ITEM 1. BUSINESS
General
The Dyco Oil and Gas Program 1981-1 Limited Partnership (the "Program") is a Minnesota limited partnership engaged in the production of oil and gas. The Program commenced operations on Febru- ary 7, 1981 with the primary financial objective of investing its limited partners' subscriptions in the drilling of oil and gas prospects and then distributing to its limited partners all available cash flow from the Program's on-going production operations. Dyco Petroleum Corporation ("Dyco") serves as the General Partner of the Program. See "Item 2.

ITEM 2. PROPERTIES
Well Statistics
The following table sets forth the numbers of gross and net productive wells of the Program as of December 31, 1995.
Well Statistics(1) As of December 31, 1995
Gross productive wells(2): Oil 1 Gas 18 -- Total 19
Net productive wells(3): Oil .60 Gas 1.13 ---- Total 1.73
- - ----------
(1) The designation of a well as an oil well or gas well is made by Dyco based on the relative amount of oil and gas reserves for the well. Regardless of a well's oil or gas designation, it may produce oil, gas, or both oil and gas. (2) As used throughout this Annual Report, "Gross Well" refers to a well in which a working interest is owned. The number of gross wells is the total number of wells in which a working interest is owned. (3) As used throughout this Annual Report, "Net Well" refers to the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof. For example, a 15% leasehold interest in a well represents one Gross Well, but 0.15 Net Well.
Drilling Activities
The Program participated in no drilling activities for the year ended December 31, 1995.
Oil and Gas Production, Revenue, and Price History
The following table sets forth certain historical information concerning the oil (including condensates) and natural gas production, net of all royalties, overriding royalties, and other third party interests, of the Program, revenues attributable to such production, and certain price and cost information.
Net Production Data
Year Ended December 31, ---------------------------- 1995 1994 1993 -------- -------- --------
Production: Oil (Bbls)(1) 651 1,702 1,916 Gas (Mcf)(2) 173,930 173,376 249,577
Oil and gas sales: Oil $ 10,124 $ 23,109 $ 27,504 Gas 230,127 291,603 446,942 ------- ------- ------- Total $240,251 $314,712 $474,446 ======= ======= ======= Total direct operating expenses $118,744 $125,278 $103,871 ======= ======= ======= Direct operating expenses as a percentage of oil and gas sales 49.4% 39.8% 21.9%
Average sales price: Per barrel of oil $15.55 $13.58 $14.35 Per Mcf of gas 1.32 1.68 1.79
Direct operating expenses per equivalent Mcf of gas(3) $ .67 $ .68 $ .40
- - ----------
(1) As used throughout this Annual Report, "Bbls" refers to barrels of 42 U.S. gallons and represents the basic unit for measuring the production of crude oil and condensate oil. (2) As used throughout this Annual Report, "Mcf" refers to volume of 1,000 cubic feet under prescribed conditions of pressure and temperature and represents the basic unit for measuring the production of natural gas. (3) Oil production is converted to gas equivalents at the rate of six Mcf per barrel, representing the estimated relative energy content of gas and oil, which rate is not necessarily indicative of the relationship of oil and gas prices. The respective prices of oil and gas are affected by market and other factors in addition to relative energy content.
Proved Reserves and Net Present Value
The following table sets forth the Program's estimated proved oil and gas reserves and net present value therefrom as of December 31, 1995. The schedule of quantities of proved oil and gas reserves was prepared by Dyco in accordance with the rules prescribed by the Securities and Exchange Commission (the "SEC"). As used throughout this Annual Report, "proved reserves" refers to those estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions.
Net present value represents estimated future gross cash flow from the production and sale of proved reserves, net of estimated oil and gas production costs (including production taxes, ad valorem taxes, and operating expenses), and estimated future development costs discounted at 10% per annum. Net present value attributable to the Program's proved reserves was calculated on the basis of current costs and prices at December 31, 1995. Such prices were not escalated except in certain circumstances where escalations were fixed and readily determinable in accordance with applicable contract provisions. The prices used by Dyco in calculating the net present value attributable to the Program's proved reserves do not necessarily reflect market prices for oil and gas production subsequent to December 31, 1995. Furthermore, gas prices at December 31, 1995 were
higher than the price used for determining the Program's net present value of proved reserves for the year ended December 31, 1994. There can be no assurance that the prices used in calculating the net present value of the Program's proved reserves at December 31, 1995 will actually be realized for such production.
The process of estimating oil and gas reserves is complex, requiring significant subjective decisions in the evaluation of available geological, engineering, and economic data for each reservoir. The data for a given reservoir may change substantially over time as a result of, among other things, additional development activity, production history, and viability of production under varying economic conditions; consequently, it is reasonably possible that material revisions to existing reserve estimates may occur in the near future. Although every reasonable effort has been made to ensure that the reserve estimates reported herein represent the most accurate assessment possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures.
Proved Reserves and Net Present Value From Proved Reserves As of December 31, 1995
Estimated proved reserves: Natural gas (Mcf) 538,341 Oil and liquids (Bbls) 3,245
Net present value (discounted at 10% per annum) $431,070
No estimates of the proved reserves of the Program comparable to those included herein have been included in reports to any federal agency other than the SEC. Additional information relating to the Program's proved reserves is contained in Note 5 to the Program's financial statements, included in Item 8 of this Annual Report.
Significant Properties
As of December 31, 1995 the Program's properties consisted of 19 gross (1.73 net) productive wells in which the Program owned a working interest. The Program owned a non-working interest in an additional 12 gross wells. Affiliates of the Program operate 8 (26%) of its total wells. As of December 31, 1995, the Program's net interests in its properties resulted in estimated total proved reserves of 538,341 Mcf of natural gas and 3,245 barrels of oil. Substantially all of the Program's reserves are located in the Anadarko Basin of western Oklahoma and the Texas panhandle, which is an established oil and gas producing basin. All of the Program's properties are located onshore in the continental United States.
As of December 31, 1995, the Program's properties in the Anadarko Basin consisted of 18 gross (1.13 net) wells in which the Program owned a working interest. The Program owned a non-working interest in an additional 12 gross wells. Affiliates of the Program operate 7 (23%) of its total wells in the Anadarko Basin. As of December 31, 1995, the Program's net interest in such wells resulted in estimated total proved reserves of approximately 465,734 Mcf of natural gas and approximately 1,040 barrels of crude oil, with a present value (discounted at 10% per annum) of estimated future net cash flow of approximately $354,054.
Title to Oil and Gas Properties
Management believes that the Program has satisfactory title to its oil and gas properties. Record title to substantially all of the Program's properties is held by Dyco as nominee.
