1996 ANNUAL REPORT
PETROLEUM
& RESOURCES
CORPORATION
INVESTING IN RESOURCES FOR THE FUTURE
<PAGE>
1996 AT A GLANCE
<TABLE>
<CAPTION>
THE COMPANY STOCK DATA
<S> <C>
(bullet) a closed-end equity investment company NYSE Symbol PEO
emphasizing natural resources stocks Market Price as of 12/31/96 $34 3/4
(bullet) objectives: preservation of capital Discount 6.3%
reasonable income 52-Week Range $36 3/8-$28 1/8
opportunity for capital gain Shares Outstanding 13,065,819
(bullet) internally-managed
(bullet) low expense ratio
(bullet) low turnover
</TABLE>
SUMMARY FINANCIAL INFORMATION
Year Ended December 31
1996 1995
- --------------------------------------------------------------------------------
Net asset value per share $ 37.09 $ 31.51
Total net assets 484,588,990 401,404,971
Unrealized appreciation 191,783,672 119,875,293
Net investment income 10,048,674 10,592,549
Total realized gain 17,410,824 15,059,861
Total return (based on market value) 31.2% 20.5%
Total return (based on net asset value) 25.5% 25.9%
Expense ratio 0.63% 0.57%
================================================================================
1996 DIVIDENDS AND DISTRIBUTIONS
Amount
Paid (per share) Type
- -------------------------------------------------------------------------------
March 1, 1996 $0.03 Long-term capital gain
March 1, 1996 0.01 Short-term capital gain
March 1, 1996 0.16 Investment income
June 1, 1996 0.20 Investment income
September 1, 1996 0.20 Investment income
December 27, 1996 1.09 Long-term capital gain
December 27, 1996 0.19 Short-term capital gain
December 27, 1996 0.26 Investment income
- -------------------------------------------------------------------------------
$2.14
===============================================================================
1997 ANNUAL MEETING OF STOCKHOLDERS
Location: Hotel Nikko, San Francisco, California
Date: March 25, 1997
Holders of Record: February 11, 1997
[Petroleum & Resources Corporation Logo] 1
<PAGE>
PORTFOLIO REVIEW
TEN LARGEST PORTFOLIO HOLDINGS (12/31/96)
Market Value % of Net Assets
------------ ---------------
Royal Dutch Petroleum Co. $ 37,565,000 7.8
Enron Corp. 18,916,406 3.9
Exxon Corp. 17,150,000 3.5
Mobil Corp. 14,670,000 3.0
British Petroleum plc ADR 13,283,312 2.7
General Electric Co. 9,887,500 2.0
Schlumberger Ltd. 9,597,988 2.0
"Shell" Transport and Trading Co. plc ADR 8,190,000 1.7
Occidental Petroleum Corp. 7,964,375 1.7
Transocean Offshore Inc. 7,828,125 1.6
Total $145,052,706 29.9%
SECTOR WEIGHTINGS (12/31/96)
[Graph appears here--please supply plot points]
2 [Petroleum & Resources Corporation Logo]
<PAGE>
LETTER TO STOCKHOLDERS
We are pleased to submit the financial statements for the year ended December
31, 1996. In addition, there is a schedule of investments, a list of principal
changes in portfolio securities during the fourth quarter and the report of the
independent accountants. Certain historical financial statistics are also
listed, including a record of the Corporation's income dividends and capital
gain distributions for the last fifteen years.
THE YEAR IN REVIEW
The robust movement of energy prices was a surprise to the markets last year.
While the average price of West Texas Intermediate crude oil increased 19.6% to
$22 per barrel, the range during the year was a relatively wide $18-$26. This
strength reflected the combination of strong worldwide demand, low inventories
and the lack of Iraqi oil exports. Led by surging demand in the Far East,
worldwide petroleum consumption increased 2.6% to a record level of 72 million
barrels per day. In the U.S., demand advanced 2.1% as both gasoline and heating
oil usage were strong. On the supply side, shifting political posturing by Iraq
stalled negotiations with the United Nations over the release of oil exports in
exchange for humanitarian aid. As a result, a significant increase in production
from various non-OPEC countries was required to maintain a tightly balanced oil
market.
From a depressed year ago level, average domestic natural gas prices recorded a
very strong 63.9% advance. Unseasonably cold first quarter temperatures combined
with lean storage levels to push gas prices to their highest levels in several
years. During November and December this pattern was repeated and natural gas
prices surged again.
