PART II

ITEM 5. MARKET FOR REGISTRANT’S CLASS A UNITS AND RELATED UNITHOLDER MATTERS

The Partnership’s Class A Depositary Units are listed for trading on the New York Stock Exchange (symbol = NUT). There were 1,010 registered holders of Class A Depositary Units on December 31, 2006.

Distributions declared and high and low sales prices of the Class A Depositary Units, based on New York Stock Exchange daily composite transactions, are shown in the table below:

Restrictions on Cash Distributions

In connection with the Partnership’s Credit Agreement with American AgCredit Capital Markets, cash distributions to partners are restricted unless the Partnership is in compliance with specified terms and conditions of the Credit Agreement, including restrictions on further indebtedness, sales of assets, and maintenance of certain financial ratios. In connection with the Partnership’s Credit Agreement with American AgCredit Capital Markets, cash distributions to partners are restricted unless the Partnership is in compliance with specified terms and conditions of the Credit Agreement, including restrictions on further indebtedness, sales of assets, and maintenance of certain financial ratios. The credit agreements with American AgCredit, PCA, contain various financial covenants. The Partnership was in compliance with all debt covenants at December 31, 2005. In connection with the issuance of the financials included in the 10-K, dated April 16, 2007, the Partnership determined it was in compliance with the covenants at December 31, 2006. Subsequently, the Partnership determined that it was in compliance with all debt covenants except for minimum tangible net worth. The Partnership was less that 0.4% below the required amount. On July 5, 2007, the lender provided a waiver to the loan covenant for the year ended December 31, 2006 and retroactively amended the minimum tangible net worth covenant. Had the lender not waived this violation the Partnership would have been restricted in its ability to pay distributions to the limited partners and all obligations indebtedness, at the lender’s option, would be accelerated and become immediately due and payable.

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

This discussion should be read in conjunction with the financial statements and the related notes included elsewhere in this report.

Results of operations – 2006, 2005, 2004

Owned-Orchard Segment - Production and Yields

Production and yield data for the eight orchards are summarized below (expressed in wet-in-shell pounds at 25% moisture):

The Partnership reports on a calendar year basis, though the natural crop year generally begins in August and runs through April. 2006 production is reported on the 2005 contract basis for comparative purposes. On page 15, production for 2006 is reported under the contracts effective for 2006 and compared to 2005 and 2004 production.

Production in 2006 was 1.6% lower than 2005 and 11.6% greater than 2004. Production in 2005 was 14.6% greater than 2004 and 2.4% greater than 2003. Production in 2004 was 10.7% lower than 2003 and 11.5% lower than 2002. Significant factors affecting the crop were as follows:

1. The drought in the Ka’u orchards in 2003 affected the nut set, development and production for the spring of 2004.

2. The above average rainfall in the Keaau and Mauna Kea orchards negatively impacted the pollination and nut set in 2004.

3. The Ka’u region recorded above average rainfall in 2004. The rainfall replenished the soil moisture and improved yields in the region for the spring of 2005.

4. The maturation of the crop was delayed by the weather conditions which resulted in less production in the fall of 2004 and improved yields in the spring of 2005.

5. The Ka’u region recorded below average rainfall in 2005. The shortfall during the early spring to fall of 2005 reduced yields in the spring of 2006. Above average rainfall from November 2005 through February 2006 contributed a positive effect on the fall 2006 production.

6. A late and abbreviated flower season in the Keaau and Mauna Kea regions resulted in lower production in the fall of 2005 and the spring of 2006. Cool night temperatures from November 2005

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through May 2006 contributed to an early and extended flower/nut set season that had a positive effect on the fall 2006 production despite the occurrence of a light-moderate flower disease in March 2006. The extended flowering period will also have a positive effect on the spring 2007 nut production

The Ka’u Green Shoe I orchard and the Mauna Kea orchard are fully mature. As a result, the yields from these orchards are expected to produce on average with the Partnership’s mature orchards. At full maturity under favorable growing conditions, a macadamia orchard can produce between 4,500 and 7,500 WIS pounds of macadamia nuts per acre each year at Ka’u and between 2,500 and 6,000 WIS pounds of macadamia nuts per acre each year at Keaau and Mauna Kea.