Title to the Program's properties is subject to customary royalty, overriding royalty, carried, working, and other similar interests and contractual arrangements customary in the oil and gas industry, to liens for current taxes not yet due, and to other encumbrances. Management believes that such burdens do not materially detract from the value of such properties or from the Program's interest therein or materially interfere with their use in the operation of the Program's business.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
On November 12, 1992 Larry and Leona Beck filed a lawsuit against Dyco and others in which the plaintiffs alleged damages to their land as a result of remediation operations conducted on the Paul King #1-7 well. (Beck v. Trigg Drilling Company, Inc., et al, C-92-227, District Court of Beckham County, Oklahoma). The Program had an approximate 5.7% interest in the Paul King #1-7 well at the time the lawsuit was filed. The lawsuit alleged claims based on negligence, private nuisance, public nuisance, trespass, unjust enrichment, constructive fraud, and permanent injunctive relief, all in amounts to be determined at trial. A trial was conducted in the matter on February 22, 1994 in which the jury entered a verdict in favor of the plaintiffs in the amount of approximately $5.5 million, consisting of approximately $2.75 million in actual damages and approximately $2.75 million in punitive damages. The Program's share of such verdict is approximately $155,000 in actual damages and approximately $31,000 in punitive damages. See Note 4 to the Program's financial statements included in Item 8 of this Annual Report. Dyco is presently appealing the matter.
Except for the foregoing, to the knowledge of the management of Dyco and the Program, neither Dyco, the Program, nor the Program's properties are subject to any litigation, the results of which would have a material effect on the Program's or Dyco's financial condition or operations.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS
There were no matters submitted to a vote of the limited partners during 1995.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED LIMITED PARTNER MATTERS
The Program does not have an established trading market for its units of limited partnership interest ("Units"). Pursuant to the terms of the Program's limited partnership agreement, Dyco, as General Partner, is obligated to annually offer a repurchase offer which is based on the estimated future net revenues from the Program's reserves and is calculated pursuant to the terms of the limited partnership agreement. Such repurchase offer is recalculated monthly in order to reflect cash distributions made to the limited partners and other extraordinary events. The following table sets forth, for the periods indicated, Dyco's repurchase offer per Unit and the amount of the
Program's cash distributions per Unit for the same period. For purposes of this Annual Report, a Unit represents an initial subscription of $5,000 to the Program.
Repurchase Cash Price Distributions ---------- -------------
1994: First Quarter $108 $ - Second Quarter 72 25 Third Quarter 72 - Fourth Quarter 72 -
1995: First Quarter $ 72 - Second Quarter 72 - Third Quarter 44 - Fourth Quarter 44 -
1996: First Quarter $ 44 (1)
- - ----------
(1) To be declared in March 1996.
The Program has 7,070 units outstanding and approximately 2,510 limited partners of record.
ITEM 6.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General -------
The following general discussion should be read in conjunction with the analysis of results of operations provided below. In management's view, it is not possible to predict accurately either the short-term or long-term prices for oil or gas. Specifically, due to the oversupply of natural gas in recent years, certain of the Program's gas producing properties have suffered, and continue to suffer during portions of the year, production curtailments and seasonal reductions in the prices paid by purchasers. Additional curtailments and seasonal or regional price reductions will adversely affect the operations and financial condition of the Program. Gas sales prices, which have generally declined significantly since the mid-1980s, increased during the fourth quarter of 1995. See "Item 1. Business - Competition and Marketing." Actual future prices received by the Program will likely be different from (and may be lower than) the prices in effect on December 31, 1995. In many past years, year- end prices have tended to be higher, and in some cases significantly higher, than the yearly average price actually received by the Program for at least the year following the year-end valuation date. Management is unable to predict whether future gas prices will (i) stabilize, (ii) increase, or (iii) decrease. The amount of the Program's cash flow, however, is dependent on such future gas prices.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 -------------------------------------
Total oil and gas sales decreased 23.7% for the year ended December 31, 1995 as compared to the year ended December 31, 1994. This decrease resulted primarily from a decrease in the volumes of oil sold and a decrease in the average price of natural gas sold during the year December 31, 1995 as compared to the year ended December 31, 1994. Volumes of oil sold decreased 1,051 barrels, while volumes of natural gas sold remained relatively constant for the year ended December 31, 1995 as compared to the year ended December 31, 1994. The decrease in volumes of oil sold resulted primarily from diminished production on one well which was shut-in due to mechanical difficulties during a portion of the year ended December 31, 1995. Average natural gas prices decreased to $1.32 per Mcf for the year ended December 31, 1995 from $1.68 per Mcf for the year ended December 31, 1994, while average oil prices increased to $15.55 per barrel for the year ended December 31, 1995 from $13.58 per barrel for the year ended December 31, 1994.
Oil and gas production expenses (including lease operating expenses and production taxes) decreased 5.2% for the year ended December 31, 1995 as compared to the year ended December 31, 1994. This decrease resulted primarily from an accrual for certain legal contingencies during the year ended December 31, 1994, partially offset by a lease operating expense credit received from the operator of one of the Program's wells as a result of a clerical error during the year ended December 31, 1994. As a percentage of oil and gas sales, these expenses increased to 49.4% for the year ended December 31, 1995 from 39.8% for the year ended December 31, 1994. This percentage increase was primarily a result of the decrease in oil and gas sales discussed above.
Depreciation, depletion, and amortization of oil and gas properties decreased $9,798 for the year ended December 31, 1995 as compared to the year ended December 31, 1994. This decrease was primarily a result of both an increase in the estimate of the Program's remaining natural gas reserves and the decrease in oil and gas sales discussed above, partially offset by recent additions to the amortizable full cost pool which were incurred in order to improve the ultimate recovery of oil and gas reserves. As a percentage of oil and gas sales, this expense increased to 18.2% for the year ended December 31, 1995 from 17.0% for the year ended December 31, 1994. This percentage increase resulted primarily from the decrease in the average price of natural gas sold during the year ended December 31, 1995 as compared to the year ended December 31, 1994.
General and administrative expenses increased by $7,631 for the year ended December 31, 1995 as compared to the year ended December 31, 1994. This increase resulted primarily from an increase in both professional fees and printing and postage expenses during the year ended December 31, 1995 as compared to the year ended December 31, 1994. As a percentage of oil and gas sales, these expenses increased to 29.5% for the year ended December 31, 1995 from 20.1% for the year ended December 31, 1994. This percentage increase was primarily a result of the dollar increase in general and administrative expenses as discussed above and the decrease in oil and gas sales discussed above.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 -------------------------------------
Total oil and gas sales decreased 33.7% for the year ended December 31, 1994 as compared to the year ended December 31, 1993. This decrease was primarily due to decreases in volumes and average prices of oil and natural gas sold. Volumes of oil and natural gas sold decreased 214 barrels and 76,201 Mcf for the year ended December 31, 1994 as compared to the year ended December 31, 1993. The decrease in volumes of natural gas sold was primarily a result of positive prior period volume adjustments on two wells during the year
ended December 31, 1993. Oil and natural gas prices decreased to averages of $13.58 per barrel and $1.68 per Mcf for the year ended December 31, 1994 from averages of $14.35 per barrel and $1.79 per Mcf for the year ended December 31, 1993.
