SEMI-ANNUAL REPORT
June 30, 1997
Petroleum
& Resources
Corporation (R)
Investing in Resources for the Future (R)
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 (6/30/97) $35.50
Net Asset Value (6/30/97) $39.97
Discount: 11.2%
New York Stock Exchange and Pacific Exchange ticker symbol: PEO
Newspaper stock listings are generally under the abbreviation: PetRs
---------------------
Distributions in 1997
---------------------
From Investment Income $0.52
(Paid or declared)
From Net Realized Gains 0.08
-----
Total $0.60
=====
---------------------------
1997 Dividend Payment Dates
---------------------------
March 1, 1997
June 1, 1997
September 1, 1997
December 27, 1997*
*Anticipated
(Recycle Logo) Printed on Recycled Paper
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO STOCKHOLDERS
- --------------------------------------------------------------------------------
We are pleased to submit the financial statements of the Corporation for the six
months ended June 30, 1997, a schedule of investments and a list of principal
changes in portfolio securities for the second quarter and the report of the
independent accountants.
Net assets of the Corporation at June 30, 1997 were $39.97 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 total return on net assets (with
reinvestment of income and capital gains distributions) for the period was 8.7%.
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 was paid June 1, 1997 and another $0.20
investment income dividend has been declared to common shareholders of record
August 18, 1997, payable September 1, 1997.
Net investment income for the six months ended June 30, 1997 amounted to
$5,196,878, compared with $5,160,207 for the same period in 1996. These earnings
are equal to $0.40 and $0.40 per common share, respectively, on the average
number of common shares outstanding during each period.
Net capital gain realized on investments for the six months ended June 30, 1997
amounted to $11,714,271, the equivalent of $0.90 per common share.
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
July 18, 1997
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1997
<TABLE>
<S> <C>
Assets
Investments* at value:
Common stocks and convertible securities
(cost $273,048,174) $491,070,976
Short-term investments (cost $30,654,658) 30,654,658 $521,725,634
- -----------------------------------------------------------------------------
Cash 107,721
Receivables:
Investment securities sold 633,479
Dividends and interest 993,350
Prepaid expenses 1,188,105
- ----------------------------------------------------------------------------------------------------
Total Assets 524,648,289
- ----------------------------------------------------------------------------------------------------
Liabilities
Investment securities purchased 511,976
Open option contracts at value (proceeds $204,195) 444,875
Accrued expenses 1,419,177
- ----------------------------------------------------------------------------------------------------
Total Liabilities 2,376,028
- ----------------------------------------------------------------------------------------------------
Net Assets $522,272,261
====================================================================================================
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 1,015,816
Undistributed net realized gain on investments 11,700,507
Unrealized appreciation on investments 217,782,122
- ----------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $522,272,261
====================================================================================================
Net Asset Value per Share of Common Stock $39.97
====================================================================================================
</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
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1997
INVESTMENT INCOME
Income:
Dividends $ 5,171,292
Interest 1,130,043
- -----------------------------------------------------------------------------
Total income 6,301,335
- --------------------------------------------------------------------------------
Expenses:
Investment research 457,722
Administration and operations 156,602
Directors' fees 91,350
Reports and stockholder communications 90,033
Transfer agent, registrar and custodian expenses 83,363
Auditing services 25,352
Legal services 16,000
Occupancy and other office expenses 46,050
Travel, telephone and postage 55,534
Other 82,451
- -----------------------------------------------------------------------------
Total expenses 1,104,457
- -----------------------------------------------------------------------------
Net Investment Income 5,196,878
- -----------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 11,714,271
Change in unrealized appreciation on investments 25,998,450
- -----------------------------------------------------------------------------
Net Gain on Investments 37,712,721
- -----------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $42,909,599
=============================================================================
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year ended
ended December 31,
June 30, 1997 1996
------------- ------------
<S> <C>
From Operations:
Net investment income $ 5,196,878 $ 10,048,674
Net realized gain on investments 11,714,271 17,410,824
Change in unrealized appreciation on investments 25,998,450 71,908,379
- ----------------------------------------------------------------------------------------------
Change in net assets resulting from operations 42,909,599 99,367,877
- ----------------------------------------------------------------------------------------------
Dividends to Stockholders from:
Net investment income (4,181,062) (10,446,294)
Net realized gain from investment transactions (1,045,266) (16,815,986)
- ----------------------------------------------------------------------------------------------
Decrease in net assets from distributions (5,226,328) (27,262,280)
- ----------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of common shares issued in payment of optional
distributions -0- 11,078,422
- ----------------------------------------------------------------------------------------------
Total Increase in Net Assets 37,683,271 83,184,019
Net Assets:
Beginning of period 484,588,990 401,404,971
- ----------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $1,015,816 and $0, respectively) $522,272,261 $484,588,990
==============================================================================================
</TABLE>
- --------------------------------------------------------------------------------
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 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 valued at
amortized 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--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 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 June 30, 1997 was $304,117,882, and net
unrealized appreciation aggregated $217,811,947, of which the related gross
unrealized appreciation and depreciation were $224,599,591 and $6,787,644,
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 six months ended June 30, 1997 were $33,156,283 and
$43,643,872, respectively. Option transactions comprised an insignificant
portion of operations during the period ended June 30, 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 six months ended June 30, 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 gains paid by the
Corporation during subsequent years. At the beginning of 1997, 164,895 options
were outstanding at exercise prices of $17.5200-$33.9375. During the six months
ended June 30, 1997, the Corporation granted options including stock
appreciation rights for 3,094 shares of common stock with an exercise price of
$32.3125; 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. In addition, stock options and stock appreciation
rights relating to 1,767 shares, which had an exercise price of $33.858, were
cancelled during the second quarter. At June 30, 1997, there were outstanding
exercisable options to purchase 34,309 common shares at $18.545-$26.850 per
share and unexercisable options to purchase 119,677 common shares at
$20.0250-$33.8575 per share. The total compensation expense for stock options
and stock appreciation rights recognized for the six months ended June 30, 1997
was $150,465. At June 30, 1997, there were 347,348 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 six months ended June
30, 1997 was $45,151, and consisted of service expense of $37,274, interest
expense of $86,016, expected return on plan assets of $146,691, and a net
amortization credit of $21,750.