Owned-Orchard Segment - Nut Revenue

Macadamia nut revenues depend on the number of producing acres, yields per acre and the nut purchase price. The impact of these factors is summarized in the following table using 2006 actual contracts and implied as if using old contracts for 2006 compared to actual for 2005. The implied 2006 is presented for the purpose of comparing the new contracts on equivalent terms with prior year, such that contract pounds delivered and nut price are on an equal basis:

For the twelve months

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The following table presents the comparison of information to derive the Owned-Orchard Segment nut revenue using the 2005 contracts for all information therefore implied for 2006 and actual for 2005 and 2004. The implied 2006 is used so that the comparisons are presented on an equivalent basis.

The 2006 analysis of average yields, nuts harvested and nut price is based upon the contracts which were in effect prior to January 1, 2006 and therefore are implied results. The 2006 gross nut sales, prior year price settlement and recorded nut sales are actual results. Based upon the 2005 and earlier contracts the following would apply. Under three of the nut purchase contracts with Mauna Loa, the price for nuts delivered is based 50% on the two-year trailing average of USDA published macadamia nut prices and 50% on a “netback component”. The netback component is determined by subtracting from Mauna Loa’s gross revenues from the sale of macadamia products (i) allocable processing, packaging, marketing, selling and advertising costs and (ii) a 20% capital charge on the difference between those aggregate gross revenues and aggregate allocable costs.

In mid-December 2004, Mauna Loa notified the Partnership that it would be unable to accept deliveries over a five-day period during the height of the harvest season. The Partnership advised Mauna Loa that this was unacceptable for both financial and operational reasons and arrangements would be made to deliver the nuts to another processor. After alternative deliveries had been committed to, Mauna Loa notified the Partnership that it was willing to accept delivery. As a result of the alternative commitment, the Partnership delivered approximately 240,000 pounds of nuts to Mac Farms of Hawaii at a price of 93 cents per pound over a two-day period. In late December, Mauna Loa notified the Partnership that it intended to deduct $118,000 from future nut payments as damages. The Partnership notified Mauna Loa that the deduction was a violation of our various contracts and the Partnership would consider termination of the contracts if such deduction were made. Mauna Loa has since withdrawn their notice of deduction, but the Partnership reserved $118,000 in 2004. A settlement was reached with Mauna Loa whereby the Partnership paid Mauna Loa approximately $58,000. As a result the Partnership recorded $60,000 of nut revenue in 2005 from the 2004 reserve.

In 2005 and 2004 the net-back component of the nut purchase price was not determined in a timely manner by Mauna Loa. The Partnership used information provided by Mauna Loa to determine the nut purchase price for each of the years. After Mauna Loa provided the final net-back component the Partnership determine the final nut purchase price and recognized the additional revenue at the time it became known.

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The following table sets forth the manner in which the nut purchase price per pound was determined for 2005 and 2004 ($/lb.). This table does not include 2006 as the contracts were renegotiated in 2006 and there is no available net-back component:

(a)           Mauna Loa’s own purchases comprise a substantial portion of nut purchases reported to the USDA. Therefore, the USDA price component of the purchase price is, to a substantial degree, the average price that Mauna Loa has paid to purchase macadamia nuts from the Partnership and from third parties during the previous two years.

(b)          The nut purchase price for the 1986 and 1989 orchards was the same for 1999 and all previous years. With the change of ownership of Mauna Loa in 2000, a quality conversion factor in the nut purchase contracts was initiated. The effect was to cause a slightly different price of $0.4951 for the 1989 orchards in 2004, and $0.5542 in 2005.

(c)           The nut purchase contract covering nut production from the 78 acre Keaau Lot 10 orchard acquired in September 1991 defines the “two-year trailing average” provision slightly differently from the 1986 and 1989 nut purchase contracts, and thus results in a different nut price. This was in effect for the first six months of 2003. A new contract was negotiated with a fixed price for all nuts with unusables in a range of 10% to 13%. The nut price for this orchard was $0.6000 in 2006, 2005 and 2004. This orchard accounts for less than 2% of the Partnership’s macadamia nut production.