Oil and gas production expenses (including lease operating expenses and production taxes) increased 20.6% for the year ended December 31, 1994 as compared to the year ended December 31, 1993. This increase was primarily a result of workover charges on two wells which were incurred in order to improve the recovery of reserves and an accrual for certain litigation costs in 1994, which was partially offset by a decrease in production taxes during 1994 related to the decrease in the volumes and average prices of oil and gas sold. As a percentage of oil and gas sales, these expenses increased to 39.8% for the year ended December 31, 1994 from 21.9% for the year ended December 31, 1993. This percentage increase was primarily a result of the decrease in volumes and average price of natural gas sold.
Depreciation, depletion, and amortization of oil and gas properties decreased $16,066 for the year ended December 31, 1994 as compared to the year ended December 31, 1993. This dollar decrease was primarily due to the decrease in volumes of natural gas sold and upward reserve revisions, partially offset by lower year-end 1994 natural gas prices. As a percentage of oil and gas sales, this expense increased to 17.0% for the year ended December 31, 1994 from 14.7% for the year ended December 31, 1993. This percentage increase was primarily a result of the decrease in the volumes and average price of natural gas sold, partially offset by the dollar decrease in depreciation, depletion, and amortization expense as discussed above.
General and administrative expenses remained relatively constant for the year ended December 31, 1994 as compared to the year ended December 31, 1993. As a percentage of oil and gas sales, these expenses increased to 20.1% for the year ended December 31, 1994 from 13.5% for the year ended December 31, 1993. This percentage increase was primarily a result of the decrease in volumes and average price of natural gas sold.
Liquidity and Capital Resources
Net proceeds from operations less necessary operating capital are distributed to the limited partners on a quarterly basis. See "Item 5. Market for the Registrant's Limited Partnership Units and Related Limited Partner Matters." The net proceeds from production are not reinvested in productive assets, except to the extent that producing wells are improved, or where methods are employed to permit more efficient recovery of reserves, thereby resulting in a positive economic impact. Assuming production levels for the year ended December 31, 1995, the Program's proved reserve quantities at December 31, 1995 would have a life of approximately 3.1 years for gas reserves and 5.0 years for oil reserves.
The Program's available capital from the limited partners' subscriptions has been spent on oil and gas drilling activities and there should be no further material capital resource commitments in the future. The Program has no debt commitments. Cash for operational purposes will be provided by current oil and gas production.
There can be no assurance as to the amount of the Program's future cash distributions. The Program's ability to make cash distributions depends primarily upon the level of available cash flow generated by the Program's operating activities, which will be affected (either positively or negatively) by many factors beyond the control of the Program, including the price of and demand for oil and natural gas and other market and economic conditions. Even if prices and costs remain stable, the amount of cash available for distributions will decline over time (as the volume of production from producing properties declines) since the Program is not replacing production through acquisitions of producing properties and drilling.
Inflation and Changing Prices
Prices obtained for oil and gas production depend upon numerous factors, including the extent of domestic and foreign production, foreign imports of oil, market demand, domestic and foreign economic conditions in general, and governmental regulations and tax laws. The general level of inflation in the economy did not have a material effect on the operations of the Program in 1995. Oil and natural gas prices have fluctuated during recent years and generally have not followed the same pattern as inflation. See "Item 2. Properties - Oil and Gas Production, Revenue, and Price History."
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS
DYCO OIL AND GAS PROGRAM 1981-1 LIMITED PARTNERSHIP
We have audited the financial statements of the Dyco Oil and Gas Program 1981-1 Limited Partnership (a Minnesota limited partnership) as listed in Item 14(a) of this Form 10-K. These financial statements are the responsibility of the Program'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 dis- closures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Dyco Oil and Gas Program 1981-1 Limited Partnership at December 31, 1995 and 1994, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma February 6, 1996
DYCO OIL AND GAS PROGRAM 1981-1 LIMITED PARTNERSHIP Balance Sheets December 31, 1995 and 1994
ASSETS 1995 1994 -------- --------
CURRENT ASSETS: Cash and cash equivalents $ 86,202 $ 91,259 Accrued oil and gas sales, including $33,346 and $29,152 due from related parties 37,810 35,597 ------- ------- Total current assets $124,012 $126,856
NET OIL AND GAS PROPERTIES, utilizing the full cost method 179,288 153,111
DEFERRED CHARGE 31,560 43,842 ------- -------
$334,860 $323,809 ======= =======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES: Accounts payable $ 25,822 $ 25,883 Gas imbalance payable 1,383 15,434 ------- ------- Total current liabilities $ 27,205 $ 41,317
ACCRUED LIABILITY 78,165 64,783
CONTINGENCY (NOTE 4)
PARTNERS' CAPITAL: General Partner, issued and outstanding, 70 Units 2,294 2,176 Limited Partners, issued and outstanding, 7,000 Units 227,196 215,533 ------- ------- Total Partners' capital $229,490 $217,709 ------- -------
$334,860 $323,809 ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1981-1 LIMITED PARTNERSHIP Statements of Operations For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993 -------- -------- -------- REVENUES: Oil and gas sales, including $211,735, $310,817, and $435,795 of sales to related parties $240,251 $314,712 $474,446 Interest 4,886 3,253 2,728 ------- ------- ------- $245,137 $317,965 $477,174
COSTS AND EXPENSES: Lease operating $101,650 $102,115 $ 66,473 Production taxes 17,094 23,163 37,398 Depreciation, depletion, and amortization of oil and gas properties 43,661 53,459 69,525 General and administrative 70,951 63,320 64,161 ------- ------- ------- $233,356 $242,057 $237,557 ------- ------- ------- NET INCOME $ 11,781 $ 75,908 $239,617 ======= ======= ======= GENERAL PARTNER (1%) - NET INCOME $ 118 $ 759 $ 2,396 ======= ======= ======= LIMITED PARTNERS (99%) - NET INCOME $ 11,663 $ 75,149 $237,221 ======= ======= ======= NET INCOME per Unit $ 2 $ 11 $ 34 ======= ======= ======= UNITS OUTSTANDING 7,070 7,070 7,070 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1981-1 LIMITED PARTNERSHIP Statements of Partners' Capital For the Years Ended December 31, 1995, 1994, and 1993
General Limited Partner Partners Total -------- ---------- ----------
Balances at December 31, 1992 $4,324 $428,110 $432,434 Cash distributions ( 3,535) ( 349,965) ( 353,500) Net income 2,396 237,221 239,617 ----- ------- -------
Balances at December 31, 1993 $3,185 $315,366 $318,551 Cash distributions ( 1,768) ( 174,982) ( 176,750) Net income 759 75,149 75,908 ----- ------- -------
Balances at December 31, 1994 $2,176 $215,533 $217,709 Net income 118 11,663 11,781 ----- ------- -------