After a lackluster initial two months, energy stocks outperformed the S&P 500
during the remainder of 1996. The Dow Jones Energy Index recorded a 6.8% gain
through August. Over this period, we maintained our overall energy holdings at
approximately 77% of the portfolio. During September, increased tensions between
Iraq and the United States caused crude oil prices to soar and generated
additional investor enthusiasm for oil and gas stocks. For the last four months
of 1996, the Energy Index advanced 15.4% as energy stocks responded to these
heightened hostilities, the favorable impact of cold weather on oil and natural
gas prices and increased merger activity. Consolidations were an expanding theme
throughout the energy sector particularly with the convergence of the natural
gas pipeline and electric utility industries. We expanded our large exposure to
energy stocks during this period as our energy weighting increased to 80.6%. As
the prospects for paper and forest products stocks remained disappointing, we
reduced our weighting from 6.4% to 3.4%. Cash and short term investments at year
end stood at 4.3% of net assets compared to 4.9% the prior year.
For the calendar year, the time-weighted rate of return on the net assets of the
Corporation was 25.5%. By comparison, the rate of return for the Standard &
Poor's 500 Stock Index was 22.8% and for the Dow Jones Energy Index was 23.2%.
INVESTMENT RESULTS
Net assets of the Corporation on December 31, 1996 were $484,588,990 or $37.09
per common share on 13,065,819 common shares outstanding as compared with
$401,404,971 or $31.51 per common share on 12,739,383 common shares outstanding
a year earlier.
Net investment income for the year 1996 was $10,048,674 compared to $10,592,549
for the year 1995. These earnings are equivalent to $0.79 and $0.86 per common
share, respectively, on the average number of common shares outstanding
throughout each year.
Net realized gains amounted to $17,410,824 during the year, while the unrealized
appreciation on investments increased from $119,875,293 at December 31, 1995 to
$191,783,672 at year end.
DIVIDENDS AND DISTRIBUTIONS
As announced on November 14, 1996, a year-end distribution consisting of
investment income of $0.26 and capital gains of $1.28 was made on December 27,
1996, both realized and taxable in 1996. On January 9, 1997, an additional
distribution of $0.20 per share was declared payable March 1, 1997, representing
the balance of undistributed net investment income and capital gains earned in
1996 and an initial distribution from 1997 net investment income, taxable to
shareholders in 1997.
[Petroleum & Resources Corporation Logo] 3
<PAGE>
LETTER TO STOCKHOLDERS
OUTLOOK FOR 1997
Once warmer weather arrives and the normal seasonal decline in energy demand
occurs, petroleum prices will likely fall from the lofty year end 1996 levels.
However, prices for both crude oil and natural gas should settle in attractive
ranges and at higher levels than previously anticipated. West Texas Intermediate
crude oil is forecast to average approximately $20-$21 per barrel for the full
year versus $22 in 1996. Petroleum markets should remain in good balance as
worldwide oil consumption growth is expected to again exceed 2.0% and approach
74 million barrels per day. The less developed countries principally in the Far
East will generate the strongest consumption gains and account for much of the
additional 2 million barrels per day of new oil demand. Successful reintegration
of Iraqi oil production (600,000 b/d) is the major uncertainty on the supply
side. The buildup of this production beginning in January combined with the
anticipated rise in non-OPEC output should restock inventories to normal levels
by year end. Thus, demand for OPEC oil excluding Iraq will be relatively
unchanged during this year. As a result, additional production quota cheating by
OPEC members should be restrained to maintain a balanced oil market. Unexpected
political disruptions in a major oil exporting country can significantly
influence crude oil prices.
While average natural gas prices are forecast to decline approximately 9% from
the twelve year peak reached in 1996, this lower gas price will still generate a
very attractive operating environment. With storage levels already 10% below
normal and gas production near capacity, near term pricing will reflect the
severity of the current winter weather and the heating demand load. However, new
gas production from the Gulf of Mexico and added deliveries from Canada will
rebalance the natural gas market by year end.
Consolidations and restructurings will continue within all oil and natural gas
sectors. On a worldwide basis, this trend will be particularly evident in
petroleum refining and marketing.
The proxy statement for the Annual Meeting of Stockholders to be held in San
Francisco, California on March 25, 1997 will be mailed on or about February 13,
1997 to holders of record on February 11, 1997.
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
January 17, 1997
4 [Petroleum & Resources Corporation Logo]
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets
Investments* at value:
Common stocks and convertible securities
(cost $272,202,110) $463,871,301
Short-term investments (cost $20,501,642) 20,501,642 $484,372,943
- -------------------------------------------------------------------------------
Cash 122,264
Dividends and interest receivable 994,399
Prepaid expenses 1,126,414
- ---------------------------------------------------------------------------------------------------
Total Assets 486,616,020
Liabilities
Investment securities purchased 373,597
Open option contracts at value (proceeds $181,356) 66,875
Accrued expenses 1,586,558
- ---------------------------------------------------------------------------------------------------
Total Liabilities 2,027,030
Net Assets $484,588,990
===================================================================================================
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 realized gain on investments 1,031,502
Unrealized appreciation on investments 191,783,672
- ---------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $484,588,990
===================================================================================================
Net Asset Value Per Share of Common Stock $37.09
===================================================================================================
</TABLE>
* See schedule of investments on pages 13 through 15.
