District  Court in Boise,  Idaho,  against the  Company  and three other  mining
companies  under  CERCLA and the federal  Clean  Water Act for  alleged  natural
resource  damages to the Coeur  d'Alene  River  Basin in Idaho.  The  government
contends that the  defendants  are liable for damages to natural  resources in a
1,500  square mile area caused by mining and  related  activities  that they and
others  undertook  over  approximately  the period between the mid-1800s and the
mid-1960s.  The action also seeks a declaration  that  defendants are liable for
restoration of the area. The Company  believes,  and has been advised by outside
legal counsel, that it has strong legal defenses to the lawsuit.

On October 24, 1996, a citizens' suit was brought  against the Company  alleging
water discharge permitting  violations under the federal Clean Water Act ("CWA")
and violations of the federal Resource Conservation and Recovery Act ("RCRA") at
the Company's Omaha, Nebraska lead refinery. On August 5, 1996, in response to a
notification by the plaintiffs' attorney that he intended to file this suit, the
Nebraska  Department of  Environmental  Quality ("NDEQ") advised the plaintiffs'
attorney  that it did not believe  that he had "alleged  sufficient  facts under
either the CWA or RCRA to warrant the finding of a violation of either act." The
NDEQ further  advised  that it "does not perceive a need to take an  enforcement
action against Asarco at this time because the company is presently  cooperating
in the voluntary remediation of its site." The Company believes that the lawsuit
is without merit and is vigorously defending it.



<PAGE>


A11

On January 25, 1996, the Cabinet Resource Group (the "Group") filed an action in
United States  District  Court for the District of Montana,  Missoula  Division,
seeking civil penalties under the Federal Clean Water Act and demanding that the
Company obtain a discharge permit under that Act. The Company's position is that
the permit and penalty allegations lack merit.

In 1994, at the Leadville Superfund site in Colorado,  a Consent Decree with the
EPA and other potentially  responsible  parties was entered by the United States
District Court.  The Consent Decree resolved many of the liability issues at the
site.  Final  remedy  selection  must  await  the  issuance  of the ROD which is
expected in 1997.  Through  the end of 1996 the Company has spent  approximately
$39 million for remediation at the site.  Remaining issues at Leadville will not
be addressed until additional studies are completed.

In 1996, at the East Helena Superfund site in Montana, the Company completed the
remediation  of  approximately  51  residences at a cost of  approximately  $2.1
million.  This brings the total number of properties  remediated to date to 524.
Additional  properties are expected to require remediation,  which together with
proposed community protection  measures,  is estimated to require an expenditure
of approximately $2 million over the next five years.

With  respect to notices  of  potential  liability  previously  received  by the
Company pursuant to the Comprehensive  Environmental Response,  Compensation and
Liability Act or similar state laws, the Environmental Protection Agency issued,
on June 14, 1996, a Unilateral  Administrative  Order  directing the Company and
the other potentially  responsible  parties to implement the remedy specified in
the Record of Decision of the Mine Operable Unit of the Butte Montana  Superfund
site issued on September 29, 1994.

In 1996, at the Globe proposed  Superfund  site in Denver,  Colorado the Company
completed the remediation of approximately 130 properties, including residences,
commercial  properties and open spaces, at a cost of approximately  $2.9 million
pursuant to a Consent Decree and a settlement of a lawsuit entered in 1993. This
brings the total number of properties  remediated to date to approximately  362.
Remediation  has also been  commenced at the plant site itself.  Remediation  of
additional  properties  and the plant site will  continue  for the next  several
years.

In 1995,  the Company  completed and presented to the  Washington  Department of
Ecology a remedial  investigation  and feasibility study report of the Company's
former  smelter  site  in  Everett,  Washington.  It  is  anticipated  that  the
Department of Ecology will issue a cleanup  action plan for the site during 1997
or 1998.  The Company has purchased  residences  on and near the former  smelter
site. Litigation with an adjacent landowner has been dismissed without prejudice
to enable the parties to share  information  with the objective of negotiating a
settlement of site responsibility at a later date.

With respect to a Superfund  site  located in Tar Creek,  Oklahoma for which the
Company  entered  into a  Consent  Decree in 1989 and  settled  with the EPA for
$479,000 for reimbursement of EPA response costs, the Company received a Special
Notice  from the EPA in 1995  invoking  the  provisions  of the  Consent  Decree
permitting  further remedial action under certain  circumstances  and requesting
that the  Company and other PRPs enter into good faith  negotiations  to conduct
studies and design remedial  actions at the site. The Company and the other PRPs
declined but have voluntarily funded a community monitoring program.

In October  1996,  the Company  responded to an August 30, 1996  General  Notice
Letter from the EPA and offered to perform certain remediation activities at the
Circle Smelting site in Beckemeyer,  Illinois, an area where a subsidiary of the
Company  previously  operated a zinc smelter.  Negotiations are underway between
the EPA and the Company concerning the scope of remediation.

The Company and certain of its subsidiaries  are cooperating with  environmental
authorities  to undertake  studies of certain  other sites and  remediate  where
necessary.



<PAGE>


A12

Prior  to 1996,  the  Company  and  certain  subsidiaries  received  notices  of
potential  liability  pursuant  to  CERCLA  from  the  EPA or  federal  agencies
regarding 14 sites in eight states. In March 1996, the company received a notice
from the United States Department of  Agriculture-Forest  Service that it may be
potentially  liable  for  environmental  remediation  at a site on the border of
Montana  and Idaho  where  the  Company  had  operated  a former  mine and mill.
Further,  prior  to 1996  the  Company  received  notices  from  state  agencies
regarding five other sites in four states.  Significant  developments at certain
of these sites during 1996 are described  above.  Also, the Company has received
notification of potential  liability or information  requests from EPA and state
agencies  regarding  various  other  sites  where  the  Company's  liability  is
considered minor.


Other environmental matters involving potential civil penalties are as follows:

         1) In 1992,  the United  States  Department of Justice on behalf of the
EPA  notified  the Company that it intends to sue seeking  civil  penalties  for
alleged  violation of the Company's water discharge  permit at the Company's Ray
Complex.  Under the Clean  Water Act,  civil  penalties  may be sought for up to
$25,000 per day for each violation.  The Company is negotiating with EPA and the
Department of Justice to resolve this matter.

         2) In July and August 1994, the EPA notified the Montana  Department of
Health and  Environmental  Sciences that it considers the Company's  East Helena
plant to be in violation of the federal Clean Water Act because of  unauthorized
discharges  into a nearby creek.  The Company applied for a NPDES permit in 1994
and is in  discussions  with the EPA and the  State of  Montana  regarding  this
matter.  Pending  final  issuance of the permit,  the Company is complying  with
discharge limitations imposed by an EPA Administrative Order.  Additionally,  in
1996 the Company initiated  discussions with EPA concerning  materials  handling
practices at the plant.

         3) In 1992 and 1993,  the Company's  Glover,  Missouri lead smelter and
refinery  received  several Notices of Violation for monitored levels of lead in
excess of the ambient air  standard.  Additionally,  the Missouri  Department of
Natural  Resources  ordered the Company to conduct stack testing at the plant to
determine   whether  the  plant  is  in  compliance  with  applicable   emission
regulations.  The Company has investigated  emission levels and has been working
with the  Missouri  Department  of  Natural  Resources  to  develop  a new State
Implementation  Plan  ("SIP")  for lead.  The state  adopted the SIP in February
1996. The SIP was implemented in 1996 at a cost of approximately $18 million.

In July 1996, the Company filed a lawsuit in State Court in Nebraska challenging
the right of the state to exercise  direct  enforcement of the National  Ambient
Air Quality Standard ("NAAQS") for lead applicable to the Company's Omaha plant.
On October 24,  1996 the court ruled  against the Company and upheld the state's
right to directly  enforce the NAAQS  applicable to the Omaha plant. The Company
appealed the  decision,  and on January 3, 1997 an agreement  with the state was
reached in which the Company  agreed to withdraw its appeal and the state agreed
to stay a direct enforcement provision of the NAAQS for six months.

SIPs designed to achieve  compliance by January 6, 1997 with the EPA ambient air
quality  standard  for lead of 1.5  micrograms  per cubic meter of air have been
developed  and  approved  in each state in which  Asarco  has a lead  smelter or
refinery. Final EPA approval of each plan is expected in the near future.



<PAGE>


A13

The Company is studying means of compliance with RCRA through process changes at
its  facilities,  where  feasible,  to  manage  the  wastes  not  excluded  from
regulation.   Mine  tailings,  slag,  and  slag  tailings  from  primary  copper
processing,  calcium  sulfate  wastewater  treatment  plant  sludge from primary
copper  processing,  and slag from  primary  lead  processing  at the  Company's
operations are excluded from RCRA regulation.  The Company is a party to a court
approved Consent Decree with the Missouri  Department of Natural  Resources,  in
which the Company has  implemented  certain  process  changes and is  conducting
sampling  and  testing to remain in  compliance  with RCRA  requirements  at its
Glover smelter.

Asarco is 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 federal  Mine  Safety and Health Act of 1977.  Asarco
has made,  and is likely to continue to make,  expenditures  to comply with such
laws and regulations.

                            NEW ACCOUNTING STANDARD

In February,  1997, the Accounting Standards Board issued Statement of Financial
Accounting  Standards  128,  "Earnings  Per  Share."  The  Company is  currently
assessing  the impact of this  statement  which will be effective  for financial
statements issued for periods ending after December 15, 1997,  including interim
periods.


                              CAUTIONARY STATEMENT

Forward-looking  statements  in this  report  and in  other  Company  statements
include  statements  regarding  expected  commencement  dates of mining or metal
production   operations,   projected  quantities  of  future  metal  production,
anticipated production rates, operating efficiencies,  costs and expenditures as
well as projected  demand or supply for the Company's  products.  Actual results
could differ  materially  depending upon factors  including the  availability of
materials,   equipment,   required  permits  or  approvals  and  financing,  the
occurrence of unusual weather or operating  conditions,  lower than expected ore
grades,  the failure of equipment or  processes  to operate in  accordance  with
specifications,  labor relations,  environmental  risks as well as political and
economic risk  associated  with foreign  operations.  Results of operations  are
directly affected by metals prices on commodity exchanges which can be volatile.







<PAGE>


A14

Item 2. Properties
-------------------------------------------------------------------------------

ASARCO Worldwide Operations
-------------------------------------------------------------------------------

METALS

COPPER

MINES(1)
Mission;  Sahuarita, Arizona
Montana Resources; Butte, Montana
Ray; Hayden, Arizona
Silver Bell; Silver Bell, Arizona
Minto; Yukon Territory, Canada

PLANTS
Amarillo, Texas (Refinery)
  (Also Selenium, Tellurium)
El Paso, Texas (Smelter)
  (Also Sulfuric Acid)
Hayden, Arizona (Smelter)
  (Also Sulfuric Acid)
Ray; Hayden, Arizona
  (Electrowinning Plant)

SOUTHERN PERU COPPER CORPORATION (1)
Cuajone mine, Peru
Toquepala mine, Peru
Ilo Copper Smelter and Refinery, Peru


MOLYBDENUM

MINES (1)
Mission; Sahuarita, Arizona (2)
Montana Resources; Butte, Montana

SOUTHERN PERU COPPER CORPORATION (1)
Cuajone, Peru
Toquepala, Peru


LEAD

MINES (1)
Leadville; Leadville, Colorado
Sweetwater; Reynolds County, Missouri
West Fork; Reynolds County, Missouri

PLANTS
East Helena, Montana (Smelter)
  (Also Sulfuric Acid)
Glover, Missouri (Smelter, Refinery)

ZINC

MINES (1)
Coy; Jefferson County, Tennessee
Immel;  Knox County, Tennessee
New Market; Jefferson County, Tennessee (2)
Young;  Jefferson County, Tennessee
Leadville; Leadville, Colorado


<PAGE>


A15

SILVER

MINES (1)
Silver Valley Resources
  Coeur; Wallace, Idaho
  Galena; Wallace, Idaho
Troy; Troy, Montana (2)
Leadville; Leadville, Colorado
Mission; Sahuarita, Arizona
Ray; Hayden, Arizona
Montana Resources; Butte, Montana

SOUTHERN PERU COPPER CORPORATION (1)
Cuajone, Peru
Toquepala, Peru


PRECIOUS METALS REFINERY
Amarillo, Texas
  (Silver, Gold, Palladium and Platinum)


SPECIALTY CHEMICALS
Enthone-OMI
North America
Bridgeview, Illinois
  West Haven, Connecticut
  Orange, Connecticut
  Warren, Michigan
  Toronto, Canada
  Mexico City, Mexico

Europe
  Barcelona, Spain
  s-Hertogenbosch, Netherlands
  Woking, United Kingdom
  Milan, Italy
  Marne-La-Vallee, France
  Brunn Am Gebirge, Austria
  Erkrath, Germany
  Norrkoping, Sweden
  Geneva, Switzerland

Pacific Rim
  Melbourne, Australia
  Kowloon, Hong Kong
  Singapore
  Shen Zhen, People's Republic
    of China
  Yokohama, Japan
  Taipei, Taiwan


AGGREGATES
American Limestone Company, Inc.
  (Construction Aggregates,
   Concrete, Agricultural Limestone)
  Knoxville, Tennessee
  Tri-Cities, Tennessee
  Nashville, Tennessee
  Abingdon, Virginia




<PAGE>


A16

ENVIRONMENTAL SERVICES
Encycle/Texas, Inc.
  Corpus Christi, Texas
Hydrometrics, Inc.
  Helena, Montana
  East Helena, Montana
  Billings, Montana
  Kalispell, Montana
  Spokane, Washington
  Tacoma, Washington
  Ruston, Washington
  Kellogg, Idaho
  Denver, Colorado
  Tucson, Arizona
  El Paso, Texas


OTHER

High Purity Metals
Denver, Colorado


INVESTMENTS

Grupo Mexico, S.A. de C.V. (23.6%)
Thirteen mines, nine metallurgical
  plants throughout Mexico,
  including: La Caridad and Cananea
  (Copper, Lead, Zinc, Silver, Gold,
  Coal, Coke, Fluorspar, Sulfuric Acid)

(1)  Beneficial  interest for this  operation  is shown in the Mineral  Reserves
     tables starting on page A19
(2)  On standby

(Percent ownership of companies shown in parentheses)




<PAGE>


A17

Southern Peru Copper Corporation

SPCC  operates  two open pit mines  under  concessions  granted by the  Peruvian
government.

Silver Valley Resources

In 1995,  Asarco and Coeur d'Alene Mines Corporation  established  Silver Valley
Resources,  a  corporation  owned 50% by each,  to  consolidate  the  companies'
interest  in the Coeur and Galena  silver  mines in Idaho.  The Couer mine began
production  in May 1996 and the Galena mine,  shut down since 1992, is scheduled
to begin production in June 1997. Asarco has an equity interest in Silver Valley
Resources profits or losses in proportion to the 50% related ownership interest.

Silver Bell

In 1996, Asarco and Mitsui & Co. Ltd., established Silver Bell L.L.C., a limited
liability  corporation  owned  75% by Asarco  and 25% by  Mitsui & Co.  Asarco's
interest in Silver Bell L.L.C.  profits and losses is in  proportion  to its 75%
related ownership interest.

Leadville

Leadville (60.3%) is operated by Asarco under a joint venture agreement.  Asarco
and its joint  venture  partner share  operating  results in proportion to their
respective ownership interests,  except that Asarco bears 100% of losses, if any
in excess of cumulative profits generated since October 1991.

Troy

Troy is operated by Asarco under a lease  agreement.  Asarco  retains 75% of net
proceeds after operating expenses but before depletion,  depreciation and income
taxes.  The Troy mine was temporarily  shut down commencing in April 1993 due to
depressed silver prices.

Mission

A portion of the mine is held under  long-term  leases in which the lessors have
retained a royalty interest.

West Fork

A portion  of the mine is held under a  long-term  lease in which the lessor has
retained a royalty interest.

Investments

Grupo Mexico, S.A. de C.V., a 23.6% owned company, operates thirteen mines under
concessions granted by the Mexican government.


<PAGE>


A18

The following production information is provided:
<TABLE>
<CAPTION>
MILL PRODUCTION                              1996                               1995                               1994
---------------                              ----                               ----                               ----
                                                     Avg Mill                          Avg Mill                         Avg Mill
                                  Ore Milled         Recovery         Ore Milled       Recovery       Ore Milled      Recovery Rate
                                     (000s             Rate             (000s            Rate         (000s Tons)          (%)
ASARCO                               Tons)             (%)              Tons)             (%)
<S>                             <C>              <C>               <C>               <C>            <C>              <C>
Domestic
  Mission                             15,192              85.9            14,803           83.6           15,722             81.4
  Mission South                        7,616              82.5             7,346           82.7            7,574             80.6
  Hayden
   Concentrator                        8,975              81.5             8,452           78.4            7,550             80.9
  Ray Concentrator                    12,687              82.4            13,216           82.7           12,143             82.3
  Montana Resources                   15,990              87.2            14,853           90.9           15,202             93.3
  Leadville                              131              95.1               219           91.4              223             89.7
  Sweetwater                           1,271              98.3             1,269           98.1            1,260             98.3
  West Fork                            1,007              97.2             1,005           97.7            1,009             97.8
  Tennessee                            2,823              92.4             3,206           92.6            3,193             92.9
Other
  Quiruvilca (a)                           -                 -               291           82.1              513             84.5

SPCC (c)

Toquepala                             18,609              84.2            16,937           89.0           15,737             88.8
Cuajone                               21,249              81.7            21,378           84.3           21,688             86.0
</TABLE>

Productive Capacity
<TABLE>
<CAPTION>
                                          Defined                                                   Defined
     Smelter                              Capacity (b)          Refineries                          Capacity (b)
     <S>                                  <C>                   <C>                                 <C>
     Anode Copper (tons)                                        Copper (tons)
       El Paso                                   115,000          Amarillo                                  483,000
       Hayden                                    175,000          Ray (SX-EW)                                40,000
                                                 -------                                                           
         Total                                   290,000          Ilo - SPCC (c)                            247,000
     Blister Copper (tons)                                        Toquepala (SX/EW)(c)                       40,000
                                                                                                           --------
       Ilo - SPCC (c)                            300,000            Total                                   810,000

     Lead Bullion (tons)                                        Lead (tons)
       East Helena                                75,000          Omaha (d)                                       -
       Glover                                    130,000          Glover                                    130,000
                                                 -------                                                           
         Total                                   205,000

                                                                Silver (000s ounces)
                                                                  Amarillo                                   60,000
                                                                Gold (ounces)
                                                                  Amarillo                                  600,000
</TABLE>

(a)      Asarco sold its 80% interest in Quiruvilca on August 31, 1995.

(b)      Asarco's estimate of actual capacity under normal operating  conditions
         with  allowance  for normal  downtime for repairs and  maintenance  and
         based on the  average  metal  content of input  material  for the three
         years  shown.  No  adjustment  is  made  for  shutdowns  or  production
         curtailments due to strikes or air quality emissions restraints.

(c)      Asarco  consolidated  SPCC effective  January 1, 1995 based on Asarco's
         52.3% equity  ownership.  The minority  interest in SPCC represented by
         Labor  Shares  in its  Peruvian  Branch  results  in  Asarco  having  a
         beneficial  interest in SPCC of 43.2%.  Effective April 1995,  Asarco's
         equity  ownership of SPCC increased to 63% and its beneficial  interest
         increased  to 52.1%.  Effective  December  31,  1995,  Asarco's  equity
         ownership was 54% and its beneficial  interest was 52.3% reflecting the
         effects of SPCC's completed labor exchange offer. At December 31, 1996,
         Asarco's equity interest was 54.1% and its beneficial  interest in SPCC
         was 52.6%. SPCC purchased the Ilo copper refinery in May 1994.

(d)      Asarco ceased refining lead at its Omaha plant on June 1, 1996.



<PAGE>


A19

METAL PRODUCTION STATISTICS
<TABLE>
<CAPTION>
COPPER                                                       Mineral        Average
                                                             Reserves       Mineral                    Metal Production
                                               Asarco      (000s Tons)      Content                    Contained Metal
                                                Int.                          (%)                       (000s Pounds)
                                                                                                        -------------
                                                 (%)         12/31/96       12/31/96         1996            1995            1994
                                                 ---         --------       --------         ----            ----            ----
<S>                                          <C>         <C>              <C>          <C>              <C>             <C>
MINES
Domestic
   Mission Complex                                  100         534,973         0.69          261,200         224,600       229,400
   Ray                                              100         988,888         0.60          273,200         260,400       214,600
   Ray leachable                                    100         204,107         0.45           70,200          70,200        64,000
   Montana Resources                               49.9         516,038         0.33          104,800         112,800       112,200
   Silver Bell L.L.C.                             75(a)         197,500         0.39            4,800           6,800         7,200
   Troy (e)                                          75          11,996         0.65                -               -             -
                                                                                            ---------       ---------      ---------
     Total Domestic                                                                           714,200         674,800       627,400
                                                                                            ---------       ---------      ---------
SPCC (f)
   Toquepala-sulfide                            52.6(b)         331,580         0.82          252,900         256,200       223,600
          -leachable                            52.6(b)         650,000         0.20           93,200          10,000             -
   Cuajone-sulfide                              52.6(b)       1,400,331         0.65          332,000         291,000       312,000
          -leachable                            52.6(b)          15,000         0.98                -               -             -
Other
   Quiruvilca-Peru                                  (c)               -            -                -           1,200         2,200
   Minto                                           84.3           7,176         2.13                -               -             -
                                                                                            ---------       ---------      ---------
                                                                                              678,100         558,400       537,800
                                                                                            ---------       ---------      ---------
Asarco Beneficial Production                                                                1,015,900         898,400       804,600
                                                                                            ---------       ---------      ---------

SMELTERS
   El Paso                                          100                                       230,000         253,000       196,000
   Hayden                                           100                                       429,800         387,000       400,200
   SPCC - Ilo                                   52.6(b)                                       633,600         634,400       644,200
                                                                                            ---------       ---------     ---------
      Total                                                                                 1,293,400       1,274,400     1,240,400
                                                                                            ---------       ---------     ---------
Asarco Beneficial Production                                                                  991,800         956,400       874,400

REFINERIES
  Amarillo                                          100                                       945,600         966,800       921,200
  Ray (SX/EW)                                       100                                        70,200          70,200        64,000
  SPCC - Ilo                                    52.6(b)                                       439,600         432,400       245,000
    Toquepala (SX/EW)                           52.6(b)                                        93,200          10,000             -
                                                                                            ---------       ---------     ---------
   Total                                                                                    1,548,600       1,479,400     1,230,200
                                                                                            ---------       ---------     ---------
Asarco Beneficial Production                                                                1,295,000       1,258,000     1,090,800
                                                                                            ---------       ---------     ---------

INVESTMENTS
GRUPO MEXICO (d)                                   23.6
  Base Metal Mines   (100.0%)                                    75,728          0.65          56,300          49,400        47,000
  Mexicana de Cobre   (96.0%)                                   516,500          0.53         357,300         358,000       365,300
           leachable     (96.0%)                                223,200          0.24          41,500          21,400             -
  Mexicana de Cananea (76.1%)                                 1,768,300          0.61         219,500         179,000        97,800
           leachable     (76.1%)                                907,200          0.25          58,600          64,400        56,800
</TABLE>

(a)   Asarco's  interest in Silver Bell was 100% until February 1996 when Asarco
      sold a 25% interest to Mitsui & Co., Ltd.
(b)   Asarco consolidated SPCC effective January 1, 1995 based on Asarco's 52.3%
      equity  ownership.  The  minority  interest in SPCC  represented  by Labor
      Shares  in its  Peruvian  Branch  results  in Asarco  having a  beneficial
      interest in SPCC of 43.2%. Effective April 1995, Asarco's equity ownership
      of SPCC increased to 63% and its beneficial  interest  increased to 52.1%.
      Effective  December 31, 1995,  Asarco's  equity  ownership was 54% and its
      beneficial  interest was 52.3%  reflecting the effects of SPCC's completed
      labor exchange offer.  At December 31, 1996,  Asarco's equity interest was
      54.1% and its  beneficial  interest in SPCC was 52.6%.  SPCC purchased the
      Ilo copper refinery in May 1994.
(c)   Asarco sold its 80% interest in Quiruvilca on August 31, 1995.
(d)   As published by Grupo Mexico,  reserves are as of December 31, 1995. Grupo
      Mexico ownership of each mine is identified in brackets.
(e)   Troy is currently on standby.
(f)   In addition to the proven and probable ore  reserves,  SPCC is  evaluating
      380 million tons of  mineralized  reserves with an average copper grade of
      0.64%.

<PAGE>


A20

METAL PRODUCTION STATISTICS (continued)

<TABLE>
<CAPTION>
LEAD                                                        Mineral       Average
                                                            Reserves      Mineral                 Metal Production
                                               Asarco     (000s Tons)     Content                  Contained Metal
                                                Int.                        (%)                     (000s Pounds)
                                                                                                    -------------
                                                 (%)        12/31/96      12/31/96       1996          1995           1994
                                                 ---        --------      --------       ----          ----           ----
<S>                                          <C>         <C>            <C>          <C>           <C>           <C>
MINES
Domestic
   Leadville                                     60.3             607          2.91         6,500       10,000           9,600
   Sweetwater                                     100          10,443          4.30       106,900      124,400         134,200
   West Fork                                      100           5,465          5.21       107,100      110,000         104,600
                                                                                          -------      -------         -------
      Total Domestic                                                                      220,500      244,400         248,400
Other
   Quiruvilca-Peru                                (a)                                           -        7,800          13,800
                                                                                          -------      -------         -------
      Total                                                                               220,500      252,200         262,200
                                                                                          -------      -------         -------

Asarco Beneficial Production                                                              217,900      246,600         255,600
                                                                                          -------      -------         -------

SMELTERS
   East Helena                                    100                                     124,900      127,800         123,400
   Glover                                         100                                     243,300      271,600         265,400
                                                                                          -------      -------         -------
      Total                                                                               368,200      399,400         388,800
                                                                                          -------      -------         -------

REFINERIES
   Omaha (b)                                      100                                      51,400      140,800         146,200
   Glover                                         100                                     243,300      271,600         265,400
                                                                                          -------      -------         -------
      Total                                                                               294,700      412,400         411,600
                                                                                          -------      -------         -------

Investment
GRUPO MEXICO(c)                                  23.6
   Base Metal Mines (100.0%)                                   75,728          1.20        80,500       83,400          97,800

</TABLE>

(a)   Asarco sold its 80% interest in Quiruvilca on August 31, 1995
(b)   Asarco ceased refining lead at its Omaha plant on June 1, 1996.
(c)   As published by Grupo Mexico,  reserves are as of December 31, 1995. Grupo
      Mexico ownership of each mine is identified in brackets.



<PAGE>


A21

METAL PRODUCTION STATISTICS (continued)

<TABLE>
<CAPTION>
ZINC                                                            Mineral       Average
                                                               Reserves       Mineral               Metal Production
                                                 Asarco       (000s Tons)     Content               Contained Metal
                                                   Int                          (%)                  (000s Pounds)
                                                                                                     -------------
                                                   (%)         12/31/96       12/31/96       1996         1995         1994
                                                   ---         --------       --------       ----         ----         ----
<S>                                           <C>           <C>             <C>          <C>          <C>          <C>
MINES
Domestic
   Leadville                                        60.3               607        8.86        18,300       30,800       30,800
   Sweetwater                                        100            10,443        0.39        13,800       24,400       17,800
   Tennessee                                         100             4,506        3.30       132,700      154,200      149,200
   West Fork                                         100             5,465        1.06        14,400       21,800       23,600
                                                                                             -------      -------      -------
      Total Domestic                                                                         179,200      231,200      221,400
Other
   Quiruvilca-Peru                                   (a)                                           -       25,200       41,200
                                                                                             -------      -------      -------
      Total                                                                                  179,200      256,400      262,600
                                                                                             -------      -------      -------

Asarco Beneficial Production                                                                 171,900      238,800      241,000

INVESTMENTS
GRUPO MEXICO (c)                                    23.6
   Base Metal Mines (100.0%)                                        75,728        4.20       370,000      402,000      410,800




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

MINES
Domestic
   Mission                                           100           534,973         .02           800          900            -
   Montana Resources                                49.9           516,038         .03        11,000       10,200        7,600
                                                                                              ------       ------        -----
       Total Domestic                                                                         11,800       11,100        7,600
                                                                                              ------       ------        -----

SPCC (d)
   Toquepala                                        52.6(b)        331,580         .04         4,500        3,700        3,000
   Cuajone                                          52.6(b)      1,400,331         .02         4,200        4,300        3,100
                                                                                               -----        -----        -----
       Total                                                                                   8,700        8,000        6,100
                                                                                               -----        -----        -----

Asarco Beneficial Production                                                                  10,900       10,000        6,400
                                                                                              ------       ------        -----

INVESTMENTS
GRUPO MEXICO (c)                                    23.6
   Mexicana de Cobre (96.0%)                                       516,500         .03         8,700        8,400        5,800

</TABLE>
(a)   Asarco sold its 80% interest in Quiruvilca on August 31, 1995.
(b)   Asarco consolidated SPCC effective January 1, 1995 based on Asarco's 52.3%
      equity  ownership.  The  minority  interest in SPCC  represented  by Labor
      Shares  in its  Peruvian  Branch  results  in Asarco  having a  beneficial
      interest in SPCC of 43.2%. Effective April 1995, Asarco's equity ownership
      of SPCC increased to 63% and its beneficial  interest  increased to 52.1%.
      Effective  December 31, 1995,  Asarco's  equity  ownership was 54% and its
      beneficial  interest was 52.3%  reflecting the effects of SPCC's completed
      labor exchange offer.  At December 31, 1996,  Asarco's equity interest was
      54.1% and its  beneficial  interest in SPCC was 52.6%.  SPCC purchased the
      Ilo copper refinery in May 1994.
(c)   As published by Grupo Mexico,  reserves are as of December 31, 1995. Grupo
      Mexico ownership of each mine is identified in brackets.
(d)   In addition to the proven and probable ore  reserves,  SPCC is  evaluating
      380 million tons of mineralized  reserves with an average molybdenum grade
      of 0.03%.