Balances at December 31, 1995 $2,294 $227,196 $229,490 ===== ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1981-1 LIMITED PARTNERSHIP Statements of Cash Flows For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993 ---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,781 $ 75,908 $239,617 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization of oil and gas properties 43,661 53,459 69,525 (Increase) decrease in accrued oil and gas sales ( 2,213) 20,261 69,238 (Increase) decrease in deferred charge 12,282 ( 43,842) - Increase (decrease) in accounts payable ( 61) 21,679 ( 654) Increase (decrease) in gas imbalance payable ( 14,051) 5,397 ( 17,221) Increase in accrued liability 13,382 51,454 13,329 ------- ------- ------- Net cash provided by operating activities $ 64,781 $184,316 $373,834 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to oil and gas properties ($ 69,838) ($ 191) ($ 691) Retirements of oil and gas properties - 196 4,554 ------- ------- ------- Net cash provided (used) by investing activities ($ 69,838) $ 5 $ 3,863 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions $ - ($176,750) ($353,500) ------- ------- ------- Net cash used by financing activities $ - ($176,750) ($353,500) ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($ 5,057) $ 7,571 $ 24,197
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 91,259 83,688 59,491 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 86,202 $ 91,259 $ 83,688 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1981-1 LIMITED PARTNERSHIP Notes to Financial Statements For the Years Ended December 31, 1995, 1994, and 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The Dyco Oil and Gas Program 1981-1 Limited Partnership (the "Program"), a Minnesota limited partnership, commenced operations on February 7, 1981. Dyco Petroleum Corporation ("Dyco") is the General Partner of the Program. Affiliates of Dyco owned 2,570.76 (36.4%) of the Program's Units at December 31, 1995.
The Program's sole business is the development and production of oil and natural gas with a concentration on natural gas. Substantially all of the Program's natural gas reserves are being sold regionally in the "spot market." Due to the highly competitive nature of the spot market, prices on the spot market are subject to wide seasonal and regional pricing fluctuations. In addition, such spot market sales are generally short-term in nature and are dependent upon the obtaining of transportation services provided by pipelines.
Cash and Cash Equivalents
The Program considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are not insured, which cause the Program to be subject to risk.
Credit Risk
Accrued oil and gas sales which are due from a variety of oil and natural gas purchasers subject the Program to a concentration of credit risk. Some of these purchasers are discussed in Note 3 - Major Customers.
Oil and Gas Properties
Oil and gas operations are accounted for using the full cost method of accounting. All productive and non-productive costs associated with the acquisition, exploration, and development of oil and gas reserves are capitalized. Capitalized costs are depleted on the gross revenue method using estimates of proved reserves. The full cost amortization rates per equivalent Mcf of gas produced during the years ended December 31, 1995, 1994, and 1993 were $0.25, $0.29, and $0.27, respectively. In the event the unamortized cost of oil and gas properties being amortized exceeds the full cost ceiling (as defined by the Securities and Exchange Commission) the excess is charged to expense in the year during which such excess occurs. In addition, the Securities and Exchange Commission rules provide that if prices decline subsequent to year end, any excess that results from these declines may also be charged to expense during the current year. Sales and abandonments of properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved oil and gas reserves.
Deferred Charge
Deferred Charge represents costs deferred for lease operating expenses incurred in connection with the Program's underproduced gas imbalance position. At December 31, 1995, cumulative total gas sales volumes for underproduced wells were less than the Program's pro-rata share of total gas production from these wells by 74,717 Mcf, resulting in prepaid lease operating expenses of $31,560. At December 31, 1994, cumulative total gas sales volumes for underproduced wells were less than the Program's pro- rata share of total gas production from these wells by 105,522 Mcf, resulting in prepaid lease operating expenses of $43,842.
Accrued Liability
The Accrued Liability at December 31, 1995 and 1994 represents charges accrued for lease operating expenses incurred in connection with the Program's overproduced gas imbalance position. At December 31, 1995, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by 185,049 Mcf, resulting in accrued lease operating expenses of $78,165. At December 31, 1994, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by 156,028 Mcf, resulting in accrued lease operating expenses of $64,783.
Oil and Gas Sales and Gas Imbalance Payable
The Program's oil and condensate production is sold, title passed, and revenue recognized at or near the Program's wells under short-term purchase contracts at prevailing prices in accordance with arrangements which are customary in the oil industry. Sales of natural gas applicable to the Program's interest in producing oil and gas leases are recorded as income when the gas is metered and title transferred pursuant to the gas sales contracts covering the Program's interest in natural gas reserves. During such times as the Program's sales of gas exceed its pro rata ownership in a well, such sales are recorded as income unless total sales from the well have exceeded the Program's share of estimated total gas reserves underlying the property at which time such excess is recorded as a liability. At December 31, 1995, total sales exceeded the Program's share of estimated total gas reserves on one well by $1,383 (724 Mcf). At December 31, 1994 total sales exceeded the Program's share of estimated total gas reserves on five wells by $15,434 (10,571 Mcf). These amounts were recorded as gas imbalance payables at December 31, 1995 and 1994 in accordance with the sales method.
Use of Estimates in Financial Statements
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. Further, accrued oil and gas sales, the deferred charge, the gas imbalance payable, and the accrued liability all involve estimates which could materially differ from the actual amounts ultimately realized or incurred in the near term. Contingent liabilities from litigation (see Note 4) and oil and gas reserves (see Note 5) also involve significant estimates which could materially differ from the actual amounts ultimately realized.
Income Taxes
Income or loss for income tax purposes is includable in the income tax returns of the partners. Accordingly, no recognition has been given to income taxes in the accompanying financial statements.
2. TRANSACTIONS WITH RELATED PARTIES
Under the terms of the Program's partnership agreement, Dyco is entitled to receive a reimbursement for all direct expenses and general and administrative, geological, and engineering expenses it incurs on behalf of the Program. During the years ended December 31, 1995, 1994, and 1993, such expenses totaled $70,951, $63,320, and $64,161, respectively, of which $50,052, $50,052, and $49,572, were paid to Dyco and its affiliates.
Affiliates of the Program operate certain of the Program's properties. Their policy is to bill the Program for all customary charges and cost reimbursements associated with these activities, together with any compressor rentals, consulting, or other services provided.