The accompanying notes are an integral part of the financial statements.
[Petroleum & Resources Corporation Logo] 5
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
Investment Income
Income:
Dividends $ 9,972,282
Interest 2,814,745
- ----------------------------------------------------------------------
Total income 12,787,027
Expenses:
Investment research 1,150,744
Administration and operations 571,348
Directors' fees 151,500
Reports and stockholder communications 177,758
Transfer agent, registrar and custodian expenses 169,220
Auditing services 46,884
Legal services 89,000
Occupancy and other office expenses 100,193
Travel, telephone and postage 85,157
Other 196,549
- ----------------------------------------------------------------------
Total expenses 2,738,353
Net Investment Income 10,048,674
Realized Gain and Change in Unrealized Appreciation on
Investments
Net realized gain on security transactions 17,410,824
Change in unrealized appreciation on investments 71,908,379
- ----------------------------------------------------------------------
Net Gain on Investments 89,319,203
Change in Net Assets Resulting from Operations $99,367,877
======================================================================
The accompanying notes are an integral part of the financial statements.
6 [Petroleum & Resources Corporation Logo]
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended
Dec. 31, 1996 Dec. 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C>
From Operations:
Net investment income $ 10,048,674 $ 10,592,549
Net realized gain on investments 17,410,824 15,059,861
Change in unrealized appreciation on investments 71,908,379 59,383,437
- ---------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 99,367,877 85,035,847
Dividends to Stockholders From:
Net investment income (10,446,294) (10,770,861)
Net realized gain from investment transactions
distributed to common stockholders (16,815,986) (15,103,966)
- ---------------------------------------------------------------------------------------------------
Decrease in net assets from distributions (27,262,280) (25,874,827)
- ---------------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of common shares issued in payment of optional
distributions 11,078,422 9,964,553
- ---------------------------------------------------------------------------------------------------
Total Increase in Net Assets 83,184,019 69,125,573
Net Assets:
Beginning of year 401,404,971 332,279,398
- ---------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of
$0 and $237,981, respectively) $484,588,990 $401,404,971
===================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
[Petroleum & Resources Corporation Logo] 7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 securities
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 valued at
amortized cost. Options are valued at the last sale price or last quoted asked
price.
Security Transactions And Investment Income -- Investment 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 of 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 December 31, 1996 was $292,740,802, and net
unrealized appreciation aggregated $191,813,497, of which the related gross
unrealized appreciation and depreciation were $198,926,175 and $7,112,678,
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.
3. INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than options and short-term
investments, during the year ended December 31, 1996 were $63,053,002 and
$66,781,951, respectively. Option transactions comprised an insignificant
portion of operations during the year ended December 31, 1996. All investment
decisions are made by a committee, and no one person is primarily responsible
for making recommendations to that committee.
4. CAPITAL STOCK
In May 1993, the Corporation redeemed its $1.575 Convertible Preferred Shares
for $15.00 plus accrued dividends of $0.35 per share. The Corporation has
3,000,000 unissued preferred shares without par value.
On December 27, 1996, the Corporation issued 326,436 shares of its common stock
at a price of $33.9375 per share (market value) to stockholders of record
November 25, 1996 who elected to take stock in payment of the distribution from
1996 capital gain and investment income.
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 year ended December 31, 1996.
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.
8 [Petroleum & Resources Corporation Logo]
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 the subsequent years. At the beginning of 1996, there were
205,150 options outstanding at exercise prices of $18.840-$28.250 per share.
During 1996, the Corporation granted options, including stock appreciation
rights, for 14,729 shares of common stock with an exercise price of $33.9375 per
share. During the year stock appreciation rights relating to 41,644 stock option
shares were exercised at market prices between $28.750-$36.375 per share and the
stock options relating to these rights which had exercise prices between
$17.5200-$25.3725 per share were cancelled. In addition, stock options and stock
appreciation rights relating to 13,340 shares, which had exercise prices of
$24.093-$26.930, were cancelled. At December 31, 1996, there were outstanding
exercisable options to purchase 46,545 common shares at $17.52-$26.93 per share
and unexercisable options to purchase 118,350 common shares at $20.1050-$33.9375
per share. The total compensation expense recognized in 1996 for the stock
options and stock appreciation rights plan was $938,304. At December 31, 1996,
there were 348,675 shares available for future option grants.
During the year ended December 31, 1996, the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", became effective. The provisions of this Statement had no
significant impact on the financial statements of the Corporation.
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 mutual funds.
The actuarially computed net pension cost credit for the year ended December 31,
1996 was $155,765, and consisted of service expense of $55,480, interest expense
of $112,416, expected return on plan assets of $251,211, and a net amortization
credit of $72,450.