<PAGE>


A22

METAL PRODUCTION STATISTICS (continued)
<TABLE>
<CAPTION>
SILVER                                                        Mineral        Average
                                                              Reserves       Mineral                Metal Production
                                                 Asarco     (000s Tons)      Content                 Contained Metal
                                                  Int.                      (oz/Ton)               (000s troy ounces)
                                                                                                   ------------------
                                                  (%)         12/31/96      12/31/96        1996         1995          1994
                                                  ---         --------      --------        ----         ----          ----
<S>                                           <C>          <C>            <C>           <C>          <C>           <C>
MINES
Domestic
   Silver Valley Resources                             50          1,913        17.53         1,651           -             -
   Leadville                                         60.3            607         1.66           176         347           381
   Mission                                            100        534,973         0.16         1,981       2,604         2,355
   Montana Resources                                 49.9        516,038         0.07           822         680           546
   Ray                                                100              -            -           480         839           570
   Sweetwater                                         100         10,443            -           176         272           238
   Troy (a)                                            75         11,996         1.42             -           -             -
   West Fork                                          100          5,465            -           175         232           256
                                                                                             ------      ------        ------
      Total Domestic                                                                          5,461       4,974         4,346

SPCC
   Toquepala                                      52.6(b)        331,580            -         1,412       1,557         1,401
   Cuajone                                        52.6(b)      1,400,331            -         1,685       1,401         1,579
Other
   Quiruvilca-Peru                                    (c)              -            -             -       1,621         2,807
   Minto                                             84.3          7,176         0.27             -           -             -
                                                                                             ------      ------        ------
      Total                                                                                   8,558       9,553        10,133
                                                                                             ------      ------        ------

Asarco Beneficial Production                                                                  5,778       7,273         7,437
                                                                                             ------      ------        ------

REFINERIES
   Amarillo                                           100                                    30,842      37,265        36,126
   SPCC-Ilo                                       52.6(b)                                     2,218       2,519         1,210
                                                                                             ------      ------        ------
     Total                                                                                   33,060      39,784        37,336
                                                                                             ------      ------        ------

Asarco Beneficial Production                                                                 32,004      38,530        36,648
                                                                                             ------      ------        ------


Investment
GRUPO MEXICO (d)                                     23.6
   Base Metal Mines   (100.0%)                                    75,728         3.12        11,300      10,800        10,700
   Mexicana de Cobre   (96.0%)                                   516,500            -         2,300       2,500         2,300
   Mexicana de Cananea (76.1%)                                 1,768,300            -           900         550           730

</TABLE>

(a)   Troy is currently on standby.
(b)   Asarco consolidated SPCC effective January 1, 1995 based on Asarco's 52.3%
      equity  ownership.  The  minority  interest in SPCC  represented  by Labor
      Shares  in its  Peruvian  Branch  results  in Asarco  having a  beneficial
      interest in SPCC of 43.2%. Effective April 1995, Asarco's equity ownership
      of SPCC increased to 63% and its beneficial  interest  increased to 52.1%.
      Effective  December 31, 1995,  Asarco's  equity  ownership was 54% and its
      beneficial  interest was 52.3%  reflecting the effects of SPCC's completed
      labor exchange offer.  At December 31, 1996,  Asarco's equity interest was
      54.1% and its  beneficial  interest in SPCC was 52.6%.  SPCC purchased the
      Ilo copper refinery in May 1994.
(c)   Asarco sold its 80% interest in Quiruvilca on August 31, 1995.
(d)   As published by Grupo Mexico,  reserves are as of December 31, 1995. Grupo
      Mexico ownership of each mine is identified in brackets.




<PAGE>


A23

All  mineral  reserves  represent  100% of the  reserves  for that  mine and the
percentage ownership of Asarco and its investments are separately indicated. All
mineral  reserves are at December 31, 1996,  except for Grupo Mexico which is at
December 31, 1995. Reserves are estimated  quantities of proven and probable ore
that under present and  anticipated  conditions  may be  economically  mined and
processed for the extraction of their mineral content. The data for Grupo Mexico
is as  published  by that company and  supplemental  information  to support the
reserves  for that  company  has not been  reviewed by the U.S.  Securities  and
Exchange Commission.  Controlled mineral deposits include those owned,  directly
or indirectly through  subsidiaries,  partnerships or joint ventures,  optioned,
leased, or held under government concession.

All production  figures represent entire amounts of operations,  including those
under lease, joint venture,  government concessions or operated by subsidiaries.
Metal production figures for Grupo Mexico are from mines.


Other Operations

The principal  activities  included in the business segment entitled "Other" are
those of Encycle/Texas,  Inc. and Hydrometrics,  Inc., wholly-owned subsidiaries
in the environmental  services business.  None of these operations  constitute a
significant portion of the total operations of the Company.


Item 3.  Legal Proceedings

Reference  is  made  to  the  Contingencies  and  Litigation  footnote  8 to the
Financial  Statements  incorporated  herein  by  reference.   The  following  is
additional detail with respect to the litigation referred to in footnote 8.

Texas Litigation

In 1996, a lawsuit was filed in state  district  court in San  Patricio  County,
Texas, against Asarco and two of its wholly-owned  subsidiaries,  Encycle,  Inc.
and Encycle/Texas  Inc. and ten other defendants by approximately 457 plaintiffs
who  allegedly  own  property  and  reside  near a landfill  in  Sinton,  Texas.
Plaintiffs  seek  compensatory  and  punitive  damages for  personal  injury and
property damage allegedly caused by defendants'  disposal of toxic and hazardous
wastes at the landfill.  This landfill is the same one that was the subject of a
previous lawsuit in Duval County, Texas by nearby residents, settlement of which
was reported on Form 10-K for 1995.

In 1994, the Company and one of its  wholly-owned  subsidiaries,  Encycle/Texas,
Inc., were sued in state court in Nueces County,  Texas in three purported class
actions on behalf of persons  residing  in  neighborhoods  around the  Company's
Corpus Christi,  Texas property.  These actions seek  compensatory  and punitive
damages for diminution of property values, annoyance, loss of use and enjoyment,
loss of income from commercial uses,  remediation costs, emotional distress, and
medical  monitoring due to alleged  contamination  of plaintiffs'  properties by
metals emitted from the Corpus Christi  facility.  In 1994, two additional suits
alleging contamination of plaintiffs' properties by metals emitted by the Corpus
Christi  facility  were filed  against the  Company and two of its  wholly-owned
subsidiaries, Encycle, Inc. and Encycle/Texas, Inc. and several other defendants
in state court in Duval County,  Texas.  In one suit, 20 plaintiffs  who resided
and owned  property  near the Corpus  Christi  facility  seek  compensatory  and
punitive damages for diminution in property values,  personal  injuries,  mental
anguish,  lost wages,  medical  expenses and medical  monitoring.  In the second
suit,  two  plaintiffs who owned and operated a business near the Corpus Christi
facility seek compensatory and punitive damages for diminution of property value
and loss of profits.  In April 1996, one additional suit alleging  contamination
of plaintiffs'  properties by metals emitted by the Corpus Christi  facility was
filed  against  the Company and two of its  wholly-owned  subsidiaries  in state
court in Nueces County, Texas. This suit seeks compensatory and punitive damages
and equitable relief for diminution of property values and remediation costs.



<PAGE>


A24

In 1993,  the State of Texas  notified the Company that it and ten other persons
are PRPs with respect to the Col-Tex  Refinery State  Superfund site in Mitchell
County,  Texas where the Company stored diesel fuel in the mid-1970's.  In 1996,
the State of Texas  notified the Company  that it is no longer  considered a PRP
and that it has dismissed this claim.  The Company has also been named as one of
several  defendants in twelve  lawsuits filed by or on behalf of 295 persons who
have lived or owned property near the Col-Tex Refinery site seeking compensatory
and punitive damages for alleged wrongful death,  personal injury,  and property
damage.

In 1994,  the Company  received  notice from the State of Texas that it is a PRP
for the  remediation of the site of a former  pesticide  manufacturing  plant in
Hunt County,  Texas. In addition,  the Company has been named as one of a number
of defendants in nine lawsuits filed in various Texas State  District  Courts by
or on behalf of approximately  2,281 individuals who live or lived near the site
for compensatory and punitive  damages,  including  damages for alleged personal
injuries and property  damage,  due to alleged exposure to arsenic products that
the Company sold to the  manufacturer at the site. The bankruptcy  filing of the
owner of the former  pesticide  plant has resulted in all of these actions being
stayed,  removed to federal court and  transferred to the United States District
Court for the Northern  District of Texas.  Also, in 1995, the Company was named
as a  third-party  defendant in a suit,  pending in the United  States  District
Court for the  Northern  District of Texas,  for  contribution  under CERCLA and
Texas state law involving approximately 15 parties alleged to be responsible for
remediation of a railroad property adjacent to the site.

Asbestos Litigation

While no one personal  injury  action is exactly like any other,  the  following
three  pending  lawsuits  are  typical  of  those in  which  employees  of other
companies  allege death or injury  resulting  from alleged  exposure to asbestos
fiber  supplied  by Lac  d'Amiante  du  Quebec,  Ltee  ("LAQ"),  a  wholly-owned
subsidiary, and other suppliers to their employers' manufacturing operations:

1) In  Pogorzelski,  et al. v. Amtorg Trading  Corporation,  et al.,  Docket No.
L-12274-91,  pending since October 31, 1991 in the Superior Court of New Jersey,
Middlesex  County,  19 primary and 8 secondary  plaintiffs sued LAQ and 25 other
defendants  that  allegedly  supplied  asbestos  fiber  or  asbestos  containing
products to  Johns-Manville's  Manville,  New Jersey  facility  for  substantial
compensatory and punitive damages for death or injuries allegedly resulting from
the  primary  plaintiffs'  exposure to  asbestos  fiber  while  employed at that
facility. The claims of seven of the primary plaintiffs were dismissed as to LAQ
in 1992. The plaintiffs  allege a broad range of respiratory  and other injuries
including  disabling  lung  changes,   asbestosis,   cancer,  and  mesothelioma.
Liability  is alleged on theories  of strict  liability,  negligence,  breach of
warranty,  misrepresentation,  ultra hazardous activity and conduct, conspiracy,
concert  of  action,  market  share or  enterprise  liability,  and  alternative
liability.  The thrust of the complaint is that the defendants,  individually or
collectively,  failed to warn the primary  plaintiffs  of the  possible  hazards
associated  with  inhalation  of asbestos  fibers  while  working  with or being
exposed to such fibers.

2) In Darlene  Turner and Patricia  Foret,  Individually  and on Behalf of Their
Father,  Robert Foret, Sr. v. Raymond Plauche,  etc., et al., Case No. 94-13057,
pending  since  August 24,  1994 in the Civil  District  Court for the Parish of
Orleans  of the State of  Louisiana,  the heirs of Mr.  Foret sued LAQ and three
other defendants that allegedly  supplied asbestos fiber or asbestos  containing
products  to the  National  Gypsum  plant  in New  Orleans,  Louisiana.  A fifth
defendant was an officer of National Gypsum that plaintiffs allege was negligent
in not  providing  Mr.  Foret with a safe  place to work.  The  plaintiffs  seek
substantial  compensatory  and punitive  damages for Mr. Foret's death from lung
cancer and other diseases that allegedly  resulted from his exposure to asbestos
fiber while employed at National Gypsum.



<PAGE>


A25

3) In Haines v. Aetna Casualty Co., et al., Docket No. L-5918-95,  pending since
July 13, 1995 in the Superior Court of New Jersey,  Camden  County,  one primary
and one secondary  plaintiff  sued LAQ and six other  defendants  that allegedly
supplied asbestos fiber or asbestos containing products to New York Shipbuilding
& Drydock Co. in Chester,  Pennsylvania and  Owens-Corning  Fiberglas in Berlin,
New Jersey. The plaintiffs demand substantial  compensatory and punitive damages
for asbestosis allegedly resulting from primary plaintiff's exposure to asbestos
fiber while employed at these facilities.

In addition to these personal  injury lawsuits  arising out of alleged  asbestos
exposure  to  employees  of  other  companies  using  asbestos  fiber  in  their
manufacturing  operations,  included in the asbestos product liability  lawsuits
pending against LAQ and Asarco are numerous lawsuits arising from products (such
as insulation and brake linings)  manufactured by others.  These cases typically
allege a failure  to warn of  possible  health  hazards  associated  with  those
products and proceed on theories  similar to those  asserted in the  Pogorzelski
case.  In many  such  cases  LAQ and  Asarco,  having  never  manufactured  such
products,  have  obtained  dismissals.  Typical of lawsuits in which  plaintiffs
allege asbestos exposure due to products manufactured by others are:

1) Tronlone  v.  Garlock,  Inc.,  et al.,  Index No.  95-120163,  pending  since
September  8,  1995 in the  Supreme  Court of the  State of New  York,  New York
County,  in which the  executrix  for the decedent Mr.  Tronlone sued LAQ and 22
other  defendants  that  allegedly  supplied  asbestos and  products  containing
asbestos to his employers.  The plaintiff demands  substantial  compensatory and
punitive  damages  for Mr.  Tronlone's  death  from  unspecified  injuries  that
allegedly resulted from his exposure to asbestos.
The thrust of the complaint is similar to the Pogorzelski case.

2) Roger Adkins et al. v. Owens Corning  Fiberglas  Corporation,  et al.,  Civil
Action Nos.  95-C-3049 to  95-C-3064,  95-C-3138  and  95-C-3139,  pending since
November 3, 1995 in the Circuit Court of Kanawha County, West Virginia, in which
eighteen primary and fourteen secondary plaintiffs sued LAQ, Asarco and 33 other
defendants that allegedly supplied asbestos and products  containing asbestos to
the  primary   plaintiffs'   employers.   The  plaintiffs   demand   substantial
compensatory  and punitive damages for injuries  allegedly  resulting from their
exposure to asbestos.  The thrust of the complaint is similar to the Pogorzelski
case.

3) Aaron, et al. v. Abex Corporation,  et al., Case No. 94-C2110,  pending since
March 14, 1995 in the District Court of Brazoria  County,  Texas,  23rd Judicial
District,  in which 2,700 primary plaintiffs and 1,021 secondary plaintiffs sued
Asarco, its wholly-owned  subsidiary Capco Pipe Company,  Inc. ("Capco") and 184
other  defendants  that  either  owned the  premises  where some of the  primary
plaintiffs  worked,  or that provided  workers  compensation  or other insurance
coverage to various of the manufacturers named as defendants,  or that allegedly
supplied asbestos and products  containing  asbestos to the primary  plaintiffs'
employers.  The claims of 1,254 of the primary  plaintiffs  were dismissed as to
Asarco  and Capco  during  December  1996.  The  plaintiffs  demand  substantial
compensatory  and punitive damages for injuries  allegedly  resulting from their
exposure to asbestos.  The thrust of the complaint is similar to the Pogorzelski
case.

The Malvaso v. Owens Corning  Fiberglas  Corporation,  et al., case described in
Item 3 of Asarco's  1995 Form 10-K was  dismissed as to LAQ and Asarco on August
15, 1996. As of December 31, 1996,  Capco was a defendant in 29 cases brought by
1,548 primary plaintiffs.

In 1991, the Judicial Panel on Multidistrict Litigation transferred all asbestos
cases pending in federal court to a multi-district litigation ("MDL 875") in the
United  States  District  Court for the  Eastern  District of  Pennsylvania  for
coordinated   and   consolidated   pretrial   proceedings.    Cases   containing
approximately  five  percent of LAQ's  primary  plaintiffs  are affected by this
action.



<PAGE>


A26

During January 1996, LAQ and nine former managerial and supervisory employees of
Capco  were sued in two  separate  state  court  actions in Alabama by 53 former
Capco  employees  seeking  substantial  compensatory  and  punitive  damages for
injuries  and death  allegedly  caused by  workplace  exposure  to  asbestos  on
theories of product  liability and negligence.  Since that time eight additional
former  Capco  employees  have  been  added to the  litigation  through  amended
complaints.

On March 3, 1996, Asarco was served with a complaint in a purported class action
filed in state court in West Virginia  that also names as defendants  LAQ and 49
other  companies.  The action is allegedly  brought on behalf of a class of over
50,000  persons who were exposed to asbestos at West Virginia work sites and who
are  allegedly  at  increased  risk of  developing  cancer.  The case  seeks the
establishment of a medical monitoring fund. The case was subsequently removed to
federal court by three of the defendants  and was thereafter  transferred to MDL
875.  The Company and LAQ intend to oppose the  lawsuit.  Additionally,  in June
1995,  Capco was served with a complaint  in a purported  class  action filed in
Illinois  state court in Cook County that also names 139 other  defendants.  The
class  action is allegedly  brought on behalf of a  nationwide  class of persons
claiming to be at an increased risk of developing asbestos-related diseases as a
result of asbestos exposure.  Capco and nearly all the other defendants moved to
dismiss the case,  and their  motions were granted by the court in October 1996.
An appeal has been filed by plaintiffs.

On February 25, 1997, LAQ was served with a complaint in Ohio state court naming
63  defendants  in a purported  class action  filed  allegedly on behalf of over
50,000   persons   who   claim  to  have  an   increased   risk  of   developing
asbestos-related diseases, and who fear they will contract cancer as a result of
their exposure to asbestos or asbestos-containing end products while employed at
Ohio worksites. The complaint seeks damages and a medical monitoring fund.

As of December 31, 1996,  LAQ,  Asarco and Capco have settled or been  dismissed
from a total of approximately 6,414 asbestos personal injury lawsuits brought by
approximately 82,766 primary and 52,749 secondary plaintiffs.

With  respect  to  the  actions  relating  to  asbestos-containing  products  in
structures  reported in Note 8  Contingencies  and  Litigation  to the Financial
Statements, the following supplemental information is provided:

As of December 31, 1996,  there was only one such action pending  against LAQ, a
purported  statewide class action  involving public buildings in cities in which
substantial compensatory and punitive damages were sought. On February 26, 1997,
the Court  dismissed  the  action  against  LAQ and all other  defendants.  This
dismissal  is subject to appeal.  LAQ has settled five and been  dismissed  from
another 82 actions involving  asbestos in structures.  Asarco has been dismissed
from all twelve actions in which it has been named.

SPCC Litigation

Reference is made to the lawsuit  against a subsidiary  of Southern  Peru Copper
Corporation ("SPCC"),  the Company and others,  brought in September 1995 by 698
Peruvian  plaintiffs for personal injury and property damage allegedly caused by
the  operations  of a  subsidiary  of SPCC,  reported in the  Contingencies  and
Litigation Note to the Financial Statements.  In February 1996, plaintiffs filed
a notice of appeal from the United States  District  Court order  dismissing the
complaint and from an earlier order of that court denying  plaintiffs' motion to
remand the case to state court.  The U.S. Court of Appeals for the Fifth Circuit
heard  argument  on the appeal on  December  5, 1996.  A decision is expected in
1997.



<PAGE>


A27

Environmental Litigation

In 1991,  ARCO  Incorporated  ("ARCO")  filed suit in  federal  court in Montana
against  Montana  Resources  and its partners,  including  Asarco and one of its
subsidiaries,  alleging breach of contract resulting from defendants' failure to
reclaim  contaminated  water in an  inactive  mining pit (the  Berkeley  Pit) at
partnership-owned   property  in  Butte,   Montana.   ARCO's   demands   include
compensation  for study costs under  CERCLA  with  respect to such water,  and a
determination  that  defendants are  responsible for reclamation of the pit. The
defendants  assert  that ARCO is  responsible  for such  CERCLA and  reclamation
costs.

In 1993,  the Mayor of Tacna,  Peru  brought a  lawsuit  against  Southern  Peru
Limited, an indirect subsidiary of the Company,  seeking $100 million in damages
from alleged harmful  disposition of tailings,  slag, and smelter emissions.  In
1994,  the First Civil Court of Tacna  dismissed  the  complaint.  The plaintiff
appealed and in 1994,  the Superior  Court of Tacna  reversed the lower  court's
decision and remanded the case for further proceedings. In March 1995, the trial
court dismissed the complaint on the ground that the plaintiff lacks standing to
bring the action.  The  plaintiff  appealed  this  dismissal.  In May 1996,  the
Superior  Court of Tacna  affirmed  the  lower  court's  dismissal.  The case is
currently  on appeal  before the Supreme  Court,  which may grant  discretionary
review on limited issues in exceptional cases.

In 1992,  the owner of a property  leased by a subsidiary  of the Company  filed
suit in New Jersey state court in Essex County seeking declaratory  judgment and
compensatory  and  punitive  damages for alleged  contamination  of the property
during the lease term by the  subsidiary  and others.  Settlement of this action
was concluded in November 1996 and the suit was dismissed with prejudice.

In June 1996, the Company was sued in state court in Salt Lake City,  Utah along
with numerous other companies alleged to have been engaged in mining or smelting
in the Bingham Canyon area of Utah.  Plaintiffs,  thirty-six individuals alleged
to be members of four  families  that  resided in homes  located in the historic
flood plains of the Bingham Creek,  seek  compensatory  and punitive damages for
personal injury,  fear of cancer and wrongful death allegedly caused by exposure
to toxic wastes including arsenic, lead and cadmium, from the defendants' mining
and smelting activities in the area.

In 1995,  the  Company  was sued in  federal  court in Tacoma,  Washington  by a
retirement home with 200 residents and 21 acres of property  seeking damages for
diminution of property value,  response costs and attorneys'  fees. In September
1996, the suit was dismissed on the grounds that  plaintiffs  claims were barred
by lack of subject matter jurisdiction,  lack of actual and substantial damages,
or by the applicable statute of limitations. In October 1996, a notice of appeal
was filed by plaintiff.

Other Litigation

In 1989, a lawsuit was filed in state court in Butte,  Montana by Montana Mining
Properties ("MMP") which claims to have had a contractual first right of refusal
on the 49.9 percent  interest in the Montana  copper mining  business of Montana
Resources,  Inc. that was sold to Asarco in 1989.  MMP sought an injunction  and
compensatory and punitive damages from Asarco for alleged tortious  interference
with its  contract  with  Montana  Resources,  Inc. In 1994,  the court  granted
summary judgment in favor of defendants,  including Asarco.  On appeal,  summary
judgment was reversed in 1995, and the case was remanded for further proceedings
against all defendants other than Asarco.



<PAGE>


A28

In June  1993,  the  Company  was  sued by two of its  liability  insurers,  the
Insurance  Company of North America and California Union Insurance  Company,  in
state court in New  Brunswick,  New Jersey for a  declaration  that the insurers
have no insurance obligation for environmental  matters for which the Company is
seeking coverage. The plaintiff insurance companies also included Asarco's other
liability  insurers in the  lawsuit,  and those  insurers  have  sought  similar
declaratory  relief.  Asarco has filed cross  claims and  counterclaims  in this
lawsuit seeking a court declaration that insurance coverage of its environmental
matters does exist. The Company has settled with certain of these insurers,  and
in January 1997 summary judgment dismissing Asarco's claims was granted in favor
of most other insurers.  The litigation  continues as to the remaining  insurers
and the Company intends to appeal the granting of summary judgment.

Opinion of Management

The  opinion  of  management  regarding  the  outcome of legal  proceedings  and
environmental contingencies,  set forth in the Contingencies and Litigation Note
(Note 8) to the  Financial  Statements,  is based  on  considerations  including
experience  relating to previous court judgments and settlements and remediation
costs and  terms.  The  financial  viability  of other  potentially  responsible
parties has been considered when relevant and no credit has been assumed for any
potential   insurance   recoveries   when   availability  of  insurance  is  not
established.   The  Company   considered  such  factors  in   establishing   its
environmental  reserve in December of 1990 and in determining  modifications  to
its reserve in 1991, 1992, 1993, 1994, and 1995.

See also  Item 1,  "Environmental,  Safety  and  Health  Matters,"  for  further
information  concerning  pending legal or administrative  proceedings  involving
Asarco.


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

None.


<PAGE>


A29

EXECUTIVE OFFICERS OF ASARCO AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
                           (As of February 28, 1997)
<TABLE>
<CAPTION>
                                                                                                                       Officer
Name                                      Office and Experience                                                 Age     Since
----                                      ---------------------                                                 ---     -----
<S>                                  <C>               <C>                                                   <C>     <C>
Richard de J. Osborne                     1992-1997    Chairman of the Board, President                          62        1975
                                                         and Chief Executive Officer

Francis R. McAllister                     1993-1997    Executive Vice President, Copper                          54        1978
                                                         Operations
                                          1992-1993    Executive Vice President, Finance
                                                         and Administration and Chief
                                                         Financial Officer

Augustus B. Kinsolving                    1996-1997    Vice President and General Counsel                        57        1983
                                          1992-1995    Vice President, General Counsel
                                                         and Secretary

Kevin R. Morano                           1993-1997    Vice President, Finance and Chief                         43        1993
                                                         Financial Officer
                                          1992-1993    General Manager, Ray Complex

Robert J. Muth                            1992-1997    Vice President, Government and                            63        1977
                                                         Public Affairs

Robert M. Novotny                         1993-1997    Vice President, Lead, Zinc,                               48        1988
                                                         Silver and Mineral Operations
                                          1992-1993    Vice President, Operations

William L. Paul                                1997    Vice President, Commercial                                46        1996
                                          1993-1996    Manager, Omaha Plant
                                               1992    Executive Vice President and Chief Operating
                                                       Officer - Boliden Sulex

Gerald D. Van Voorhis                     1992-1997    Vice President, Exploration                               58        1992

Michael O. Varner                         1993-1997    Vice President, Environmental                             55        1993
                                                         Operations
                                          1992-1993    General Manager, Western Metals

David B. Woodbury                         1993-1997    Vice President, Human Resources                           56        1993
                                          1992-1993    Vice President, Human Resources
                                                         - Ferro Corporation

Robert Ferri                              1995-1997    Secretary                                                 49        1995
                                          1992-1995    Associate General Counsel

William Dowd                              1995-1997    Controller                                                47        1995
                                          1992-1995    Assistant Controller

Thomas J. Findley, Jr.                    1992-1997    Treasurer                                                 49        1991

James L. Wiers                            1992-1997    General Auditor                                           52        1987

</TABLE>


<PAGE>


A30
                                                                 PART II
Item 5 - Market for Registrant's Common Stock and Related Stockholder Matters

At December  31,  1996,  there were 8,234  common  stockholders  of record.  The
principal  market for Asarco's Common Stock is the New York Stock Exchange.  The
Stock Exchange symbol for Asarco's common stock is AR. High and low stock prices
and dividends for last two years were:
<TABLE>
<CAPTION>
                                                 1996                                                1995
                                                 ----                                                ----
QUARTERS                    1st        2nd       3rd        4th       Year       1st       2nd        3rd       4th       Year
                            ---        ---       ---        ---       ----       ---       ---        ---       ---       ----
<S>                      <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Dividends paid
 per common share               .20       .20        .20       .20        .80       .10        .20       .20        .20       .70

Stock market price:
      High                   35-1/4    35-7/8     27-7/8        28     35-7/8    30-3/8     31-1/8    36-1/2     35-7/8    36-1/2
      Low                    27-1/2    27-5/8     23-3/4    24-1/8     23-3/4    24-3/8     25-3/8    30-1/4     29-3/8    24-3/8
</TABLE>
Item 6 - Selected Financial Data

FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA (in millions, except per share
and employee data)
<TABLE>
<CAPTION>
                                                         1996           1995(c)          1994       1993              1992
                                                         ----           ----             ----       ----              ----
<S>                                                 <C>             <C>             <C>             <C>               <C>
Consolidated Statement of Earnings
Net sales                                               $2,697          $3,198          $2,032            $1,736          $1,908
Operating income (loss)                                     303(a)          487(d)           18(e)           (110)(g)        (42)(i)
Earnings (loss) before equity earnings and
  cumulative effect of change in accounting
  principles                                               134             167              16                (98)           (32)
Equity earnings                                              4               2              48                27               3
Net earnings (loss)                                        138(b)          169              64(f)             16(h)          (83)
Net earnings (loss) per share                           $ 3.24          $ 4.00          $ 1.53            $ 0.38          $(2.01)
Dividends to common stockholders per share
                                                        $ 0.80          $ 0.70          $ 0.40            $ 0.50          $ 0.80

Consolidated Statement of Cash Flows
Cash provided from (used for)
 operating activities                                        $  267          $  489         $  (10)       $   39           $  106
Dividends to common stockholders                            34              30              17                21               33
Capital expenditures                                       286             338              98               112              135
Depreciation and depletion                                 119             119              83                81               87

Consolidated Balance Sheet
Total assets                                            $4,120          $4,327          $3,291            $3,153           $2,946
Inventories - replacement cost in excess of LIFO
  inventory costs                                          115             137             143               114              125
Total debt                                                 814           1,122             933               901              869
Common stockholders' equity                              1,737           1,707           1,517             1,472            1,357

Common Stock
Common shares outstanding                                    42.8             42.6           42.1               41.7            41.5
Price-high                                                $35-7/8         $36-1/2         $34-7/8           $28-5/8          $31-3/8
     -low                                                 $23-3/4         $24-3/8         $21-3/8           $16-5/8          $19-7/8
Book value per common share                                $40.56          $40.11          $36.04            $35.27           $32.74
Price/Earnings ratio                                         7.68            8.01           18.65             60.92                -
Dividends to common stockholders as a percent of
  earnings                                                  24.7%           17.5%           26.2%            133.2%                -

Financial Ratios
Current assets to current liabilities
                                                              1.8             1.9             1.6               1.5              1.6
Debt as a % of capitalization                               26.7%           34.1%           38.1%             38.0%            39.0%

Employees (at year-end)                                    11,800          12,200           8,000             8,500            8,900
</TABLE>


<PAGE>


A31

Notes to Selected Financial Data

(a)   Includes a $15.0 million  pre-tax  charge ($72.0 million in charges offset
      by $57.0  million  in  insurance  settlements  and other  recoveries)  for
      environmental and closed plant liabilities
(b)   Includes a $60.1  pre-tax  gain from the sale of the  Company's  remaining
      interest in MIM and a $11.1  pre-tax  gain from the sale of a 25% interest
      in the Company's Silver Bell project.
(c)   On April 5, 1995,  the Company  acquired an additional  10.7%  interest in
      Southern  Peru  Copper   Corporation  (SPCC)  for  $116.4  increasing  its
      ownership from 52.3% to 63%. The additional  shares  acquired  enabled the
      Company to elect a majority of the  directors  of SPCC.  As a result,  the
      Company has  consolidated  SPCC in its financial  statements  based on its
      52.3% ownership,  effective January 1, 1995, and 63% ownership,  effective
      April 5, 1995. The Company previously accounted for its investment in SPCC
      by the equity method.
(d)   Includes  a $139.4  pre-tax  charge to add to the  Company's  reserve  for
      environmental matters, to provide for asset impairments and plant closures
      and to writedown certain in-process inventory to net realizable value.
(e)   Includes  a $65.5  pre-tax  charge  to add to the  Company's  reserve  for
      environmental matters and $2.8 of LIFO profits.
(f)   Includes a $58.5  pre-tax  gain from the sale of the  Company's  remaining
      interest in Asarco Australia Limited.
(g)   Includes a $37.6 pre-tax  provision for the valuation of  inventories  and
      additions to reserves for closed plants,  $9.2 of LIFO profits and $8.2 of
      previously unrecognized losses of Nor Peru.
(h)   Includes  $26.4 (net of taxes of $0.4) of previously  unrecognized  equity
      earnings  of SPCC and $86.3 as the  result of the  cumulative  effect of a
      change in accounting principle at SPCC.
(i)   Includes a $84.4 pre-tax provision for  environmental  matters and a $31.9
      pre-tax provision to reduce the carrying value of certain facilities.