(d)          The nut purchase contract for the Ka’u O orchards purchased in May 2000 uses only the two-year trailing USDA average to determine its nut price, which was $0.6912 in 2006, $0.5610 in 2005 and $0.5560 in 2004.

(e)           Mauna Loa has provided the final 2004 audited nut price to the Partnership resulting in an additional $576,000 paid in 2005.

(f)             Mauna Loa has provided the final 2005 audited nut price to the Partnership resulting in an additional $343,000 paid in 2006.

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The 2005 average nut price from all orchards increased 12% from 2004 before 2004 adjustments realized in 2005. If the 2004 nut price was adjusted by those adjustments the average nut price increase for 2005 compared to 2004 would be 5%. The USDA portion increased 1% in 2005 and decreased 2% in 2004. The netback increased 26% in 2005 compared to 2004 and increased 10% in 2004 compared to 2003. The current netback price reflects the operating performance of Mauna Loa.

The USDA published price for the 2004-2005 crop year was $0.7018 per pound (WIS at 25% moisture), which is 22% higher than the 2003-2004 crop year of $0.5769.

In 2006 five contracts were in place:  1) the 1986 contracts were replaced with a fixed price contract - $0.75 per pound at WIS 20% moisture and 30% SK/DIS;  2) the 1989 contracts were replaced with a fixed price contract - $0.74 per pound at WIS 20% moisture and 30% SK/DIS;  3)  the Lot 10Z contract remained effective - $0.60 @ WIS 25% adjusted for trash;  4)  the Ka’u “O” contract remained effective which uses a two-year trailing average USDA price which was $0.6912 and;  5)  the macadamia nut orchard purchased April 2006 has a fixed price contract of $0.98 per pound at WIS 20% moisture and 30% SK/DIS.

Owned-Orchard Segment - Cost of Goods Sold

Agricultural unit costs depend on the operating expenses required to maintain the orchards and to harvest the crop as well as on the quantity of nuts actually harvested.

The Partnership’s unit costs (expressed in dollars per wet-in-shell pound at 25% moisture) are calculated by dividing all agricultural costs for each orchard (including lease rent, property tax, tree insurance and depreciation) by the number of pounds of macadamia nuts produced by that orchard and are summarized below ($/lb.):

Cost of goods sold was $669,000 higher in 2006 than 2005 and $535,000 higher in 2005 than in 2004. The cost per pound in 2006 was 1.3% higher than 2005 and 10.5% higher in 2005 than 2004. The higher production costs in 2006 were the results of higher harvesting costs, cultivation costs, land lease costs,  and higher insurance costs offset by lower depreciation. The higher production costs in 2005 were the results of higher harvesting and husking costs because of more pounds handled. The lower production costs in 2004 compared to 2005 and 2006 were the result of lower harvesting costs, cultivation costs, land lease costs and insurance costs.

Farming Segment - Farming Service Revenue

As a result of the acquisition of the farming operation in 2000, the Partnership acquired approximately twenty farming contracts (now seventeen contracts) to farm macadamia orchards owned by other growers.

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These contracts cover macadamia orchards in the same three locations on the island of Hawaii where the Partnership owns orchards. The farming contracts provide the Partnership to be reimbursed for all direct farming costs (cultivation, irrigation and harvesting), collect a pro-rata share of indirect costs and overheads, and charge a management fee or fixed fee. The management fee is based on the number of acres farmed or on a percentage of total costs billed. Revenues from farming services were $3.8 million in 2006, $4.7 million in 2005, and $4.3 million in 2004. The 2006 farming service revenues were less than 2005 because of the termination of three farming contracts, the purchase of the macadamia orchard which previously had been farmed under contract and the timing of the harvest at the end of the year which resulted is harvesting occurring in the spring of 2007 for some of the orchards under contract. The 2005 farming service revenues were less than anticipated because of a windstorm which destroyed a large percentage of trees in three contract orchards. The 2004 farming service revenues were less than expected because of the late drop of nuts in the fall crop. Three farming service contracts terminated on December 31, 2005 which reduces the number of farming service contracts to about seventeen totaling about 2,039 acres. The farming service revenue in 2005 for these three contracts was about $492,000 with management fees of about $70,000. Additionally, the Partnership purchased about 21 acres which was under farming contract bringing the total acres under farming contract to about 2,008. Approximately 150 acres of are year-to-year contracts, approximately 635 acres expire March 31, 2009, approximately 70 acres expire June 30, 2013, approximately 410 acres expire July 31, 2029, approximately 280 acres expire June 30, 2033 and approximately 470 acres expire September 30, 2080.