In determining the actuarial present value of the projected benefit obligation,
the interest rate used for the weighted-average discount rate and 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, 1996, the accumulated benefit obligation, including vested
benefits, was $1,234,281. The fair value of the plan assets was $3,173,883 and
the projected benefit obligation for service rendered to date was $1,639,654.
Which resulted in excess plan assets of $1,534,229. The remaining components of
prepaid pension cost included $564,335 in unrecognized net gain, $245,219 in
unrecognized prior service cost and $244,464 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 December 31, 1996
was $1,126,414.
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 December 31, 1996 for employees and
former employees of the Corporation was $1,476,633. Aggregate remuneration paid
or accrued during the year ended December 31, 1996 to officers and directors
amounted to $1,661,325.
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 $539,508 for the year ended December 31,
1996.
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 December
31, 1996, the value of security loans outstanding was $2,943,750.
[Petroleum & Resources Corporation Logo] 9
<PAGE>
PETROLEUM & RESOURCES CORPORATION
Calendar Market Cumulative Cumulative Total Total net
Years value market value market value market asset
of of capital of income value value
original gains dividends
shares distributions taken in
taken in shares
shares
- --------------------------------------------------------------------------------
1982 $7,896 $ 1,402 $ 446 $ 9,744 $ 9,702
1983 8,143 2,162 985 11,290 11,941
1984 7,544 2,853 1,401 11,798 12,172
1985 7,544 3,916 2,023 13,483 14,293
1986 8,178 6,011 3,008 17,197 16,248
1987 5,852 5,542 2,924 14,318 16,760
1988 5,922 6,412 3,521 15,855 18,754
1989 7,614 9,297 5,499 22,410 25,805
1990 7,085 9,571 5,957 22,613 25,731
1991 7,332 11,079 6,965 25,376 27,396
1992 7,121 11,976 7,441 26,538 29,071
1993 7,755 14,409 8,911 31,075 33,493
1994 7,121 14,577 9,108 30,806 32,745
1995 7,967 17,836 11,233 37,036 41,310
1996 9,800 23,765 14,947 48,512 51,778
ILLUSTRATION OF AN ASSUMED
15 YEAR INVESTMENT OF $10,000
Investment income dividends and capital gains distributions are taken in
additional shares. This chart covers the years 1982-1996. These results should
not be considered representative of the dividend income or capital gain or loss
which may be realized in the future. No adjustment has been made for any income
taxes payable by stockholders on income dividends or on capital gains
distributions.
[Graph appears here--please see plot points below]
Cumulative
Market Value Cumulative
Market Value of Shares from Market Value
of Original Capital Gains of Shares from Net Asset Value
Investment Distributions Income Dividends of Total Shares
1982 7,896 9,298 9,744 9,702
1983 8,143 10,305 11,290 11,941
1984 7,544 10,397 11,798 12,172
1985 7,544 11,460 13,483 14,293
1986 8,178 14,189 17,197 16,248
1987 5,852 11,394 14,318 16,760
1988 5,922 12,334 15,855 18,754
1989 7,614 16,911 22,410 25,805
1990 7,085 16,656 22,613 25,731
1991 7,332 18,411 25,376 27,396
1992 7,121 19,097 26,538 29,071
1993 7,755 22,164 31,075 33,493
1994 7,121 21,698 30,806 32,745
1995 7,967 25,803 37,036 41,310
1996 9,800 33,565 48,512 51,778
10 [Petroleum & Resources Corporation Logo]
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance*
Net asset value, beginning of year $31.51 $26.84 $29.64 $27.66 $28.07
- -------------------------------------------------------------------------------------------------------------------
Net investment income 0.79 0.86 0.94 0.92 1.06
Net realized gains and change in unrealized
appreciation and other changes 6.93 5.90 (1.64) 3.30 0.81
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 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 (0.82) (0.87) (0.92) (0.82) (0.77)
Distributions from net realized gains
To common shareholders (1.32) (1.22) (1.18) (1.30) (1.23)
- -------------------------------------------------------------------------------------------------------------------
Total distributions (2.14) (2.09) (2.10) (2.24) (2.28)
Net asset value, end of year $37.09 $31.51 $26.84 $29.64 $27.66
===================================================================================================================
Per share market price, end of year $34.75 $28.25 $25.25 $27.50 $25.25
- -------------------------------------------------------------------------------------------------------------------
Total Investment Return
Based on market price 31.2% 20.5% (0.7)% 17.4% 4.8%
Ratios/Supplemental Data
Net assets applicable to common stock, end of year
(in 000's) $484,589 $401,405 $332,279 $355,837 $320,241
Ratio of expenses to average net assets 0.63% 0.57% 0.42% 0.57% 0.52%
Ratio of net investment income to average net assets 2.31% 2.89% 3.19% 2.61% 2.79%
Portfolio turnover 15.50% 15.86% 10.95% 10.16% 15.06%
Average brokerage commission rate $0.06 -- -- -- --
Number of common shares outstanding at end of year
(in 000's) 13,066 12,739 12,380 12,007 11,580
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Selected data for each share of common stock outstanding throughout each year.