Item  7 -  Management's  Discussion  and  Analysis of  Financial  Condition  and
           Results of Operations

Asarco reported 1996 net earnings of $138.3 million or $3.24 per share.  Results
for 1996 include an after-tax gain of $39.0 million ($60.1 million pre-tax) from
the  sale of the  Company's  interest  in  M.I.M.  Holdings  Limited  (MIM),  an
Australian  based  mining  company,  and a $7.2  million  after-tax  gain ($11.1
million  pre-tax) from the sale of a 25% interest in the  Company's  Silver Bell
project.

Net  earnings  in  1995  and  1994  were  $169.2   million  and  $64.0  million,
respectively.  Net earnings in 1995 included a special after-tax charge of $79.5
million  ($122.3  million  pre-tax)  related to the termination of lead refining
operations at the Company's  Omaha,  Nebraska  plant,  adoption of an accounting
principle  regarding the impairment of long-lived  assets,  and additions to the
Company's  reserve for costs  associated  with  previously  closed  plants.  Net
earnings in 1994  included an after-tax  gain of $31.9  million  ($58.5  million
pre-tax) on the sale of Asarco Australia Limited (Asarco  Australia) and a $30.7
million  after-tax  ($51.2  million  pre-tax)  charge  to add  to the  Company's
environmental reserves.

The  Company's  earnings are heavily  influenced by the prices for its metals as
established on U.S. and international  commodity  exchanges.  The decline in the
average  price of copper in 1996 as compared with 1995 reduced the Company's net
earnings by an estimated $187.0 million.  The Company was able to offset some of
the  negative  effect of reduced  copper  prices  through  its price  protection
program,  operational  improvements and earnings  improvements in its non-metals
business segments.

Asarco's  beneficial  mined copper  production in 1996 reached  record levels as
production  grew over 13% from the  previous  year.  For the  first  time in its
history,  the Company's  beneficial interest in annual consolidated mined copper
production exceeded one billion pounds.  Consolidated copper production includes
the  Company's  beneficial  interest in the  production  of Southern Peru Copper
Corporation  (SPCC),  a 54.1% owned  subsidiary of the Company which operates in
Peru.  Production gains were recorded at both the Ray and Mission Arizona copper
mines in 1996.  In addition,  SPCC  increased its copper  production  nearly 22%
compared with 1995. SPCC's increased production in 1996 is largely the result of
a  full  year's  operation  of  its  solvent  extraction/electrowinning  (SX/EW)
facility which was placed in service in late 1995.


<PAGE>


A32

The Company is developing two new copper properties as well as expanding some of
its existing  properties.  In January 1996, the Company began construction of an
SX/EW plant at its Silver Bell mine in Arizona.  When completed in mid 1997, the
project,  in which Mitsui & Co. Ltd. has a 25% interest,  is expected to produce
36  million  pounds of  refined  copper  annually.  The Minto  mine in the Yukon
Territory of Canada is also currently in development. The Minto mine is expected
to  produce  27  million  pounds of  copper  and 10  thousand  ounces of gold in
concentrate  annually when  production  begins in 1998. The Company has an 84.3%
interest  in the Minto  Project.  SPCC has also  announced a  modernization  and
expansion  plan.  The plan includes an expansion of its Cuajone mine to increase
its annual copper  production by 19% or 130 million pounds and the modernization
of the Ilo smelter which will increase capacity and modernize facilities to meet
current international environmental guidelines.  Engineering work is in progress
on these projects and SPCC is currently arranging long-term financing.

The Company's  earnings for 1996 benefited  significantly  from its copper price
protection  program.  The  Company,  including  its  interest  in  SPCC,  either
exercised or sold put options covering  approximately  447 million pounds of its
1996 and 1997 copper  production.  As a result,  in 1996 the Company  recognized
pre-tax gains of $28.5 million  (including its proportionate  interest in SPCC's
gain of $11.1 million).  A further pre-tax gain of $17.3 million  (including the
Company's  proportionate  interest  in  SPCC's  gain  of $5.6  million)  will be
recognized  in 1997 as copper  production  originally  covered by put options is
sold.

The Company's  specialty  chemicals and  aggregates  businesses  both had record
earnings in 1996.  Specialty  chemicals had pre-tax  profits of $24.2 million in
1996 with especially strong performance in its international operations. Pre-tax
profits from the Company's aggregates business reached $10.1 million in 1996, an
increase  of 17%  compared  with  1995.  Both  businesses  benefited  from sales
increases as well as effective cost management.  Development of these businesses
has been part of the Company's strategy to develop sources of earnings unrelated
to the cycles of its metals business.

In 1996,  the Company sold its investment in MIM and used the proceeds to reduce
debt.  At year end,  the  Company's  debt as a percentage  of total  capital was
26.7%,  close to the long term goal of 25%. In  addition,  the  Company  reached
settlements  with two of its  insurance  carriers to reimburse the Company $42.3
million  for  environmental  expenditures.  By year end,  $36.1  million  of the
settlements  had been  received.  During  1996,  additional  ore  reserves  were
identified at the Company's  Mission  copper mine and at SPCC further  expanding
the Company's ore reserve position.

In April 1995,  the Company  acquired an additional  10.7%  interest in SPCC and
consolidated  SPCC's results in its financial  statements  effective  January 1,
1995.  The  Company's  ownership  of SPCC was  52.3% at  January  1,  1995,  and
increased to 63.0% effective April 5, 1995. The Company had previously accounted
for its investment in SPCC by the equity method.  In November 1995, SPCC offered
to exchange new common shares for labor shares issued by its Peruvian  Branch to
workers  under prior law in Peru.  These labor  shares,  which are traded on the
Lima Stock  Exchange,  represented a 17.3% interest in the Peruvian Branch which
comprises  substantially  all of the  operations of SPCC in Peru.  The offer was
concluded  in  December  1995,  with 80.8% of the labor  shares  tendered.  As a
result,  SPCC owned 96.7% of the Branch at December  31,  1995.  At December 31,
1996,  SPCC owned  97.2% of the Branch as a result of open market  purchases  of
labor  shares.  The Company's  equity  interest in SPCC at December 31, 1996 and
1995 was 54.1% and 54.0%,  respectively,  and its voting interest were 62.6% and
61.0%,   respectively.   The  Company's  beneficial  economic  interest  in  the
operations of SPCC, net of the remaining  labor shares  interest,  was 52.6% and
52.3% at December 31, 1996 and 1995, respectively.



<PAGE>


A33

In 1995, the Company  decided not to make a $40 million  investment  which would
have been required to meet State and EPA environmental requirements at its Omaha
refinery.  As a result, the Company terminated lead refining operations at Omaha
in June 1996.  The special  charges  taken in 1995 included the write-off of the
remaining book value of the assets at Omaha, a provision for severance and legal
expenses,  expected cleanup and demolition costs associated with the termination
of lead refining operations and the writedown of certain in-process inventory to
net realizable value.

Net  earnings in 1994  included  $44.9  million in net equity  earnings of SPCC.
SPCC's  earnings  benefited  from a $12.4 million  after-tax gain on the sale of
certain investments in Peru and a reduction in Peruvian income tax rates.

Sales:  Sales in 1996 were $2.7 billion,  compared with $3.2 billion in 1995 and
$2.0  billion  in 1994.  The  decrease  in 1996  sales  compared  with  1995 was
principally  attributable to a 29 cent reduction in the average selling price of
copper partially offset by higher sales volumes. The higher sales volume in 1996
was mainly due to a full year of sales of production from SPCC's SX/EW plant and
higher  copper  concentrate  sales  partially  offset by lower  sales due to the
termination of refining operations at the Omaha, Nebraska refinery. The increase
in 1995 sales over 1994  mainly  reflected  the  consolidation  of SPCC  ($881.5
million),   higher  copper  prices  ($285.4  million)  and  increased  specialty
chemicals sales offset by lower copper sales volumes.

Price/volume data:
<TABLE>
<CAPTION>
    Average Metal Prices                                             1996               1995               1994
    --------------------                                             ----               ----               ----
    <S>                                                   <C>                <C>                <C>
    Copper (per pound - COMEX)                                    $  1.06            $  1.35           $   1.07
    Copper (per pound - LME)                                         1.04               1.33               1.05
    Lead (per pound - LME)                                           0.35               0.29               0.25
    Silver (per ounce - Handy & Harman)                              5.18               5.19               5.28
    Zinc (per pound - LME) (1)                                       0.47               0.47               0.45
    Molybdenum (per pound - Metals
                   Week Dealer Oxide)(1)                             3.61               7.42               4.50


    Metal Sales Volume  (see note)                                   1996               1995               1994
    ------------------                                               ----               ----               ----
    Copper     (000s pounds)
      Asarco                                                     1,092,900          1,006,800          1,078,800
      SPCC                                                         694,300            646,600            653,200
      Consolidated                                               1,787,200          1,653,400          1,078,800

      Asarco Beneficial Interest                                 1,456,700          1,332,600          1,360,600

    Lead       (000s pounds)
      Asarco                                                       295,800            394,000            397,000

    Silver     (000s ounces)
      Asarco                                                        26,628             38,086             33,320
      SPCC                                                           3,110              3,761              3,184
      Consolidated                                                  29,738             41,847             33,320

      Asarco Beneficial Interest                                    28,257             39,987             34,694

    Zinc       (000s pounds) (1)
      Asarco                                                       200,456            240,230            265,410

    Molybdenum (000s pounds) (1)
      Asarco                                                         6,470              5,686              3,690
      SPCC                                                           8,813              8,402              5,698
      Consolidated                                                  15,283             14,087              3,690

      Asarco Beneficial Interest                                    11,088              9,896              6,150

         Note:    SPCC presented at 100%.  Asarco consolidated SPCC effective January 1, 1995.  Asarco's beneficial interest in
                  SPCC was 52.6% at December 31, 1996, 52.3% at December 31, 1995 and 43.2% at December 31, 1994. Consolidated
                  sales volume for 1994 does not include SPCC.

</TABLE>

<PAGE>


A34

         (1)      The Company's  zinc and  molybdenum  production is sold in the
                  form of  concentrates.  Volume  represents  pounds of zinc and
                  molybdenum metal contained in those concentrates.

Substantially  all of the  Company's  copper and most of its lead  production is
sold under  annual  contracts.  To the extent not sold under  annual  contracts,
production can be sold on commodity  exchanges or to merchants or consumers on a
spot sale  basis.  The  Company's  zinc  production  and a  portion  of its lead
production is sold in the form of  intermediate  products under contracts of one
to three  years  duration.  Silver is sold under  monthly  contracts  or in spot
sales.  Except for some consolidated  subsidiaries,  primarily SPCC, metal sales
prices are based on the average of prevailing commodity prices for the scheduled
month of delivery  or shipment  according  to the terms of the  contracts.  SPCC
revenues  represent the invoiced value of products  shipped to customers.  Price
estimates  used for  provisionally  priced  shipments are based on  management's
judgment of the current price level,  which is  susceptible to change during the
settlement period.

Financial Instruments: Depending on the market fundamentals of a metal and other
conditions,  the Company may purchase  put options or  synthetic  put options to
reduce or eliminate  the risk of metal price  declines  below the option  strike
price on a portion of its anticipated future  production.  Put options purchased
by the Company  establish a minimum  sales price for the  production  covered by
such put options and permit the Company to participate in price  increases above
the option  price.  Synthetic put options are  established  by purchasing a call
option and entering  into a forward  sale for the same  quantity of metal at the
same price and for the same time period as the call option.  The cost of options
is amortized on a straight-line basis during the period in which the options are
exercisable.  Depending  upon  market  conditions,  the  Company may either sell
options it holds or exercise  the options at maturity.  Gains or losses,  net of
unamortized  acquisition  costs,  are  recognized  in the  period  in which  the
underlying hedged production is sold. The Company also uses futures contracts to
hedge the effect of price changes on a portion of the metals it sells. Gains and
losses  on  hedge  contracts  are  reported  as a  component  of the  underlying
transaction.

The Company's  beneficial interest,  which includes the Company's  proportionate
interest  in the  pre-tax  gain of SPCC,  from  1996  copper  option  sales  and
exercises was $45.8 million of which $28.5 million was  recognized in 1996.  The
remaining  $17.3  million  will  be  recognized  in  1997  when  the  underlying
production  is sold.  Copper put  options  with a cost of $2.2  million  expired
during the first six months of 1996.

As part of its price  protection  program,  the  Company may use  synthetic  put
options which consist of a call option and a forward sale.  Each  component of a
synthetic put option may be purchased or sold at different times. In those cases
where the forward sale  component  has not been entered into or has been offset,
call options purchased are accounted for as trading  activities and the carrying
values of such call options are marked to market and any related adjustments are
recorded in earnings.

At December 31, 1996, the Company held copper call options covering an aggregate
of 149.5 million  pounds of copper,  a portion of which are  exercisable in each
quarter  of 1997 at an  average  strike  price of $1.04  and zinc  call  options
covering an aggregate of 21.8 million pounds, one-third of which are exercisable
in each of the last  three  quarters  of 1997 at an average  strike  price of 52
cents.  The  carrying  value of the copper and zinc call options at December 31,
1996 was $3.7 million and $0.3 million, respectively.

The recognized pre-tax gains (losses) of the Company's metal hedging and trading
activities, were as follows:

<TABLE>
<CAPTION>
   For the years ending December 31,                          1996               1995                1994
                                                              ----               ----                ----
   (in millions)
   <S>                                                  <C>                <C>                <C>
   Metal
   -----
   Copper                                                     $ 26.9            $ (5.7)              $  3.2
   Zinc                                                        (0.1)              (0.1)                 1.8
   Silver                                                          -                0.5                 0.7
   Lead                                                          0.2              (0.3)                   -
                                                              ------            -------              ------
     Net Gain (Loss)                                          $ 27.0            $ (5.6)              $  5.7
                                                              ======            =======              ======
</TABLE>


<PAGE>


A35

The Company may enter into interest rate swap  agreements to limit the effect of
increases in the interest rates on any floating rate debt. The  differential  is
accrued as interest  rates  change and is recorded in interest  expense.  During
1995,  the Company  entered into three swap  agreements,  expiring 1998 to 2000,
with an  aggregate  notional  amount  of  $115.0  million.  The  effect of these
agreements is to limit the interest rate exposure to 6.6% on $100 million of the
Company's  revolving credit loans and 6.8% on its $15 million, 5 year term loan.
As a result of these swap  agreements  interest  expense was  increased  by $0.7
million in 1996 and $0.2 million in 1995.

Cost of Products and  Services:  Cost of products and services in 1996 were $2.1
billion  compared  with  $2.3  billion  in 1995 and $1.8  billion  in 1994.  The
decrease  in cost of sales in 1996  compared  with  1995 was  mainly  due to the
termination of refining operations at the Company's Omaha refinery. In addition,
higher  mine  concentrate  production  at  SPCC  in  1996  reduced  its  need to
supplement its production with higher cost outside concentrate purchases.

The increase in 1995 over 1994 reflected $421.1 million due to the consolidation
of SPCC, higher specialty chemicals costs due to increased sales volumes and the
write-down of certain  in-process  inventory to net realizable  value associated
with the termination of lead refining  operations at Omaha.  The higher price of
outside  copper  purchases in 1995 was  partially  offset by the lower volume of
such  purchases  as a result  of an  increase  in sales of  copper  mined by the
Company.

Other Expenses:  Selling,  administrative and other costs were $132.8 million in
1996,  $130.9  million in 1995 and $79.1  million in 1994.  The increase in 1995
over 1994 was  primarily  due to the  consolidation  of SPCC and higher  selling
expenses  related to the  specialty  chemicals  business.  Included in 1994 is a
recovery of $4.0 million from the settlement of litigation related to a bad debt
written-off in 1991.

Depreciation and depletion  expense was largely  unchanged in 1996 compared with
1995.  In 1996 a full year of  depreciation  of the SX/EW  plant at SPCC of $4.3
million  was  offset  by  lower  depreciation  on  domestic  Asarco  operations.
Depreciation and depletion  expense increased by $35.7 million in 1995 primarily
due to the consolidation of SPCC. The increase in research and exploration costs
year over year is mainly due to higher exploration spending on prospects located
in South America, principally in French Guiana.

At December 31, 1996,  the Company  applied the American  Institute of Certified
Public  Accountants:  Statement  of Position  96-1,  "Environmental  Remediation
Liabilities" (SOP 96-1), which provides  authoritative  accounting guidance with
regard to recognizing,  measuring and disclosing environmental liabilities.  The
Company  incurred  expenses of $15.0 million ($72.0 million in charges offset by
$57.0 million in insurance and other  recoveries) in 1996 for  environmental and
closed  plant  liabilities,  including  $10.0  million  for  the  effect  of the
application of SOP 96-1.  Environmental and other closed plant expenses incurred
in 1995 and 1994 were $76.3 million and $65.6 million respectively.

Nonoperating  Items:  Interest expense decreased $15.5 million in 1996 from 1995
due to lower  average  borrowing  requirements.  The  increase in 1995 over 1994
reflected  $13.9  million  due  to  the   consolidation  of  SPCC,  higher  debt
outstanding and higher interest rates on short term borrowing.

The increase in other income in 1995 reflected the  consolidation of SPCC net of
a pre-tax  loss of $4.0 million on the sale of the  Company's  stock in Nor Peru
and the sale of its Lone  Star Lead  Construction  business.  Included  in other
income are dividends  from MIM and interest  income earned by SPCC. The increase
in minority interests in 1995 reflects the consolidation of SPCC.



<PAGE>


A36

Taxes on Income:  The  Company's  effective tax rate is lower than the statutory
rate  primarily  because of the  percentage  depletion  and  dividends  received
deductions  which are  permitted  for tax  purposes.  The effective tax rate was
slightly  higher in 1996 compared with 1995  principally  due to the decrease in
the  percentage  depletion  deduction  as a result of lower mine  earnings.  The
Company's tax expense included substantial foreign taxes, primarily attributable
to SPCC's Peruvian Branch. Subject to certain limitations, these taxes have been
applied as credits to reduce U.S.  federal income tax otherwise due. The Company
has recorded a $168.2 million  benefit for tax net operating loss  carryforwards
at December 31,  1996.  The Company  believes  that these  carryforwards,  which
expire in years 2007  through  2010,  will reduce  future  federal  income taxes
otherwise  payable.  If  necessary,  the Company would  implement  available tax
planning  strategies,  including the sale of certain assets,  to realize the tax
benefit of the carryforwards. The effective tax rate was higher in 1995 compared
with  1994  primarily  due to the  consolidation  of SPCC.  Taxes  in 1994  were
affected  by a higher  gain for tax  purposes  on the sale of  shares  of Asarco
Australia,  as a result of  providing  taxes on earnings  previously  treated as
permanently reinvested while Asarco Australia was a consolidated subsidiary.

Equity  Earnings:  Equity  earnings  in 1994 are  principally  from  SPCC.  SPCC
contributed  $44.9 million of after-tax equity earnings in 1994. The Company has
consolidated SPCC in its financial statements effective January 1, 1995.

Asset Sales Program: In 1995 the Company substantially  completed its program to
divest certain  non-core  businesses.  The program was initiated in 1993.  Since
1993,  the Company  sold nine  businesses  or  operations  and raised a total of
approximately  $185  million  in  cash.  The  program  included  the sale of the
Company's interests in Nor Peru, Asarco Australia, PVC pipe, zinc oxide and Lone
Star Lead Construction businesses.

In the third  quarter  of 1995,  the  Company  recorded  a pre-tax  loss of $4.0
million  on the sale of its stock in Nor Peru,  which  owned  and  operated  the
Quiruvilca  mine in the northern part of Peru and the sale of its Lone Star Lead
Construction  business.  In addition, in the fourth quarter of 1995, the Company
sold its interest in two exploration  projects,  Aquarius in Canada and Aginskoe
in Kamchatka,  Russia, for approximately  $11.8 million,  and recorded a pre-tax
loss of $0.9 million ($0.6 million after-tax) on the sales.

In January  1994,  the  Company  sold its  remaining  45.3%  interest  in Asarco
Australia,  a gold  mining and  exploration  company,  for $79.5  million  which
resulted in a pre-tax gain of $58.5 million ($31.9 million  after-tax).  From an
original  investment  of $4  million in  exploration  at Asarco  Australia,  the
Company  received more than $106 million of cash.  Also in 1994 the Company sold
its PVC pipe and zinc oxide businesses and closed its asbestos pipe business.

Cash Flows - Operating  Activities:  Net cash provided from operating activities
was $267.3  million in 1996  compared  with $489.1  million in 1995 and net cash
used for operating  activities  of $9.8 million in 1994. In general,  lower cash
flow from operating  activities in 1996 compared with 1995 reflected  lower cash
earnings due to lower copper  prices.  Other cash used for operating  assets and
liabilities included payments by SPCC of income taxes and workers' participation
payments  accrued in 1995 and paid in 1996.  These  uses of cash were  partially
offset by proceeds  received on insurance  settlements  related to environmental
liabilities.

Cash from 1995 operating  activities as compared to 1994  reflected  higher cash
earnings due to the  consolidation  of SPCC's  earnings and higher copper prices
partially  offset  by $95.8  million  of  expenditures  for  closed  plants  and
environmental  matters  largely  at  the  Company's  former  Tacoma,  Washington
smelter.  Cash  provided  from  operating  assets  and  liabilities  in  1995 is
principally a result of lower inventory levels, higher receivables due to copper
prices and accrual of higher income taxes in 1995.

The use of operating cash in 1994 reflected the effect of higher metal prices on
trade  receivables and inventories  offset by trade payable financing of outside
material purchases.



<PAGE>


A37

Cash Flows - Investing  Activities:  Net cash provided from investing activities
was $93.8 million in 1996, compared with cash used of $296.8 million in 1995 and
$3.1  million in 1994.  The decrease in capital  expenditures  in 1996 from 1995
reflects the completion of construction on SPCC's SX/EW and sulfuric acid plants
in 1995. Other investing  activities in 1996 included the sale of MIM stock, the
sale of a 25% interest in the Company's  Silver Bell project,  and proceeds from
the maturity of held-to-maturity investments, primarily at SPCC.

The increase in capital expenditures in 1995 from 1994 reflects the construction
of the SX/EW and sulfuric  acid plants at SPCC.  Other  investing  activities in
1995 include the purchase of an additional 10.7% interest in SPCC, the effect of
consolidating SPCC's opening cash balance as of January 1, 1995, and the release
of restricted  cash. The release of restricted cash represents the withdrawal by
SPCC of funds deposited with the Central Reserve Bank of Peru under an agreement
pursuant to which SPCC agreed to use such funds in an  investment  program  over
five years from 1992 through 1996.

Investing  activities in 1994 include proceeds of $79.5 million from the sale of
Asarco Australia.

The  Company's  planned  capital  expenditures  in  1997  are  estimated  to  be
approximately $320 million.  Included in 1997 spending are expenditures  related
to the development of the Silver Bell project,  the Minto mine and the expansion
of SPCC's Cuajone mine.

Liquidity and Capital Resources: The Company has two revolving credit agreements
that  permit  borrowings  of up to $850  million.  At  December  31,  1996,  the
Company's  debt as a  percentage  of total  capitalization  (the  total of debt,
minority interests and equity) was 26.7%, compared with 34.1% at the end of 1995
and 38.1% at the end of 1994.  Consolidated  debt at the end of 1996,  including
the debt of SPCC,  none of which is  guaranteed by Asarco,  was $814.3  million,
compared with $1,121.9  million in 1995 and $933.1  million in 1994.  Additional
indebtedness  permitted  under  the  terms  of the  Company's  most  restrictive
agreements was $794.7 million at the end of 1996.

The decrease in debt in 1996  reflects the use of proceeds  from the sale of MIM
stock to repay a portion of the Company's revolving credit debt.

In early 1996,  the Company began  construction  of a new SX/EW  facility at its
Silver  Bell mine in  Arizona.  The SX/EW  facility  is  expected  to produce 36
million  pounds of refined  copper per year using leach mining  techniques.  The
Company  has  secured  operating  lease  financing  for  up to  $60  million  of
qualifying  costs of the  construction.  At December 31, 1996,  $36.8 million of
this financing has been spent on the project.  The Company has also  contributed
$13.2 million towards the  construction of the facility as of December 31, 1996.
The project,  expected to be  completed in July 1997,  will require an estimated
$20 million of  additional  expenditures.  The project is being  developed  with
Mitsui & Co., Ltd., which purchased a 25% interest in Silver Bell in early 1996.
The Company  has a 75%  interest  and will be the  manager  and  operator of the
project.

The Company has on file with the Securities and Exchange  Commission a universal
shelf registration  statement covering the future issuance of up to $300 million
in equity and debt  securities.  The  Company  has no  immediate  plans to issue
securities  and the  registration  is intended  to provide the Company  with the
flexibility to access the capital markets when appropriate.

In January 1996,  SPCC borrowed the remaining  balance ($47 million) under a $50
million loan  agreement  with Mitsui & Co.,  Ltd. at a rate of LIBOR plus 2.87%.
Certain  of SPCC's  loan  agreements  require  that some funds be held in escrow
accounts.  These funds are released  from escrow as scheduled  loan payments are
made.

In the  second  quarter  of  1995,  the  Company  sold  $150  million  of 8 1/2%
debentures  due May 1, 2025.  The Company used the  proceeds to repay  revolving
credit bank borrowings.  Borrowings  under the revolving credit  agreements were
used to fund  the  purchase  of an  additional  10.7%  interest  in SPCC and for
general corporate purposes.



<PAGE>


A38

Financing  activities  in 1995 also  included the  completion of a $15 million 5
year bank term loan at a rate of 6.8% used  primarily to prepay $13.5 million of
the Company's 8 3/4% pollution control revenue bonds at par value plus a premium
of 1.5%.  SPCC  prepaid  $77.0  million,  substantially  all of the  outstanding
balance, under its $115 million credit facility and borrowed $35 million under a
loan  agreement  with the  Export-Import  Bank of the  United  States at a fixed
interest  rate of 6.43% for use in its  capital  investment  program.  Financing
activities in the first quarter of 1994 included the prepayment of the Company's
9 3/4% Sinking Fund Debentures at par value plus a premium of 0.9%.

The Company's  consolidated  cash position at December 31, 1996 included  $173.2
million of cash held by SPCC.  The  Company  expects  that it will meet its cash
requirements in 1997 and beyond from internally  generated  funds,  cash on hand
and from  borrowings  under its revolving  credit  agreements or from additional
debt or equity financing.

Dividends and Capital Stock:  The Company paid dividends to common  stockholders
of $34.2 million, or 80 cents per share, in 1996, $29.6 million, or 70 cents per
share,  in 1995 and $16.8 million,  or 40 cents per share, in 1994. In addition,
SPCC paid  dividends of $58.3 million to minority  interests in 1996. At the end
of 1996,  the Company  had  42,824,000  common  shares  issued and  outstanding,
compared with 42,571,000 at the end of 1995 and 42,102,000 at the end of 1994.

Closed  Facilities  and  Environmental  Matters:  Reserves for closed plants and
environmental  matters  totaled $128.3 million at December 31, 1996. The Company
anticipates that  expenditures  relating to these reserves will be made over the
next several years. Net cash  expenditures  charged to these reserves were $54.1
million in 1996, $95.8 million in 1995 and $59.9 million in 1994.




<PAGE>


A39

Item 8 - Financial Statements and Supplementary Data

                              ASARCO Incorporated
                                and Subsidiaries
                       CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
<S>                                                             <C>                  <C>                   <C>
For the years ended December 31,                                         1996                  1995                  1994
                                                                         ----                  ----                  ----

Sales of products and services                                         $ 2,696,694           $ 3,197,753          $ 2,031,846
                                                                       -----------           -----------          -----------

Operating costs and expenses:
 Cost of products and services                                           2,089,305             2,313,194            1,765,927
 Selling, administrative and other                                         132,779               130,871               79,136
 Depreciation and depletion                                                118,569               118,827               83,097
 Research and exploration                                                   37,609                25,881               19,775
 Provision for asset impairments and plant closures                              -                45,564                    -
 Environmental and other closed plant charges, net of
    recoveries                                                              14,993                76,274               65,610
                                                                       -----------           -----------          -----------
Total operating costs and expenses                                       2,393,255             2,710,611            2,013,545
                                                                       -----------           -----------          -----------

Operating income                                                           303,439               487,142               18,301
Interest expense                                                          (76,442)              (91,954)             (62,529)
Other income                                                                24,599                24,136               12,281
Gain on sale of investments and other interests                             71,158                     -               58,512
                                                                       -----------           -----------          -----------
Earnings before taxes, minority interests and equity earnings              322,754               419,324               26,565
Taxes on income                                                             99,924               122,465                9,375
                                                                       -----------           -----------          -----------

Earnings before minority interests and equity earnings                     222,830               296,859               17,190
Minority interests in net earnings of consolidated
  subsidiaries                                                            (88,331)             (129,543)                (809)
Equity earnings, net of taxes of $648 in 1996, $451 in 1995
  and $4,863 in 1994                                                         3,837                 1,837               47,653
                                                                       -----------           -----------           ----------
Net earnings                                                           $   138,336           $   169,153           $   64,034
                                                                       ===========           ===========           ==========

Per share amounts:
  Net earnings                                                         $      3.24           $      4.00           $     1.53

  Dividends to common stockholders                                     $      0.80           $      0.70           $     0.40
  Weighted average number of shares outstanding                             42,711                42,326               41,905

</TABLE>
The accompanying notes are an integral part of these financial statements.