The Program sells gas at market prices to Premier Gas Company ("Premier") and other similar gas marketing firms. Such firms may then resell such gas to third parties at market prices. Premier was an affiliate of the Program until December 6, 1995. During 1995, 1994, and 1993, these sales totaled $211,735, $310,817, and $435,795, respectively. At December 31, 1995 and 1994, accrued oil and gas sales included $33,346 and $29,152, respectively, due from Premier.
3. MAJOR CUSTOMERS
The following purchaser individually accounted for more than 10% of the combined oil and gas sales (excluding the gas imbalance adjustment) of the Program for the years ended December 31, 1995, 1994, and 1993:
Purchaser 1995 1994 1993 --------- ----- ----- -----
Premier 88.1% 98.8% 91.9%
In the event of interruption of purchases by this significant customer or the cessation or material change in availability of open-access transportation by the Program's pipeline transporters, the Program may encounter difficulty in marketing its gas and in maintaining historic sales levels. Alternative purchasers or transporters may not be readily available.
4. CONTINGENCY
On November 12, 1992, two individuals filed a lawsuit against Dyco and others in which the plaintiffs alleged damages to their land as a result of remediation operations conducted on one of the Program's wells located on an adjoining property. The lawsuit alleged claims based on negligence, private nuisance, public nuisance, trespass, unjust enrichment, constructive fraud, and permanent injunctive relief, all in amounts to be determined at trial. A trial was conducted in the matter on February 22, 1994 in which the jury entered a verdict in favor of the plaintiffs in the amount of approximately $5.5 million, consisting of approximately $2.75 million in actual damages and approximately $2.75 million in punitive damages. Dyco is presently appealing the matter. Included in these financial statements as of December 31, 1995 and 1994 is an accrual by the General Partner of $20,000 representing the Program's share of estimated ultimate damages resulting from this lawsuit.
5. SUPPLEMENTAL OIL AND GAS INFORMATION
The following supplemental information regarding the oil and gas activities of the Program is presented pursuant to the disclosure requirements promulgated by the Securities and Exchange Commission.
Capitalized Costs
The Program's capitalized costs and accumulated depreciation, depletion, amortization, and valuation allowance were as follows:
December 31, ---------------------------- 1995 1994 ------------- -------------
Proved properties $41,186,027 $41,116,189
Unproved properties, not subject to depreciation, depletion, and amortization - - ---------- ----------
$41,186,027 $41,116,189
Less accumulated depreciation, depletion, amortization, and valuation allowance ( 41,006,739) ( 40,963,078) ---------- ----------
Net oil and gas properties $ 179,288 $ 153,111 ========== ==========
Cost Incurred
Costs incurred by the Program in connection with its oil and gas property acquisition, exploration, and development activities were as follows:
December 31, ----------------------- 1995 1994 1993 ------- ---- ----
Acquisition of properties $ - $ - $ - Exploration costs - - - Development costs 69,838 191 691 ------ --- --- Total costs incurred $69,838 $191 $691 ====== === ===
Quantities of Proved Oil and Gas Reserves - Unaudited
The process of estimating oil and gas reserves is complex, requiring significant subjective decisions in the evaluation of available geological, engineering, and economic data for each reservoir. The data for a given reservoir may change substantially over time as a result of, among other things, additional development activity, production history, and viability of production under varying economic conditions; con- sequently, it is reasonably possible that material revisions to existing reserve estimates may occur in the near future. Although every reasonable effort has been made to ensure that the reserve estimates reported herein represent the most accurate assessment possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures.
ITEM 9.

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

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Program is a limited partnership and has no directors or executive officers. The following individuals are directors and executive officers of Dyco, the General Partner. The business address of such directors and executive officers is Two West Second Street, Tulsa, Oklahoma 74103.
NAME AGE POSITION WITH DYCO ---------------- --- -------------------------------- C. Philip Tholen 47 Chief Executive Officer, Presi- dent, and Chairman of the Board of Directors
Dennis R. Neill 43 Senior Vice President and Director
Jack A. Canon 46 Senior Vice President - General Counsel and Director
Patrick M. Hall 37 Senior Vice President - Controller
Annabel M. Jones 42 Secretary
Judy F. Hughes 49 Treasurer
The directors will hold office until the next annual meeting of shareholders of Dyco and until their successors have been duly elected and qualified. All executive officers serve at the discretion of the Board of Directors.
C. Philip Tholen - joined the Samson Companies in 1977 and has served as President, Chief Executive Officer, and Director of Dyco since June 18, 1991. Prior to joining the Samson Companies, he was an audit manager for Arthur Andersen & Co. in Tulsa where he specialized in oil and natural gas industry audits and contract audits. He holds a Bachelor of Science degree in accounting from the University of Tulsa and is a Certified Public Accountant. Mr. Tholen is also Executive Vice President, Chief Financial Officer, Treasurer, and Director of Samson Investment Company; President and Chairman of the Board of Directors of Samson Natural Gas Company, Geodyne Resources, Inc. and its subsidiaries, and Samson Resources Company; President of two Divisions of Samson Natural Gas Company, Samson Exploration Company and Samson Production Services Company; Senior Vice President, Treasurer, and Director of Samson Properties Incorporated; and Director of Circle L Drilling Company and Samson Industrial Corporation.
Dennis R. Neill - joined the Samson Companies in 1981 and was named Senior Vice President and Director of Dyco on June 18, 1991. Prior to joining the Samson Companies, he was associated with a Tulsa law firm, Conner and Winters, where his principal practice was in the securities area. He received a Bachelor of Arts degree in political science from Oklahoma State University and a Juris Doctorate degree from the University of Texas. Mr. Neill also serves as Senior Vice President, Chief Operating Officer, and Director of Samson Properties Incorporated; Senior Vice President of Samson Hydrocarbons Company; Senior Vice President and Director of Geodyne Resources, Inc. and its subsidiaries; and President and Chairman of the Board of Directors of Samson Securities Company.
Jack A. Canon - joined the Samson Companies in 1983 and has served as a Vice President and Director of Dyco since June 18, 1991. Prior to joining the Samson Companies, he served as a staff attorney for Terra Resources, Inc. and was associated with the Tulsa law firm of Dyer, Powers, Marsh, Turner and Armstrong. He received a Bachelor of Science degree in accounting from Quincy College and a Juris Doctorate degree from the University of Tulsa. Mr. Canon also serves as Secretary of Samson Investment Company; Director of Samson Natural Gas Company, Samson Properties Incorporated, Circle L Drilling Company, and Samson Securities Company; Senior Vice President - General Counsel of Samson Production Services Company, a Division of Samson Natural Gas Company, and Geodyne Resources, Inc. and its subsidiaries; and Vice President - General Counsel of Samson Industrial Corporation.