+ See note 4 to financial statements.
[Petroleum & Resources Corporation Logo] 11
<PAGE>
QUARTERLY RESULTS OF INVESTMENT OPERATIONS
Unaudited
Amounts available for common stockholders in thousands of dollars and per common
share:
<TABLE>
<CAPTION>
Three Months Ended
===================================================================================================================
March 31, 1996 June 30, 1996 September 30, 1996 December 31, 1996
===================================================================================================================
<S> <C>
Total investment income $ 2,707 $0.21 $ 3,700 $0.29 $3,556 $0.28 $ 2,824 $0.22
Net investment income 2,022 0.16 3,138 0.25 2,706 0.21 2,183 0.17
Net realized gain and
change in unrealized
appreciation 18,297 1.44 19,120 1.50 9,711 0.76 42,191 3.31
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
===================================================================================================================
March 31, 1995 June 30, 1995 September 30, 1995 December 31, 1995
===================================================================================================================
<S> <C>
Total investment income $ 2,785 $0.22 $ 3,661 $0.30 $3,462 $0.28 $ 2,789 $0.23
Net investment income 2,119 0.17 3,196 0.26 3,050 0.25 2,228 0.18
Net realized gain and
change in unrealized
appreciation 28,493 2.30 15,291 1.24 1,213 0.10 29,446 2.38
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
COMMON STOCK
Listed on the New York Stock Exchange
and the Pacific Stock Exchange
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
The Corporate Office Address: Seven St. Paul Street,
Suite 1140, Baltimore, MD 21202
The Corporate Office Telephone: (410) 752-5900 or (800) 638-2479
Counsel: Chadbourne & Parke L.L.P.
Independent Accountants: Coopers & Lybrand L.L.P.
[Petroleum & Resources Corporation Logo]
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
Prin. Amt.
or Shares Value (A)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Stocks and Convertible Securities -- 95.8%
Energy -- 80.6%
Internationals -- 22.5%
British Petroleum plc ADR 93,958 $ 13,283,312
Chevron Corp. 110,000 7,150,000
Exxon Corp. 175,000 17,150,000
Mobil Corp. 120,000 14,670,000
Royal Dutch Petroleum Co. 220,000 37,565,000
"Shell" Transport and Trading Co., plc ADR 80,000 8,190,000
Texaco Inc. 50,000 4,906,250
Total S.A. ADR 150,000 6,037,500
- ---------------------------------------------------------------------------------------------------------------------------
108,952,062
- ---------------------------------------------------------------------------------------------------------------------------
Domestics -- 11.4%
Amerada Hess Corp. 65,000 3,826,875
Amoco Corp. 50,000 4,031,250
Ashland Oil, Inc. $3.125 Conv. Pfd. 75,000 5,146,875
Atlantic Richfield Co. 45,000 5,962,500
Murphy Oil Corp. 100,000 5,562,500
Pennzoil Co. 6.50% Conv. Exch. Sr. Debs. due 2003 $2,000,000 3,102,500
Pennzoil Co. 35,000 1,977,500
Phillips Petroleum Co. 120,000 5,310,000
Tesoro Petroleum Corp. (C) 300,000 4,200,000
Ultramar Diamond Shamrock Corp. 125,000 3,953,125
Unocal Capital Trust $3.125 Conv. Pfd. 72,540 4,107,578+
Unocal Corp. 150,000 6,112,500
Valero Energy Corp. $3.125 Conv. Pfd. 30,000 1,732,500
- ---------------------------------------------------------------------------------------------------------------------------
55,025,703
- ---------------------------------------------------------------------------------------------------------------------------
Producers -- 16.6%
Anadarko Petroleum Corp. 90,000 5,827,500
Apache Corp. 6.00% Conv. Sub. Debs. due 2002 (B) $3,000,000 3,765,000
Barrett Resources Corp. (C) 61,000 2,600,125
Devon Energy Corp. 175,000 6,081,250
Enron Oil & Gas Co. 190,000 4,797,500
Imperial Oil Ltd. 105,488 4,957,936
Louisiana Land & Expl. Co. 70,000 3,753,750
Monterey Resources Inc. 200,000 3,225,000
Noble Affiliates Inc. 81,855 3,918,808
Occidental Petroleum Corp. $3.00 Conv. Exch. Pfd. 30,000 1,770,000
Occidental Petroleum Corp. 265,000 6,194,375
Oryx Energy Co. 7.50% Conv. Sub. Debs. due 2014 $1,500,000 1,443,750
Oryx Energy Co. (C) 85,000 2,103,750
Parker & Parsley Petroleum Co. 125,000 4,593,750
Seagull Energy Corp. (C) 220,000 4,840,000
Southwestern Energy Co. 200,000 3,025,000
Union Pacific Resources Group, Inc. 225,816 6,548,664
United Meridian Corp. (C) 123,500 6,236,750
Vastar Resources, Inc. 125,000 4,750,000
- ---------------------------------------------------------------------------------------------------------------------------
80,432,908
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
[Petroleum & Resources Corporation Logo] 13
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
Prin. Amt.