Farming Segment - Cost of Services Sold

The cost of services sold relating to the farming contracts was $3.5 million in 2006, $4.3 million in 2005 and $3.9 million in 2004. These costs were all reimbursed to the Partnership.

General and Administrative Costs

General and administrative expenses are comprised of accounting and reporting costs, reimbursements to the Managing Partner for directors’ fees, office expenses and liability insurance. In addition, general and administrative costs are also incurred in connection with the farming operations. Previous to the May 2000 acquisition, general and administration costs relating to the Partnership’s orchards were included in the Partnership’s farming expenses.

General and administrative costs for 2006 were $247,000 higher than for 2005 which is attributed to increased legal costs and proxy statement for the 2006 special meeting, legal costs related to the potential  acquisition of Mac Farms of Hawaii, LLC and higher costs associated with Sarbanes Oxley implementation. General and administrative costs for 2005 were $48,000 lower than for 2004, which is attributed to lower legal costs, offset by higher costs associated with Sarbanes Oxley preparation and accounting. In 2004 legal costs of $464,000 were related to the lawsuit, initiated and settled, to prevent Mauna Loa from acquiring MacFarms of Hawaii, LLC.

A management fee based on Partnership cash flow is payable annually to the Managing Partner. The amount paid was $9,000 in 2004. There was no management fee in 2006 and 2005 as the Partnership acquired MLR, the managing partner and the fees are eliminated in consolidation.

Interest Income and Expense

The Partnership recorded interest expense of $204,000 in 2006, $237,000 in 2005, and $182,000 in 2004. This was due to (1) the long-term loan used to acquire the farming operations, (2) the assumption of several capitalized equipment leases, and (3) interest expense on a revolving line of credit.

The Partnership funds its working capital needs through funds on hand and, when needed, from short-term borrowings, generating interest expense in the process. Net interest income or expense, therefore, is partly a function of any balance carried over from the prior year, the amount and timing of cash generated

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and distributions paid to investors in the current year, as well as the current level of interest rates. Interest was earned in the amount of $17,000 in 2006, $5,000 in 2005 and $11,000 in 2004.

Other income of $206,000 was recorded in 2006 of which $169,000 was from crop insurance. Other income of $151,000 was recorded in 2005 of which $147,000 was from crop insurance. Other income of $32,000 was recorded in 2004 from crop insurance.

Inflation and Taxes

In general, prices paid to macadamia nut farmers fluctuate independently of inflation. Macadamia nut prices are influenced strongly by prices for finished macadamia products, which depend on competition and consumer acceptance. Farming costs, particularly labor and materials, and general and administrative costs do generally reflect inflationary trends.

The Partnership is subject to a gross income tax as a result of its election to continue to be taxed as a partnership rather than to be taxed as a corporation, as allowed by the Taxpayer Relief Act of 1997. This tax is calculated at 3.5% on partnership gross income (net revenues less cost of goods sold) beginning in 1998. The gross income tax was $100,000 in 2006, $129,000 in 2005, and $5,000 in 2004.

Macadamia nut farming is seasonal, with production peaking late in the fall. However, farming operations continue year round. As a result, additional working capital is required for much of the year. The Partnership meets its working capital needs with cash on hand, and when necessary, through short-term borrowings under a $5.0 million revolving line of credit. The line of credit was obtained on May 2, 2000 and expires May 1, 2008. At December 31, 2006 the Partnership had a cash balance of $3,351,000 and no line of credit drawings outstanding. At December 31, 2005 the Partnership had a cash balance of $378,000 and line of credit drawings outstanding of $2,900,000. The cash balance was $196,000 at the end of 2004, and the line of credit drawings were $2,200,000 at December 31, 2004.

