FIRST QUARTER REPORT
March 31, 1997
[Petroleum & Resources Corporation Logo]
INVESTING IN RESOURCES
FOR THE FUTURE
Board of Directors
Enrique R. Arzac (3,4) Augustine R. Marusi (1,3)
Leigh Carter (1,2) W. Perry Neff (1,4)
Allan Comrie (1,3) Douglas G. Ober (1)
Daniel E. Emerson (1,3) Landon Peters (1,3)
Thomas H. Lenagh (2,4) John J. Roberts
W.D. MacCallan (2,4) Robert J.M. Wilson (2,4)
1. Member of Executive Committee
2. Member of Audit Committee
3. Member of Compensation Committee
4. Member of Retirement Committee
Officers
Douglas G. Ober Chairman and
Chief Executive Officer
Richard F. Koloski President
Joseph M. Truta Executive Vice President
Nancy J. F. Prue Vice President--Research
Lawrence L. Hooper, Jr. Secretary and
General Counsel
Maureen A. Jones Treasurer
R. M. Carlsson Assistant Treasurer
Geraldine H. Stegner Assistant Secretary
----------
Stock Data
----------
Price (3/31/97) $33.375
Net Asset Value (3/31/97) $36.28
Discount: 8.0%
New York Stock Exchange and Pacific Stock Exchange ticker symbol: PEO
Newspaper stock listings are generally under the abbreviation: PetRs
---------------------
Distributions in 1997
---------------------
From Investment Income $0.32
(Paid or declared)
From Net Realized Gains 0.08
-----
Total $0.40
=====
---------------------------
1997 Dividend Payment Dates
---------------------------
March 1, 1997
June 1, 1997
September 1, 1997
December 27, 1997*
*Anticipated
[Recycled logo] Printed on Recycled Paper
<PAGE>
LETTER TO STOCKHOLDERS
We are pleased to submit the financial statements of the Corporation for the
three months ended March 31, 1997, a schedule of investments and a list of
principal changes in portfolio securities for the first quarter.
Net assets of the Corporation at March 31, 1997 were $36.28 per common share as
compared with $37.09 per common share at December 31, 1996 on the 13,065,819
common shares outstanding on each date. The Dow Jones Energy Index declined by
0.6% in the first quarter of 1997, while the Corporation recorded a 1.1%
decline. On March 1, 1997, a distribution of $0.20 per share was paid consisting
of $0.08 from 1996 long-term capital gain, $0.01 from 1996 investment income and
$0.11 from 1997 investment income, all taxable in 1997. A regular 1997
investment income dividend of $0.20 per share has been declared to common
shareholders of record May 19, 1997, payable June 1, 1997.
Net investment income for the three months ended March 31, 1997 amounted to
$2,320,975, compared with $2,022,477 for the same period in 1996. These earnings
are equal to $0.18 and $0.16 per common share, respectively, on the average
number of common shares outstanding during each period.
Net capital gain realized on investments for the three months ended March 31,
1997 amounted to $8,416,575, the equivalent of $0.64 per common share.
The Annual Shareholders Meeting was held on March 25, 1997 in San Francisco,
California, where a substantial number of shareholders live. Attendance at the
meeting was the highest in a number of years.
Upon conclusion of the formal segment of the meeting, management reviewed the
portfolio's performance in 1996 and discussed the outlook for energy in the
future. Stockholder questions were then entertained on subjects ranging from
specific stock holdings to the Corporation's expense ratio. The results of the
voting at the Annual Meeting are shown on page 10.
Mr. Jeffrey G. Whitney, Vice President and Secretary, elected to take
early retirement from the Corporation after twenty-four years of
much-appreciated service. Mr. Lawrence L. Hooper, Jr., a partner in the
Baltimore, Maryland-based law firm of Tydings & Rosenberg LLP, was elected
Secretary and General Counsel effective April 1, 1997.
The Corporation is an internally managed equity fund emphasizing petroleum and
natural resource investments. The investment policy of the fund is based on the
primary objectives of preservation of capital, the attainment of reasonable
income from investments and, in addition, an opportunity for capital
appreciation.