or Shares Value (A)
===========================================================================================================================
<S> <C>
Distributors -- 17.4%
AGL Resources Inc. 200,000 $ 4,225,000
Coastal Corp. 110,000 5,376,250
Enron Corp. 6.25% Exch. Notes due 1998 175,000 4,200,000
Enron Corp. $12.28 Conv. Pfd. Ser. J 25,000 14,716,406
Enron Global Power & Pipelines L.L.C. 150,000 4,050,000
Equitable Resources Inc. 100,000 2,975,000
KN Energy, Inc. 150,000 5,887,500
LG&E Energy Corp. 150,000 3,675,000
MCN Corp. 190,000 5,486,250
National Fuel Gas Co. 100,000 4,125,000
New Jersey Resources, Inc. 185,000 5,411,250
PanEnergy Corp. 150,000 6,750,000
Questar Corp. 134,000 4,924,500
Sonat Inc. 68,200 3,512,300
United Cities Gas Co. 200,000 4,500,000+
Washington Gas Light Co. 86,200 1,950,275
Western Gas Resources Inc. 125,000 2,406,250
- ---------------------------------------------------------------------------------------------------------------------------
84,170,981
- ---------------------------------------------------------------------------------------------------------------------------
Services -- 12.7%
BJ Services Co. (C) 130,000 6,630,000
Camco International Inc. 130,000 5,996,250
Diamond Offshore Drilling, Inc. (C) 48,400 2,758,800
ENSCO International, Inc. (C) 80,000 3,880,000
Halliburton Co. 70,000 4,217,500
Schlumberger Ltd. 96,100 9,597,988
SEACOR Holdings, Inc. (C) 112,000 7,056,000
Tidewater, Inc. 110,000 4,977,500
Transocean Offshore Inc. 125,000 7,828,125
Weatherford/Enterra Inc. (C) 120,000 3,600,000
Western Atlas Inc. (C) 69,000 4,890,375
- ---------------------------------------------------------------------------------------------------------------------------
61,432,538
- ---------------------------------------------------------------------------------------------------------------------------
Basic Industries -- 15.2%
Basic Materials -- 5.0%
Air Products & Chemicals, Inc. 75,000 5,184,375
Calgon Carbon Corp. 184,800 2,263,800
duPont (E.I.) deNemours & Co. 50,000 4,706,250
Freeport-McMoRan Copper & Gold Inc. Ser. A 127,603 3,588,834
Inco Ltd. 7.75% Conv. Debs. due 2016 $3,500,000 3,657,500
Medusa Corp. 140,000 4,812,500
- ---------------------------------------------------------------------------------------------------------------------------
24,213,259
- ---------------------------------------------------------------------------------------------------------------------------
Capital Goods & Other-- 6.8%
Caterpillar Inc. 50,000 3,762,500
Deere & Co. 120,000 4,860,000
Dover Corp. 100,200 5,060,100
General Electric Co. 100,000 9,887,500
Jacobs Engineering Group, Inc. (C) 150,000 3,543,750
Quaker State Corp. 250,000 3,500,000
WMX Technologies Inc. 80,000 2,600,000
- ---------------------------------------------------------------------------------------------------------------------------
33,213,850
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
14 [Petroleum & Resources Corporation Logo]
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
Prin. Amt.
or Shares Value (A)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Paper and Forest Products -- 3.4%
Consolidated Papers, Inc. 65,000 $ 3,193,125
Kimberly-Clark Corp. 65,000 6,191,250
Mead Corp. 70,000 4,068,750
Temple-Inland, Inc. 55,000 2,976,875
- ---------------------------------------------------------------------------------------------------------------------------
16,430,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Stocks and Convertible Securities
(Cost $272,202,110) (D) 463,871,301
- ---------------------------------------------------------------------------------------------------------------------------
Short-Term Investments -- 4.2%
Certificates of Deposit -- 2.0%
SouthTrust Bank of Alabama, 5.30%, due 1/16/97 $5,000,000 5,000,000
Wachovia Bank of North Carolina N.A., 5.37%, due 1/16/97 $5,000,000 5,000,000
- ---------------------------------------------------------------------------------------------------------------------------
10,000,000
- ---------------------------------------------------------------------------------------------------------------------------
Commercial Paper -- 2.2%
Chevron UK Investment PLC, 5.51%, due 1/23/97 $4,825,000 4,808,275
Coca-Cola Co., 6.25%, due 1/2/97 $1,995,000 1,994,307
General Electric Capital Corp., 6.10%, due 1/2/97 $3,700,000 3,699,060
- ---------------------------------------------------------------------------------------------------------------------------
10,501,642
- ---------------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments
(Cost $20,501,642) 20,501,642
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments
(Cost $292,703,752) 484,372,943
Cash, receivables and other assets, less liabilities 216,047
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets-- 100% $484,588,990
===========================================================================================================================
</TABLE>
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 securities (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 December 31, 1996
covering open call option contracts written was $2,021,250. In addition,
the required aggregate market value of securities segregated by the
custodian to collateralize open put option contracts written was $5,225,000.