<PAGE>


A40
                              ASARCO Incorporated
                                and Subsidiaries
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Dollars in thousands)
At December 31,                                                                       1996                1995
                                                                                      ----                ----
<S>                                                                        <C>                  <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                       $   192,408         $   238,400
  Marketable securities                                                                 1,039              42,493
  Accounts receivable:
    Trade, net of allowance for doubtful accounts of $8,129 and $7,409                462,141             456,955
   Other                                                                               78,419              57,413
  Inventories                                                                         383,281             360,861
  Other assets                                                                         67,856              60,480
                                                                                   ----------          ----------
     Total current assets                                                           1,185,144           1,216,602
                                                                                   ----------           ---------
Investments:
  Available-for-sale and other cost                                                   442,707             822,152
  Equity                                                                               59,787              61,758
                                                                                   ----------          ----------
     Total investments                                                                502,494             883,910
                                                                                   ----------          ----------

Property, net                                                                       2,274,088           2,110,266
Other assets including intangibles, net                                               158,623             115,945
                                                                                  -----------         -----------
        Total Assets                                                              $ 4,120,349         $ 4,326,723
                                                                                  ===========         ===========

LIABILITIES
Current liabilities:
  Bank loans                                                                      $    15,913         $    29,451
  Current portion of long-term debt                                                    39,815              29,826
  Accounts payable:
    Trade                                                                             379,406             273,027
    Other                                                                              57,198              56,950
  Salaries and wages                                                                   32,427              33,815
  Taxes on income                                                                      57,695             103,282
  Reserve for closed plant and environmental matters                                   38,128              53,042
  Other                                                                                51,975              72,254
                                                                                   ----------          ----------
     Total current liabilities                                                        672,557             651,647
                                                                                   ----------          ----------

Long-term debt                                                                        758,583           1,062,588
Deferred income taxes                                                                 173,245             211,270
Reserve for closed plant and environmental
  matters                                                                              90,205              62,484
Postretirement benefit obligation                                                      99,945              95,125
Other liabilities and reserves                                                         93,163              72,225
                                                                                   ----------          ----------
     Total non-current liabilities                                                  1,215,141           1,503,692
                                                                                   ----------          ----------

Contingencies

MINORITY INTERESTS                                                                    495,706             463,900
                                                                                   ----------           ---------

PREFERRED STOCKHOLDERS' EQUITY
Authorized - 10,000,000 shares without par value; none issued
                                                                                            -                   -
COMMON STOCKHOLDERS' EQUITY
Authorized - 80,000,000 common shares without par value: Issued shares:
    1996 and 1995 - 45,039,878                                                        679,991             679,991
Unrealized gain on securities reported at fair value, net of tax                       56,311             131,600
Retained earnings                                                                   1,066,191             976,107
Treasury stock (at cost) - common shares 1996 - 2,216,015; 1995 -
    2,469,125                                                                        (65,548)            (80,214)
                                                                                  -----------          ----------
     Total Common Stockholders' Equity                                              1,736,945           1,707,484
                                                                                  -----------          ----------
        Total Liabilities, Minority Interests, Preferred and Common
              Stockholders' Equity
                                                                                  $ 4,120,349         $ 4,326,723
                                                                                  ===========         ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.


<PAGE>


A41
                              ASARCO Incorporated
                                and Subsidiaries
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                    <TABLE>
<CAPTION>
(Dollars in thousands)
For the years ended December 31,                                                     1996              1995               1994
                                                                                     ----              ----               ----
<S>                                                                            <C>               <C>                <C>
OPERATING ACTIVITIES
Net earnings                                                                        $ 138,336          $ 169,153         $  64,034
Adjustments to reconcile net earnings to net cash provided from (used for)
  operating activities:
  Depreciation and depletion                                                          118,569            118,827            83,097
  Provision for deferred income taxes                                                  26,302                 97            10,084
  Treasury stock used for employee benefits                                             5,707              4,775             5,964
  Undistributed equity earnings                                                         (438)              (460)          (38,214)
  Net (gain) loss on sale of investments and property                                (72,321)              4,124          (59,837)
  Provision for asset impairment                                                            -             34,864                 -
  Increase (decrease) in reserves for closed plant
    and environmental matters                                                          12,807            (6,878)             6,301
  Minority interests                                                                   88,331            129,543               809
  Cashprovided  from (used for)  operating  assets and  liabilities,  net of the
      consolidation of SPCC:
      Accounts receivable                                                            (27,200)           (36,867)          (70,673)
      Inventories                                                                    (23,742)             48,842          (53,171)
      Accounts payable and accrued liabilities                                         49,193             19,671            45,584
      Other operating assets and liabilities                                         (41,527)              8,915           (6,174)
      Foreign currency transaction (gains) losses                                     (6,739)            (5,536)             2,369
                                                                                    ---------           --------          --------

Net cash provided from (used for) operating
 activities                                                                           267,278            489,070           (9,827)
                                                                                    ---------           --------          --------

INVESTING ACTIVITIES
Capital expenditures                                                                (286,474)          (337,831)          (98,464)
Sale of securities, investments and property                                          346,327              9,966            94,808
Purchase of investments                                                               (5,800)            (4,513)             (959)
Sale of available-for-sale securities                                                  44,840             20,953           177,264
Purchase of available-for-sale securities                                            (46,513)           (23,203)         (175,712)
Proceeds from held-to-maturity investments                                             42,455             76,877                 -
Purchase of held-to-maturity investments                                              (1,002)           (76,375)                 -
Release of restricted cash                                                                  -             60,450                 -
Acquisition of additional interest in SPCC                                                  -          (116,444)                 -
Consolidation of the opening cash balance of SPCC                                           -             93,348                 -
                                                                                    ---------          ---------          --------

Net cash provided from (used for) investing activities
                                                                                       93,833          (296,772)           (3,063)
                                                                                    ---------          ---------          --------

FINANCING ACTIVITIES
Debt incurred                                                                          53,303            234,449           115,058
Debt repaid                                                                         (360,847)          (162,892)          (82,752)
Escrow deposits on long-term loans                                                   (10,064)             10,809                 -
Net treasury stock transactions                                                         1,146              6,754             4,418
Purchase of minority interest                                                         (5,280)                  -                 -
Distributions to minority interests                                                  (58,295)           (33,828)                 -
Contributions from minority interests                                                   4,000                  -                 -
Dividends paid to common stockholders                                                (34,174)           (29,645)          (16,765)
                                                                                    ---------          ---------         ---------
Net cash provided from (used for) financing activities
                                                                                    (410,211)             25,647            19,959
Effect of exchange rate changes on cash                                                 3,108              2,134           (1,248)
                                                                                    ---------          ---------         ---------
Increase (decrease) in cash and cash equivalents                                     (45,992)            220,079             5,821
Cash and cash equivalents at beginning of year                                        238,400             18,321            12,500
                                                                                    ---------          ---------         ---------
Cash and cash equivalents at end of year                                            $ 192,408          $ 238,400         $  18,321
                                                                                    =========          =========         =========
</TABLE>
The accompanying notes are an integral part of these financial statements.


<PAGE>


A42
                              ASARCO Incorporated
                                and Subsidiaries
                      CONSOLIDATED STATEMENT OF CHANGES IN
                          COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands)

For the years ended December 31,                                         1996                 1995                 1994
                                                                         ----                 ----                 ----
<S>                                                            <C>                  <C>                  <C>

COMMON STOCK
Balance at beginning and end of year
  45,039,878 shares                                                    $  679,991           $  679,991           $  679,991
                                                                       ----------           ----------           ----------

UNREALIZED GAIN ON SECURITIES REPORTED
  AT FAIR VALUE
Balance at beginning of year                                              131,600               91,627              112,729
Net increase (decrease) in fair value                                     (75,289)              39,973              (21,102)
                                                                       ----------           ----------           ----------
Balance at end of year                                                     56,311              131,600               91,627
                                                                       ----------           ----------           ----------

RETAINED EARNINGS
Balance at beginning of year                                              976,107              853,169              808,143
Net earnings                                                              138,336              169,153               64,034
Dividends paid to common stockholders                                    (34,174)             (29,645)             (16,765)
Treasury stock issued at less than cost                                   (7,813)             (15,656)             (11,484)
Foreign currency adjustment                                               (6,265)                (914)                9,241
                                                                       ----------           ----------           ----------
Balance at end of year                                                  1,066,191              976,107              853,169
                                                                       ----------           ----------           ----------

TREASURY STOCK
Balance at beginning of year                                             (80,214)            (107,400)            (129,265)
Purchased                                                                   (568)              (1,130)                (245)
Used for corporate purposes                                                15,234               28,316               22,110
                                                                       ----------           ----------           ----------
Balance at end of year                                                   (65,548)             (80,214)            (107,400)
                                                                       ----------           ----------           ----------
  1996 - 2,216,015 shares
  1995 - 2,469,125 shares
  1994 - 2,937,788 shares

TOTAL COMMON STOCKHOLDERS' EQUITY                                      $1,736,945           $1,707,484           $1,517,387
                                                                       ==========           ==========           ==========

</TABLE>

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



<PAGE>


A43

ASARCO Incorporated and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) Summary of Significant Accounting Policies

Principles of  Consolidation:  The consolidated  financial  statements of Asarco
Incorporated   and  Subsidiaries   include  all  significant   wholly-owned  and
majority-owned subsidiaries.  Investments over which the Company has significant
influence  but does not have  voting  control  are  accounted  for by the equity
method.  Certain  prior year  amounts have been  reclassified  to conform to the
current year's presentation.

Use of Estimates:  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.

Cash Equivalents:  Cash equivalents include all highly liquid investments with a
maturity of three months or less, when purchased.

Marketable  Securities:  Marketable securities include liquid investments with a
maturity of more than three  months,  when  purchased,  and are carried at cost,
which approximates market.

Inventories:  Company-owned metals processed by domestic smelters and refineries
are valued at the lower of last-in,  first-out  (LIFO) cost or market.  Southern
Peru Copper  Corporation  (SPCC)  in-process and refined metal  inventories  are
valued at the lower of average cost or market.  All other inventories are valued
at the lower of first-in, first-out (FIFO) or average cost or market.

Property:  Assets  are  valued at cost or net  realizable  value.  In the fourth
quarter of 1995, the Company adopted SFAS No. 121 "Accounting for the Impairment
of  Long-Lived  Assets  and for  Long-Lived  Assets  To Be  Disposed  Of".  This
statement requires that long-lived assets, certain identifiable  intangibles and
goodwill  related to those assets be reviewed for impairment  whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. The impairment loss on such assets, as well as long-lived assets
and  certain  identifiable  intangibles  to be  disposed  of, is measured as the
amount by which the carrying  value of the assets  exceeds the fair value of the
assets.

The Company evaluates the carrying value of assets based on undiscounted  future
cash flows and for its metals segment also considers expected metal prices based
on historical metal prices and price trends.

Betterments, renewals, costs of bringing new mineral properties into production,
and the cost of major development  programs at existing mines are capitalized as
mineral land. Maintenance,  repairs, normal development costs at existing mines,
and gains or losses on assets  retired  or sold are  reflected  in  earnings  as
incurred.  Plant  assets are  depreciated  over their  estimated  useful  lives,
generally by the units-of-production  method. Depreciation and depletion of mine
assets are computed generally by the units-of-production method using proven and
probable ore reserves. SPCC computes depreciation on its buildings and equipment
using the  straight-line  method over estimated lives from 5 to 40 years, or the
estimated life of the mine, if shorter.

Goodwill  is  amortized  over the  mine  life up to a  maximum  of 40 years on a
units-of-production  basis  or over  40  years  on a  straight-line  basis,  for
non-mining assets.



<PAGE>


A44

Revenue  Recognition:  Substantially all of the Company's copper and most of its
lead  production  is sold under annual  contracts.  To the extent not sold under
annual contracts,  production can be sold on commodity exchanges or to merchants
or consumers on a spot sale basis. The Company's zinc production and the balance
of its  lead  production  is sold in the  form of  intermediate  products  under
contracts of one to two years duration.  Silver is sold under monthly  contracts
or in spot sales.  Except for some  consolidated  subsidiaries,  primarily SPCC,
revenue is recognized  based on the average of prevailing  commodity  prices for
the  scheduled  month of  delivery  or  shipment  according  to the terms of the
contracts.  SPCC revenues  represent the invoiced  value of products  shipped to
customers.  Price estimates used for provisionally priced shipments are based on
management's  judgment of the current price level which is susceptible to change
during the settlement period.

Financial Instruments: Depending on the market fundamentals of a metal and other
conditions,  the Company may purchase  put options or  synthetic  put options to
reduce or eliminate  the risk of metal price  declines  below the option  strike
price on a portion of its anticipated future production.  The cost of options is
amortized  on a  straight-line  basis during the period in which the options are
exercisable.  Gains or  losses  from the sale or  exercise  of  options,  net of
unamortized  acquisition  costs,  are  recognized  in the  period  in which  the
underlying hedged production is sold. The Company also uses futures contracts to
hedge the effect of price changes on a portion of the metals it sells. Gains and
losses  on  hedge  contracts  are  reported  as a  component  of the  underlying
transaction.

As part of its price  protection  program,  the  Company may use  synthetic  put
options  which  consist of a call option and a forward sale on the same quantity
of metal.  Each  component of a synthetic put option may be purchased or sold at
different  times.  In those cases where the forward sale  component has not been
entered into or has been offset,  call options  purchased  are  accounted for as
trading  activities  and the carrying  values of such call options are marked to
market and any related adjustments are recorded in net earnings.

The Company may enter into interest rate swap  agreements to limit the effect of
increases in the interest rates on any floating rate debt. The  differential  is
accrued as interest rates change and is recorded in interest expense.

Exploration:  Tangible and  intangible  costs incurred in the search for mineral
properties are charged against earnings when incurred.

Environmental Remediation Costs: The Company provides for losses associated with
environmental   remediation  obligations  when  such  losses  are  probable  and
reasonably  estimable and generally no later than  completion of the remediation
feasibility  study.  Such accruals are adjusted as new  information  develops or
circumstances  change  and  are  not  discounted.  Recoveries  of  environmental
remediation costs from other parties are recorded as assets when the recovery is
deemed probable.  The American  Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental  Remediation Liabilities" (SOP 96-1),
in October 1996. SOP 96-1 provides authoritative guidance on specific accounting
issues in connection with  recognizing,  measuring and disclosing  environmental
remediation  liabilities.  The Company has applied the provisions of SOP 96-1 as
of December 31, 1996.

Taxes on Income:  Deferred  income taxes reflect the future tax  consequences of
differences  between the tax bases of assets and liabilities and their financial
reporting  amounts at each year end.  No U.S.  deferred  income  taxes have been
provided for the income tax liability which would be incurred on repatriation of
the undistributed  earnings of the Company's  consolidated  foreign subsidiaries
and the undistributed earnings of SPCC prior to 1993 because the Company intends
indefinitely  to reinvest  these  earnings  outside the United  States.  General
business credits are accounted for by the flow-through method.



<PAGE>


A45

Subsidiary  Stock Issuance:  Gains or losses arising from the sale of previously
unissued  shares to an unrelated  party by a subsidiary  are  recognized  in net
earnings to the extent that the net book value of the shares owned by the parent
after the sale exceeds or is lower than the net book value per share immediately
prior to the sale of the shares by the subsidiary.

Impact of New Accounting  Standard:  The Financial  Accounting  Standards  Board
issued SFAS No. 123 "Accounting for Stock-Based  Compensation"  in October 1995.
In accordance with this pronouncement,  the Company has a choice of adopting the
accounting  provisions of SFAS No. 123 or continuing its current accounting with
additional disclosure required. In 1996, the Company elected the disclosure only
alternative and will continue its current accounting.

(2) Interest in Southern Peru Copper Corporation:

Acquisition of Additional Interest:

On April 5, 1995, the Company  acquired an additional 10.7% interest in SPCC for
$116.4  million,  increasing its ownership  from 52.3% to 63.0%.  The additional
shares  acquired  enabled the Company to elect a majority  of the  directors  of
SPCC. As a result, the Company has consolidated SPCC in its financial statements
based on its 52.3%  ownership,  effective  January 1, 1995, and 63.0% ownership,
effective April 5, 1995. The Company previously  accounted for its investment in
SPCC by the equity method.  The acquisition has been accounted for as a purchase
transaction. The excess of the purchase price over the Company's interest in the
net book value of SPCC  attributable to the shares acquired of $46.4 million has
been  assigned to proven and  probable  sulfide  reserves,  proven and  probable
leachable  reserves and  mineralized  material and is being  amortized  based on
production.

The  table  below  summarizes   unaudited  pro  forma  consolidated  results  of
operations  of Asarco for the years ended  December 31, 1995 and 1994,  assuming
that Asarco had acquired an additional 10.7% of the outstanding stock of SPCC on
January 1, 1995 and  January  1, 1994,  respectively.  The  unaudited  pro forma
financial  information is based on  management's  estimates and  assumptions and
does not purport to represent the results that  actually  would have occurred if
the  acquisition  had, in fact,  been  completed on the dates  assumed. 

<TABLE>
<CAPTION>
          Pro Forma Results of Operations:

          For the years ending December 31,                                          1995          1994
                                                                                     ----          ----
          <S>                                                                   <C>            <C>
          (in millions, except per share amounts)
          Sales of products and services                                            $3,197.8      $2,700.6
          Net earnings                                                                $172.2         $67.3
          Net earnings per common share                                                $4.07         $1.61
</TABLE>
Common Share Exchange Offer:

On December 29, 1995, SPCC completed an offer to exchange its common stock,  par
value of $0.01 per share, for any and all labor shares of the Peruvian Branch of
SPCC.  These  labor  shares,  which  are  traded  on the  Lima  Stock  Exchange,
represented   a  17.3%   interest  in  the  Peruvian   Branch  which   comprises
substantially  all of the operations of SPCC in Peru. The offer allowed  holders
of the labor shares in the Branch to exchange four Series-1 Labor shares or five
Series-2 Labor shares for one share of common stock.  Common shares are entitled
to one vote per share.  In connection with the offering,  the Company  exchanged
its  shares of SPCC for  Class A shares  which are  entitled  to five  votes per
share.  As a result of this  transaction,  Asarco's  equity interest in SPCC was
reduced to  approximately  54.0% (54.1% at December 31, 1996) and the  Company's
economic  interest  in the  assets of SPCC,  net of the  remaining  labor  share
interest  was 52.3% at  December  31, 1995 (52.6% at  December  31,  1996).  The
Company's  voting  interest  in SPCC was 61.0% at  December  31,  1995 (62.6% at
December 31,  1996).  The common  shares issued in exchange for the labor shares
are listed on both the New York Stock Exchange and Lima Stock Exchange.



<PAGE>


A46

The exchange of common  shares for labor shares was  accounted  for by SPCC as a
purchase of a minority  interest.  The value of the common  stock  issued in the
exchange  (based on the average per share trading  value for the three  business
days ending  January 9, 1996) plus issuance costs exceeded the carrying value of
the minority  interests  acquired by $82.0 million,  net of tax. Of this amount,
$4.1  million was  assigned to metal  inventory on hand at December 31, 1995 and
charged to earnings in 1996.  The  remaining  amount was  assigned to proven and
probable  sulfide  reserves,   proven  and  probable   leachable   reserves  and
mineralized material and is being amortized based on production.  Asarco's share
of the  increase in value ($30.4  million,  net of tax) has been  eliminated  in
consolidation.  The Company's  balance sheet at December 31, 1995  reflected the
effect of the exchange transaction.

Significant Subsidiary:

Financial  information  is provided for SPCC for 1994 when it was a  significant
subsidiary accounted for by the equity method.

<TABLE>
<CAPTION>
    For the Year Ended                                                            December 31, 1994
    (in millions)
    <S>                                                                      <C>
    Net Sales 100%                                                                      $  701.7

    Net Earnings 100%                                                                   $   91.2

    Equity Earnings Reported by Asarco                                                  $   48.3

    Dividends to Asarco                                                                 $   11.2
</TABLE>

(3) Other Income (Expense)
<TABLE>
<CAPTION>
For the years ended December 31,                                  1996              1995             1994
                                                                  ----              ----             ----
(in millions)
<S>                                                          <C>              <C>               <C>
MIM dividends                                                      $  5.3            $  9.2         $  9.3
Interest income                                                      20.0              16.5            2.5
Other                                                               (0.7)             (1.6)            0.5
                                                                   ------            ------         ------
  Total                                                            $ 24.6            $ 24.1         $ 12.3
                                                                   ======            ======         ======
</TABLE>

(4) Taxes on Income

Certain  subsidiaries  that  have  been  consolidated  for  financial  reporting
purposes,  principally  SPCC in 1996 and 1995,  are not  includible  in Asarco's
consolidated  federal  income tax  return.  The  following  tables  combine  the
separate provisions for income taxes that have been determined for each company,
in accordance with SFAS No. 109:

Earnings (loss) before taxes on income and minority interests were:
<TABLE>
<CAPTION>
For the years ended December 31,                                     1996             1995               1994
<S>                                                                   <C>              <C>              <C>  
(in millions)
Domestic operations                                                 $  40.3          $  24.7           $(39.7)
Foreign operations                                                    286.9            396.9             118.8
                                                                    -------          -------           -------
Total                                                               $ 327.2          $ 421.6           $  79.1
                                                                    =======          =======           =======
</TABLE>


<PAGE>


A47

Tax Expense (Benefit):

The components of the provision (benefit) for taxes on income were:
<TABLE>
<CAPTION>
For the years ended December 31,                                         1996          1995          1994
                                                                         ----          ----          ----
(in millions)
<S>                                                                <C>           <C>           <C>
U.S. Federal:
  Current                                                               $  3.4        $  4.1       $ (0.3)
  Deferred                                                                14.2         (3.1)          10.1
                                                                        ------        ------        ------
U.S. Federal                                                              17.6           1.0           9.8
                                                                        ------        ------        ------
Foreign and State:
  Current                                                                 70.9         118.7           4.4
  Deferred                                                                12.1           3.2             -
                                                                        ------        ------        ------
Foreign and state                                                         83.0         121.9           4.4
                                                                        ------        ------        ------
Total income tax                                                        $100.6        $122.9       $ 14.2
                                                                        ======        ======       ======
</TABLE>
Total taxes paid (refunded)  were: 1996 - $134.4 million;  1995 - $65.8 million;
1994 - $(11.2) million.

Reconciliation of Statutory Income Tax Rate:
<TABLE>
<CAPTION>
For the years ended December 31,                                                1996           1995           1994
                                                                                ----           ----           ----
<S>                                                                      <C>            <C>            <C>
U.S. statutory income tax rate                                                 35.0%          35.0%           35.0%
Adjustment for entities for which no U.S. tax
  is required                                                                  (1.1)          (0.3)           (0.6)
Percentage depletion                                                           (9.6)         (12.3)          (13.1)
Dividends from non-includible subsidiaries                                      10.4           11.0               -
Dividends received deduction                                                   (8.5)          (8.8)          (17.8)
Foreign taxes                                                                   24.6           28.3             4.4
Foreign tax credit                                                            (20.5)         (25.2)               -
Excess of tax over book gain on sale of shares                                     -              -             8.0
Other                                                                            0.4            1.5             2.1
                                                                              ------         ------          ------
Effective income tax rate                                                      30.7%          29.2%           18.0%
                                                                              ======         ======          ======
</TABLE>
Temporary  differences and carryforwards which give rise to deferred tax assets,
liabilities and related valuation allowances were:

Deferred Tax Assets (Liabilities)
<TABLE>
<CAPTION>
  At December 31,                                                                1996               1995
                                                                                 ----               ----
  (in millions)
  <S>                                                                          <C>               <C>
  Current:
  Reserve for closed plant and environmental matters                           $  12.4           $  12.3
  Inventories                                                                      6.6              13.7
  Other                                                                            5.4               4.6
                                                                               -------           -------
  Net deferred tax asset                                                       $  24.4           $  30.6
                                                                               -------           -------

  Noncurrent:
  Tax effect of regular net operating losses                                   $ 168.2           $ 191.8
  Reserve for closed plant and environmental matters                           33.1              27.2
  Postretirement benefit obligation                                            35.0              33.3
  Alternative minimum tax credit carryforwards                                 16.2              12.3
  Foreign tax credit carryforwards                                             69.4              87.3
  Previously taxed income                                                      5.3               5.3
  Capitalized leases                                                           25.6              29.1
  Pension obligation                                                           (19.8)            (15.7)
  Property, plant and equipment                                                (308.6)           (271.1)
  Investments - Grupo Mexico                                                   (120.4)           (137.2)
  Investments - MIM                                                            -                 (84.8)
  Other                                                                        (1.1)             4.3
  Valuation allowance for deferred tax assets                                  (76.2)            (93.1)
                                                                               --------          --------
  Net deferred tax liability                                                    (173.3)           (211.3)
                                                                               --------          --------
  Total net deferred tax liability                                             $(148.9)          $(180.7)
                                                                               ========          ========
</TABLE>


<PAGE>


A48

At December  31,  1996,  the Company had $480.7  million of net  operating  loss
carryforwards  which  expire,  if unused,  in years 2007  through 2010 and $16.2
million of  alternative  minimum tax credits ($6.8 million  available  solely to
SPCC) which are not subject to expiration.  The Company believes that, except as
to the SPCC  credits,  these  carryforwards  will be available to reduce  future
federal  income  tax  liabilities  and has  recorded  the tax  benefit  of these
carryforwards  as  noncurrent  deferred tax assets.  The Company's net operating
loss carryforwards for state purposes are not significant and,  therefore,  have
not been recorded as deferred tax assets.

At December 31, 1996, the foreign tax credit  carryforwards  available to reduce
possible future U.S. income taxes amounted to approximately  $69.4 million,  all
of which is  available  solely to SPCC.  Of the  $69.4  million,  $16.8  million
expires  in 1998,  $13.6  million  expires in 1999,  and $39.0  expires in 2001.
Because of both the expiration  dates and the rules governing the order in which
such  credits  are  applied,  it is  unlikely  that  these  foreign  tax  credit
carryforwards  will  be  utilized.  Accordingly,  the  Company  has  recorded  a
valuation allowance for the full amount of its foreign tax credit carryforwards.

The decrease in the  valuation  allowance of $16.9  million from 1995 to 1996 is
primarily attributable to the expiration and utilization of foreign tax credits,
net of additional alternative minimum tax credits by SPCC.

U.S.  deferred tax liabilities  have not been provided on  approximately  $270.8
million  in 1996  ($257.6  million  in 1995  and  $251.9  million  in  1994)  of
undistributed  earnings of foreign  subsidiaries and  nonconsolidated  companies
more than 50% owned,  because assets representing those earnings are permanently
invested.  It is not  practicable  to determine  the amount of income taxes that
would be payable upon remittance of assets that represent  those  earnings.  The
amount of foreign  withholding  taxes that would be payable upon  remittance  of
assets that represent those earnings is approximately $1.2 million in 1996 ($0.5
million in 1995 and $0.3 million in 1994).


(5) Inventories
<TABLE>
<CAPTION>
At December 31,                                                                         1996             1995
 <S>                                                                                 <C>                 <C>                       
(in millions)
Inventories of smelters and refineries at lower of LIFO cost or market
                                                                                     $  10.3          $  12.9
Provisional cost of metals received from suppliers for which prices have not
     yet been fixed                                                                     44.5             34.0
Mine inventories at lower of FIFO cost or market                                       105.8            111.1
Metal inventory at lower of average cost or market                                      49.5             35.2
Materials and supplies at lower of average cost or market                              141.0            139.1
Other                                                                                   32.2             28.6
                                                                                     -------          -------
         Total                                                                       $ 383.3          $ 360.9
                                                                                     =======          =======
</TABLE>
Replacement cost exceeds inventories valued at LIFO cost by approximately $115.2
million in 1996 (1995-$136.8 million).  Liquidation of LIFO inventories resulted
in  pre-tax  earnings  of $5.3  million in 1996,  $0.7  million in 1995 and $2.8
million in 1994.



<PAGE>


A49

(6) Investments

The Company has a  substantial  interest in Grupo Mexico,  S.A., de C.V.  (Grupo
Mexico),  which  is  engaged  principally  in  mining,   smelting  and  refining
nonferrous  metals in Mexico.  In August 1994,  the Company  exchanged its 28.3%
interest in Mexico Desarrollo  Industrial  Minero S.A., de C.V.  (MEDIMSA) for a
23.6%  interest in the  publicly  traded Grupo  Mexico,  the assets of which are
substantially  the same as MEDIMSA.  The Company  owns 162.6  million  shares of
Grupo Mexico. As part of the restructuring,  the Company granted a 7-year option
to purchase  56.3 million of its Grupo Mexico shares  aggregating  8.2% of Grupo
Mexico at a price of U.S. $1.40 per share and agreed not to sell the majority of
its remaining  shares until August 1996. The Company accounts for its investment
in Grupo Mexico by the cost method of accounting because it has little influence
over the operating and financial activities of Grupo Mexico.

The carrying  value of Asarco's  investment in Grupo Mexico at December 31, 1996
was $378.9 million.  The 106.3 million shares of Grupo Mexico not covered by the
7-year  option are  classified  as  available-for-sale  and are reported at fair
value,  which includes an unrealized gain of $79.6 million before deferred taxes
of $27.9 million.  The unrealized gain, which is based on the December 31, 1996,
closing  market  price of Grupo  Mexico on the Mexican  Stock  Exchange,  is not
necessarily indicative of an amount that may be realized in the event of a sale.

The Company sold its remaining 15% interest in MIM in the second quarter of 1996
for  $326.2  million,  net of  expenses,  resulting  in a pre-tax  gain of $60.1
million and an after-tax  gain of $39.0  million.  In January 1994,  the Company
sold its remaining 45.3% interest in Asarco  Australia for $79.5 million,  which
resulted in a pre-tax gain of $58.5 million.