By order of the Board of Directors,
/s/ Douglas G. Ober
Douglas G. Ober,
Chairman and
Chief Executive Officer
/s/ Richard F. Koloski
Richard F. Koloski,
President
April 18, 1997
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
<S><C>
Assets
Investments* at value:
Common stocks and convertible securities
(cost $273,235,892) $446,238,271
Short-term investments (cost $26,345,356) 26,345,356 $472,583,627
- ----------------------------------------------------------------------------------------
Cash 104,591
Receivables:
Investment securities sold 1,355,291
Dividends and interest 958,737
Prepaid expenses 1,173,802
- ---------------------------------------------------------------------------------------------------------------
Total Assets 476,176,048
- ---------------------------------------------------------------------------------------------------------------
Liabilities
Investment securities purchased 837,051
Open option contracts at value (proceeds $246,531) 187,100
Accrued expenses 1,160,383
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities 2,184,534
- ---------------------------------------------------------------------------------------------------------------
Net Assets $473,991,514
===============================================================================================================
Net Assets
Common Stock at par value $1.00 per share, authorized
25,000,000 shares; issued and outstanding 13,065,819 shares $ 13,065,819
Additional capital surplus 278,707,997
Undistributed net investment income 753,077
Undistributed net realized gain on investments 8,402,811
Unrealized appreciation on investments 173,061,810
- ---------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $473,991,514
===============================================================================================================
Net Asset Value per Share of Common Stock $36.28
===============================================================================================================
</TABLE>
* See Schedule of Investments on pages 7 and 8.
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATEMENT OF OPERATIONS
Three Months Ended March 31, 1997
(unaudited)
<TABLE>
<S><C>
Investment Income
Income:
Dividends $ 2,175,731
Interest 550,607
- ---------------------------------------------------------------------------------------------------------------
Total income 2,726,338
- ---------------------------------------------------------------------------------------------------------------
Expenses:
Investment research 179,291
Administration and operations (26,111)
Directors' fees 43,600
Reports and stockholder communications 47,889
Transfer agent, registrar and custodian expenses 41,132
Auditing services 13,308
Legal services 13,600
Occupancy and other office expenses 23,076
Travel, telephone and postage 25,222
Other 44,356
- ---------------------------------------------------------------------------------------------------------------
Total expenses 405,363
- ---------------------------------------------------------------------------------------------------------------
Net Investment Income 2,320,975
- ---------------------------------------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 8,416,575
Change in unrealized appreciation on investments (18,721,862)
- ---------------------------------------------------------------------------------------------------------------
Net Gain on Investments (10,305,287)
- ---------------------------------------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $ (7,984,312)
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Three Months Year ended
ended December 31,
March 31, 1997 1996
---------------- --------------
(unaudited)
<S><C>
From Operations:
Net investment income $ 2,320,975 $ 10,048,674
Net realized gain on investments 8,416,575 17,410,824
Change in unrealized appreciation on investments (18,721,862) 71,908,379
- ---------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations (7,984,312) 99,367,877
- ---------------------------------------------------------------------------------------------------------------
Dividends to Stockholders from:
Net investment income (1,567,898) (10,446,294)
Net realized gain from investment transactions (1,045,266) (16,815,986)
- ---------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions (2,613,164) (27,262,280)
- ---------------------------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of common shares issued in payment of optional distributions -0- 11,078,422
- ---------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (10,597,476) 83,184,019
Net Assets:
Beginning of period 484,588,990 401,404,971
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$753,077 and $0, respectively) $473,991,514 $484,588,990
===============================================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Petroleum & Resources Corporation (the Corporation) is registered under the
Investment Company Act of 1940 as a diversified investment company. The
Corporation's investment objectives as well as the nature and risk of its
investment transactions are set forth in the Corporation's registration
statement.
Security Valuation--Investments in securities traded on national security
exchanges are valued at the last reported sale price on the day of valuation.
Over-the-counter and listed securities for which a sale price is not available
are valued at the last quoted bid price. Short-term investments are stated at
cost which, when combined with accrued interest receivable, approximates value.
Options are valued at the last sale price or last quoted asked price.
Securities Transactions and Investment Income--Invest-ment transactions are
accounted for on the trade date. Gain or loss on sales of securities and options
is determined on the basis of identified cost. Dividend income and distributions
to shareholders are recognized on the ex-dividend date, and interest income is
recognized on the accrual basis.
2. FEDERAL INCOME TAXES
The Corporation's policy is to distribute all its taxable income to its
shareholders in compliance with the requirements of the Internal Revenue Code
applicable to regulated investment companies. Therefore, no federal income tax
provision is required. For federal income tax purposes, the identified cost of
securities, including options, at March 31, 1997 was $299,738,524, and net
unrealized appreciation aggregated $173,091,635, of which the related gross
unrealized appreciation and depreciation were $181,374,599 and $8,282,964,
respectively.
Distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Accordingly, periodic
reclassifications are made within the Corporation's capital accounts to reflect
income and gains available for distribution under income tax regulations.
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than options and short-term
investments, during the three months ended March 31, 1997 were $15,144,340 and
$22,320,430, respectively. Option transactions comprised an insignificant
portion of operations during the period ended March 31, 1997. All investment
decisions are made by a committee, and no one person is primarily responsible
for making recommendations to that committee.
4. CAPITAL STOCK
The Corporation may purchase shares of its Common Stock from time to time at
such prices and amounts as the Board of Directors may deem advisable. No
purchases were made during the three months ended March 31, 1997.
The Corporation has 3,000,000 unissued preferred shares without par value.
The Corporation has an employee incentive stock option and stock appreciation
rights plan which provides for the issuance of options and stock appreciation
rights for the purchase of up to 815,000 shares of the Corporation's common
stock at 100% of the fair market value at date of grant. Options are exercisable
beginning not less than one year after the date of grant and extend and vest
over ten years from the date of grant. Stock appreciation rights are exercisable
beginning not less than two years after the date of grant and extend over the
period during which the option is exercisable. The stock appreciation rights
allow the optionees to surrender their rights to exercise their options and
receive cash or shares in an amount equal to the difference between the option
price and the fair market value of the common stock at the date of surrender.
Under the plan, the exercise price of the options and related stock appreciation
rights is reduced by the per share amount of capital gain paid by the
Corporation during subsequent years. At the beginning of 1997, 164,895 options
were outstanding at exercise prices of $18.545-$33.858. During the three months
ended March 31, 1997, no options or stock appreciation rights were granted,
stock appreciation rights relating to 12,236 stock option shares were exercised
at market prices of $36.50-$36.75 per share and the stock options relating to
these rights, which had exercise prices between $17.5200-$23.0225 per share,
were cancelled. At March 31, 1997, there were outstanding exercisable options to
purchase 34,309 common shares at $18.545-$26.850 per share and unexercisable
options to purchase 118,350 common shares at $20.025-$33.858 per share. The
total compensation expense for stock options and stock appreciation rights
recognized for the three months ended March 31, 1997 was $(78,751). At March 31,
1997, there were 348,675 shares available for future option grants.
5. RETIREMENT PLANS
The Corporation provides retirement benefits for its employees under a
non-contributory qualified defined benefit pension plan. The benefits are based
on years of service and compensation during the last 36 months of employment.
The Corporation's current funding policy is to contribute annually to the plan
only those amounts that can be deducted for federal income tax purposes. The
plan assets consist primarily of investments in mutual funds.
The actuarially computed net pension cost credit for the three months ended
March 31, 1997 was $22,576, and consisted of service expense of $18,637,
interest expense of $43,008, expected return on plan assets of $73,346,
and a net amortization credit of $10,875.
In determining the actuarial present value of the projected benefit
obligation, the interest rate used for the weighted-average discount rate was
7.50%, the expected rate of annual salary increase was 7.0% and the expected
long-term rate of return on plan assets was 8.0%.
On January 1, 1997, the accumulated benefit obligation, including vested
benefits, was $1,602,189. The fair value of the plan assets was $3,701,040
and the projected benefit obligation for service rendered to date was
$2,327,498, which resulted in excess plan assets of $1,373,542. The remaining
components of prepaid pension cost included $263,895 in unrecognized net
gain, $220,486 in unrecognized prior service cost and $203,719 is the
remaining portion of the unrecognized net asset existing at January 1, 1987,
which is being amortized over 15 years. Prepaid pension cost included in
prepaid expenses at March 31, 1997 was $1,148,990.
In addition, the Corporation has a nonqualified unfunded benefit plan
which provides employees with defined retirement benefits to supplement the
qualified plan. The Corporation does not provide postretirement medical
benefits.
6. EXPENSES
The cumulative amount of accrued expenses at March 31, 1997 for employees and
former employees of the Corporation was $1,092,719. Aggregate remuneration paid
or accrued during the three months ended March 31, 1997 to officers and
directors amounted to $103,101.