As a Limited Partnership, we expect to pay regular cash distributions to the Partnership’s unit holders if the cash flow from operations, as defined in the Management Agreement, exceeds the operating and capital resource needs of the Partnership, as determined by management. These cash distributions are expected to be paid from operating cash flow and / or other resources. The Partnership has declared and paid cash distributions for 83 consecutive quarters. In December, 2006, the Partnership declared a distribution of $0.05 per Class A unit (a total of $375,000), which was paid February 15, 2007 to the unit holders of record as of December 29, 2006.

It is the opinion of management that the Partnership has adequate cash on hand and borrowing capacity available to meet anticipated working capital needs for operations as presently conducted. The nut purchase contracts require the buyers to make nut payments 30 days after the delivery of the nuts to 15 days after the end of the month in which the nuts were delivered. During certain parts of the year, if payments are not received, as the contracts require, available cash resources could be depleted.

Critical Accounting Policies and Estimates

Management has identified the following critical accounting policies that affect the Partnership’s more significant judgments and estimates used in the preparation of the Partnership’s financial statements. The preparation of the Partnership’s financial statements in conformity with accounting principles generally accepted in the United States of America requires the Partnership’s management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates those estimates, including those related to asset impairment, accruals for self-insurance, compensation and related benefits, revenue recognition, allowance for doubtful accounts, contingencies and litigation. The Partnership states these accounting policies in the notes to the financial statements and in relevant sections in this discussion and analysis. These estimates are based on the information that is currently available to the Partnership and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates.

The Partnership believes that the following critical accounting policies affect significant judgments and estimates used in the preparation of it financial statements:

The Partnership maintains an accrual for workers compensation claims to the extent that the Partnership’s current insurance policies will not cover such claims. This accrual is included in other accrued liabilities in the accompanying balance sheet. Management determines the adequacy of the accrual by periodically evaluating the historical experience and projected trends related to outstanding and potential workers compensation claims. If such information indicates that the accrual is over or understated, the Partnership will adjust the assumptions utilized in the methodologies and reduce or provide for additional accrual as appropriate.

Retirement and Severance Benefits:  The Partnership sponsors a non-contributory defined benefit pension plan for regular union employees and a severance plan for intermittent union employees. Several statistical and other factors which attempt to anticipate future events are used in calculating the expense

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and liabilities related to this plan. These factors include assumptions about the discount rate, expected return on plan assets, withdrawal and mortality rates and the rate of increase in compensation levels. The actuarial assumptions used by the Partnership may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter mortality of participants. These differences may impact the amount of retirement and severance benefit expense recorded by the Partnership in future periods.

The Partnership reviews long-lived assets held and used, or held for sale for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated undiscounted future cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment charge is required. All long-lived assets for which management has committed to a plan of disposal are reported at the lower of carrying amount or fair value. Changes in projected cash flows generated by an asset based on new events or circumstances may indicate a change in fair value and require a new evaluation of recoverability of the asset.

The Partnership has replaced three of the nut purchase contracts it had with Mauna Loa with two contracts signed June 1, 2006, effective January 1, 2006. The first of the contracts is a fixed price contract at $0.75 per pound at WIS 20% moisture and 30% SK/DIS, terminating December 31, 2006, and accounts for about 15 million pounds of nuts. The second contract is a fixed price contract at $0.74 per pound a WIS 20% moisture and 30% SK/DIS, terminating December 31, 2011, and accounts for about 6 million pounds of nuts. The second contract increases by $0.01 per pound each year except 2008 until it reaches $0.78 per pound in 2011.

The Partnership recognizes revenue under all of its fixed price contracts using the best information available to the Partnership at the time it files its quarterly and annual financial statements. Additional information can be found in section (c) under the heading Nut Purchase Contracts on page 3.