In accordance with the provisions of SFAS No. 115, available-for-sale securities
are  carried at fair  value.  Unrealized  gains at  December  31,  1996 of $56.3
million (net of deferred taxes of $30.3 million), compared with unrealized gains
of $131.6 million (net of deferred taxes of $70.9 million) at December 31, 1995,
were included as a component of stockholders' equity.

Available-for-sale and other cost investments were:
<TABLE>
<CAPTION>
At December 31,                                                        Unrealized Holding
(in millions)                                            Cost          Gains           (Losses)          Total
                                                         ----          -----           --------          -----
<S>                                              <C>              <C>              <C>              <C>
1996
Available-for-sale:
  Grupo Mexico                                         $299.3           $79.6            $    -           $378.9
  MIM                                                       -               -                 -                -
  Other equity securities                                23.9             7.1                 -             31.0
  Debt securities                                        28.3               -             (0.1)             28.2
Other cost investments                                    4.6               -                -               4.6
                                                       ------           -----           -------           ------
Total                                                  $356.1           $86.7            $(0.1)           $442.7
                                                       ======           =====            ======           ======

1995
Available-for-sale:
  Grupo Mexico                                         $299.2          $127.8               $ -           $427.0
  MIM                                                   266.8            69.0                 -            335.8
  Other equity securities                                21.8             4.6                 -             26.4
  Debt securities                                        28.9             1.1                 -             30.0
Other cost investments                                    3.0               -                 -              3.0
                                                       ------          ------               ---           ------
Total                                                  $619.7          $202.5               $ -           $822.2
                                                       ======          ======               ===           ======
</TABLE>
Gross  realized gains and losses on  available-for-sale  securities in 1996 were
$60.1  million and $1.1  million,  respectively,  compared  with gross  realized
losses of $0.3  million  in 1995,  and gross  realized  gains and losses of $0.2
million and $1.0 million in 1994,  respectively.  The net decrease in unrealized
holding gains and losses, excluding realized gains and losses, was $56.9 million
in 1996 as  compared  with a net  increase  of $61.2  million in 1995.  The debt
securities  have  maturity  dates  ranging  from 1999 to 2028.  The average cost
method has been used to determine the realized gain or loss on securities sold.


<PAGE>


A50

(7) Property
<TABLE>
<CAPTION>
At December 31,                                                      1996                  1995
                                                                     ----                  ----
(in millions)
<S>                                                      <C>                   <C>
Buildings and equipment                                          $ 3,617.2             $ 3,401.3
Capital leases-equipment                                             122.4                 122.6
Mineral land                                                         645.0                 606.8
Land, other than mineral                                              70.6                  72.4
Other                                                                  6.1                   6.1
                                                                 ---------             ---------
  Total property                                                   4,461.3               4,209.2
Accumulated depreciation                                         (2,187.2)             (2,098.9)
                                                                 ---------             ---------
  Property, net                                                 $ 2,274.1              $ 2,110.3 
                                                                 =========             =========
</TABLE>
Accumulated  depreciation  applicable to  capitalized  leases  amounted to $72.0
million in 1996 and $62.0 million in 1995.

In the first  quarter of 1996,  the  Company  recorded  a pre-tax  gain of $11.1
million  ($7.2  million  after-tax)  on the sale of a 25% interest in its Silver
Bell project to Mitsui & Co., Ltd.

SFAS No.  121-  Accounting  for the  Impairment  of  Long-Lived  Assets  and for
Long-Lived Assets To Be Disposed Of:

In the fourth quarter of 1995, the Company  adopted SFAS No. 121 "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets To Be Disposed
Of." This  statement  requires  that  long-lived  assets,  certain  identifiable
intangibles  and goodwill  related to those  assets be reviewed  for  impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable.  The impairment loss on such assets,  as well
as long-lived assets and certain identifiable  intangibles to be disposed of, is
measured  as the amount by which the  carrying  value of the assets  exceeds the
fair value of the assets (less disposal costs, if applicable).

The Company terminated lead refining operations at its Omaha,  Nebraska plant in
1996 because of the  substantial  investment  which would have been  required to
meet state and U.S. EPA imposed environmental  requirements.  As a result of the
decision to  terminate  lead  refining at the Omaha  plant,  in 1995 the Company
recorded a pre-tax charge of $25.6 million, which represented the total carrying
value of the net property of the Omaha refinery at December 31, 1995.

The Company has also recorded at December 31, 1995 a pre-tax  charge to earnings
of $9.2  million in  accordance  with SFAS No. 121 with respect to the assets at
its  waste  recycling  subsidiary  in Corpus  Christi,  Texas  (Encycle)  and an
obsolete mill. The impairment  loss on Encycle's  assets was the result of prior
operating losses.


(8) Contingencies and Litigation
The Company is a defendant  in lawsuits in Arizona  brought by Native  Americans
and some other  Arizona  water  users  contesting  the right of the  Company and
numerous other individuals and entities to use water and, in some cases, seeking
damages for water usage and  contamination  of ground water.  The lawsuits could
potentially  affect  the  Company's  use of  water at its Ray  Complex,  Mission
Complex and other Arizona operations.

The Company and certain  subsidiaries  are  defendants  in four class action and
thirteen other lawsuits in Texas seeking  substantial  compensatory and punitive
damages for personal injury and  contamination  of property  allegedly caused by
present and former  operations,  primarily  in Texas,  and product  sales of the
Company and its subsidiaries.  Most of the cases name additional corporations as
defendants.



<PAGE>


A51

The Company and two subsidiaries,  at December 31, 1996, are defendants in 1,011
lawsuits  brought  by 2,810  primary  and  1,603  secondary  plaintiffs  seeking
substantial  actual and punitive  damages for personal injury or death allegedly
caused by exposure to  asbestos.  One  subsidiary  is a defendant in one lawsuit
seeking  damages for removal or containment of  asbestos-containing  products in
structures.  In addition, the Company and certain subsidiaries are defendants in
product liability lawsuits involving various other products, including metals.

A  subsidiary  of  SPCC,  the  Company,   other  present  and  former  corporate
shareholders  of  the  subsidiary  of  SPCC  and  certain  other  companies  are
defendants  in a lawsuit in federal  district  court in Corpus  Christi,  Texas,
brought in 1995 by 698 Peruvian  plaintiffs  seeking damages for personal injury
and property damage allegedly  caused by the operations of SPCC's  subsidiary in
Peru. Plaintiffs have appealed the district court order dismissing the complaint
and from an earlier order of that court denying plaintiffs' motion to remand the
case to state court.  The United  States Court of Appeals for the Fifth  Circuit
heard  argument  on the appeal on  December  5, 1996.  A decision is expected in
1997.

On March 22, 1996, the United States government filed an action in United States
District  Court in Boise,  Idaho,  against the  Company  and three other  mining
companies  under the  Comprehensive  Environmental  Response,  Compensation  and
Liability Act of 1980 (CERCLA or Superfund)  and the federal Clean Water Act for
alleged natural  resource damages to the Coeur d'Alene River Basin in Idaho. The
government  contends  that the  defendants  are  liable  for  damages to natural
resources  in a 1,500  square mile area caused by mining and related  activities
that they and  others  undertook  over  approximately  the  period  between  the
mid-1800s and the mid-1960s. The action also seeks a declaration that defendants
are liable for  restoration  of the area.  The  Company  believes,  and has been
advised by outside  legal  counsel,  that it has strong  legal  defenses  to the
lawsuit.

The Company and  certain of its  subsidiaries  have  received  notices  from the
United States Environmental  Protection Agency (EPA) and the U.S. Forest Service
that they and in most cases numerous other parties are  potentially  responsible
to remediate alleged hazardous substance releases at certain sites under CERCLA.
In  addition,  the Company and certain of its  subsidiaries  are  defendants  in
lawsuits brought under CERCLA or state laws which seek  substantial  damages and
remediation.  Remedial action is being  undertaken by the Company at some of the
sites.

In  connection  with the sites  referred  to above,  as well as at other  closed
plants and sites where the Company is working with the EPA and state agencies to
resolve  environmental  issues,  the Company  accrues for these losses when such
losses are probable and reasonably estimable.  Such accruals are adjusted as new
information  develops or  circumstances  change and are not  discounted to their
present value. Recoveries of environmental  remediation costs from other parties
are  recorded as assets when the  recovery is deemed  probable.  At December 31,
1996,  the  Company   applied  the  American   Institute  of  Certified   Public
Accountants:  Statement of Position 96-1 "Environmental Remediation Liabilities"
(SOP 96-1)  which  provides  authoritative  accounting  guidance  with regard to
recognizing, measuring and disclosing environmental liabilities.

The Company incurred  expenses of $15.0 million ($72.0 million in charges offset
by $57.0 million in insurance and other  recoveries)  in 1996 for  environmental
and closed  plant  liabilities,  including  $10.0  million for the effect of the
application of SOP 96-1.  Environmental  and other closed plant expenses in 1995
and 1994 were $76.3 million and $65.6 million, respectively. Reserves for closed
plants and  environmental  matters  totaled $128.3 million at December 31, 1996.
The Company  anticipates  that  expenditures  relating to these reserves will be
made over the next several years. Net cash expenditures charged to reserves were
$54.1 million in 1996, $95.8 million in 1995 and $59.9 million in 1994.



<PAGE>


A52

Future environmental  related expenditures cannot be reliably determined in many
circumstances  due to the  early  stages  of  investigation,  the  uncertainties
relating to specific  remediation methods and costs, the possible  participation
of other potentially  responsible  parties and changing  environmental  laws and
interpretations.  Similarly,  due to the  uncertainty  of the  outcome  of court
proceedings,  future  expenditures  related  to  litigation  cannot be  reliably
determined.  It is the  opinion  of  management  that the  outcome  of the legal
proceedings and environmental  contingencies  mentioned, and other miscellaneous
litigation and proceedings now pending, will not materially adversely affect the
financial position of Asarco and its consolidated  subsidiaries.  However, it is
possible that litigation and environmental  contingencies  could have a material
effect on  quarterly  or annual  operating  results,  when they are  resolved in
future periods.  This opinion is based on  considerations  including  experience
related to previous court judgments and  settlements  and remediation  costs and
terms. The financial viability of other potentially responsible parties has been
considered  when  relevant  and no credit  has been  assumed  for any  potential
insurance recoveries when it is not deemed probable.


(9) Debt and Available Credit Facilities
<TABLE>
<CAPTION>
Long-Term Debt
At December 31,                                                                      1996             1995
                                                                                     ----             ----
(in millions)
<S>                                                                            <C>               <C>
Revolving credit agreement                                                          $   45.0         $  340.0
Pollution control bonds, 1996/2006 - rates from
   7 1/8% to 8.9%                                                                      155.6            156.3
Capital lease obligations, 1996/2006 - rates from
   7.3% to 12.0%                                                                        74.8             85.0
7% Notes due 2001                                                                       50.0             50.0
7 3/8% Notes due 2003                                                                   99.6             99.5
7 7/8% Debentures due 2013                                                              99.7             99.7
8 1/2% Debentures due 2025                                                             148.9            148.9
6.8% term loan due 2000                                                                 15.0             15.0
6.43% EXIM Bank credit agreement                                                        26.3             32.1
Mitsui credit agreement - LIBOR +2.87%                                                  45.0              3.2
CAF credit agreement - average 9.1%                                                     35.3             43.2
Other                                                                                    3.2             19.5
                                                                                     -------         --------
Total debt                                                                             798.4          1,092.4
   Less current portion                                                                 39.8             29.8
                                                                                     -------         --------
      Long-term debt                                                                 $ 758.6         $1,062.6
                                                                                     =======         ========
</TABLE>
Interest paid by the Company (excluding  amounts  capitalized of $2.8 million in
1996,  $3.3 million in 1995 and $0.9 million in 1994) was $78.1 million in 1996,
$89.2 million in 1995 and $61.9 million in 1994.

Maturities of debt  instruments and future minimum payments under capital leases
are:

<TABLE>
<CAPTION>
At December 31,                                     Debt Instruments                 Capital Leases
                                                    ----------------                 --------------
<S>                                                    <C>                           <C>       
(in millions)
1997                                                         $ 26.9                        $ 18.6
1998                                                           47.0                          18.4
1999                                                           24.4                          16.5
2000                                                           39.3                          27.6
2001                                                          107.5                           4.3
Thereafter                                                    478.5                           7.4
   Less interest                                                  -                        (18.0)
                                                             ------                        ------
                                                             $723.6                        $ 74.8
                                                             ======                        ======
</TABLE>


<PAGE>


A53

The Company has two revolving credit  agreements that permit borrowings of up to
$850.0  million,  of which $805 million was available at December 31, 1996.  One
facility for $350 million  expires in April 1999 and the other facility for $500
million expires in May 2001. The borrowings bear interest based on LIBOR, the CD
or the prime rate, and averaged 5.8% at December 31, 1996.  Rates may vary based
upon the Company's debt rating.  Facility fees are payable on the full amount of
the $350 million and $500 million revolving credit agreements at 0.2% and 0.125%
per annum, respectively.

In January 1996,  SPCC borrowed the remaining  balance ($47 million) under a $50
million loan agreement with Mitsui & Co., Ltd. at a rate of LIBOR plus 2.87%.

Under  the most  restrictive  terms of the debt  agreements,  the  Company  must
maintain  a tangible  net  worth,  as  defined,  of at least $1 billion  and the
percentage of current assets to current liabilities,  as defined, cannot be less
than 125%.  Tangible  net worth,  as defined,  was $1.7  billion at December 31,
1996, and the percentage of current assets to current  liabilities,  as defined,
was 141%. In accordance with the most restrictive covenants of these agreements,
additional  indebtedness  of $794.7  million  would  have been  permitted  as of
December 31, 1996.

In April 1995, the Company issued $150 million face amount of 8 1/2%  Debentures
due in May 2025. In July 1995,  the Company  entered into a term loan  agreement
for $15 million  maturing in August  2000.  Concurrent  with the term loan,  the
Company  entered into a five year  interest rate swap  agreement  resulting in a
fixed interest rate of 6.8% on the principal  amount.  Proceeds of the loan were
used primarily to prepay $13.5 million of 8 3/4% pollution control revenue bonds
at par value plus a premium of 1.5% in the third  quarter of 1995.  The  Company
also concluded  interest rate swap  agreements in July 1995 resulting in a fixed
interest rate of 6.6% on $100 million of its revolving credit loans.

Consolidated  debt  includes the debt of SPCC,  none of which is  guaranteed  by
Asarco.

The weighted average interest rate on short term borrowings was 8.1% at December
31, 1996, and 6.9% at December 31, 1995.


(10)  Operating Leases

During 1996 and 1995, the Company entered into several sale-leaseback agreements
of mining equipment. The Company has options to purchase this equipment at fixed
prices  prior  to  expiration  of the  leases  and at  fair  market  value  upon
expiration. The leasebacks have been accounted for as operating leases.

The book  value and  associated  depreciation  of the  equipment  sold have been
removed from the Company's  property  accounts.  Any profit on the sale has been
deferred and will be amortized  into net  earnings in  proportion  to the rental
charged over the lease term.

Minimum future rental  payments  under  non-cancelable  operating  leases having
remaining terms in excess of 1 year as of December 31, 1996 for each of the next
5 years and in the aggregate are:

<TABLE>
<CAPTION>
Year Ended                                                              Amount (in millions)
----------                                                              --------------------
<S>                                                                           <C>

1997                                                                            $ 12.8
1998                                                                              12.3
1999                                                                              11.2
2000                                                                              10.7
2001                                                                              10.7
Thereafter                                                                        31.2
                                                                                ------
                                                                                $ 88.9
                                                                                ======
</TABLE>
                                                                      
Total rental  expense was $13.3 million in 1996,  $10.9 million in 1995 and $7.4
million in 1994.



<PAGE>


A54

The Company has guaranteed the obligation of Silver Bell Mining,  L.L.C.,  a 75%
owned subsidiary which has entered into agreements that provide $60.0 million in
financing  for  the  construction  of a  new  solvent-extraction  electrowinning
facility  at the Silver  Bell mine and the  subsequent  lease of that  facility.
Under an  agreement  with the owner of the 25%  interest,  the  Company  will be
reimbursed for 25% of any payments made by the Company under these agreements.


(11) Stockholders' Equity

The Company purchased 17,364 of its common shares in 1996 (34,729 shares in 1995
and 9,250 shares in 1994).  In 1996,  270,474 common shares  (503,392  shares in
1995 and  392,940  shares in 1994) were used for  employee  benefit  plans.  The
effect on the  calculations  of net earnings  per common share of the  Company's
common stock equivalents (shares under option) was insignificant.

Retained earnings at December 31, 1996 includes undistributed earnings of $266.0
million for  investments in 50% or less owned  entities  previously or currently
accounted  for by the  equity  method.  Retained  earnings  includes  cumulative
foreign currency  adjustments of $3.7 million at December 31, 1996 ($9.9 million
in 1995,  $10.8  million  in  1994).  In  1996,  a credit  of $0.6  million  was
recognized in determining the gain from cumulative foreign currency  adjustments
on the sale of the Company's  interest in MIM. In 1994, a charge of $2.2 million
was  recognized  in  determining  the  gain  from  cumulative  foreign  currency
adjustments on the sale of the Company's interest in Asarco Australia.

Stock Options:  The Company has three stockholder approved plans, the 1996 Stock
Incentive  Plan, a Stock  Incentive  Plan prior to 1996 and a Stock Option Plan.
The 1996 Stock  Incentive Plan replaced the prior Stock  Incentive Plan which in
turn had  replaced the Stock  Option  Plan.  Future  options can only be granted
under the 1996 Stock  Incentive  Plan.  Unexpired  options  will  continue to be
governed by, and exercised  under the Stock Option Plan and the Stock  Incentive
Plan prior to 1996.  The 1996 Stock  Incentive Plan provides for the granting of
nonqualified  stock  options,  Incentive  Stock  Options,  as defined  under the
Internal Revenue Code of 1986, as amended, as well as limited rights, restricted
stock,  bonuses or other compensation payable in stock, other stock based awards
and dividend  equivalents.  The price at which  options may be granted under the
1996 Stock  Incentive  Plan shall not be less than 100% of the fair market value
of the Common Stock, on the date of grant.  In general,  options expire after 10
years  and  are  not  exercisable  for  six  months  from  the  date  of  grant.
Compensation cost charged against earnings for restricted stock awards under the
above plans was $1.1  million in 1996,  $0.7 million in 1995 and $0.4 million in
1994.  Retained  earnings have been reduced by $7.1 million at December 31, 1996
($6.5  million  at  December  31,  1995) for  unearned  compensation  related to
restricted stock awards.

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting  Standards  No.  123,  "Accounting  for  Stock-Based   Compensation."
Accordingly, no compensation cost has been recognized for awards under the stock
option plans.  If  compensation  cost for the Company's stock incentive plan had
been determined based on the fair value at the grant date for awards in 1996 and
1995  consistent with the provisions of SFAS No. 123, the Company's net earnings
and  earnings  per share  would  have  been  reduced  to the pro  forma  amounts
(including the earnings effect of the Company's  proportionate interest in SPCC)
indicated below: 
<TABLE> 
<CAPTION>
       In millions, except per share amounts                                           1996                1995
                                                                                       ----                ----
       <S>                                                                            <C>                 <C>
       Net earnings - as reported                                                       $138.3              $169.2
       Net earnings - pro forma                                                         $136.7              $167.7
       Earnings per share - as reported                                                  $3.24               $4.00
       Earnings per share - pro forma                                                    $3.20               $3.96

</TABLE>


<PAGE>


A55

The fair value of each option  grant is  estimated  on the date of grant using a
Black-Scholes  option-pricing  model  with the  following  assumptions  used for
grants in 1996:  dividend  yield of 2.6% (2.4% - 1995);  expected  volatility of
28.4%  (27.6% - 1995);  risk-free  interest  rate of  5.43%  (7.8% - 1995);  and
expected lives of 6.9 years in 1996 and 1995.

The total number of shares that may be optioned or awarded  under the 1996 Stock
Incentive  Plan is 475,076  shares as of December 31, 1996,  (769,326  shares at
December  31,  1995)  plus an  additional  number of shares on January 1 of each
calendar year for the 10 year duration of the Stock  Incentive Plan equal to one
percent of the number of shares of the Company's Common Stock outstanding on the
immediately  preceding  December 31. The weighted average remaining  contractual
life of stock options  outstanding as of December 31, 1996 was 6.4 years.  Stock
option  activity  over the past three years under the Stock  Incentive  Plan and
Stock Option Plan was:

<TABLE>
<CAPTION>
                                    Weighted
                                                          Number of              Average                 Option Price
                                                            shares                Price                (range per share)
<S>                                                   <C>                 <C>                     <C>
Outstanding at
  January 1, 1994                                           1,020,786                 $25.84               $18.00 to $33.19
Granted                                                       234,600                 $23.75               $23.75 to $23.75
Exercised                                                   (304,070)                 $24.77               $18.00 to $28.94
Canceled or expired                                          (71,200)                 $28.87               $22.31 to $33.19
                                                           ----------                                                      

Outstanding at
  January 1, 1995                                             880,116                 $25.41               $20.57 to $29.38
Granted                                                       216,200                 $29.19               $26.63 to $32.57
Exercised                                                   (304,321)                 $25.00               $20.57 to $29.19
Canceled or expired                                           (9,026)                 $25.96               $21.94 to $29.19
                                                           ----------                                                      

Outstanding at
  January 1, 1996                                             782,969                 $26.60               $20.57 to $32.57
Granted                                                       253,000                 $31.20               $31.13 to $34.38
Exercised                                                    (39,306)                 $26.01               $20.57 to $29.19
Canceled or expired                                           (6,300)                 $25.85               $20.57 to $31.13
                                                           ----------                                                      

Outstanding and exercisable at December 31, 1996              990,363                 $27.81               $22.31 to $34.38
</TABLE>

In 1989, the Company  adopted a Shareholder  Rights plan and declared a dividend
of one Right for each of its  common  shares.  In  certain  circumstances,  if a
person or group becomes the beneficial  owner of 15% or more of the  outstanding
common shares, with certain exceptions, these rights vest and entitle the holder
to certain  share  purchase  rights.  In  connection  with the Rights  dividend,
800,000  shares of Junior  Participating  Preferred  Stock were  authorized  for
issuance upon exercise of the Rights.


(12) Benefit Plans

Pension benefits:

The Company  maintains  several  noncontributory,  defined benefit pension plans
covering  substantially all domestic employees.  Benefits for salaried plans are
based on  salary  and years of  service.  Hourly  plans are based on  negotiated
benefits and years of service.

The Company's funding policy is to contribute amounts to the plans sufficient to
meet the  minimum  funding  requirements  set forth in the  Employee  Retirement
Income Security Act of 1974,  plus such additional  amounts as may be deductible
for income tax  purposes.  Plan assets are invested  principally  in  commingled
stock funds and securities issued by the United States.


<PAGE>


A56

Net pension costs consisted of:
<TABLE>
<CAPTION>
For the years ended December 31,                                              1996           1995           1994
                                                                              ----           ----           ----
(in millions)
 <S>                                                                      <C>            <C>            <C>
Service cost                                                                   $ 8.6          $ 6.3         $  8.5
Interest cost on projected benefit obligations                                  11.0            9.8            8.8
Actual return on plan assets                                                  (21.8)         (30.8)            0.5
Net amortization and deferral                                                   10.7           21.0          (7.6)
                                                                               -----          -----         ------
Net pension costs                                                              $ 8.5          $ 6.3         $ 10.2
                                                                               =====          =====         ======
</TABLE>

The  actuarial  present value of benefit  obligations  and funded status for the
Company's plans were:
<TABLE>
<CAPTION>
At December 31,                                                   1996                                   1995
                                                                  ----                                   ----
(in millions)                                        Plans with      Plans with Accum.   Plans with Assets   Plans with Accum.
                                                  Assets Exceeding   Benefit Obligation   Exceeding Accum.  Benefit Obligation
                                                   Accum. Benefit   Exceeding Assets (a)      Benefit      Exceeding Assets (a)
                                                     Obligation                              Obligation
<S>                                               <C>              <C>                   <C>               <C>
Assets and obligations:
  Vested benefit obligation                               $139.4                $  5.3            $121.8                $ 5.2
  Nonvested benefits                                         7.8                   0.5               7.6                  0.5
                                                          ------                ------            ------                -----
  Accumulated benefit obligation                           147.2                   5.8             129.4                  5.7
Plan assets at fair value                                  174.3                   5.0             142.0                  4.4
                                                          ------                ------            ------                -----
Plan assets in excess of (less than) accumulated
     benefit obligation                                   $ 27.1                $(0.8)            $ 12.6               $(1.3)
                                                          ======                ======            ======               ======

Projected benefit obligation (PBO)                        $175.4                $  7.2            $158.1                $ 7.1
Plan assets at fair value                                  174.3                   5.0             142.0                  4.4
                                                          ------                ------            ------                -----
Plan assets in excess of (less than) PBO                   (1.1)                 (2.2)            (16.1)                (2.7)
  Prior service cost                                        18.1                 (0.1)              13.5                (0.1)
  Initial net plan obligation                                0.9                   2.1               1.2                  2.3
  Effect of changes in assumptions and actuarial
     gains and losses                                        8.6                 (0.2)              18.8                  0.5
  Minimum liability                                            -                 (0.5)                 -                (1.4)
                                                          ------                ------            ------                -----
Pension asset (liability) reflected in
     consolidated balance sheet                           $ 26.5                $(0.9)            $ 17.4               $(1.4)
                                                          ======                ======            ======               ======

Actuarial assumptions:
Discount rate                                               7.0%                  7.0%              7.0%                 7.0%
Expected long-term rate of return on plan assets
                                                           10.0%                  8.0%             10.0%                 8.0%
Expected annual salary increases                            4.0%                  4.0%              4.0%                 4.0%

</TABLE>
(a)  Plans maintained by SPCC.



<PAGE>


A57

Postretirement benefits:

Noncontributory postretirement health care coverage under the Asarco Health Plan
is provided to  substantially  all retirees not  eligible for  Medicare.  A cost
sharing Medicare supplement plan is available for retired salaried employees and
life insurance coverage is provided to substantially all retirees.

The following sets forth the plan's status  reconciled with amounts  reported in
the Consolidated Balance Sheet:
<TABLE>
At December 31,                                                                                  1996           1995
                                                                                                 ----           ----
(in millions)
<S>                                                                                        <C>            <C>
Accumulated postretirement benefit obligation (APBO):
    Retirees                                                                                    $ 60.7         $ 67.9
    Fully eligible active plan participants                                                       20.0           17.8
    Other plan participants                                                                       41.1           35.7
                                                                                                 -----          -----
Total APBO                                                                                       121.8          121.4
Item not yet recognized in earnings:
  Effect of changes in assumptions and actuarial gains and losses
                                                                                                (21.9)         (26.3)
       Postretirement benefit obligation                                                        $ 99.9         $ 95.1
                                                                                                ======         ======
</TABLE>
Net periodic postretirement benefit costs include:
<TABLE>
<CAPTION>
For the years ended December 31,                                                    1996            1995           1994
                                                                                    ----            ----           ----
<S>                                                                          <C>             <C>             <C>
(in millions)
Service cost                                                                        $ 3.4          $  2.4          $  3.1
Interest cost                                                                         8.0             8.5             7.8
Amortization of loss                                                                  1.3               -             1.5
                                                                                    -----          ------          ------
        Net periodic  postretirement  benefit costs                                 $12.7          $ 10.9          $ 12.4
</TABLE>
The annual  assumed rate of increase in the per capita cost of covered  benefits
(i.e.,  health  cost  trend  rate)  is 6% for 1997 and is  assumed  to  decrease
gradually  to 5% by 1999 and remain at that level  thereafter.  The health  care
cost trend rate assumption has a significant effect on the amounts reported. For
example,  increasing  the assumed health care cost trend rates by one percentage
point  in each  year  would  increase  the  accumulated  postretirement  benefit
obligation  at  December  31,  1996,  by $9.9  million,  and  the  net  periodic
postretirement benefit costs for 1996 by $1.2 million. The discount rate used in
determining the accumulated postretirement benefit obligation was 7% at December
31, 1996 and 1995. The plans are unfunded.


(13) Business Segments

The Company operates  principally in the nonferrous  metals industry,  involving
mining, smelting, refining and selling of copper, silver and lead and the mining
of ore containing zinc and molybdenum which is sold as concentrates. The Company
also  produces  specialty  chemicals  for the  metals  plating  and  electronics
industries and aggregates  comprising  limestone,  sand and gravel.  The caption
"Other" includes environmental services operations and a polyvinyl chloride pipe
business which was sold in 1994.

General  corporate  administrative  expenses  are  allocated  among the segments
generally in proportion to their operating  expenses.  Exploration  expenses are
attributable to the metals segment,  while research expenses are attributable to
metals and specialty  chemicals.  Identifiable assets are those directly used in
the  operations  of each  segment.  Corporate  assets are  principally  cash and
investments.  Export  sales from the  United  States to  unaffiliated  customers
principally  in Europe and the Pacific Rim were $341.7  million in 1996,  $366.2
million  in 1995 and  $280.2  million in 1994.  There can be no  assurance  that
operations  and assets of the  Company  subject to the  jurisdiction  of foreign
governments   will  not  be  affected   adversely  by  future  actions  by  such
governments.