Patrick M. Hall - joined the Samson Companies in 1983 and was named a Vice President of Dyco on June 18, 1991. Prior to joining the Samson Companies he was a senior accountant with Peat Marwick Main & Co. in Tulsa. He holds a Bachelor of Science degree in accounting from Oklahoma State University and is a Certified Public Accountant. Mr. Hall is also a Director of Samson Natural Gas Company and Geodyne Resources, Inc. and its subsidiaries; Senior Vice President - Controller and Director of Samson Properties Incorporated; and Senior Vice President - Controller of Samson Production Services Company, a Division of Samson Natural Gas Company.
Annabel M. Jones - joined the Samson Companies in 1982 and was named Secretary of Dyco on June 18, 1991. Prior to joining the Samson Companies she served as associate general counsel of the Oklahoma Securities Commission. She holds Bachelor of Arts in political science and Juris Doctorate degrees from the University of Oklahoma. Ms. Jones serves as Assistant General Counsel - Corporate Affairs for Samson Production Services Company, a Division of Samson Natural Gas Company, and is also Secretary of Samson Properties Incorporated, Samson Natural Gas Company, Geodyne Resources, Inc. and its subsidiaries, and Samson Industrial Corporation; Vice-President, Secretary, and Director of Samson Securities Company; and Assistant Secretary of Samson Investment Company.
Judy F. Hughes - joined the Samson Companies in 1978 and was named Treasurer of Dyco on June 18, 1991. Prior to joining the Samson Companies, she performed treasury functions with Reading & Bates Corporation. She attended the University of Tulsa and also serves as Treasurer of Samson Natural Gas Company, Geodyne Resources, Inc. and its subsidiaries, and Samson Securities Company and Assistant Treasurer of Samson Investment Company and Samson Industrial Corporation.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The Program is a limited partnership and, therefore, has no officers or directors. The following table summarizes the amounts paid by the Program as compensation and reimbursements to Dyco and its affiliates for the three years ended December 31, 1995:
Compensation/Reimbursement to Dyco and its affiliates Three Years Ended December 31, 1995
Type of Compensation/Reimbursement(1) Expense - - ------------------------------------- ------------------------- 1995 1994 1993 ------- ------- ------- Compensation: Operations $ (2) $ (2) $ (2) Gas Marketing $ (3) $ (3) $ (3)
Reimbursements: General and Administrative, Geological, and Engineering Expenses and Direct Expenses(4) $50,052 $50,052 $49,572
- - ----------
(1) The authority for all of such compensation and reimbursement is the limited partnership agreement of the Program. With respect to the Operations activities noted in the table, management believes that such compensation is equal to or less than that charged by unaffiliated persons in the same geographic areas and under the same conditions. (2) Affiliates of the Program serve as operator of a significant portion of the Program's wells. Dyco, as General Partner, contracts with such affiliates for services as operator of the wells. As operator, such affiliates are compensated at rates provided in the operating agreements in effect and charged to all parties to such agreement. The dollar amount of such compen- sation paid by the Program to such affiliates is impossible to quantify as of the date of this Annual Report. (3) Premier, an affiliate of the Program until December 6, 1995, purchased a portion of the Program's gas at market prices and resold such gas at market prices directly to end-users and local distribution companies. For the years ended December 31, 1995, 1994, and 1993, the Program sold $211,735, $310,817, and $435,795, respectively, of gas to Premier. (4) The Program reimburses Dyco and its affiliates for reasonable and necessary general and administrative, geological, and engineering expenses and direct expenses incurred in connection with their management and operation of the Program. The directors, officers, and employees of Dyco and its affiliates receive no direct remuneration from the Program for their services to the Program. See "Salary Reimbursement Table" below. The allocable general and administrative, geological, and engineering expenses are apportioned on a reasonable basis between the Program's business and all other oil and natural gas activities of Dyco and its affiliates, including Dyco's management and operation of affiliated oil and gas limited partnerships. The allocation to the Program of these costs is made by Dyco as General Partner.
As noted in the Compensation/Reimbursement Table above, the directors, officers, and employees of Dyco and their affiliates receive no direct remuneration from the Program for their services. However, to the extent such services represent direct involvement with the Program, as opposed to general corporate functions, such persons' salaries are allocated to and reimbursed by the Program. Such allocation to the Program's general and administrative, geological, and engineering expenses of the salaries of directors, officers, and employees of Dyco and its affiliates is based on internal records maintained by Dyco and its affiliates, and represents investor relations, legal, accounting, data processing, management, and other functions directly attributable to the Program's operations. The following table indicates the approximate amount of general and administrative expense reimbursement attributable to the salaries of the directors, officers, and employees of Dyco and its affiliates for the three years ended December 31, 1995:
In addition to the compensation/reimbursements noted above, during the three years ended December 31, 1995, the Samson Companies were in the business of supplying field and drilling equipment and services to affiliated and unaffiliated parties in the industry. Such companies may have provided equipment and services for wells in which the Program has an interest. These equipment and services were provided at prices or rates equal to or less than those normally charged in the same or comparable geographic area by unaffiliated persons or companies dealing at arm's length. The operators of these wells bill the Program for a portion of such costs based upon the Program's interest in the well.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as to the beneficial ownership of the Program's Units as of December 31, 1995 by each beneficial owner of more than 5% of the issued and outstanding Units and by the directors, officers, and affiliates of Dyco. The address of each of such persons is Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103.
Number of Units Beneficially Owned (Percent Beneficial Owner of Outstanding) - - ----------------------------------------- -----------------
Samson Properties Incorporated 2,570.76 (36.4%)
All directors, officers, and affiliates of Dyco as a group and Dyco (8 persons) 2,570.76 (36.4%)
To the best knowledge of the Program and Dyco, there were no officers, directors, or 5% owners who were delinquent filers of reports required under section 16 of the Securities Exchange Act of 1934.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dyco and certain of its affiliates engage in oil and gas activities independently of the Program which result in conflicts of interest that cannot be totally eliminated. The allocation of acquisition and drilling opportunities and the nature of the compensation arrangements between the Program and Dyco also create potential conflicts of interest. Dyco and its affiliates own a significant amount of the Program's Units of limited partnership interest and therefore have an identity of interest with other limited partners with respect to the operations of the Program.
In order to attempt to assure limited liability for limited partners as well as an orderly conduct of business, management of the Program is exercised solely by Dyco. The partnership agreement of the Program grants Dyco broad discretionary authority with respect to the Program's participation in drilling prospects and expenditure and control of funds, including borrowings. These provisions are similar to those contained in prospectuses and partnership agreements for other public oil and gas partnerships. Broad discretion as to general management of the Program involves circumstances where Dyco has conflicts of interest and where it must allocate costs and expenses, or opportunities, among the Program and other competing interests.
