the partnerships' activities as general partner. The oil and gas income program functions very much like mutual fund holding stocks or bonds in that it is designed to provide cash flow and competitive market yield and to offer liquidity. Investors have found our oil income program an attractive investment vehicle and thus have invested about $1.9 billion (February 1983 data) of their funds in our program. These funds have financed the acquisition of more than $3.1 billion (Feburary 1983 data) worth of producing properties, which Petro-Lewis presently manages. The average rate of return on our program is 17.2%, assuming that an investor made equal investments in each monthly partnership from October, 1970, through October, 1982, and that all investments were liquidated on December 31, 1982. This compares very favorably with other investments like stocks and bonds and Treasury bills. For example, from 1970 to 1982, the Standard & Poor's 500 Stock Index returned an average 9.5% per year; the Salomon Brothers Bond Index returned 8.1% per year; and T-bills returned an average 7.8% per year. Current oil income program yields are also attractive, compared to municipal bonds (8-9%), and corporate bonds (12-13.5%) 20% on our PLPC I partnership, 9% on our PLPC II partnership, and 12-14% on the more recently formed oil income partnerships (since November 1980). In addition, investors recognize the considerable potential for improvements in both the value of their oil and gas producing properties and in their income stream. Such potential stems from price increases on oil and gas sales and from changes in the amount of reserves expected to be recoverable from their properties. Therefore, the direct investment in oil and gas producing properties through the limited partnership vehicle has significant inflation-hedging potential as well as excellent cash flow characteristics. The same cannot always be said for typical corporate stocks and bonds. At least two public utilities, the traditional investment for widows and orphans, have either suspended dividends or defaulted on interest payments of their securities in the 1970-83 period. Currently, about 90% of our investors are individuals and trusts representing individuals, who must meet net worth requirements prior to investment. Our prospectus is filed with and approved by the SEC and applicable State regulatory agencies. The average initial investment in each partnership is about $8,500. Cash distributions can be automatically reinvested at the option of the investor and typically produce about $4,800 in additional investment for the average account. Our investors expect a steady cash flow and the opportunity for growth in the value of their investment through price appreciation of oil and gas or from the ability to recover more hydrocarbons from their properties. They do not expect a tax shelter, although they receive modest tax benefits. Summary Of Our Position Petro-Lewis Corporation strongly supports S. 1549. The bill will provide the independent domestic oil industry with access to another source of domestic capital with which to fund the development and operation of our hydrocarbon resource base. The tax code currently discourages qualified pension funds and educational organizations from considering an investment in oil and gas interests that bear developmental obligations (i.e., working interests) by taxing the income from such investments. However, exemptions are provided for income from oil and gas royalties, net profits interests, production payments, and corporate stocks and bonds because they are considered passive sources of income. We believe that an exemption from the unrelated business income tax for working interest income from oil and gas limited partnerships would comport with the current exemptions provided for other forms of passive oil income. By law, limited partners do not have control over daily management decisions of the partnership. Moreover, such an exemption would not have detrimental effect on Federal revenues since the Treasury currently receives little (if any) from this source. In the long run, we expect that a well-diversified pension portfolio would invest a small portion of its assets in oil and gas limited partnership interests. Sophisticated money managers would evaluate this investment according to its risk/reward characteristics and its ability to help them diversify their holdings. Finally, S. 1549 would encourage the giving of limited partnership interests in oil and gas properties to colleges and universities, which would benefit from both the steady cash flow and the potential for capital appreciation. Currently, such educational institutions often liquidate such gifts of property at distress prices in order to avoid jeopardizing their tax-exempt status. Potential Source of New Capital Qualified pension funds and educational organiza tions have a wide variety of passive investments from which to choose, including corporate bonds and stocks, government securities, real estate properties, mortgages, foreign stocks and bonds denominated in either U.S. dollars or other currencies, venture capital-related securities, precious metals, art, oil and gas royalties, net profits interests, and production payments. It is our belief that limited partnership interests in oil and gas income programs should also be available for investment by such funds and organizations. Such limited partnership interests have investment qualities similar to royalties, net profits interests, and production payments. Moreover, the managers of tax-exempt funds are fully capable of choosing the appropriate passive oil and gas investments for their funds. Indeed, those managers are fiduciaries held to high standards of expertise and prudence by Federal and State law. Our experience indicates that limited partnership interests in oil and gas income programs will be excellent, safe investments for tax-exempt funds. Over the past 13 years, for example, Petro-Lewis Corporation's oil and gas income program returned 17.2%, while the Standard & Poor's 500 Stock Index average rate of return was 9.5%, the Salomon Brothers Bond Index returned 8.1%, and Treasury bills returned 7.8%. Real estate earned more than 9.5% per year. Similarly, international equities did not do as well as Petro-Lewis Corporation's Oil and Gas Income Program. Yet, because the income from such equities is not subject to the tax on unrelated business income, more than $10 billion of U.S. pension funds were invested overseas and thus subject to exchange rate risk, business risk, and foreign country risk. We believe that but for the tax on unrelated business income, U.S. investment managers would have placed approximately 5% of their total portfolios in limited partnership interests in oil and gas income programs. This represents approximately $40 billion, which could be available for equity investment in the independent domestic oil industry if S. 1549 is enacted into law. These funds could help to develop and maintain our domestic hydrocarbon resource base, providing future domestic supplies of oil and gas to all U.S. consumers. Positive Investment Characteristics The Investments in limited partnership interests like Petro-Lewis Corporation's oil and gas income programs have positive characteristics sought by investment managers. foremost of these characteristics is a steady cash flow from the sale of oil because the U.S. consumes more oil than it produces domestically. Natural gas sales, though more susceptible to variations in demand, provide a similar steady cash flow. Even in the worst of times, 85% to 90% of all the domestic natural gas that can be produced is sold. Most other U.S. businesses experience much more cyclical cash flows. Moreover, the capital value of oil and gas producing properties normally fluctuates less than the current prices of corporate |