<PAGE>


A58

Business Segments and Lines of Business
<TABLE>
<CAPTION>
For the years ended December 31,                                       1996(a)          1995(a)       1994
                                                                       ----             ----          ----
<S>                                                               <C>            <C>             <C>
(in millions)
Sales
  Metals (detail below)                                               $ 2,304         $ 2,816         $ 1,675
  Specialty Chemicals                                                     319             309             278
  Aggregates                                                               47              44              43
  Other                                                                    27              29              36
                                                                      -------         -------         -------
Total                                                                 $ 2,697         $ 3,198         $ 2,032
                                                                      =======         =======         =======
Domestic                                                                1,820           2,137           1,867
Foreign - Peru                                                            706             882               -
           - Other                                                        171             179             165
Operating Income (Loss) (b), (c), (d)
  Metals                                                              $   277         $   486         $   (9)
  Specialty Chemicals                                                      19              19              14
  Aggregates                                                               10               8               7
  Other                                                                   (3)            (26)               6
                                                                      -------         -------         -------
Total                                                                 $   303         $   487         $    18
                                                                      =======         =======         =======
Domestic                                                                   33             106              17
Foreign - Peru                                                            260             378               -
           - Other                                                         10               3               1

Equity earnings (loss):
  Metals                                                              $   (1)         $   (2)         $     -
  Specialty Chemicals                                                       5               4               2
  Corporate (primarily SPCC)                                                -               -              46
                                                                      -------         -------         -------
Total                                                                 $     4         $     2         $    48
                                                                      =======         =======         =======

Identifiable Assets
  Metals                                                               $ 3,275        $ 3,098         $ 1,820
  Specialty Chemicals (e)                                                  272            266             247
  Aggregates                                                                33             32              32
  Other                                                                     50             44              43
  Corporate                                                                490            887           1,149
                                                                       -------        -------         -------
Total                                                                  $ 4,120        $ 4,327         $ 3,291
                                                                       =======        =======         =======
Domestic                                                                 2,631          2,867           3,097
Foreign - Peru                                                           1,290          1,280               -
        - Other                                                            199            180             194
 
Depreciation and Depletion
  Metals                                                               $   112        $   112         $    77
  Specialty Chemicals                                                        4              4               3
  Aggregates                                                                 2              2               2
  Corporate and Other                                                        1              1               1
                                                                             -              -               -
                                                                       -------        -------         -------
Total                                                                  $   119        $   119         $    83
                                                                       =======        =======         =======
Capital Expenditures
  Metals                                                               $   275        $   317         $    87
  Specialty Chemicals                                                        7              4               3
  Aggregates                                                                 3              3               2
  Corporate and other                                                        1             14               6
                                                                       -------        -------         -------
Total                                                                  $   286        $   338         $    98
                                                                       =======        =======         =======           
</TABLE>
(a)   Includes  consolidation of SPCC effective  January 1, 1995. See Note 2 for
      further details.
(b)   Includes  environmental and other closed plant charges,  net of recoveries
      of $12.1  Metals,  $0.1  Specialty  Chemicals,  $2.8 Other in 1996;  $54.9
      Metals,  $0.9 Specialty  Chemicals,  $20.5 Other in 1995 and $65.9 Metals,
      $0.2 Specialty Chemicals, $(0.5) Other in 1994.
(c)   Includes  provision  for asset  impairments  and plant  closures  of $37.4
      Metals and $8.2 Other in 1995. 
(d)   Includes  LIFO  profits  of $5.3 in  1996,  $0.7 in 1995  and $2.8 in 1994
      primarily in metals.
<PAGE>


A59

(e)   Includes vertically  integrated equity investments of $56.8 in 1996, $58.3
      in 1995 and $55.5 in 1994.

Metal Sales, excluding intersegment sales
<TABLE>
<CAPTION>
For the years ended December 31,                                 1996            1995            1994
                                                                 ----            ----            ----
<S>                                                              <C>             <C>             <C>
(in millions)
Copper                                                                $ 1,821         $ 2,170        $ 1,164
Silver                                                                    156             216            175
Lead                                                                      113             126            113
Other                                                                     214             304            223
                                                                      -------         -------        -------
                                                                      $ 2,304         $ 2,816        $ 1,675
                                                                      =======         =======        =======
</TABLE>

(14) Financial Instruments

Depending  on the  market  fundamentals  of a metal  and other  conditions,  the
Company may purchase put options or synthetic put options to reduce or eliminate
the risk of metal price  declines  below the option strike price on a portion of
its  anticipated  future  production.  Put  options  purchased  by  the  Company
establish a minimum sales price for the  production  covered by such put options
and permit the Company to participate in price increases above the option price.
Synthetic put options are  established  by purchasing a call option and entering
into a forward sale for the same quantity of metal at the same price and for the
same time  period as the call  option.  The cost of  options is  amortized  on a
straight-line  basis  during the period in which the  options  are  exercisable.
Depending upon market conditions the Company may either sell options it holds or
exercise  the  options  at  maturity.   Gains  or  losses,  net  of  unamortized
acquisition  costs,  are  recognized  in the  period  in  which  the  underlying
production is sold. The Company also uses futures  contracts to hedge the effect
of price changes on a portion of the metals it sells.  Gains and losses on hedge
contracts are reported as a component of the underlying transaction.

The Company's  beneficial interest,  which includes the Company's  proportionate
interest  in the  pre-tax  gain of SPCC,  from  1996  copper  option  sales  and
exercises was $45.8 million of which $28.5 million was  recognized in 1996.  The
remaining  $17.3  million  will  be  recognized  in  1997  when  the  underlying
production  is sold.  Copper put  options  with a cost of $2.2  million  expired
during the first six months of 1996.

As part of its price  protection  program,  the  Company may use  synthetic  put
options which consist of a call option and a forward sale.  Each  component of a
synthetic put option may be purchased or sold at different times. In those cases
where the forward sale  component  has not been entered into or has been offset,
call options purchased are accounted for as trading  activities and the carrying
values of such call options are marked to market and any related adjustments are
recorded in earnings.

At December 31, 1996, the Company held copper call options covering an aggregate
of 149.5 million  pounds of copper,  a portion of which are  exercisable in each
quarter  of 1997 at an  average  strike  price of $1.04  and zinc  call  options
covering an aggregate of 21.8 million pounds, one-third of which are exercisable
in each of the last  three  quarters  of 1997 at an average  strike  price of 52
cents.  The carrying  values of the copper and zinc call options at December 31,
1996 was $3.7 million and $0.3 million, respectively.

The recognized pre-tax gains (losses) of the Company's metal hedging and trading
activities, were:
<TABLE>
<CAPTION>
   For the years ending December 31,                          1996               1995                1994
                                                              ----               ----                ----
   <S>                                                  <C>                <C>                <C>
   (in millions)
   Metal
   -----
   Copper                                                       $ 26.9            $ (5.7)             $  3.2
   Zinc                                                          (0.1)              (0.1)                1.8
   Silver                                                            -                0.5                0.7
   Lead                                                            0.2              (0.3)                  -
                                                                ------            -------             ------
     Net Gain (Loss)                                            $ 27.0            $ (5.6)             $  5.7
                                                                ======            =======             ======
</TABLE>


<PAGE>


A60

The Company may enter into interest rate swap  agreements to limit the effect of
increases in the interest rates on any floating rate debt. The  differential  is
accrued as interest  rates  change and is recorded in interest  expense.  During
1995,  the Company  entered into three swap  agreements,  expiring 1998 to 2000,
with an  aggregate  notional  amount  of  $115.0  million.  The  effect of these
agreements is to limit the interest rate exposure to 6.6% on $100 million of the
Company's  revolving credit loans and 6.8% on its $15 million, 5 year term loan.
As a result of these swap  agreements  interest  expense was  increased  by $0.7
million in 1996 and $0.2 million in 1995.

The estimated fair values of the Company's financial instruments are:
<TABLE>
<CAPTION>
At December 31,                                                      1996                                 1995
(in millions)                                             Carrying           Fair               Carrying          Fair
                                                            Value           Value                Value           Value
<S>                                                    <C>              <C>                  <C>             <C>
Assets:
Cash and cash equivalents                                     $192.4          $192.4             $  238.4         $ 238.4

Marketable securities - held to maturity                      $  1.0          $  1.0             $   42.5         $  42.5

Put options                                                        -               -             $   10.0         $   6.5

Call options                                                  $  4.0          $  4.0                    -               -

Investments:
  Available-for-sale securities                               $387.9          $387.9             $  769.0         $ 769.0
  Restricted investment in Grupo Mexico                         50.2             (a)                 50.2             (a)
  Other                                                          4.6             (b)                  3.0             (b)
                                                              ------          ------             --------         -------
     Total investments                                        $442.7          $387.9             $  822.2         $ 769.0
                                                              ------          ------             --------         -------

Liabilities:
Long-term debt (excluding capital lease obligations)          $723.6          $736.9             $1,007.4        $1,044.6

Interest rate swaps                                                -          $(0.8)                    -        $    3.3
</TABLE>

(a)    At December 31, 1996 and 1995, 56.3 million shares of Asarco's investment
       in Grupo Mexico had restrictions limiting their sale for a period of more
       than one year. Accordingly, the Company has not determined the fair value
       of such securities.
(b)    No fair value was available for these  investments  as they  represent an
       interest in companies whose stock is not publicly traded. Accordingly, it
       is not practicable to determine the fair value of such securities.

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash and cash equivalents:  The carrying amount  approximates fair value because
of the short maturity of those instruments.



<PAGE>


A61

Marketable  securities:  The  carrying  amount  and fair value are  reported  at
amortized cost since these securities are to be held to maturity.

Put and call  options:  Fair  value is an  estimate  based  on  relevant  market
information  such as:  volatility  of similar  options,  futures  prices and the
contracted strike price. Call options represent trading securities. Average fair
value during the period approximated fair value at December 31, 1996.

Available-for-sale  securities  and Interest rate swaps:  Fair value is based on
quoted market prices.

Long-term debt: The fair value is based on the quoted market prices for the same
or  similar  issues  or the  carrying  value  is used  where a  market  price is
unavailable.

Unaudited Quarterly Data
(in millions, except per share data)
<TABLE>
<CAPTION>
                                          1996                                                  1995
                                          ----                                                  ----
QUARTERS         1st(a)    2nd(b)      3rd      4th(c)       Total          1st       2nd        3rd     4th(d)      Total
                 ======    ======      ===      ======       =====          ===       ===        ===     ======      =====
<S>             <C>       <C>       <C>        <C>       <C>             <C>       <C>        <C>       <C>       <C>

Sales              $717.2    $680.2     $647.8    $651.5      $2,696.7      $791.0     $787.5    $819.7    $799.6   $3,197.8

Operating           $92.6     $88.4      $51.7     $70.7        $303.4      $151.2     $137.4    $166.6    $ 31.9   $  487.1
 income

Net earnings (loss) $35.7     $72.4       $5.9     $24.3        $138.3      $ 65.7     $ 56.4    $ 58.3   $(11.2)   $  169.2


Net earnings
 (loss) per share   $0.84     $1.70      $0.14     $0.57         $3.24      $ 1.56     $ 1.34    $ 1.38   $(0.27)   $   4.00
Dividends paid
 per common share   $0.20     $0.20      $0.20     $0.20         $0.80      $ 0.10     $ 0.20    $ 0.20    $ 0.20   $   0.70
Stock market
 price:
  High            $35-1/4   $35-7/8    $27-7/8       $28       $35-7/8     $30-3/8    $31-1/8   $36-1/2   $35-7/8    $36-1/2
  Low             $27-1/2   $27-5/8    $23-3/4   $24-1/8       $23-3/4     $24-3/8    $25-3/8   $30-1/4   $29-3/8    $24-3/8
</TABLE>
(a)   Includes  a $7.2  after-tax  gain,  $11.1  pre-tax,  on the  sale of a 25%
      interest in the Company's Silver Bell project.
(b)   Includes  a  $39.0  after-tax  gain,  $60.1  pre-tax,  on the  sale of the
      Company's remaining 15.0% interest in MIM.
(c)   Includes  a pre-tax  charge of $0.6  ($53.3 in  charges,  including  $10.0
      related to the  application of SOP 96-1,  offset by $52.7 in insurance and
      other recoveries) for environmental and other closed plant matters.
(d)   Includes $79.5 after-tax charges,  $122.3 pre-tax, to add to the Company's
      reserve for  environmental  matters,  to provide for asset impairments and
      plant  closures  and to provide for the  writedown  of certain  in-process
      inventory to net realizable value.


Metals Price Sensitivity
(Estimates based on 42.8 million shares outstanding)

Assuming that expected metal production and sales are achieved,  tax and royalty
rates are  unchanged,  that the number of shares  outstanding  is unchanged  and
giving no effect to results of other  business  segments,  hedging  programs  or
changes  in the costs of  production,  metal  price  sensitivity  factors  would
indicate the following  estimated  change in earnings per share  resulting  from
metal  price  changes  in  1997.  Estimates  are  based on 42.8  million  shares
outstanding.

<TABLE>
<CAPTION>
                                                          Copper         Lead         Zinc        Silver         Molybdenum
<S>                                                  <C>             <C>          <C>         <C>           <C>
Change in Metal Price                                     1(cent)/lb     1(cent)/lb   1(cent)/lb  $1/oz.           $1/lb.
Annual Change in Earnings per Share                       16.0(cent)     4.3(cent)    1.6(cent)   12.4(cent)       11.3(cent)
</TABLE>


<PAGE>


A62

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of ASARCO Incorporated

We  have  audited  the  accompanying   consolidated  balance  sheets  of  ASARCO
Incorporated  and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated   statements  of  earnings,  cash  flows,  and  changes  in  common
stockholders'  equity for each of the three years in the period  ended  December
31, 1996.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material   respects,   the  consolidated   financial   position  of  ASARCO
Incorporated  and  Subsidiaries  as of  December  31,  1996  and  1995,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity  with generally
accepted accounting principles.


                                                        COOPERS & LYBRAND L.L.P.
New York, New York
January 28, 1997




<PAGE>


A63

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

None

                                    PART III

Items 10, 11, 12 and 13.

Reference is made to Executive Officers of Asarco and Business Experience During
the Past Five  Years on page A29.  Information  in  response  to the  disclosure
requirements  specified by these items  appears  under the captions and pages of
the 1996 Proxy Statement indicated below:

<TABLE>
<CAPTION>
                                                                                                      Proxy Statement
                                                                                                           Pages
Item      Required Information                        Proxy Statement Section
<S>       <C>                                         <C>                                            <C>
10.       Directors and Executive
            Officers                                  Election of Directors                                   2 - 5
11.       Executive Compensation                      Executive Compensation
                                                        through Option Exercises
                                                        and Fiscal Year-End
                                                        Values                                               13 - 15
                                                      Retirement Plans through
                                                        Employment Agreements                                16 - 18
12.       Security Ownership                          Security Ownership of Certain Beneficial
                                                          Owners through Common Stock Equivalents             5 - 7
13.       Certain Relationships and Related
             Transactions.                            Certain Transactions                                        18
</TABLE>



The information referred to above is incorporated herein by reference.



<PAGE>


A64
                                    PART IV

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

(a)  The following documents are filed as part of this report:

         1. Financial Statements

                The following  financial  statements of ASARCO  Incorporated and
its  subsidiaries  are included at the indicated pages of the document as stated
below:

<TABLE>
<CAPTION>
                                                                                                       Form 10-K
                                                                                                         Pages
<S>                <C>                                                                       <C>      <C>
                   Consolidated Statement of Earnings for the years
                     ended December 31, 1996, 1995 and 1994                                                    A39

                   Consolidated Balance Sheet at December 31,
                     1996 and 1995                                                                             A40

                   Consolidated Statement of Cash Flows for the
                     years ended December 31, 1996, 1995 and 1994                                              A41

                   Consolidated Statement of Changes in Common
                     Stockholders' Equity for the years ended
                     December 31, 1996, 1995 and 1994                                                          A42

                   Notes to Financial Statements                                                           A43-A61

                   Report of Independent Accountants                                                           A62

</TABLE>

         2.     Financial Statement Schedules
<TABLE>
<CAPTION>
                                                                                                       Form 10-K
                                                                                                         Pages
<S>                <C>                                                                       <C>      <C>
                   Schedule II - Valuation and qualifying
                       accounts                                                                          B1-B3

</TABLE>

Schedules other than those listed above are omitted, as they are not required or
are not  applicable,  or the  required  information  is shown  in the  financial
statements or notes  thereto.  Columns  omitted from  schedules  filed have been
omitted because the information is not applicable. Any other information omitted
from schedules filed has been omitted due to immateriality.




<PAGE>


A65
<TABLE>
<CAPTION>


         3. Exhibits

                Exhibit
                  No.
<S>                 <C>                                                                   <C>
                   3.    Certificate of Incorporation and By-Laws

                  (a)    Certificate of Incorporation - restated, filed May 4, 1970

                  (b)    Certificate of Amendment to the Certificate of Incorporation
                         effective April 23, 1975

                  (c)    Certificate of Amendment of Certificate of Incorporation
                         executed April 14, 1981

                  (d)    Certificate of Amendment of Restated Certificate of
                         Incorporation filed on May 6, 1985

                  (e)    Certificate of Amendment of Certificate of Incorporation
                         filed July 21, 1986

                  (f)    Certificate of Amendment of Restated Certificate of
                         Incorporation, as amended filed April 22, 1987

                  (g)    Statement of  Cancellation  filed July 31, 1987 whereby
                         155,000 shares of Series A Cumulative  Preferred  Stock
                         and 862,500  shares of $9.00  Convertible  Exchangeable
                         Preferred Stock were cancelled

                  (h)    Statement  of  Cancellation  filed  November  20,  1987
                         whereby   1,026,900   shares  of  Series  A  Cumulative
                         Preferred Stock were cancelled

                  (i)    Statement  of  Cancellation  filed  December  18,  1987
                         whereby   1,250,000   shares  of  Series  B  Cumulative
                         Convertible Preferred Stock were cancelled

                  (j)    Statement of  Cancellation  filed March 3, 1988 whereby
                         27,000  shares of Series A Cumulative  Preferred  Stock
                         were cancelled

                  (k)    Certificate of Amendment of Restated Certificate of Incorporation, as amended, filed August 7, 1989

                  (l)    By-Laws as last amended on June 26, 1991

                   4.    Instruments defining the rights of security holders, including indentures

                  (a)    There  are  currently   various  separate   indentures,
                         agreements or similar instruments under which long-term
                         debt of Asarco is currently outstanding. The Registrant
                         hereby  agrees  to  furnish  to  the  Commission,  upon
                         request,  a copy of any of the instruments which define
                         the  rights of holders of  long-term  debt  securities.
                         None of the outstanding instruments represent long-term
                         debt securities in excess of 10% of the total assets of
                         Asarco as of December 31, 1996

                  (b)    Form of  Rights  Agreement  dated as of July 26,  1989,
                         between the Company and First  Chicago Trust Company of
                         New  York,  as Rights  Agent,  defining  the  rights of
                         shareholders  under a July  1989  Shareholders'  Rights
                         plan and dividend declaration

                  (c)    Rights  Agreement  Amendment  dated as of September 24,
                         1992,  between the Company and The Bank of New York, as
                         Successor  Rights  Agent  under  the  Rights  Agreement
                         listed above


</TABLE>

<PAGE>


A66
<TABLE>
<CAPTION>

<S>                 <C>                                                              <C>
                  (d)    Second Rights Agreement  Amendment dated as of February
                         23, 1995,  between the Company and The Bank of New York
                         deleting  certain special  conditions  relating to MIM.
                         The effect of the amendment is to apply to MIM the same
                         percentage ownership conditions (15%) that apply to all
                         other shareholders.

                  (e)    Indenture  Agreement  dated  as of  February  1,  1993,
                         between  the  Company and  Bankers  Trust  Company,  as
                         Trustee,  covering  the  issuance  of  debt  securities
                         registered  by the  Company in April 1992 not to exceed
                         $250 million

                  (f)    Indenture  Agreement  dated  as  of  October  1,  1994,
                         between  the  Company and  Chemical  Bank,  as Trustee,
                         covering the issuance of debt securities  registered by
                         the Company in October 1994 not to exceed $300 million

                  10.    Material Contracts

                  (a)    Stock Option Plan as amended through November 30, 1994

                  (b)    Form of Amended Employment Agreement dated February 26, 1997, between the Company and currently 12 of
                         its executive officers, including Messrs. R. de J. Osborne, F.R. McAllister, K.R. Morano, R.M. Novotny
                         and R.J. Muth

                  (c)    Deferred Fee Plan for Directors, as amended through January 26, 1994

                  (d)    Supplemental Pension Plan for Designated Mid-Career Officers, as
                         amended through January 25, 1995

                  (e)    Retirement Plan for Non-Employee  Directors, as amended
                         through January 25, 1995.  Effective December 31, 1995,
                         the Company  terminated the plan for current and future
                         directors.

                  (f)    Directors' Stock Award Plan, as amended through January 27, 1993

                  (g)    Stock   Incentive   Plan   adopted  by  the   Company's
                         Shareholders  on April 25, 1990 and as amended  through
                         November 29, 1995

                  (h)    Directors' Deferred Payment Plan, effective October 25, 1995

                  (i)    Incentive Compensation Plan for Senior Officers, effective  January 1, 1996

                  (j)    1996 Stock Incentive Plan, effective April 24, 1996

                  (k)    Compensation Deferral Plan, effective December 1, 1996

                  11.    Statement re Computation of Earnings Per Share

                  12. Statement re Computation of Ratios

                  21.    Subsidiaries of the Registrant

                  23.    Consent of Independent Accountants

         The  exhibits  listed as 10(a)  through  (k)  above are the  management
         contracts or compensatory  plans or  arrangements  required to be filed
         pursuant to Item 14(c) of Form 10-K.

(b)      Reports of Form 8-K filed in the fourth quarter of 1996 and first quarter of 1997:      None

</TABLE>


<PAGE>


A67
<TABLE>
<CAPTION>
<S>       <C>                                                                                
(c)      Exhibits - The  exhibits  to this Form 10-K are  listed on the  Exhibit
         Index on pages C1 through  C4.  Copies of the  following  exhibits  are
         filed with this Form 10-K:
           10(b)  Form of Amended Employment Agreement
           11.    Statement re Computation of Earnings Per Share
           12.    Statement re Computation of Ratios
           21.    Subsidiaries of the Registrant
           23.  Consent of Independent Accountants is included on page A68 of this Annual Report on Form 10-K.
</TABLE>

Copies of exhibits may be acquired upon written request to the Treasurer and the
payment of processing and mailing costs.


Individual  financial  statements of subsidiaries and 50%-or-less  owned persons
accounted for by the equity method have been omitted  because such  subsidiaries
and 50%-or-less owned persons considered in the aggregate as a single subsidiary
would not constitute a significant subsidiary.




<PAGE>


A68

                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE



To the Board of Directors and
  Stockholders of ASARCO Incorporated


Our report on the consolidated  financial  statements of ASARCO Incorporated and
Subsidiaries has been included in this Form 10-K on page A62. In connection with
our  audits of such  financial  statements,  we have also  audited  the  related
financial  statement  schedule which appears on pages B1 through B3 of this Form
10-K.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.


                            COOPERS & LYBRAND L.L.P.



New York, New York
January 28, 1997


Item 14
Exhibit 23


                       CONSENT OF INDEPENDENT ACCOUNTANTS


We consent to the  incorporation by reference in the  Prospectuses  constituting
part of the Registration  Statements on Form S-3 (File Nos.  33-45631,  33-55993
and 333-02359) and Form S-8 (File Nos. 2-83782, 2-67732, 33-34606, 333-16875 and
333-18083) of ASARCO  Incorporated  of our report dated January 28, 1997, on our
audit of the  consolidated  financial  statements  of  Asarco  Incorporated  and
Subsidiaries,  which  report  appears on page A62 of this Annual  Report on Form
10-K.  We also  consent to the  incorporation  by reference of our report on our
audit of the financial statement schedule, which appears above.

We also  consent to the  reference  to our Firm as  experts in the  Prospectuses
referred to in the preceding paragraph only insofar as such reference relates to
our report  appearing on page A62 of this Annual  Report on Form 10-K and to our
report on the financial statement schedule which appears above.


                                                      COOPERS & LYBRAND L.L.P.


New York, New York
March 21, 1997


<PAGE>


A69

                                                           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.

Date: February 28, 1997

                                                ASARCO Incorporated
                                                    (Registrant)


                                                 By_/s/ Richard de J. Osborne
                                                (Richard de J. Osborne, Chairman
                                                  of the Board, Chief Executive
                                                     Officer and President)


Pursuant to 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.
<TABLE>
<CAPTION>
(a)          Principal Executive Officer:
<S>          <C>                                                               <C>
             /s/ Richard de J. Osborne      Chairman of the Board
             -------------------------                           
             (Richard de J. Osborne)

(b)          Principal Financial Officer:

             /s/ Kevin R. Morano            Vice President and
             (Kevin R. Morano)                Chief Financial Officer

(c)          Principal Accounting Officer:

             /s/ William Dowd                 Controller
             (William Dowd)

(d)          Directors:

             /s/ Richard de J. Osborne                                         /s/ Willard C. Butcher
             (Richard de J. Osborne)                                           (Willard C. Butcher)

             /s/ James C. Cotting                                              /s/ David C. Garfield
             (James C. Cotting)                                                (David C. Garfield)

             /s/ E. Gordon Gee                                                 /s/ James W. Kinnear III
             (E. Gordon Gee)                                                   (James W. Kinnear III)

             /s/ Francis R. McAllister                                         /s/ Martha T. Muse
             (Francis R. McAllister)                                           (Martha T. Muse)

             /s/ Michael T. Nelligan                                           /s/ John D. Ong
             (Michael T. Nelligan)                                             (John D. Ong)

             /s/ James Wood
             (James Wood)



</TABLE>
Date: February 28, 1997


<PAGE>



B1

                              ASARCO Incorporated
                                AND SUBSIDIARIES
                Schedule II - Valuation and Qualifying Accounts
                               FOR THE YEAR 1996
                                 (in thousands)
<TABLE>
<CAPTION>
          Column A             Column B                          Column C                            Column D              Column E
          --------             --------                          --------                            --------              --------

                                                                 Additions                          Deductions
                                              Charged to
                              Balance at   costs/expenses or                    Charged                                   Balance at
                              beginning       (credited)                        to other                                    end of
Description                   of period        to income        Description     accounts     Descriptions      Amount       period
-----------                   ---------        ---------        -----------     --------     ------------      ------      --------
<S>                         <C>           <C>                <C>              <C>         <C>               <C>          <C>
                                                                                          Accounts and
                                                                                          notes written
Deducted from assets                                                                      off, net of
   on Balance Sheet:                                                                      recoveries           $1,151

                                                                                          
                                                                                          Foreign currency
Allowance for                                                                             translation
     doubtful accounts:         $7,409          $1,993                                    adjustment            $122         $8,129
                                ======          ======                                                          ====         ======

                                                             Net amount
                                                             transferred from
                                                             noncurrent
Current portion of reserves                                  reserve for                  
     for closed plants and                                   closed plants
     environmental                                           and environmental            Current charges to
     matters                   $53,042                       matters            $39,983   reserves             $54,897      $38,128
                               =======                                          =======                        =======      =======

Non-current portion of                                                                    
     reserves for closed                                                                  Net amount
     plants and                                                                           transferred to
     environmental                                                                        current
     matters                   $62,484          $67,704                                   liabilities          $39,983      $90,205
                               =======          =======                                                        =======      =======

Included in caption "Other
     liabilities and                                                                      
     reserves" on Balance                                    Increase in the              Charges against
     Sheet                                                   reserve for                  the reserve for
   Other                       $26,018          $13,774      Major Repairs                Major Repairs        $2,854       $36,938
                               =======          =======                                                        ======       =======

</TABLE>


<PAGE>


B2

                              ASARCO Incorporated
                                AND SUBSIDIARIES
                Schedule II - Valuation and Qualifying Accounts
                               FOR THE YEAR 1995
                                 (in thousands)
<TABLE>
<CAPTION>
          Column A             Column B                          Column C                            Column D              Column E
          --------             --------                          --------                            --------              --------

                                                                 Additions                          Deductions
                                              Charged to
                              Balance at    costs/expenses                      Charged                                   Balance at
                              beginning      or (credited)                      to other                                     end of
Description                   of period        to income        Description     accounts     Descriptions      Amount        period
-----------                   ---------        ---------        -----------     --------     ------------      ------        ------
<S>                         <C>           <C>                <C>              <C>         <C>               <C>         <C>
                                                                                          Accounts and
                                                                                          notes written
Deducted from assets                                                                      off, net of
   on Balance Sheet:                                                                      recoveries           $1,125

                                                                                          
                                                                                          Foreign currency
Allowance for                                                                             translation
     doubtful accounts:         $6,249          $2,189                                    adjustment           $(96)         $7,409
                                ======          ======                                                         =====         ======

                                                             Net amount
                                                             transferred from
                                                             noncurrent
Current portion of reserves                                  reserve for     
     for closed plants and                                   closed plants    
     environmental                                           and environmental            Current charges to
     matters                   $55,946                       matters            $73,874   reserves            $76,778       $53,042
                               =======                                          =======                       =======       =======

Non-current portion of                                                                    
     reserves for closed                                                                  Net amount
     plants and                                                                           transferred to
     environmental                                                                        current
     matters                   $66,458          $69,900                                   liabilities         $73,874       $62,484
                               =======          =======                                                       =======       =======

Included in caption "Other
     liabilities and
     reserves" on Balance
     Sheet
   Other                       $28,435                                                                                      $26,018
                               =======                                                                                      =======

</TABLE>


<PAGE>


B3

                              ASARCO Incorporated
                                AND SUBSIDIARIES
                Schedule II - Valuation and Qualifying Accounts
                               FOR THE YEAR 1994
                                 (in thousands)
<TABLE>
<CAPTION>
          Column A             Column B                          Column C                            Column D              Column E
          --------             --------                          --------                            --------              --------

                                                                 Additions                          Deductions
                                              Charged to
                              Balance at    costs/expenses                      Charged                                   Balance at
                              beginning      or (credited)                      to other                                    end of
Description                   of period        to income        Description     accounts     Descriptions      Amount       period
-----------                   ---------        ---------        -----------     --------     ------------      ------       ------
<S>                         <C>           <C>                <C>              <C>         <C>               <C>         <C>
                                                                                          Accounts and
                                                                                          notes written
Deducted from assets                                                                      off, net of
   on Balance Sheet:                                                                      recoveries           $1,197

                                                                                          
                                                                                          Foreign currency
Allowance for doubtful                                                                    translation 
     accounts:                  $4,579          $2,525                                    adjustment          $(342)        $6,249
                                ======          ======                                                         ======        ======

                                                             Net amount
                                                             transferred from             
                                                             noncurrent
Current portion of reserves                                  reserve for
     for closed plants and                                   closed plants
     environmental matters                                   and                          
                                                             environmental                Current charges
                               $46,409                       matters            $54,441   to reserves         $44,904       $55,946
                               =======                                          =======                       =======       =======

Non-current portion of
     reserves for closed                                                                  Net amount
     plants and                                                                           transferred to
     environmental matters                                                                current
                               $69,694          $51,205                                   liabilities         $54,441       $66,458
                               =======          =======                                                       =======       =======

Included in caption "Other
     liabilities and
     reserves" on Balance
     Sheet
   Other                       $28,451                                                                                      $28,435
                               =======                                                                                      =======

</TABLE>


<PAGE>




C1
                              ASARCO Incorporated
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit                                                                                                    Indexed
  No.                                                Description                                           on Page
<S>           <C>                                                                                        <C>
3.            Certificate of Incorporation and By-Laws

              (a)    Certificate of Incorporation - restated,  filed May 4, 1970
                     (Filed as an Exhibit to the Company's 1980 Annual Report on
                     Form 10-K and incorporated herein by reference)

              (b)    Certificate   of   Amendment   to   the    Certificate   of
                     Incorporation effective April 23, 1975 (Filed as an Exhibit
                     to the  Company's  1980  Annual  Report  on Form  10-K  and
                     incorporated herein by reference)

              (c)    Certificate of Amendment of  Certificate  of  Incorporation
                     executed  April  14,  1981  (Filed  as an  Exhibit  to  the
                     Post-Effective  Amendment No. 8 to  Registration  Statement
                     No. 2-47616,  filed April 30, 1981 and incorporated  herein
                     by reference)

              (d)    Certificate   of  Amendment  of  Restated   Certificate  of
                     Incorporation  filed on May 6, 1985 (Filed as an Exhibit to
                     the Company's Quarterly Report on Form 10-Q for the quarter
                     ended March 31, 1985 and incorporated herein by reference)

              (e)    Certificate of Amendment of  Certificate  of  Incorporation
                     filed July 21, 1986  (Filed as an Exhibit to the  Company's
                     Quarterly  Report on Form 10-Q for the  quarter  ended June
                     30, 1986 and incorporated herein by reference)

              (f)    Certificate   of  Amendment  of  Restated   Certificate  of
                     Incorporation, as amended filed April 22, 1987 (Filed as an
                     Exhibit to the  Company's  1987 Annual  Report on Form 10-K
                     and incorporated herein by reference)

              (g)    Statement  of  Cancellation  filed  July 31,  1987  whereby
                     155,000 shares of Series A Cumulative  Preferred  Stock and
                     862,500 shares of $9.00 Convertible  Exchangeable Preferred
                     Stock were cancelled  (Filed as an Exhibit to the Company's
                     1987 Annual Report on Form 10-K and incorporated  herein by
                     reference)

              (h)    Statement of  Cancellation  filed November 20, 1987 whereby
                     1,026,900  shares of Series A  Cumulative  Preferred  Stock
                     were  cancelled  (Filed as an Exhibit to the Company's 1987
                     Annual  Report  on Form  10-K and  incorporated  herein  by
                     reference)

              (i)    Statement of  Cancellation  filed December 18, 1987 whereby
                     1,250,000   shares  of  Series  B  Cumulative   Convertible
                     Preferred Stock were cancelled  (Filed as an Exhibit to the
                     Company's 1987 Annual Report on Form 10-K and  incorporated
                     herein by reference)

</TABLE>


<PAGE>


C2
                              ASARCO Incorporated
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit                                                                                                     Indexed
  No.                                                Description                                            on Page
<S>           <C>                                                                                        <C>
              (j)    Statement  of  Cancellation  filed  March 3,  1988  whereby
                     27,000 shares of Series A Cumulative  Preferred  Stock were
                     cancelled (Filed as an Exhibit to the Company's 1987 Annual
                     Report on Form 10-K and incorporated herein by reference)

              (k)    Certificate   of  Amendment  of  Restated   Certificate  of
                     Incorporation,  as amended,  filed August 7, 1989 (Filed as
                     an Exhibit to the Company's  Quarterly  Report on Form 10-Q
                     for the quarter ended June 30, 1989 and incorporated herein
                     by reference)

              (l)    By-Laws as last amended on June 26, 1991
                     (Filed as an Exhibit to the Company's 1991 Annual Report on
                     Form 10-K and incorporated herein by reference.)