Dyco does not devote all of its time, efforts, and personnel exclusively to the Program. Furthermore, the Program does not have any employees, but instead relies on the personnel of the Samson Companies. The Program thus competes with the Samson Companies (including other currently sponsored oil and gas programs) for the time and resources of such personnel. The Samson Companies devote such time and personnel to the management of the Program as are indicated by the circumstances and as are consistent with Dyco's fiduciary duties.
Affiliates of the Program are solely responsible for the negotia- tion, administration, and enforcement of oil and gas sales agreements covering the Program's leasehold interests. Until December 6, 1995, Dyco had delegated the negotiation, administration, and enforcement of its oil and gas sales agreements to Premier. In addition to providing such administrative services, Premier purchased and resold gas directly to end-users and local distribution companies. Because affiliates of the Program who provide services to the Program have fiduciary or other duties to other members of the Samson Companies, contract amendments and negotiating positions taken by them in their effort to enforce contracts with purchasers may not necessarily repre- sent the positions that a Program would take if it were to administer its own contracts without involvement with other members of the Samson Companies. On the other hand, management believes that the Program's negotiating strength and contractual positions have been enhanced by virtue of its affiliation with the Samson Companies.
For a description of certain other relationships of and related transactions see "Item 11. Executive Compensation."
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules. The following financial statements and schedules for the Program as of December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994, and 1993 are filed as part of this report.
(1) Financial Statements: Report of Independent Accountants Balance Sheets Statements of Operations Statements of Partners' Capital Statements of Cash Flows Notes to Financial Statements
(2) Financial Statement Schedules:
None.
All other schedules have been omitted since the required information is presented in the Financial Statements or is not applicable.
(b) Reports on Form 8-K for the fourth quarter of 1995:
None.
(c) Exhibits:
4.1 Drilling Agreement dated February 11, 1981 for Dyco Oil and Gas Program 1981-1 by and between Dyco Oil and Gas Program 1981-1, Dyco Petroleum Corporation, and Jaye F. Dyer filed as Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 13, 1992 and is hereby incorporated herein.
4.2 Form of Program Agreement for Dyco Oil and Gas Program 1981-1 by and between Dyco Petroleum Corporation and the Participants filed as Exhibit 4.2 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 13, 1992 and is hereby incorporated herein.
4.3 Amendment to Program Agreement for Dyco Oil and Gas Program 1981-1 dated February 9, 1989 filed as Exhibit 4.3 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 13, 1992 and is hereby incorporated herein.
4.4 Certificate of Limited Partnership, as amended for Dyco Oil and Gas Program 1981-1 Limited Partnership filed as Exhibit 4.4 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 13, 1992 and is hereby incorporated herein.
27.1 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1981-1 Limited Partnership's financial statements as of December 31, 1995 and for the year ended December 31, 1995.
All other Exhibits are omitted as inapplicable.
SIGNATURES
Pursuant to the requirements of Sections 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 organized.
DYCO OIL AND GAS PROGRAM 1981-1 LIMITED PARTNERSHIP
By: DYCO PETROLEUM CORPORATION General Partner February 15, 1996
By: /s/C. Philip Tholen ------------------------------ C. Philip Tholen Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated.
By: /s/C. Philip Tholen Chief Executive Feb. 15, 1996 ------------------- Officer, President, C. Philip Tholen and Chairman of the Board (Principal Executive Officer)
/s/Dennis R. Neill Senior Vice Feb. 15, 1996 ------------------- President and Dennis R. Neill Director
/s/Jack A. Canon Senior Vice Feb. 15, 1996 ------------------- President - Jack A. Canon General Counsel and Director
/s/Patrick M. Hall Senior Vice Feb. 15, 1996 ------------------- President - Patrick M. Hall Controller (Principal Accounting Officer)
/s/Annabel M. Jones Secretary Feb. 15, 1996 ------------------- Annabel M. Jones
/s/Judy F. Hughes Treasurer Feb. 15, 1996 ------------------- Judy F. Hughes
INDEX TO EXHIBITS
Exhibit Number Description - - ------- -----------
4.1 Drilling Agreement dated February 11, 1981 for Dyco Oil and Gas Program 1981-1 by and between Dyco Oil and Gas Program 1981-1, Dyco Petroleum Corporation, and Jaye F. Dyer filed as Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 13, 1992 and is hereby incorporated herein.
4.2 Form of Program Agreement for Dyco Oil and Gas Program 1981- 1 by and between Dyco Petroleum Corporation and the Participants filed as Exhibit 4.2 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 13, 1992 and is hereby incorporated herein.
4.3 Amendment to Program Agreement for Dyco Oil and Gas Program 1981-1 dated February 9, 1989 filed as Exhibit 4.3 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 13, 1992 and is hereby incorporated herein.
4.4 Certificate of Limited Partnership, as amended for Dyco Oil and Gas Program 1981-1 Limited Partnership filed as Exhibit 4.4 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 13, 1992 and is hereby incorporated herein.
27.1 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1981-1 Limited Partnership's financial statements as of December 31, 1995 and for the year ended December 31, 1995.


Item 1. Business
The Company is a Wisconsin corporation incorporated in the year 1906 as Weyenberg Shoe Manufacturing Company. Effective April 25, 1990, the name of the corporation was changed to Weyco Group, Inc.
The Company and its subsidiaries engage in one line of business, the manufacture, purchase and distribution of men's footwear. The Company does not sell women's or children's shoes because these markets differ significantly from the men's market. The principal brands of shoes sold are "Nunn Bush," "Brass Boot," "Stacy Adams," and "Weyenberg" and trademarks maintained by the Company on these names are important to the business. The Company's products consist of both mid-priced quality leather dress shoes which would be worn as a part of more formal and traditional attire and lower priced quality casual footwear of man-made materials or leather which would be appropriate for leisure or less formal occasions. The Company's footwear, and that of the industry in general, is available in a broad range of sizes and widths, primarily produced or purchased to meet the needs and desires of the American male population.
The Company assembles footwear at one manufacturing plant in Wisconsin. Shoe components, referred to as "uppers," are purchased from outside sources, generally foreign, and turned into complete shoes by attaching the sole, either leather or man-made, applying appropriate "finishes" and packing the shoes into individual cartons, ready for sale. The Company purchases raw materials and shoe components from many suppliers and is not dependent on any one of them. The supply of these items is generally plentiful and there are no long-term purchase commitments. Over the past five years, production at the Company's plant has accounted for approximately 14% of the value of the Company's wholesale footwear sales.
In addition to the production of footwear at the Company's own manufacturing plants, complete shoes are also purchased from many sources worldwide, generally at U. S. dollar prices. These purchases account for the balance of the Company's wholesale footwear sales. In recent years, domestic production of men's shoes by the Company and the industry has declined, while imports to the United States have increased.
