We are pleased to submit the financial statements for the year
ended December 31, 1997. In addition, there is a schedule of investments
provided along with other financial information.
The Year In Review
Total assets of the Corporation reached an all-time
high in 1997 as natural resource stocks continued to provide
our shareholders with favorable returns. For the calendar year,
the return on net assets, including income and capital gains
distributions, was 18.9%. Total dividends and distributions
paid in 1997 reached $2.33 per share, increasing by more than
9% over the prior year.
In a volatile energy environment, crude oil prices, while remaining
at attractive levels, were under downward pressure during most
of last year. From a lofty $26 per barrel price in January,
West Texas Intermediate crude oil declined sharply during the
first quarter. The initial price drop reflected the resumption
of Iraqi oil exports, the impact of mild domestic weather patterns
on petroleum product consumption and the expansion of global
petroleum inventories. During the summer months, prices stabilized
($20 - $21) as favorable worldwide economic activity promoted
unparalleled energy usage in most major consuming countries.
At the same time, production from non-OPEC countries fell below
anticipated levels and, with a disruption of Iraqi oil output,
energy markets tightened considerably. For the full year, worldwide
petroleum consumption increased 2.7% to a record level of approximately
74 million barrels per day. By year end, oil prices retreated,
again falling below $19 per barrel, as the return of Iraqi oil
exports coincided with the uncertainty over the impact of the
Southeast Asia economic turmoil on energy consumption.
Domestic natural gas prices experienced significant volatility
with a roller coaster trading pattern during the year, initially
declining 50% from January highs to March lows as a mild winter
reduced gas usage. After a quiet summer period, natural gas
prices unexpectedly surged in the third quarter, rebounding
past the earlier peak. A combination of disappointing production
trends and expanding gas-fired electric utility demand dramatically
tightened the gas supply-demand balance. At year end, the gas
market replicated the first quarter performance with prices
dropping sharply again as moderate early winter temperatures
impacted consumption. Despite these wide fluctuations, the average
price for 1997 was relatively unchanged from the prior year.
In concert with the sharp decline in oil and natural gas prices
during the first four months, energy stocks were disappointing
relative performers, with the Dow Jones Energy Index advancing
5.0% compared to an 8.2% gain for the S&P 500. Over the
ensuing six months, these stock market trends reversed as the
Energy Index recorded a very strong 19.2% advance, outpacing
the broad equity markets. Relatively tight energy markets and
rising commodity prices generated a favorable operating environment.
Over this period, we maintained our overall energy holdings
at approximately 80% of the portfolio. The last two months of
1997, however, were particularly unfavorable for energy stock
performance. Investor concerns over excess crude oil supply
and falling oil and natural gas prices caused the Energy Index
to decline 3.6% in contrast to an increase of 6.1% in the S&P
500. For the full year, the various energy sectors experienced
widely divergent stock market performance, with oil service
companies recording very strong gains. Major oil companies performed
in line with the S&P 500, while natural gas-related stocks
turned in lackluster results. Although our holdings in basic
industries generated attractive returns, paper and forest products
stocks remained disappointing. Cash and short term investments
at year end stood at 3.l% of net assets compared to 4.3% the
prior year.
For a comparison with the Corporation's performance in 1997,
the rate of return was 33.3% for the Standard & Poor's 500
Stock Index and the Dow Jones Energy Index rose 20.7%.
Investment Results
Net assets of the Corporation on December 31,
1997 were $556,452,549 or $41.46 per common share on 13,422,787
common shares outstanding as compared with $484,588,990 or $37.09
per common share on 13,065,819 common shares outstanding a year
earlier.
Net investment income for the year 1997 was $10,026,876 compared
to $10,048,674 for the year 1996. These earnings are equivalent
to $0.77 and $0.79 per common share, respectively, on the average
number of common shares outstanding throughout each year.
Net realized gains amounted to $20,397,716 during the year,
while the unrealized appreciation on investments increased from
$191,783,672 at December 31, 1996 to $250,201,593 at year end.
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