4.                   Instruments   defining  the  rights  of  security  holders,
                     including indentures

              (a)    There are currently various separate indentures, agreements
                     or similar instruments under which long-term debt of Asarco
                     is currently  outstanding.  The Registrant hereby agrees to
                     furnish to the Commission,  upon request,  a copy of any of
                     the  instruments  which  define  the  rights of  holders of
                     long-term  debt   securities.   None  of  the   outstanding
                     instruments  represent  long-term debt securities in excess
                     of 10% of the total  assets of  Asarco as of  December  31,
                     1996

              (b)    Form of Rights Agreement dated as of July 26, 1989, between
                     the Company and First Chicago Trust Company of New York, as
                     Rights Agent,  defining the rights of shareholders  under a
                     July   1989   Shareholders'   Rights   plan  and   dividend
                     declaration (Filed as an Exhibit to the Company's report on
                     Form 8-K filed on July 28, 1989 and incorporated  herein by
                     reference)

              (c)    Rights Agreement  Amendment dated as of September 24, 1992,
                     between the Company and The Bank of New York,  as Successor
                     Rights Agent under the Rights Agreement listed above (Filed
                     as an Exhibit to the  Company's  1992 Annual Report on Form
                     10-K and incorporated herein by reference)

              (d)    Second Rights Agreement  Amendment dated as of February 23,
                     1995,  between  the Company and The Bank of New York (Filed
                     as an Exhibit to the Company's  report on Form 8-K filed on
                     February 24, 1995, and incorporated herein by reference)

              (e)    Indenture  Agreement  dated as of February 1, 1993  between
                     the Company and Bankers Trust Company, as Trustee, covering
                     the issuance of debt  securities  registered by the Company
                     in April  1992,  not to exceed  $250  million  (Filed as an
                     Exhibit to the  Company's  1992 Annual  Report on form 10-K
                     and incorporated herein by reference)

</TABLE>


<PAGE>


C3

                              ASARCO Incorporated
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit                                                                                                     Indexed
  No.                                                Description                                            on Page
<S>           <C>                                                                                        <C>
              (f)    Indenture agreement dated as of October 1, 1994 between the
                     Company and Chemical Bank, as Trustee covering the issuance
                     of debt  securities  registered  by the  Company in October
                     1994,  not to exceed $300  million  (Filed as an Exhibit to
                     the Company's  registration  statement on Form S-3 filed on
                     October 12, 1994, and incorporated herein by reference)

10.                  Material Contracts
              (a)    Stock  Option  Plan as last  amended on  November  30, 1994
                     (Filed as an Exhibit to the Company's 1994 Annual Report on
                     Form 10-K and incorporated herein by reference)

              (b)    Form of Amended  Employment  Agreement  dated  February 26,
                     1997, between the Company and currently 12 of its executive
                     officers,   including  Messrs.  R.  de  J.  Osborne,   F.R.
                     McAllister, K.R. Morano, R.M. Novotny and R.J. Muth
                                                                                                            C11-C20
              (c)    Deferred Fee Plan for Directors, as amended through January
                     26, 1994 (Filed as an Exhibit to the Company's  1993 Annual
                     Report on Form 10-K and incorporated herein by reference)

              (d)    Supplemental   Pension  Plan  for   Designated   Mid-Career
                     Officers,  as amended through January 25, 1995 (Filed as an
                     Exhibit to the  Company's  1994 Annual  Report on Form 10-K
                     and incorporated herein by reference)

              (e)    Retirement  Plan for  Non-Employee  Directors,  as  amended
                     through January 25, 1995.  Effective December 31, 1995, the
                     Company   terminated   the  plan  for  current  and  future
                     directors.  (Filed  as an  Exhibit  to the  Company's  1994
                     Annual  Report  on Form  10-K and  incorporated  herein  by
                     reference)

              (f)    Directors' Stock Award Plan, as amended through January 27,
                     1993  (Filed as an Exhibit  to the  Company's  1992  Annual
                     Report on Form 10-K and incorporated herein by reference)

              (g)    Stock Incentive Plan adopted by the Company's  Shareholders
                     on April 25,  1990,  as last  amended on November  29, 1995
                     (Filed as an Exhibit to the Company's 1995 Annual Report on
                     Form 10-K and incorporated herein by reference)

              (h)    Director's  Deferred  Payment Plan,  effective  October 25,
                     1995  (Filed as an Exhibit  to the  Company's  1995  Annual
                     Report on Form 10-K and incorporated herein by reference)

              (i)    Incentive Compensation Plan for Senior Officers,  effective
                     January 1, 1996 (Filed on Exhibit B to the  Company's  1996
                     Proxy  Statement  filed on March 12, 1996 and  incorporated
                     herein by reference)

</TABLE>

<PAGE>


C4

<TABLE>
<CAPTION>
Exhibit                                                                                                     Indexed
  No.                                                Description                                            on Page
<S>           <C>                                                                                        <C>
              (j)    1996 Stock Incentive Plan, effective April 24, 1996
                     (Filed  as  an  Exhibit  to  the   Company's   Registration
                     Statement  on Form S-8  filed on  December  17,  1996,  and
                     incorporated herein by reference)

              (k)    Compensation Deferral Plan, effective December 1, 1996
                     (Filed  as  an  Exhibit  to  the   Company's   Registration
                     Statement  on Form S-8  filed on  November  26,  1996,  and
                     incorporated herein by reference)


11.           Statement re Computation of Earnings Per Share                                                  C5

12.           Statement re Computation of Ratios                                                              C6

21.           Subsidiaries of the Registrant                                                                 C7-C9

23.           Consent of Independent Accountants is included on page A68 of this
              Annual Report on Form 10-K.
</TABLE>

Report on Form 11-K  relating  to the Savings  Plan for  Salaried  Employees  of
ASARCO  Incorporated and Participating  Subsidiaries is to be filed by amendment
on Form 10-K/A.

Copies of exhibits may be acquired upon written request to the Treasurer and the
payment of processing and mailing costs.




<PAGE>


C5

Exhibit 11 Statement re Computation of Earnings per Share


This calculation is submitted in accordance with regulation S-K item 601(b)(11).


Fully Diluted Earnings per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                                   For the years ended December 31,

                                                                                1996              1995             1994
                                                                                ----              ----             ----
<S>                                                                       <C>               <C>               <C>
Net earnings (loss) applicable to common stock                                  $138,336          $169,153          $64,034
                                                                                ========          ========          =======


Weighted average number of common shares outstanding
                                                                                  42,711            42,326           41,905
     Shares issuable from assumed excercise of Stock Options                          58               132               91
                                                                                  ------            ------          -------
Weighted average number of common shares outstanding, as adjusted                 42,769            42,458           41,996
                                                                                  ======            ======           ======

Fully diluted earnings per share:
   Net earnings (loss) applicable to common stock                                  $3.23             $3.98            $1.52
                                                                                   =====             =====            =====

Primary earnings per share:
    Net earnings (loss) applicable to common stock                                 $3.24             $4.00            $1.53
                                                                                   =====             =====            =====

</TABLE>



<PAGE>


C6

Exhibit 12 Statement re Computation of  Consolidated  Ratio of Earnings to Fixed
Charges and Combined  Fixed Charges and Preferred  Share  Dividend  Requirements
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                           1996           1995          1994          1993           1992
                                                           ----           ----          ----          ----           ----
                             (Dollars in thousands)
<S>                                                  <C>             <C>           <C>           <C>           <C>

NET EARNINGS                                               $138,336      $169,153      $ 64,034      $ 15,619       $(83,091)
  Adjustments
    Taxes on Income                                          99,924       122,465         9,375      (36,503)        (37,371)
     Equity Earnings, Net of Taxes                           (3,837)       (1,837)      (47,653)      (27,384)         (2,575)
     Cumulative Effect of Change
       in Accounting Principle                                    -             -             -      (86,295)          53,964
     Dividends received from
       non-consolidated
       companies                                              4,047         1,828        14,301         1,676             803
     Total Fixed Charges                                     83,553        99,516        66,377        64,359          62,200
     Interest Capitalized                                   (2,839)       (3,256)         (869)       (4,010)         (7,433)
     Capitalized Interest Amortized                           2,274         2,949         1,727         1,629           1,825
     Minority interest                                       88,331       129,543           809           693             615
                                                           --------      --------      --------      --------        --------
EARNINGS (LOSS)                                            $409,789      $520,361      $108,101     $(70,216)       $(11,063)
                                                           ========      ========      ========     ========        ======== 
FIXED CHARGES
     Interest Expense                                       $76,442      $ 91,954      $ 62,529      $ 57,321        $ 51,230
     Interest Capitalized                                     2,839         3,256           869         4,010           7,433
     Imputed Interest Expense                                 4,272         4,306         2,979         3,028           3,537
                                                           --------      --------      --------      --------        --------
TOTAL FIXED CHARGES                                        $ 83,553      $ 99,516      $ 66,377      $ 64,359        $ 62,200
                                                           ========      ========      ========      ========        ========
Ratio of Earnings to Fixed Charges                              4.9           5.2           1.6           (a)             (a)
                                                           ========      ========      ========           ===             ===
</TABLE>

(a)  For the years 1993 and 1992,  earnings  were  insufficient  to cover  fixed
     charges by $134,575 and $73,263, respectively.



<PAGE>


C7

Item 14.     (c) Exhibit 21    Subsidiaries of the Registrant

<TABLE>
<CAPTION>
                                                                                              Percentage of
                                                                                            voting securities           Key to
                                                                                              owned or other            notes
                                      Name of Company                                        bases of control           below
<S>    <C>                                                                             <C>                           <C>
       PARENTS:  None

       Registrant:  ASARCO Incorporated                                                                                  (A)

       SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES:

1      Air Resources Corporation (Delaware)                                            100.0                             (A)
2      Alta Mining and Development Company (Utah)                                         62.4                           (C)
3      American Limestone Company, Inc. (Delaware)                                       100.0                           (A)
4      American Smelting and Refining Company (New Jersey)                               100.0                           (C)
5      AR Mexican Explorations Inc. (Delaware)                                           100.0                           (A)
6         Compania Minera Real de Las Lomas, S.A. de C.V. (Mexico)                           100.0                       (A)
7         Minera San Bernardo, S.A. de C.V. (Mexico)                                         100.0                       (A)
8         Minera Santa Regina, S.A. de C.V. (Mexico)                                         100.0                       (A)
9      AR Mexican Holdings, Inc. (Delaware)                                              100.0                           (A)
10        AR Specialty Chemicals, S. A. de C.V. (Mexico)                                     100.0                       (A)
11          Enthone-OMI de Mexico S.A. de C.V. (Mexico)                                           100.0                  (A)
12            Rafco Kemicals S.A. de C.V. (Mexico) (See 45)                                            17.0            (B) (E)
13     AR Silver Bell, Inc. (Delaware)                                                 100.0                             (A)
14        Silver Bell Mining, L.L.C. (Delaware)                                               75.0                       (A)
15     AR Montana Corporation (Delaware)                                                 100.0                           (A)
16     Asarco Arizona, Inc. (Delaware)                                                 100.0                             (A)
17     Asarco (Delaware) Incorporated (Delaware)                                         100.0                           (A)
18        Grupo Mexico, S.A. de C.V. (Mexico) (See 26 & 93)                                    2.4                     (B) (E)
19     Asarco Exploration Company, Inc. (New York)                                     100.0                             (A)
20        ASARCO Guyane Francaise S.A.R.L.                                             100.0                             (A)
21     Asarco Exploration Company of Canada, Limited
         (Canada)                                                                      100.0                             (A)
22     Asarco Finance Limited (Bermuda)                                                  100.0                           (C)
23     Asarco International Corporation (Delaware)                                       100.0                           (A)
24     Asarco International Corp. FSC (Virgin Islands)                                 100.0                             (A)
25     Asarco de Mexico (Delaware) Inc.                                                100.0                             (A)
26        Grupo Mexico, S.A. de C.V. (Mexico) (See 18 & 93)                                    0.09                    (B) (E)
27     Asarco Oil and Gas Company, Inc. (New York)                                       100.0                           (A)
28     Asarco Peruvian Exploration Company (Delaware)                                  100.0                             (A)
29     ASARCO Santa Cruz, Inc. (Delaware)                                                100.0                           (A)
30        Covington Land Company (Delaware)                                                  100.0                       (A)
31        CP Water Company (Arizona)                                                          50.0                       (A)
32     Asarco Trans-Ural Company (Delaware)                                            100.0                             (C)
33        Asarco Aginskoe, Inc. (Delaware)                                                   100.0                       (C)
34     BioTrace Laboratories, Incorporated (Utah)                                        100.0                           (C)
35     Bridgeview Management Company, Inc. (New Jersey)                                100.0                             (A)
36     Compania Minera Asarco, S.A. (Chile)                                              100.0                           (A)
37     Copper Basin Railway, Inc. (Delaware)                                              45.0                         (B) (D)
38     Domestic Realty Company, Inc. (Montana)                                           100.0                           (A)
39     Encycle, Inc. (Delaware)                                                          100.0                           (A)
40        Hydrometrics, Inc. (Delaware)                                                      100.0                       (A)
41        Encycle/Texas, Inc. (Delaware)                                                     100.0                       (A)
42     Enthone, Incorporated (New York)                                                  100.0                           (A)
43        Meltex, Inc. (Japan)                                                                16.25                    (B) (D)
44          Enthone-OMI (Singapore) Pte. Ltd. (Singapore)                                           3.2                  (A)
          (See 85)
45        Rafco Kemicals, S.A. de C.V. (Mexico) (See 12)                                      34.0                       (C)
46     Enthone-OMI, Inc. (Delaware)                                                      100.0                           (A)
</TABLE>


<PAGE>


C8

Form 10-K

Item 14.    (c) Exhibit 21    Subsidiaries of the Registrant
<TABLE>
<CAPTION>
                                                                                              Percentage of
                                                                                            voting securities           Key to
                                                                                              owned or other            notes
                                       Name of Company                                       bases of control           below

<S>     <C>                                                                            <C>                           <C>

        SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES, cont'd:


47        Ebara-Udylite Co., Ltd. (Japan)                                                     45.0                     (B) (D)
48     Electroplating Engineers of Japan Ltd. (Japan)                                         25.0                     (B) (D)
         (See 75)
49           Electroplating Engineers S.A. (Switzerland)                                           24.0                (B) (D)
            (see 51)
50      Enthone-OMI (Benelux) B.V. (The Netherlands)                                         100.0                       (A)
51           Electroplating Engineers S.A. (Switzerland)                                           20.0                (B) (D)
            (see 49)
52           Enthone-OMI (France) S.A. (France) (See 56)                                           28.5                  (A)
53      Enthone-OMI (Canada) Inc. (Ontario, Canada)                                          100.0                       (A)
54      Enthone-OMI (Deutschland)GmbH (Germany)                                              100.0                       (A)
55       IMASA B.V. (The Netherlands)                                                        100.0                       (A)
56      Enthone-OMI (France) S.A. (France) (See 52)                                           71.5                       (A)
57      Enthone-OMI Holdings (U.K.) Ltd. (United                                          82.41                          (A)
          Kingdom) (see 70)
58           AMZA Ltd. (Israel)                                                                    33.3                (B) (D)
59           Enthone-OMI (U.K.) Limited (United Kingdom)                                     100.0                       (A)
60           L.P.W. Chemie GmbH (Germany)                                                          49.0                (B) (D)
61             Blasberg Oberflaechentechnik GmbH (Germany)                                            100.0              (A)
62             Galvano Production Chemie GmbH (Germany)                                               100.0              (A)
63             Nihon LPW K.K. (Japan)                                                                  40.0            (B) (E)
64      Enthone-OMI (Hong Kong) Company Limited (Hong                                          5.5                       (A)
          Kong) (See 82)
65      Enthone-OMI (Italia) S.p.A. (Italy) (See 71)                                          51.6                       (A)
66      Enthone-OMI K.K. (Japan)                                                             100.0                       (A)
67      Enthone-OMI (Sverige) A.B. (Sweden)                                                  100.0                       (A)
68             IMASA Kemi A.B. (Sweden)                                                      100.0                       (A)
69      Enthone-OMI (Europe)                                                                 100.0                       (A)
70          Enthone-OMI Holdings (U.K.) Ltd. (United                                            17.59                    (A)
            Kingdom) (See 57)
71           Enthone-OMI (Italia) S.p.A. (Italy) (See 65)                                          48.4                  (A)
72           Imasa A.G. (Switzerland)                                                              40.0                (B) (D)
73           Internacional de Manufacturas Asociadas, S.A.                                        100.0                  (A)
            (Spain)
74      OMI Holding S.A. (Switzerland)                                                       100.0                       (A)
75           Electroplating Engineers of Japan Ltd. (Japan)                                        25.0                (B) (D)
            (See 48)
76           Enthone-OMI (Suisse) S.A. (Switzerland)                                              100.0                  (A)
77      OMI International Corporation (Delaware)                                             100.0                       (A)
78           Enthone-OMI (Australia) Pty. Ltd. (Victoria,                                         100.0                  (A)
             Australia)
79           Enthone-OMI (Austria) GmbH (Austria)                                                 100.0                  (A)
80           Enthone-OMI (Espana) S.A. (Spain)                                                    100.0                  (A)
</TABLE>


<PAGE>


C9

Form 10-K

Item 14.    (c) Exhibit 21    Subsidiaries of the Registrant
<TABLE>
<CAPTION>
                                                                                                Percentage of
                                                                                              voting securities           Key to
                                                                                                owned or other            notes
                                        Name of Company                                        bases of control           below
<S>      <C>                                                                             <C>                           <C>

         SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES, cont'd:


81            Enthone-OMI (Europe) Corporation (Delaware)                                           100.0                  (A)
82            Enthone-OMI (Hong Kong) Company Limited (Hong                                          94.5                  (A)
            Kong) (See 64)
83              Hua-Mei Electroplating Technology Company Ltd.                                           45.0            (B) (D)
              (People's Rep.of China)
84              Hua-Mei (Tianjin) Electroplating Technology                                              45.0            (B) (D)
                 Company, Ltd.
85            Enthone-OMI (Singapore) Pte. Ltd. (Singapore)                                          96.8                  (A)
              (See 44)
86              Enthone-OMI (Malaysia) SDN BHD (Malaysia)                                               100.0              (A)
87       Federal Mining and Smelting Company (Idaho)                                       100.0                           (A)
88       Federated Metals Canada Limited (Canada)                                          100.0                           (A)
89       Federated Genco Limited (Canada)                                                       60.0                     (B) (D)
90       Federated Metals Corporation (New York)                                           100.0                           (A)
91       LSLC Corp. (New York).                                                                100.0                       (C)
92       Geominerals Insurance Company, Ltd. (Bermuda)                                     100.0                           (A)
93       Grupo Mexico, S.A. de C.V. (Mexico) (See 18 & 26)                                  21.1                         (B) (E)
94       Lac d'Amiante du Quebec, Ltee (Delaware)                                          100.0                           (A)
95       LAQ Canada, Ltd. (Delaware)                                                                100.0                  (A)
96       Mines Trading Company Limited (United Kingdom)                                    100.0                           (A)
97       Mining Development Company (Delaware)                                             100.0                           (A)
98       Puya Raymondi Empresa Minera S.A. (Bolivia)                                            70.0                       (A)
99       Minto Explorations Ltd. (British Columbia)                                         47.83                        (B) (D)
100      Mission Exploration Company (Delaware)                                            100.0                           (A)
101           Lesarco, Inc. (Phillipines)                                                       30.0                       (A)
102      NCBR, Inc. (Delaware)                                                             100.0                           (A)
103      Neptune Mining Company (Delaware)                                                  52.2                         (B) (D)
104      Northern Peru Mining Corporation (Delaware)                                       100.0                           (A)
105      Silver Valley Resources Corporation (Delaware)                                     50.0                           (A)
106      Southern Peru Copper Corporation (Delaware)                                        62.6                           (A)
107        Southern Peru Limited (Delaware) 100.0 (A)
108           Fomenta, S.A. (Peru)                                                              99.50                      (A)
109             Pegasus Travels, S.A. (Peru)                                                         90.0                  (A)
110           Logistics Service Incorporated (Delaware)                                        100.0                       (A)
111             LSI-Peru, S.A. (Peru)                                                                98.18                 (A)
112           Globe Natural Resources Inc. (Delaware)                                          100.0                       (C)
113           Multimines Corporation (Delaware)                                                100.0                       (B)
114           Multimines Insurance Company, Ltd. (Bermuda)                                     100.0                       (A)
115           Recursos e Inversiones Andinas, S.A. (Peru)                                       99.99                      (A)
116             Caleras Orbama, S.A. (Peru)                                                          99.26                 (B)
117             Compania Minera Los Tolmos, S.A. (Peru)                                              98.05                 (B)
118           Inversiones Mineras El Puente, S.A. (Peru)                                        99.88                      (B)
119             Pacific Mining Investments Ltd. (Cayman Islands)                                    100.0                  (C)
120      The International Metal Company (New York)                                      100.0                             (A)
121      Tulipan Company, Inc. (Delaware)                                                   63.0                         (B) (E)

</TABLE>


<PAGE>


C10

                                     NOTES

(A) Included in financial statements of Registrant and consolidated subsidiaries
at December 31, 1996, filed as part of this Form 10-K.

(B)  Excluded  from  financial   statements  of  Registrant   and   consolidated
subsidiaries  filed as part of this Form  10-K,  except to the  extent  noted in
Notes D and E. These companies are not in the aggregate considered significant.


(C) Inactive, having no assets or liabilities.


(D)  Carried on the  equity  method.  None of the  50%-or-less  owned  companies
constitutes a significant subsidiary.


(E) Grupo  Mexico is  carried  on the cost  method.  Effective  January 1, 1995,
Asarco  consolidated the financial results of SPCC in its financial  statements.
Previously, SPCC was accounted for under the equity method.




<PAGE>


C11

                                 Exhibit 10(b)

                              ASARCO INCORPORATED

                      FORM OF AMENDED EMPLOYMENT AGREEMENT
                               February 26, 1997


                  THIS AMENDED  EMPLOYMENT  AGREEMENT,  dated as of February 26,
1997,  between  ASARCO  Incorporated,  a New Jersey  corporation  (including its
subsidiaries unless the context otherwise requires, the "Company"), and ((Name))
(the "Employee").

                              W I T N E S S E T H

               WHEREAS, Employee has served the Company for a number of years in
various managerial positions and is currently ((Title)) of the Company; and
               WHEREAS,  the Company and the Employee  have  previously  entered
into an Employment Agreement; and
               WHEREAS, the Company desires to insure the continued availability
to the  Company of the  Employee's  services,  managerial  skills  and  business
experience  and the  Employee is willing to render such  services,  all upon and
subject to the terms and conditions contained in this Amended Agreement;
               NOW THEREFORE,  in  consideration  of the premises and the mutual
covenants  set forth in this  Amended  Agreement,  the Company and the  Employee
agree as follows:

               1. Employment Agreement. The Company hereby employs the Employee,
and the  Employee  hereby  accepts and agrees to be  employed,  as an  executive
officer of the Company on a full-time  basis for a period of one year commencing
on the date of this Agreement and continuing until the first anniversary of such
date,  and  thereupon  automatically  renewing  on  a  year-to-year  basis  (the
"Employment  Term") unless the Company or the Employee shall give written notice
at least nine months  prior to any  anniversary  date that the  Employment  Term
shall expire on such anniversary date and unless earlier terminated  pursuant to
Section 4 of this Agreement;  provided,  however, that if a Change in Control of
the  Company,  as defined in Section 5 of this  Agreement,  shall have  occurred
during the original or extended term of this  Agreement,  this  Agreement  shall
continue in effect for a period of not less than  thirty-six  (36) months beyond
the month in which such Change in Control  occurred,  unless earlier  terminated
pursuant  to  Section 4 of this  Agreement.  Notwithstanding  anything  provided
herein to the contrary,  the term of this Agreement  shall not extend beyond the
end of the  month in which the  Employee  attains  his  Regular  Retirement,  as
defined in Section 5(c) of this Agreement.


               2. Duties. The Employee shall perform such duties of an executive
nature  as  those  currently  performed  by him  for the  Company  and as may be
assigned to him from time to time by an appropriate  senior executive officer of
the Company or the Board of Directors of the Company (the "Board"). The Employee
shall devote the same amount of time,  attention  and energies to the affairs of
the Company as the Employee  has devoted to the affairs of the Company  prior to
the date of this  Agreement.  The Employee shall use his best efforts to perform
his  duties  and  discharge  his  responsibilities  pursuant  to this  Agreement
competently,  carefully  and  faithfully,  and  such  performance  shall be of a
quality consistent with his  responsibilities as an officer of the Company.  The
Employee agrees that, subject to the terms and conditions of this Agreement,  in
the event of a  Potential  Change in Control,  as defined in this  Section 2, he
will remain in the employ of the Company  until the earliest of (a) a date which
is 180 days from the  occurrence of such  Potential  Change in Control,  (b) his
termination  of employment  by the Company,  (c) the  termination  by him of his
employment by reason of death, or Regular  Retirement,  or (d) the date on which
he first becomes entitled under this Agreement to terminate his employment under
circumstances  entitling  him to receive the benefits  provided in Section 5(c).
For purposes of this Agreement,  a "Potential Change in Control" shall be deemed
to have occurred if:


<PAGE>


C12

               a. the Company  enters into an  agreement,  the  consummation  of
which would result in the occurrence of a Change in Control;
               b. any "person" (as such term is used in Sections 13(d) and 14(d)
of the  Securities  Exchange  Act of 1934,  as amended  (the  "Exchange  Act")),
including  the Company,  publicly  announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control;
               c. any person,  other than a trustee or other  fiduciary  holding
securities  under an employee  benefit plan of the Company (or a company  owned,
directly or indirectly,  by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company),  who is or becomes
the  beneficial  owner,  directly or  indirectly,  of  securities of the Company
representing  9.5% or more of the combined  voting power of the  Company's  then
outstanding securities, increases his beneficial ownership of such securities by
5% or more over the percentage so owned by such person on the date hereof; or
               d. The Board  adopts a  resolution  to the effect  that,  for the
purposes of this Agreement, a Potential Change in Control has occurred.