The Company's business is separated into two divisions - wholesale and retail. Wholesale sales constituted approximately 87% of total sales in 1995, 79% in 1994, and 68% in 1993. At wholesale, shoes are marketed nationwide through more than 8,000 shoe, clothing and department stores. The loss of any one or a few of these retail customers would not have a material adverse effect on the wholesale division sales. The Company employs traveling salesmen who sell the Company's products to the retail outlets. Shoes are shipped to these retailers primarily from warehouses maintained in Milwaukee and Beaver Dam, Wisconsin. Although there is no clearly identifiable seasonality in the men's footwear business, new styles are historically developed and shown twice each year, in spring and fall. In accordance with the industry practices, the Company is required to carry significant amounts of inventory to meet customer delivery requirements and periodically provides extended payment terms to customers.
Retail sales constituted approximately 13% of total sales in 1995, 21% in 1994 and 32% in 1993. In the retail division there are 18 company-operated stores in principal cities of the United States and 13 leased departments in department stores throughout the country. The decrease in retail sales in recent years is a result of the termination of leased departments and company-operated stores. In 1995, 10 company-operated stores were closed due to unprofitable operations or unattractive lease renewal terms. In 1994, the Company closed 45 leased departments as a result of the termination of a lease agreement with a department store and 7 company-operated stores due to unprofitable operations or unattractive lease renewal terms. In 1993, the Company closed 71 leased shoe departments because of a restructuring at a lessor department store chain and closed 12 company-operated stores because of unprofitable operations or unattractive lease renewal terms. Sales in retail outlets are made directly to the consumer by company employees. In addition to the sale of the Company's brands of footwear in these retail outlets, other branded footwear and accessories are also sold in order to provide the consumer with as complete a selection as practically possible.
In dollar sales, the Company is about eighth largest among approximately 900 domestic men's shoe distributors. During 1995 it sold approximately 3% of the total men's non-rubber dress and casual shoes sold in the United States.
Price, quality and service are all important competitive factors in the shoe industry and the Company has been recognized as a leader in all of them. Although the Company engages in no specific research and development activities, new products and new processes are continually being tested by the Company and used where appropriate, in order to produce the best value for the consumer, consistent with reasonable price. Compliance with environmental regulations historically has not had, and is not expected to have, a material adverse effect on the Company's results of operations or cash flows.
Approximately 525 persons are employed by the Company and its subsidiaries.
Item 2.

Item 2. Properties
The following facilities are operated by the Company and its subsidiaries:
(1) Not a material lease.
All of the above-named facilities are adequately equipped, well maintained and suitable for foreseeable needs. If all available manufacturing space were utilized and significant additional shoe making equipment were acquired, production could be increased about 25%.
In addition to the above-described manufacturing and warehouse facilities, the Company operates 18 retail stores and 13 leased departments throughout the United States under various rental agreements. See Note 9 to Consolidated Financial Statements and Item 1. Business above.
Item 3.

Item 3. Legal Proceedings
On December 6, 1993, a shareholder of the Company, on behalf of herself and all others similarly situated, filed an action in the Circuit Court of Milwaukee County, Wisconsin against the Company and certain of its officers in connection with the (then proposed) merger agreement subsequently signed by the Company under which the Company would have been acquired by a management group, including the principal shareholders of the Company, for $34.00 per share in cash. (Kahn v. Weyco Group, et. al, Case No. 93-CV-019022). Plaintiff alleged that the $34.00 per share price was grossly inadequate, that the Company's intrinsic value exceeded $60.00 per share, that the acquiring group controlled and dominated the Board of Directors, that the Special Committee of the Board of Directors failed to adequately explore all alternatives that might lead to maximizing shareholder values, that the merger agreement was not the result of arm's-length negotiations or an independent valuation of shares and that the defendants failed to have a disinterested third party negotiate on behalf of shareholders. Plaintiff sought an injunction, rescission, unspecified damages and fees and expenses. The defendants filed an answer denying all material allegations. Following the withdrawal of the proposed merger, the plaintiff amended the complaint in December 1994 to seek a declaration that the defendants, in proposing and pursuing the proposed merger, "committed or aided and abetted a gross abuse of trust and have breached their fiduciary and other duties" and also to seek to recover certain costs and expenses related to the action, "including reasonable attorneys' and professional fees incurred with the solicitation of proxies." On June 2, 1995, the lawsuit was dismissed by the Circuit Court of Milwaukee County, Wisconsin. On September 25, 1995, the plaintiffs gave notice of their appeal to the Wisconsin Court of Appeals. The appeal was dismissed on December 29, 1995 and the Company is not aware of any further action by the plaintiff.
The Company has been identified as a potentially responsible party ("PRP") in two separate actions in connection with an alleged hazardous substance discharge in the State of Wisconsin. The Company is contesting these actions and denies liability in the matter. It is anticipated that the resolution of this matter will not have a material effect on the Consolidated Financial Statements of the Company.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Executive Officers of the Registrant
Thomas W. Florsheim is the father of John W. Florsheim and Thomas W. Florsheim, Jr.
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Information required by this Item is set forth on page 11 of the Annual Report to Shareholders for the year ended December 31, 1995, and is incorporated herein by reference.
Item 6.

Item 6. Selected Financial Data
Information required by this Item is set forth on page 2 of the Annual Report to Shareholders for the year ended December 31, 1995, and is incorporated herein by reference.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Information required by this Item is set forth on page 12 of the Annual Report to Shareholders for the year ended December 31, 1995, and is incorporated herein by reference.
Item 8.

Item 8. Financial Statements and Supplementary Data
Information required by this Item is set forth on pages 2 through 11 of the Annual Report to Shareholders for the year ended December 31, 1995, and is incorporated herein by reference.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Not applicable.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
Information required by this Item is set forth on pages 1, 2 and 3 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 23, 1996, and is incorporated herein by reference.
Item 11.

Item 11. Executive Compensation
Information required by this Item is set forth on pages 4, 5, 6 and 7 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 23, 1996, and is incorporated herein by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners of Management
Information required by this Item is set forth on pages 1 and 2 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 23, 1996, and is incorporated herein by reference.
Item 13.

Item 13. Certain Relationships and Related Transactions
Information required by this Item is set forth on page 7 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 23, 1996, and is incorporated herein by reference.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
Item 14. Exhibits, Financial Statement Schedules, and Report on Form 8-K (Continued)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Weyco Group, Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 19, 1996. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index above is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin, February 19, 1996
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (Continued)
3. Exhibits
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
3. Exhibits (Continued)
SCHEDULE II
WEYCO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
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.
WEYCO GROUP, INC. (Registrant)
By /s/ John Wittkowske March 25, 1996 -------------------------------------- -------------- John Wittkowske, Secretary/Treasurer ______________ Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas W. Florsheim, Robert Feitler, and John Wittkowske, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue thereof. ______________
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.