[Petroleum & Resources Corporation Logo] 15
<PAGE>
PRINCIPAL CHANGES IN PORTFOLIO SECURITIES
During the Three Months Ended December 31, 1996
<TABLE>
<CAPTION>
Shares or Principal Amounts
- ---------------------------------------------------------------------------------------------------------------------------
Held
Additions Reductions Dec. 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Caterpillar Inc. 50,000 50,000
duPont (E.I.) deNemours & Co. 50,000 50,000
ENSCO International, Inc. 30,000 80,000
Freeport-McMoRan Copper & Gold Inc. Ser. A 127,603(1) 127,603
LG&E Energy Corp. 150,000 150,000
Monterey Resources Inc. 200,000 200,000
Noble Affiliates Inc. 81,855(2) 81,855
SEACOR Holdings, Inc. 32,000 112,000
Temple-Inland, Inc. 55,000 55,000
Western Gas Resources Inc. 125,000 125,000
Freeport-McMoRan Copper & Gold Inc.
7% Conv. Exch. Pfd. 125,000(1) --
Noble Affiliates Inc. 4.25%
Conv. Sub. Debs. due 2003 $3,000,000(2) --
Royal Dutch Petroleum Co. 10,000 220,000
Tenneco Inc. 90,000 --
Texaco Inc. 10,000 50,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Received 1.0208 shares for each share of Freeport-McMoRan Copper & Gold Inc.
7% Conv. Exch. Pfd.
(2) Received shares from conversion of Noble Affiliates Inc. 4.25% Conv. Sub.
Debs. due 2003.
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 the report.
16 [Petroleum & Resources Corporation Logo]
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Petroleum & Resources Corporation:
We have audited the accompanying statement of assets and liabilities of
Petroleum & Resources Corporation, including the schedule of investments, as of
December 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements and financial highlights 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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1996, by correspondence with the custodian and brokers. 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of
Petroleum & Resources Corporation as of December 31, 1996, and the results of
its operations, the changes in its net assets, and financial highlights for each
of the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Baltimore, Maryland
January 8, 1997
[Petroleum & Resources Corporation Logo] 17
<PAGE>
SHAREHOLDER SERVICES AND INFORMATION
WE ARE OFTEN ASKED --
How do I invest in Petroleum & Resources?
Petroleum's common stock is listed on the New York Stock Exchange and Pacific
Stock Exchange. Our stock's ticker symbol is "PEO." Our stock may be bought and
sold through registered investment security dealers. Your broker will be happy
to assist you in this regard. Once a share of stock is registered in your name,
additional stock may be purchased through the Bank of New York's Automatic
Dividend Reinvestment Plan (see page 19).
Where do I get information on the stock's price, trading and/or net asset value?
The net asset value per share is published on Saturdays in various newspapers
and on Mondays in The Wall Street Journal in a table titled "Closed-End Funds."
The table compares the net asset value at the close of the week's last business
day to the market price of the shares, and shows the amount of the discount or
premium.
Petroleum's daily trading is shown in the stock tables of most daily newspapers,
usually with the abbreviated form "PetRs." Local newspapers determine, usually
by volume of traded shares, which securities to list. If your paper does not
carry our listing, please telephone the Corporation at (800) 638-2479.
How do I replace a lost certificate(s) or how do Icorrect a spelling error on my
certificate?
Your Petroleum stock certificates are valuable documents and should be kept in a
safe place. For tax purposes, keep a record of each certificate, including the
cost or market value of the shares it covers at the time acquired. If a
certificate is lost, destroyed or stolen, notify the transfer agent immediately
so a "stop transfer" order can be placed on the records to prevent an
unauthorized transfer of your certificate. The necessary forms and requirements
to permit the issuance of a replacement certificate will then be sent to you. A
certificate can be replaced only after the receipt of an affidavit regarding the
loss accompanied by an open penalty bond, for which a small premium is paid by
the stockholder.