Research, accounting and other office services provided by and reimbursed to
The Adams Express Company, an investment company which owned 8.8% of the
Corporation's common stock, amounted to $134,223 for the three months ended
March 31, 1997.
7. PORTFOLIO SECURITIES LOANED
The Corporation makes loans of securities to brokers, collateralized by cash
deposits, U.S. Government securities, or bank letters of credit, the value of
which exceeds the market value of such loaned securities. The Corporation
receives compensation for lending securities in the form of fees. The
Corporation continues to receive dividends on the securities loaned. At March
31, 1997, the value of security loans outstanding was $18,001,250.
5
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three Months Ended
------------------------
(unaudited) Year Ended December 31
March 31, March 31, -------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------ ---------- ------ ------ ------ ------ ------
<S><C>
Per Share Operating
Performance*
Net asset value, beginning of
period $37.09 $31.51 $31.51 $26.84 $29.64 $27.66 $28.07
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.18 0.16 0.79 0.86 0.94 0.92 1.06
Net realized gains and change in
unrealized appreciation and
other changes (0.79) 1.43 6.93 5.90 (1.64) 3.30 0.81
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.61) 1.59 7.72 6.76 (0.70) 4.22 1.87
Less distributions
Dividends from net investment
income
To preferred shareholders -- -- -- -- -- (0.12) (0.28)
To common shareholders (0.12) (0.16) (0.82) (0.87) (0.92) (0.82) (0.77)
Distributions from net realized
gains
To common shareholders (0.08) (0.04) (1.32) (1.22) (1.18) (1.30) (1.23)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.20) (0.20) (2.14) (2.09) (2.10) (2.24) (2.28)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $36.28 $32.90 $37.09 $31.51 $26.84 $29.64 $27.66
===========================================================================================================================
Per share market price, end of
period $33.375 $29.875 $34.75 $28.25 $25.25 $27.50 $25.25
Total Investment Return
Based on market price (3.4)% 6.5% 31.2% 20.5% (0.7)% 17.4% 4.8%
Ratios/Supplemental Data
Net assets applicable to common
stock, end of period
(in 000's) $473,992 $419,177 $484,589 $401,405 $332,279 $355,837 $320,241
Ratio of expenses to average net
assets 0.34%+ 0.67%+ 0.63% 0.57% 0.42% 0.57% 0.52%
Ratio of net investment income
to average net assets 1.94%+ 2.00%+ 2.31% 2.89% 3.19% 2.61% 2.79%
Portfolio turnover 13.29%+ 11.01%+ 15.50% 15.86% 10.95% 10.16% 15.06%
Average brokerage commission rate $0.07 $0.07 $0.06 -- -- -- --
Number of shares outstanding at
end of period (in 000's) 13,066 12,739 13,066 12,739 12,380 12,007 11,580
</TABLE>
- -----------
* Selected data for each share of common stock outstanding throughout each
period.
+ Ratios presented on an annualized basis.
6
<PAGE>
SCHEDULE OF INVESTMENTS
March 31, 1997
(unaudited)
Prin. Amt.
or Shares Value (A)
--------- ---------
Stocks And Convertible Securities--94.1%
Energy--78.8%
Internationals -- 23.8%
British Petroleum plc ADR 93,958 $ 12,895,736
Chevron Corp. 110,000 7,658,750
Exxon Corp. 165,000 17,778,750
Mobil Corp. 120,000 15,675,000
Royal Dutch Petroleum Co. 220,000 38,500,000
"Shell" Transport and Trading
Co., plc ADR 80,000 8,360,000
Texaco Inc. 50,000 5,475,000
TOTAL S.A. ADR 150,000 6,356,250
------------
112,699,486
------------
Domestics--10.9%
Amerada Hess Corp. 65,000 3,445,000
Amoco Corp. 50,000 4,331,250
Ashland Inc. 115,950 4,666,988
Atlantic Richfield Co. 45,000 6,075,000
Murphy Oil Corp. 100,000 4,700,000
Pennzoil Co. 6.50% Conv.
Exch. Sr. Debs. due 2003 $2,000,000 3,317,500
Pennzoil Co. 35,000 1,811,250
Phillips Petroleum Co. 120,000 4,905,000
Tesoro Petroleum Corp. (C) 300,000 3,150,000
Ultramar Diamond Shamrock Corp. 125,000 3,968,750
Unocal Capital Trust $3.125
Conv. Pfd. 72,540 3,917,160+
Unocal Corp. 150,000 5,718,750
Valero Energy Corp.