               3. Compensation,  Benefits and Expenses.  (a) For the services of
the  Employee to be rendered  under this  Agreement,  the Company  shall pay the
Employee:  (i) a basic  annual  salary in an amount at least equal to the salary
the Employee is currently being paid by the Company, paid in a manner consistent
with the Company's policy and practice relating to payment of executive officers
as of the date of this  Agreement;  and (ii) such bonus  compensation  as may be
determined by the Board of Directors (or  appropriate  committee) of the Company
in accordance with the Company's bonus policies in effect from time to time.
               (b) In addition to any compensation  received under Section 3(a),
the  Company   shall   reimburse  the  Employee  for  all   reasonable   travel,
entertainment  and  miscellaneous  expenses  incurred  in  connection  with  the
performance of his duties under this Agreement, such reimbursement to be made in
accordance  with  the  policies  and  procedures  of  the  Company  relating  to
reimbursement of executive officers as of the date of this Agreement.
               (c)  During the term of this  Agreement,  the  Employee  shall be
entitled  to at least the paid  vacation  time he is  currently  allowed  by the
Company.  Such vacation is to be taken in accordance  with the Company's  policy
and practice relating to vacations of executive  officers as of the date of this
Agreement.
               (d) In addition to and without limiting the compensation to which
the Employee is entitled  under this Section 3, during the  Employment  Term the
Employee  shall  be  eligible  to   participate  in  any  incentive,   bonus  or
compensation,  stock  option,  savings,  pension,  insurance  or other  employee
benefit plan of the Company now or from time to time applicable to the executive
officers  of the  Company.  Nothing  paid  to the  Employee  under  any  plan or
arrangement  presently in effect or made available in the future shall be deemed
to be in lieu of the salary  payable to the Employee  pursuant to Section  3(a).
Any  payments or benefits  payable to the  Employee  under this  Section 3(d) in
respect of any  calendar  year  during  which the  Employee  is  employed by the
Company for less than such entire year shall,  unless otherwise  provided in the
applicable  plan or  arrangement,  be provided in accordance  with the number of
days in such calendar year during which he is so employed.
               4.  Termination.  (a) The Employment  Term and the obligations of
the Company and the Employee under this Agreement shall terminate:
                    (i) upon the death of the Employee;
                    (ii)  upon the date on which the  Employee  is  entitled  to
Regular Retirement (as defined in Section 5(c));
                    (iii) if illness or  incapacity  shall  prevent the Employee
from performing his duties for a period of six consecutive months, 30 days after
written notice of such termination is given to the Employee by the Company;
                    (iv) upon the giving by the Company of Notice of Termination
of the Employee's  employment for "Cause" as defined in, and in accordance with,
Section 4(c);
<PAGE>


C13

                    (v) at any  time  prior  to a Change  in  Control,  upon the
giving by the Company of a Notice of  Termination  to the Employee in accordance
with Section 4(d) (except that no specific reason for termination  need be given
for such Notice of Termination); or
                    (vi) following any Change in Control as described in Section
4(d) below upon performance of all the provisions of this agreement.
               (b) Upon a termination of the Employment Term pursuant to Section
4(a) in a manner  that  does  not  constitute  an  Involuntary  Termination  (as
hereinafter defined),  the Company shall have no further liability or obligation
to the Employee  under this  Agreement  except to pay the Employee or his estate
(i) all  compensation  accrued  pursuant  to Section  3(a)  through  the date of
termination  and unpaid,  and (ii) all sums  payable and owed to the Employee as
specified in Sections  3(b),  3(c) and 3(d) for expenses and  benefits,  in each
case earned before  termination  of this  Agreement.  Upon a termination  of the
Employment  Term  pursuant  to  Section  4(a) that  constitutes  an  Involuntary
Termination,  the  Employee,  to the extent  applicable,  shall be entitled,  in
addition to the foregoing, to the payments and benefits specified in Section 5.
               (c) (i) For purposes of this  Agreement,  the Company  shall have
"Cause" to terminate the  Employee's  employment  hereunder upon (A) the willful
and  continued  failure by the  Employee  to  substantially  perform  his duties
hereunder (other than any such failure resulting from the Employee's  incapacity
due to physical  or mental  illness or any such  actual or  anticipated  failure
after the issuance of a Notice of  Termination,  as defined in Section  4(d), by
the Employee  upon his  Involuntary  Termination,  as defined in Section  5(b)),
after written  demand for  substantial  performance  is delivered by the Company
that  specifically  identifies  the  manner in which the  Company  believes  the
Employee has not substantially performed his duties, or (B) the willful engaging
by the  Employee in  misconduct  which is  materially  injurious to the Company,
monetarily or otherwise. For purposes of this Section 4(c), no act or failure to
act, on the  Employee's  part shall be  considered  "willful"  unless  done,  or
omitted to be done, by him not in good faith and without  reasonable belief that
his  action  or  omission  was  in  the  best  interest  of  the  Company.  
                    (ii)  Notwithstanding  the  foregoing,  after  a  Change  in
Control (as defined in Section  5(a)) has  occurred,  the Employee  shall not be
deemed to have been  terminated for Cause without  delivery to the Employee of a
Notice of  Termination,  as defined in Section 4(d), from the Board finding that
in the good faith opinion of at least three  quarters  (3/4) of the Board (after
reasonable notice to the Employee and an opportunity for the Employee,  together
with his  counsel,  to be heard  before the Board),  the  Employee was guilty of
conduct set forth above in clause (i) hereof,  and  specifying  the  particulars
thereof in detail. In the event of a dispute  concerning the application of this
Section 4, no claim by the  Company  that  Cause  exists  shall be given  effect
unless the Company  establishes  to the Board by clear and  convincing  evidence
that Cause exists.
               (d) Any purported termination of the Employee's employment by the
Company shall be  communicated  by written Notice of Termination to the Employee
in accordance with Section 11. "Notice of Termination"  shall mean a notice that
shall indicate the specific termination  provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances  claimed to
provide a basis for termination of the Employee's employment under the provision
so  indicated  and that  shall,  in the  event  of a  purported  termination  of
Employee's  employment  for Cause  following  a Change in  Control,  comply with
Section  4(c)(ii) above.  "Date of  Termination,"  with respect to any purported
termination  of the Employee's  employment  after a Change in Control and during
the Employment Term,  shall mean (i) if the Employee's  employment is terminated
for illness or incapacity as defined in Section  4(a)(iii)  hereof,  thirty (30)
days after Notice of Termination is given  (provided that the Employee shall not
have returned to the full-time  performance of the Employee's duties during such
thirty (30) day period), and (ii) if the Employee's employment is terminated for
any other reason, the date specified in the Notice of Termination (which, in the
case of a  termination  by the Company,  shall not be less than thirty (30) days
(except  in  the  case  of a  termination  for  Cause)  and,  in the  case  of a
termination  by the Employee,  shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively,  from the date such Notice of Termination is
given).

<PAGE>


C14

               5. Involuntary Termination. (a) For purposes of this Agreement, a
"Change in Control" shall be deemed to have occurred if:
                    (i) any person (other than the Company, any trustee or other
fiduciary holding  securities under an employee benefit plan of the Company,  or
any company owned, directly or indirectly, by the stockholders of the Company in
substantially  the same  proportions  as  their  ownership  of the  stock of the
Company),  is or becomes the "beneficial  owner" (as defined in Rule 13d-3 under
the  Exchange  Act),  directly  or  indirectly,  of  securities  of the  Company
representing  either 31% or more of the voting  power of all  classes of capital
stock of the Company or 33-1/3% or more of the then  outstanding  common  stock,
without par value of the Company ("Common Shares");
                    (ii) the  following  individuals  cease  for any  reason  to
constitute a majority of the number of directors then serving:  individuals, who
on the date hereof,  constitute  the Board,  and any new director  (other than a
director whose initial  assumption of office is in connection  with an actual or
threatened   election   contest,   including   but  not  limited  to  a  consent
solicitation,  relating  to the  election of  directors  of the  Company)  whose
appointment or election by the Board or nomination for election by the Company's
stockholders  was approved or recommended by a vote of at least two-thirds (2/3)
of the  directors  then still in office who either  were  directors  on the date
hereof  or  whose  appointment  or  election  or  nomination  for  election  was
previously so approved or recommended (the "Continuing Directors");
                    (iii) the  stockholders  of the Company  approve a merger or
consolidation of the Company or any direct or indirect subsidiary of the Company
with any other  company,  other than (1) a merger or  consolidation  which would
result in the voting  securities of the Company  outstanding  immediately  prior
thereto  continuing to represent  (either by remaining  outstanding  or by being
converted into voting  securities of the surviving entity or any parent thereof)
more than 50% of the  combined  voting  power of the  voting  securities  of the
Company or such surviving entity or any parent thereof  outstanding  immediately
after such merger or consolidation or (2) a merger or consolidation  effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove  defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
                    (iv)  the  stockholders  of the  Company  approve  a plan of
complete  liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.

The foregoing to the contrary notwithstanding,  a Change in Control shall not be
deemed to have  occurred  with  respect to the  Employee  (i) if the event first
giving rise to the  Potential  Change in Control  involves a  publicly-announced
transaction or publicly-announced  proposed transaction which at the time of the
announcement has not been previously approved by the Board and (ii) the Employee
is part of a purchasing  group  proposing the  transaction.  A Change in Control
shall also not be deemed to have  occurred  with  respect to the Employee if the
Employee is part of a purchasing  group which  consummates the Change in Control
transaction.  The  Employee  shall be deemed  "part of a  purchasing  group" for
purposes of the two preceding  sentences if he is an equity  participant  or has
agreed to  become  an equity  participant  in the  purchasing  company  or group
(except  for (i)  passive  ownership  of less  than 5% of the  stock of a public
company,  (ii) ownership of equity  participation  in the purchasing  company or
group which is otherwise not deemed to be  significant,  as determined  prior to
the Change in Control by a majority of the non-employee Continuing Directors, or
(iii) beneficial  ownership of any equity interest in the purchasing  company or
group as a result  of the grant to the  Employee  of an  incentive  compensation
award  under one or more  incentive  plans of the  purchasing  company  or group
(including,  but not limited to, the conversion in connection with a transaction
of  incentive  compensation  awards of the Company into  incentive  compensation
awards  of  the   purchasing   company  or  group),   on  terms  and  conditions
substantially  equivalent to those applicable to other executives of the Company
immediately  prior  to  the  transaction,   after  taking  into  account  normal
differences attributable to job responsibilities, title and the like).



<PAGE>


C15

               b.  For  purposes  of  this  Agreement,   the  term  "Involuntary
Termination"  shall mean either:  (i) any  termination of the Employment Term by
the Company within three years following any Change in Control, other than (A) a
termination  pursuant to Section  4(a)(iii) for disability of the Employee,  (B)
termination upon death of the Employee,  (C) termination for retirement pursuant
to Section  4(a)(ii) above, or (D) a termination for Cause as defined in Section
4(c); or (ii) any  termination of the Employment  Term by the Employee after any
Change in Control and the occurrence of any of the following:
                         (A)  without  the  express   written   consent  of  the
          Employee,   a   material   diminution   in   his   position,   duties,
          responsibilities  or status with the Company  from those in  existence
          immediately  prior to a Change in  Control,  a material  reduction  or
          alteration  (not  in the  nature  of a  promotion)  in  his  reporting
          responsibilities,  titles or offices from those in effect  immediately
          prior to a Change in  Control,  or the  removal  from or failure to be
          re-elected  to the  positions  held  immediately  prior to a Change in
          Control;
                         (B) a  reduction  by the  Company  of the  base  annual
          salary of the Employee  immediately prior to a Change in Control or as
          the same may be increased from time to time  thereafter,  or a failure
          by the  Company  to  increase  such base  salary  each year after such
          Change in Control at least by a percentage amount equal to the average
          percentage  increases  given to such Employee in the three years prior
          to such Change in Control, or a failure to pay such Employee each year
          after such  Change in  Control  an annual  bonus in an amount at least
          equal to that which  would have been paid to such  Employee  utilizing
          the bonus policies of the Company in existence  immediately prior to a
          Change in Control;
                         (C) the  failure of the  Company to  continue in effect
          any incentive,  benefit, bonus or compensation,  insurance, pension or
          other employee benefit plan of the Company in effect immediately prior
          to a Change in  Control  (or  plans and  benefits  which  are,  in the
          aggregate,  no less  favorable to the Employee than those the Employee
          enjoyed immediately prior to a Change in Control);

                         (D) the relocation of the Company's principal executive
          offices to a location outside the Borough of Manhattan,  New York, New
          York, the  requirement  by the Company that the Employee,  without his
          consent,   be  based  anywhere  other  than  the  Company's  principal
          executive  offices or the location where he is based immediately prior
          to a Change in Control, or, in the event the Employee consents to such
          move,  the failure of the Company to reimburse the Employee for moving
          expenses and any loss realized on the sale of the Employee's principal
          residence in connection with such move;

                         (E) a reduction in the number of the Employee's  yearly
          paid vacation days;
                         (F) the failure by the  Company to pay to the  Employee
          any portion of the Employee's then current  compensation or to pay any
          portion of an installment of deferred  compensation under any deferred
          compensation  program of the Company within seven (7) days of the date
          such compensation is due;
                         (G)  any  purported   termination   of  the  Employee's
          employment  that is not effected  pursuant to a Notice of Termination,
          which  purported  termination  shall not be effective  for purposes of
          this Agreement;
                         (H) the breach by the Company of any  provision of this
          Agreement; or
                         (I) the failure by the Company to obtain a satisfactory
          agreement  from any  successor  to the  Company to assume and agree to
          perform this Agreement.

For purposes of this Agreement,  an Involuntary Termination shall also be deemed
to have occurred,  if (i) the Employee's employment is terminated by the Company
without  Cause prior to a Change in Control  (whether or not a Change in Control
ever  occurs) and such  termination  was at the request or direction of a person
who has entered into an  agreement  with the Company the  consummation  of which
would  constitute  a  Change  in  Control,  (ii)  the  Employee  terminates  his
employment after the occurrence of any of the events or circumstances  set forth
in Section 5(b)(A)  through (I) hereof prior to a Change in Control  (whether or
not  a  Change  in  Control  ever  occurs)  and  the  aforementioned   event  or
circumstance  occurs at the request or direction of a person described in clause
(i) above,  or (iii) the Employee's  employment is terminated  either (x) by the
Company  without  Cause or (y) by the Employee for the  occurrence of any of the
events or circumstances set forth in Section 5(b)(A) through (H) hereof, and, in
either case under clause (x) or (y), such  termination  or the  circumstance  or
event is otherwise in connection  with or in anticipation of a Change in Control
(whether or not a Change in Control ever occurs).


<PAGE>


C16

               (c) In the event of an Involuntary Termination, the Company shall
pay to the Employee,  and the Employee shall be entitled to a payment  (together
with the payments  provided in Sections  5(d),  5(e),  5(f) and 5(i) below,  the
"Severance  Payments")  equal to three times the sum of the amounts set forth in
clauses (A), (B) and (C) below:
                         (A) the Employee's base salary as in effect immediately
          prior to the Date of Termination or, if higher, in effect  immediately
          prior to the first occurrence of an event or circumstance described in
          Section 5(b)(A) through (I);
                         (B) the average of the bonuses received by the Employee
          with respect to either the three or five completed fiscal years of the
          Company  immediately  preceding either the Involuntary  Termination or
          the Change in Control,  whichever period of time and date would result
          in the highest benefit; and
                         (C) the annual cost to the  Company of all  benefits to
          which the  Employee is entitled  under  Section 3(d) above (other than
          (1) benefits described in Section 5(d) below and (2) contingent stock,
          stock options and other similar  benefits)  immediately  preceding the
          Involuntary  Termination,  including,  without limitation (but without
          duplication),  any pension,  savings,  or other employee benefit plans
          and any amounts forfeited thereunder by reason of termination prior to
          vesting. For purposes of the foregoing, the annual cost to the Company
          of the pension  benefit to which the  Employee  is  entitled  shall be
          calculated  by  determining  the excess of (i) the  actuarial  present
          value of the Employee's  accrued pension benefit,  under all qualified
          or non-qualified pension plans of the Company in which the Employee is
          a participant, determined by Johnson & Higgins (or if such firm is not
          then  in the  actuarial  business,  a  nationally  recognized  firm of
          comparable  quality)  as of the  December  31  preceding  the  Date of
          Termination  (determined  without  regard to any amendment to any such
          plan made  subsequent to the Change in Control,  which amendment would
          be an event described in Section 5(b)(ii)(C) above) over (ii) the same
          value  determined as of one year  previously,  with both values in (i)
          and (ii) to be  discounted  utilizing  the yield rate on ten-year U.S.
          Treasury  obligations  as of the  December  31  preceding  the Date of
          Termination;

provided,  however,  that if,  at the time of an  Involuntary  Termination,  the
number of months  remaining until the Employee is entitled to retire without any
reduction  of  benefits  on  account  of early  retirement  under the  Company's
Retirement Benefit Plan for Salaried Employees  ("Regular  Retirement") shall be
less than 36, then the Severance  Payment provided for above shall be reduced to
an  amount  which is the  product  of  multiplying  (i) an  amount  equal to the
payments in this Section 5(c)  calculated  in  accordance  with the foregoing by
(ii) a fraction,  the numerator of which is the number of months remaining until
Regular  Retirement  and the  denominator  of which is 36. (For purposes of this
section,  the term  "reduction in benefits"  refers to any reduction in benefits
caused by any  Employee  having been  credited  with fewer  months of service or
compensation  for  purposes  of  computing  his  benefits  under  the  Company's
Retirement  Benefit Plan for Salaried  Employees than if such Employee continued
working for the Company until age 65.)

               (d) In the event of an Involuntary Termination, the Company shall
continue,  for a  period  of  three  years  after  the  date of the  Involuntary
Termination,  to  cover  the  Employee  and his  dependents  under  those  life,
disability,  accident and health insurance benefits which were applicable to the
Employee on the date of the  Involuntary  Termination at the same benefit levels
then in effect (or shall provide their equivalent);  provided, however, that the
coverage  provided to the Employee shall be no less favorable than that to which
the  Employee  was  entitled  immediately  prior to the Change in  Control  that
preceded the Involuntary  Termination  and further  provided that the Employee's
continued  participation  is possible  under the general terms and provisions of
such plans and programs.  In the event that the Employee's  participation in any
such program is barred,  the Company  shall arrange to provide the Employee with
benefits  substantially similar to those which the Employee would otherwise have
been  entitled to receive under such plans and programs from which his continued
participation is barred.

<PAGE>


C17

               (e) In the event of an Involuntary Termination, upon the election
of the Employee at his sole  discretion,  the Company shall pay to the Employee,
in cash,  an amount  equivalent to the excess,  if any, of the aggregate  market
value  (measured  as of the  close of  trading  on the  date of the  Involuntary
Termination) of all shares of any class or series of the Company's capital stock
issuable upon exercise of then outstanding employee stock options granted to the
Employee (whether or not then exercisable) over the aggregate  exercise price of
such options,  and such options  shall  thereupon be cancelled and of no further
force or effect.

               (f) The  Company  shall pay to the  Employee  all legal  fees and
expenses  incurred  by the  Employee as a result of any  termination  during the
thirty-six (36) month period  following a Change in Control  (including all such
fees  and  expenses,  if any,  incurred  in  contesting  or  disputing  any such
termination or in seeking to obtain or enforce any right or benefit  provided by
this  Agreement or in connection  with any tax audit or proceeding to the extent
attributable  to the  application of section 4999 of the Code, to any payment or
benefit provided hereunder).

               (g) In the  event  that  the  Employee  becomes  entitled  to the
Severance Payments,  if any of the Severance Payments will be subject to the tax
imposed by section  4999 of the Code (or any similar tax that may  hereafter  be
imposed) (the "Excise Tax"),  the Company shall pay to him at the time specified
in Section 5(h), below, an additional amount (the "Gross-up  Payment") such that
the net amount  retained by him, after  deduction of any Excise Tax on the Total
Payments (as  hereinafter  defined) and any federal,  state and local income tax
and Excise Tax upon the payment provided for by this subsection,  shall be equal
to the Total Payments.  For purposes of determining whether any of the Severance
Payments  will be subject to the Excise Tax,  and the amount of such Excise Tax,
(a) any other payments or benefits received or to be received by the Employee in
connection  with a Change in Control or his  termination of employment  (whether
pursuant  to the terms of this  Agreement  or any  other  plan,  arrangement  or
agreement  with the  Company,  any person  whose  actions  result in a Change in
Control  or any  person  affiliated  with the  Company  or such  person)  (which
together with the Severance Payments,  constitute the "Total Payments") shall be
treated as "parachute  payments" within the meaning of section 280G(b)(2) of the
Code,  and all  "excess  parachute  payments"  within  the  meaning  of  section
280G(b)(l)  shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel selected by the Company's  independent auditors and acceptable to
the  Employee  such  other  payments  or  benefits  (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in whole or in
part) represent  reasonable  compensation for services  actually rendered within
the  meaning  of  section  280G(b)(4)  of the Code in excess of the base  amount
within the  meaning of section  280G(b)(3)  of the Code,  or are  otherwise  not
subject to the Excise Tax, (b) the amount of the Total  Payments  which shall be
treated  as  subject  to the  Excise Tax shall be equal to the lesser of (1) the
total  amount  of the Total  Payments  or (2) the  amount  of  excess  parachute
payments within the meaning of section 280G(b)(l) (after applying paragraph (a),
above),  and (c) the value of any non-cash  benefits or any deferred  payment or
benefit shall be determined by the Company's  independent auditors in accordance
with the principles of sections  280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment,  the Employee shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar  year in which the Gross-Up  Payment is to be made and state and
local  income  taxes at the highest  marginal  rate of taxation in the state and
locality of his  residence on the date of  Involuntary  Termination,  net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes.  In the event that the Excise Tax is subsequently
determined  to be less than the amount taken into account  hereunder at the time
of termination of his employment, the Employee shall repay to the Company at the
time that the amount of such  reduction in Excise Tax is finally  determined the
portion of the Gross-Up Payment attributable to such reduction (plus the portion
of the Gross-Up Payment attributable to the Excise Tax and federal and state and
local  income tax imposed on the  Gross-Up  Payment  being repaid by him if such
repayment  results in  reduction  in Excise  Tax and/or a federal  and state and
local income tax deduction) plus interest on the amount of such repayment at the
rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account  hereunder at the time
of the Employee's  termination of employment (including by reason of any payment
the  existence  or  amount  of which  cannot  be  determined  at the time of the
Gross-Up  Payment),  the Company  shall make an additional  Gross-Up  Payment in
respect of such excess (plus any  interest  payable with respect to such excess)
at the time that the amount of such excess is finally determined.
<PAGE>


C18

               (h) The Severance Payments  (excluding  payments made pursuant to
Sections 5(d) and 5(f) and including any payments made pursuant to Section 5(g))
shall be made by the Company to the  Employee in full on the tenth  business day
(the "Payment Date")  following the date of Involuntary  Termination;  provided,
however, that if the amounts of such payments cannot be finally determined on or
before the Payment  Date,  the Company  shall pay to the Employee on the Payment
Date an  estimate,  as  determined  in good faith by the  Company of the minimum
amount of such payments and shall pay the  remainder of such payments  (together
with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon
as the amount thereof can be determined but in no event later than the thirtieth
day after the date of Involuntary  Termination.  In the event that the amount of
the estimated payments exceeds the amount  subsequently  determined to have been
due, such excess shall  constitute a loan by the Company to the Employee payable
on the fifth day after demand by the Company (together with interest at the rate
provided in section 1274(b)(2)(B) of the Code).
               (i) In the event of an Involuntary Termination, the Company shall
pay to the  Employee  without  reduction  all  benefits  or  amounts  payable in
accordance with the terms of the Company's Supplemental Retirement Benefit Plan,
Supplemental  Pension Plan for Designated  Mid-Career  Officers (if the Employee
has theretofore been designated to participate therein),  Incentive Compensation
Plan, Deferred Income Benefit System and any similar or successor plans.
               (j) The Company  agrees that, if the Employee's  employment  with
the Company  terminates during the Employment Term, the Employee is not required
to seek other  employment or to attempt in any way to reduce any amounts payable
to the Employee by the Company pursuant to Section 5 hereof. Further, the amount
of any payment or benefit  provided  for in this  Agreement  (other than Section
5(d) hereof) shall not be reduced by any compensation  earned by the Employee as
the result of employment by another employer,  by retirement benefits, by offset
against  any  amount  claimed  to be owed by the  Employee  to the  Company,  or
otherwise.
               (k) If within  fifteen (15) days after any Notice of  Termination
is given, or, if later,  prior to the Date of Termination (as determined without
regard to this Section  5(k)),  the party  receiving  such Notice of Termination
notifies the other party that a dispute exists  concerning the termination,  the
Date of Termination shall be extended until the earlier of (i) the date on which
the  Employment  Term  ends or (ii) the date on which  the  dispute  is  finally
resolved,  either by  mutual  written  agreement  of the  parties  or by a final
judgment,  order or decree of an arbitrator or a court of competent jurisdiction
(which is not appealable or with respect to which the time for appeal  therefrom
has expired and no appeal has been perfected);  provided, however, that the Date
of  Termination  shall be extended by a notice of dispute  given by the Employee
only if such  notice  is  given  in good  faith  and the  Employee  pursues  the
resolution of such dispute with reasonable diligence.
               (l) If a  purported  termination  occurs  following  a Change  in
Control and during the  Employment  Term and the Date of Termination is extended
in accordance  with Section 5(k) hereof,  the Company shall  continue to pay the
Employee  the full  compensation  in effect  when the notice  giving rise to the
dispute  was given  (including,  but not limited to,  salary) and  continue  the
Employee as a participant in all  compensation,  benefit and insurance  plans in
which the Employee was participating  when the notice giving rise to the dispute
was given,  until the Date of  Termination,  as determined  in  accordance  with
Section 5(k) hereof. Amounts paid under this Section 5(l) are in addition to all
other  amounts  due under this  Agreement  (other than those due under the first
sentence of Section 4(b)  hereof) and shall not be offset  against or reduce any
other amounts due under this Agreement.
<PAGE>
C19

               6. Noncompetition Agreement.  During the Employment Term, without
the consent of the Company the Employee shall not,  directly or  indirectly,  in
association with or as a stockholder,  director, officer, consultant,  employee,
member or otherwise of or through any person,  firm,  corporation,  partnership,
association  or other  entity,  engage in any  enterprise  or business  based or
operating in the United States of America which designs,  provides,  distributes
or otherwise deals in products or renders  services which are  competitive  with
the businesses of the Company or its  successors,  as such businesses may now or
hereafter  be  conducted  or  developed   during  the  term  of  this  Agreement
(individually,  a "Competitor");  provided,  however,  that an investment by the
Employee,  his spouse and his children in not more than two percent of the total
capital  of any  Competitor  whose  stock is  listed  on a  national  securities
exchange shall not be deemed a violation of this Section 6.
               7.  Nondisclosure  of  Confidential  Information.   The  Employee
recognizes and acknowledges that the trade secrets and other similar proprietary
information  of the  Company as acquired  and used by the  Company are  special,
valuable and unique assets.  The Employee shall not,  except as may be necessary
in the  discharge  of his  duties  with the  Company  or as may be  required  by
applicable  law  or  regulations,   disclose  during  the  Employment  Term  and
thereafter any such confidential information,  knowledge or data obtained by the
Employee prior to the date of this Agreement or during the Employment Term which
is material to the business of the Company and not publicly available, otherwise
disclosed by the Company to third parties or recognized as standard practice.
               8.  Arbitration.  Any  controversy  or  claim  arising  out of or
relating  to this  Agreement  or the breach of this  Agreement  which  cannot be
resolved by the Employee and the Company, including any dispute, at the instance
of either the Employee or the Company,  as to the  calculation of the Employee's
benefits or tax consequences of the Severance  Payments pursuant to Section 5(g)
above,  shall,  at the  instance  of either  the  Employee  or the  Company,  be
submitted to arbitration  in accordance  with New York law and the procedures of
the American  Arbitration  Association.  The  determination of the arbitrator(s)
shall be conclusive  and binding on the Company and Employee and judgment may be
entered  on  the   arbitrator(s)   award  in  any  court  having   jurisdiction.
Notwithstanding  any provision of this  Agreement to the contrary,  the Employee
shall be entitled to seek specific  performance  of the  Employee's  right to be
paid  until the Date of  Termination  during  the  pendency  of any  dispute  or
controversy arising under or in connection with this Agreement.
               9. Assignability. The rights and obligations of the Company under
this Agreement  shall inure to the benefit of and be binding upon the successors
and assigns of the Company. The Employee's rights and obligations  hereunder may
not be assigned or alienated  and any attempt to do so by the Employee  shall be
void.
               10. Separability. If any provision of this Agreement is deemed to
be invalid or  unenforceable  or is prohibited by the laws of the state or place
where it is to be performed,  this Agreement shall be considered divisible as to
such provision and such  provisions  shall be inoperative in such state or place
and shall not be part of the consideration  moving from either of the parties to
the other. The remaining provisions of this Agreement,  however,  shall be valid
and binding and of like effect as though such provision were not included.

               11.  Notice.  Notice  given  pursuant to the  provisions  of this
Agreement  shall be sent by certified  mail,  return receipt  requested,  to the
following addresses:

                  To the Company:
                           ASARCO Incorporated
                           180 Maiden Lane
                           New York, New York 10038
                           Attention: General Counsel

                  To the Employee:
                           ((Name))
                           ((Address))


<PAGE>


C20

               12. Miscellaneous. This Agreement is to be construed and enforced
in accordance with the laws of the State of New York. The waiver by any party to
this Agreement of a breach of any provision of this Agreement by any other party
shall not be construed as a waiver of any subsequent  breach by any party.  This
Agreement  constitutes  the entire  agreement of the parties with respect to the
subject matter of this Agreement and may not be changed  orally,  but only by an
agreement in writing  signed by the parties to this  Agreement.  This  Agreement
supersedes any prior employment  agreement  between the Company and the Employee
to the extent  inconsistent.  The  obligations  of the Company and the  Employee
under this  Agreement  which by their nature may require either partial or total
performance  after the expiration of the  Employment  Term  (including,  without
limitation, those under Section 5 hereof) shall survive such expiration.
               IN WITNESS  WHEREOF,  the Company and the Employee  have executed
this  Employment  Agreement  as of the day and year  first  above  written.  
        
               The Company:
                    ASARCO Incorporated

                    By:
                    Name:
                    Title:

               The Employee:


                    ((Name))