In the event a certificate is issued with the holder's name incorrectly spelled,
a correction can only be made if the certificate is returned to the transfer
agent with instructions for correcting the error. To transfer shares to another
name also requires that the certificate be forwarded to the transfer agent with
the appropriate assignment forms completed and the signature of the registered
owner Medallion guaranteed by a bank or member firm of The New York Stock
Exchange, Inc.
Can you send my dividend checks directly to my bank?
Yes, supply either the Corporation or the Transfer Agent with your bank's name,
your branch's mailing address and your account number at your bank. (Sorry, we
cannot electronically transfer funds at this time.)
How often does the Corporation pay its dividends?
The Corporation anticipates distributions of 1997 investment income and capital
gains as follows:
March 1
- -------
Interim 1997 investment income payment including remaining undistributed 1996
investment income and capital gain.
June 1
- ------
Interim 1997 investment income payment.
September 1
- -----------
Interim 1997 investment income payment.
December 27
- -----------
The year-end optional distribution approximating the sum of the net capital gain
earned through 10/31/97 and the balance of the net investment income expected
for 1997.
Additional information on the Corporation's dividend payments and the Automatic
Dividend Reinvestment Plan is set forth on page 19.
Who do I notify of a change of address?
Either the Corporation or the Transfer Agent.
I'm getting two checks or two statements or two reports. What should I do?
Send the duplicate labels to the Corporation or Transfer Agent with a short
note.
We go to Florida (Arizona) every winter. How do we get our mail from Petroleum &
Resources?
The Transfer Agent can program a seasonal address into their system; simply send
the temporary address and the dates you plan to be there to the Bank (check
dividend payments dates).
I want to give shares to my children, grandchildren, etc. as a gift. How do I go
about it?
The stock transfer rules, designed to protect you, the investor, are clear and
precise for most forms of transfer. They will vary slightly depending on each
transfer, so write to either the Corporation or the Transfer Agent stating the
exact intent of your gift plans and either of us will send you the instructions
and forms necessary to effect your transfer.
_______________
The Corporation The Transfer Agent
Petroleum & Resources Corp. The Bank of New York
J.G. Whitney, Secretary Shareholder Relations Dept.
Seven St. Paul Street, Suite 1140 101 Barclay Street, 11E
Baltimore, MD 21202 New York, NY 10007
(800) 638-2479 (800) 432-8224
18 [Petroleum & Resources Corporation Logo]
<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
[Petroleum & Resources Corporation Logo] 19
<PAGE>
HISTORICAL FINANCIAL STATISTICS
<TABLE>
<CAPTION>
Per Common Share
Value of ---------------------------
Net Assets Net Asset Dividends Distributions
Applicable to Common Value Per From Net From Net
Common Shares Common Investment Realized
Dec. 31 Stock Outstanding Share Income Gains
===========================================================================================================================
<S> <C>
1982 $200,365,949 7,187,746 $27.88 $1.47 $4.88
1983 230,402,841 7,545,378 30.54 1.52 1.87
1984 219,202,630 7,941,979 27.60 1.26 2.27
1985 237,489,296 8,372,627 28.36 1.38 2.34
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
</TABLE>
----------
STOCK DATA
----------
Price (12/31/96) $34.75
Net Asset Value (12/31/96) $37.09
Discount: 6.3%
New York Stock Exchange and Pacific Stock Exchange ticker symbol: PEO
Newspaper stock listings are generally under the abbreviation: PetRs
20 [Petroleum & Resources Corporation Logo]
<PAGE>
PETROLEUM & RESOURCES CORPORATION
Board Of Directors (with their principal affiliations)
Enrique R. Arzac(3,4)
Professor of Finance
and Economics
Columbia University
Leigh Carter(1,3)
Retired President
The BFGoodrich Co.
Allan Comrie(2,4)
Retired President of
U.S. & Foreign
Securities Corporation
Daniel E. Emerson(1,3)
Retired Executive Vice President
NYNEX Corporation
Thomas H. Lenagh(2,4)
Financial Advisor
W.D. MacCallan(2,4)
Retired Chairman of the Corporation and The Adams Express Company
Augustine R. Marusi(1,3)
Chairman Emeritus
Borden Inc.
W. Perry Neff(1,4)
Retired Executive Vice President
Chemical Bank
Douglas G. Ober(1)
Chairman of the Corporation
Landon Peters(1,3)
Private Investor
John J. Roberts
Vice Chairman, American
International Group, Inc.
Robert J.M. Wilson(1,2)
Retired President of the Corporation and The Adams Express Company
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
J.G. Whitney
Vice President and Secretary
Maureen A. Jones
Treasurer
R.M. Carlsson
Assistant Treasurer
Geraldine H. Stegner
Assistant Secretary
(1). Member of Executive Committee
(2). Member of Audit Committee
(3). Member of Compensation Committee
(4). Member of Retirement Benefits Committee
[Petroleum & Resources Corporation Logo]