$3.125 Conv. Pfd 30,000 2,021,250
------------
52,027,898
------------
Producers--15.6%
Anadarko Petroleum Corp. 90,000 5,051,250
Apache Corp. 6.00% Conv. Sub.
Debs. due 2002 (B) $3,000,000 3,615,000
Barrett Resources Corp. (C) 61,000 1,822,375
Devon Energy Corp. 164,900 4,947,000
Enron Oil & Gas Co. 190,000 3,942,500
Flores & Rucks, Inc. (C) 80,000 3,240,000
Imperial Oil Ltd. 105,488 4,918,378
Louisiana Land & Expl. Co. 70,000 3,316,250
Monterey Resources Inc. 250,000 4,031,250
Noble Affiliates Inc. 91,855 3,467,526
Occidental Petroleum Corp.
$3.00 Conv. Exch. Pfd. 30,000 1,995,000
Occidental Petroleum Corp. 265,000 6,525,625
Oryx Energy Co. 7.50% Conv.
Sub. Debs. due 2014 $1,500,000 1,438,125
Oryx Energy Co. (C) 85,000 1,636,250
Parker & Parsley Petroleum Co. 125,000 3,687,500
Seagull Energy Corp. (C) 230,000 4,168,750
Southwestern Energy Co. 200,000 2,675,000
Union Pacific Resources
Group, Inc. 225,816 6,040,578
United Meridian Corp. (C) 123,500 3,720,437
Vastar Resources, Inc. 125,000 3,593,750
------------
73,832,544
------------
Distributors--16.6%
AGL Resources, Inc. 200,000 3,725,000
Coastal Corp. 110,000 5,280,000
Energen Corp. 54,000 1,613,250
Enron Corp. 6.25% Exch Notes
due 1998 175,000 3,762,500
Prin. Amt.
or Shares Value (A)
---------- ---------
Enron Corp. $12.28 Conv.
Pfd. Ser. J 25,000 $ 13,010,250
Enron Global Power & Pipelines
L.L.C. 150,000 4,143,750
Equitable Resources Inc. 100,000 3,062,500
KN Energy, Inc. 150,000 5,925,000
LG&E Energy Corp. 150,000 3,618,750
MCN Corp. 190,000 5,343,750
National Fuel Gas Co. 100,000 4,275,000
New Jersey Resources, Inc. 185,000 5,272,500
Questar Corp. 134,000 4,824,000
Sonat, Inc. 68,200 3,716,900
United Cities Gas Co. 200,000 4,600,000+
Washington Gas Light Co. 100,000 2,250,000
Western Gas Resources Inc. 235,000 4,230,000
------------
78,653,150
------------
Services--11.9%
BJ Services Co. (C) 100,000 4,787,500
Camco International Inc. 130,000 5,720,000
Diamond Offshore Drilling, Inc. (C) 48,400 3,315,400
ENSCO International, Inc. (C) 80,000 3,940,000
Halliburton Co. 70,000 4,742,500
Schlumberger Ltd. 96,100 10,306,725
SEACOR Holdings, Inc. (C) 90,000 4,826,250+
Tidewater, Inc. 90,000 4,140,000
Transocean Offshore Inc. 125,000 7,015,625
Weatherford/Enterra Inc. (C) 120,000 3,525,000
Western Atlas Inc. (C) 69,000 4,183,125
------------
56,502,125
------------
Basic Industries--15.2%
Basic Materials--4.4%
Calgon Carbon Corp. 184,800 2,032,800
du Pont (E.I.) de Nemours & Co. 50,000 5,300,000
Freeport-McMoRan Copper &
Gold Inc. 127,603 3,875,941
Inco Ltd. 5.75% Conv. Debs.
due 2004 $3,000,000 3,727,500
Medusa Corp. 100,000 3,750,000
Olin Corp. 55,000 2,186,250
------------
20,872,491
------------
Capital Goods & Other--7.3%
Caterpillar Inc. 50,000 4,012,500
Deere & Co. 120,000 5,220,000
Dover Corp. 100,200 5,260,500
General Electric Co. 100,000 9,925,000
Jacobs Engineering Group,
Inc. (C) 150,000 3,675,000
Quaker State Corp. 250,000 3,843,750
WMX Technologies Inc. 80,000 2,450,000
------------
34,386,750
------------
Paper and Forest Products--3.5%
Consolidated Papers, Inc. 65,000 3,388,125
Kimberly-Clark Corp. 65,000 6,467,500
Mead Corp. 70,000 3,710,000
Temple-Inland, Inc. 55,000 2,887,500
------------
16,453,125
------------
Other -- 0.1%
Stocks under accumulation 810,702
------------
Total Stocks And Convertible Securities
(Cost $273,235,892) (D) 446,238,271
------------
7
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 1997
(unaudited)
Prin. Amt. Value (A)
---------- ---------
Short-Term Investments--5.5%
Certificates Of Deposit --2.1%
SouthTrust Bank of Alabama,
5.20%, due 4/3/97 $5,000,000 $ 5,000,000
U.S. Bank of Washington,
5.32%, due 4/24/97 5,000,000 5,000,000
-----------
10,000,000
-----------
Commercial Paper -- 3.4%
Chevron UK Investment PLC,
5.30%, due 4/10/97 4,020,000 4,014,463
Ford Motor Credit Corp.,
5.32-5.35%,
due 4/17/97-4/24/97 3,845,000 3,834,470
Prin. Amt. Value (A)
---------- ---------
General Electric Capital Corp.,
5.30%, due 4/3/97 $4,520,000 $ 4,518,623
USAA Capital Corp.,
5.55%, due 5/6/97 4,000,000 3,977,800
-----------
16,345,356
-----------
Total Short-Term Investments
(Cost $26,345,356) 26,345,356
-----------
Total Investments
(Cost $299,581,248) 472,583,627
Cash, receivables and other
assets, less liabilities 1,407,887
-----------
Net Assets-- 100.0% $473,991,514
============
===================================================================
Notes:
(A) See note 1 to financial statements. Securities are listed on the New
York Stock Exchange or the American Stock Exchange except restricted
securities and also those marked (+), which are traded "Over-the-Counter."
(B) Restricted security (Apache Corp. 6.00% Conv. Sub. Debs. due 2002 acquired
12/6/94, cost $3,000,000).
(C) Presently non-dividend paying.
(D) The aggregate market value of stocks held in escrow at March 31, 1997
covering open call option contracts written was $8,173,750. In addition, the
required aggregate market value of securities segregated by the custodian to
collateralize open put option contracts written was $3,300,000.
HISTORICAL FINANCIAL STATISTICS
<TABLE>
<CAPTION>
Value of Per Common Share
Net Assets Net ------------------------------
Applicable Asset Dividends Distributions
to Common Value per from Net from Net
Common Shares Common Investment Realized
Dec. 31 Stock Outstanding Share Income Gains
------- ---------- ----------- --------- ---------- -------------
<S><C>
1986 $246,071,990 8,979,978 $27.40 $1.45 $2.89
1987 234,062,235 9,636,306 24.29 1.67 2.31
1988 248,370,688 9,997,584 24.84 .92 1.20
1989 322,866,019 10,384,600 31.09 1.20 1.20
1990 308,599,851 10,793,289 28.59 1.10 1.25
1991 314,024,187 11,185,572 28.07 .92 1.23
1992 320,241,282 11,579,503 27.66 .77 1.23
1993 355,836,592 12,006,671 29.64 .82 1.30
1994 332,279,398 12,380,300 26.84 .92 1.18
1995 401,404,971 12,739,383 31.51 .87 1.22
1996 484,588,990 13,065,819 37.09 .82 1.32
March 31, 1997 (unaudited) 473,991,514 13,065,819 36.28 .32* .08
</TABLE>
- -------------
*Paid or declared.
8
<PAGE>
PRINCIPAL CHANGES IN PORTFOLIO SECURITIES
During the Three Months Ended March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Shares or Principal Amounts
------------------------------------------------
Held
Additions Reductions March 31, 1997
--------- ---------- --------------
<S><C>
Ashland, Inc. 115,950(1) 115,950
Energen Corp. 54,000 54,000
Flores & Rucks, Inc. 80,000 80,000
Olin Corp. 55,000 55,000
Western Gas Resources Inc. 110,000 235,000
Inco Ltd. 5.75% Conv. Debs. due 2004 $3,000,000 $3,000,000
Air Products & Chemicals, Inc. 75,000 --
Ashland Oil, Inc. $3.125 Conv. Pfd. 75,000(1) --
BJ Services Co. 30,000 100,000
Exxon Corp. 10,000 165,000
Inco Ltd. 7.75% Conv. Debs. due 2016 $3,500,000 --
Medusa Corp. 40,000 100,000
PanEnergy Corp. 150,000 --
SEACOR Holdings, Inc. 22,000 90,000
Tidewater Inc. 20,000 90,000
</TABLE>
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(1) Received 1.546 shares for each share of Ashland Oil, Inc. $3.125 Conv. Pfd.
----------------------
Common Stock
Listed on the New York Stock Exchange
and the Pacific Stock Exchange
The Corporate Office Address: Seven St. Paul Street, Suite 1140,
Baltimore, MD 21202
The Corporate Office Telephone: (410) 752-5900 or (800) 638-2479
Transfer Agent, Registrar & Custodian of Securities
The Bank of New York
101 Barclay Street, 11E
New York, NY 10007
The Bank's Shareholder Relations Department: (800) 432-8224
Counsel: Chadbourne & Parke L.L.P.
Independent Accountants: Coopers & Lybrand L.L.P.
This report, including the financial statements herein, is transmitted to
the stockholders of Petroleum & Resources Corporation for their
information. It is not a prospectus, circular or representation intended
for use in the purchase or sale of shares of the Corporation or of any
securities mentioned in this report.
9
<PAGE>
ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders was held on March 25, 1997. For those
nominated, the following votes were cast for directors:
votes for votes withheld
--------- --------------
(A) Enrique R. Arzac: 11,366,744 212,970
(B) Leigh Carter: 11,376,609 203,105
(C) Allan Comrie: 11,382,780 196,934
(D) Daniel E. Emerson: 11,369,251 210,463
(E) Thomas H. Lenagh: 11,345,938 233,776
(F) W. David MacCallan: 11,402,434 177,280
(G) Augustine R. Marusi: 11,345,736 233,978
(H) W. Perry Neff: 11,372,795 206,919
(I) Douglas G. Ober: 11,406,133 173,581
(J) Landon Peters: 11,384,065 195,649
(K) John J. Roberts: 11,364,418 215,296
(L) Robert J.M. Wilson: 11,373,550 206,164
A proposal to approve and ratify the selection of Coopers & Lybrand L.L.P. as
the firm of independent accountants of the Corporation for 1997 was approved
with 11,382,744 votes for, 89,458 votes against and 107,512 votes abstaining.
10
<PAGE>
DIVIDEND PAYMENT SCHEDULE &
AUTOMATIC DIVIDEND REINVESTMENT PLAN
The Corporation presently pays dividends four times a year, as follows: (a)
Three interim investment income dividends on or about March, June and September
1st. (b) A "year-end" payment consisting of the estimated balance of the net
investment income for the year and the net realized capital gain earned through
October 31st, payable in late December. Stockholders may elect to receive this
payment in stock or cash. In connection with this payment, all stockholders of
record are sent a dividend announcement notice and an election card in
mid-November. The following options are available:
(1) Full shares of stock for the combined income dividend and capital gain
distribution to the extent possible.
(2) Full shares of stock for the capital gain distribution to the extent
possible. Fractional shares and the income dividend are paid in cash. Without a
timely response, stockholders will be paid in accordance with this option.
(3) Both the income dividend and capital gain distribution in cash.
Stockholders holding shares in "street" or brokerage accounts may make one of
the above elections by notifying their brokerage house representative.
Stockholders of record of Petroleum stock have two additional ways to increase
their investment in the Corporation.
The Bank of New York's Automatic Dividend Reinvestment Plan provides that its
participants' four distributions are automatically invested in additional shares
of Petroleum common stock. New shares acquired are held on a book basis by the
Bank.
Additionally, after the participants' first dividend is reinvested, they are
eligible to make cash payments in any amount from $50.00.
The Bank provides participants with reinvestment confirmations after each
dividend or cash payment. The Bank's fee for this service is 10% of the amount
received up to a maximum of $2.50 for the interim dividend payments and cash
payments. There is no charge for the "year-end" distribution.
The Bank's plan also provides for the deposit of certificate shares into the
participants "book share" account for a one-time charge of $5.00.
A brochure and enrollment card may be obtained by calling the Bank at (800)
432-8224 or by writing to:
The Bank of New York
Dividend Reinvestment
P.O. Box 11258
Church Street Station
New York, NY 10277
11