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 June 30,
1997 was $1,171,565.
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 June 30, 1997 for employees and
former employees of the Corporation was $1,357,855. Aggregate remuneration paid
or accrued during the six months ended June 30, 1997 to officers and directors
amounted to $557,262.
Research, accounting and other office services provided by and reimbursed to The
Adams Express Company, an investment company which owns 8.8% of the
Corporation's common stock, amounted to $252,275 for the six months ended June
30, 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 June 30,
1997, the value of security loans outstanding was $3,262,500.
5
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
-------------------- Year Ended December 31
June 30, June 30, --------------------------------------------------
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 0.40 0.40 0.79 0.86 0.94 0.92 1.06
Net realized gains and change in
unrealized appreciation and
other changes 2.88 2.94 6.93 5.90 (1.64) 3.30 0.81
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations 3.28 3.34 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 (0.32) (0.36) (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 (0.40) (0.40) (2.14) (2.09) (2.10) (2.24) (2.28)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $39.97 $34.45 $37.09 $31.51 $26.84 $29.64 $27.66
===============================================================================================================
Per share market price, end of
period $35.50 $30.25 $34.75 $28.25 $25.25 $27.50 $25.25
Total Investment Return
Based on market price 3.3% 8.5% 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) $522,272 $438,887 $484,589 $401,405 $332,279 $355,837 $320,241
Ratio of expenses to average net
assets 0.45%+ 0.60%+ 0.63% 0.57% 0.42% 0.57% 0.52%
Ratio of net investment income
to average net assets 2.12%+ 2.47%+ 2.31% 2.89% 3.19% 2.61% 2.79%
Portfolio turnover 14.27%+ 13.51%+ 15.50% 15.86% 10.95% 10.16% 15.06%
Average brokerage commission rate $0.06 $0.06 $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
- --------------------------------------------------------------------------------
June 30, 1997
Prin. Amt.
or Shares Value (A)
Stocks And Convertible Securities--94.0% ---------- ------------
Energy--77.5%
Internationals -- 24.9%
British Petroleum plc ADR 187,916 $ 14,070,211
Chevron Corp. 110,000 8,133,125
Exxon Corp. 330,000 20,212,500
Mobil Corp. 240,000 16,770,000
Royal Dutch Petroleum Co. 880,000 47,520,001
"Shell" Transport and Trading
Co., plc ADR 80,000 10,060,000
Texaco Inc. 50,000 5,437,500
TOTAL S.A. ADR 150,000 7,593,750
------------
129,797,087
------------
Domestics--11.2%
Amerada Hess Corp. 65,000 3,611,563
Amoco Corp. 50,000 4,346,875
Ashland Inc. 115,950 5,377,181
Atlantic Richfield Co. 90,000 6,345,000
Murphy Oil Corp. 100,000 4,875,000
Pennzoil Co. 6.50% Conv.
Exch. Sr. Debs. due 2003 $2,000,000 3,515,000
Phillips Petroleum Co. 120,000 5,250,000
Tesoro Petroleum Corp. (C) 300,000 4,443,750
Tosco Corp. 160,000 4,790,000
Ultramar Diamond Shamrock Corp. 125,000 4,078,125
Unocal Capital Trust $3.125
Conv. Pfd. 72,540 4,098,510+
Unocal Corp. 150,000 5,850,000
Valero Energy Corp. 55,500 2,011,875
------------
58,592,879
------------
Producers--12.9%
Anadarko Petroleum Corp. 90,000 5,400,000
Apache Corp. 6.00% Conv. Sub.
Debs. due 2002 (B) $3,000,000 3,510,000
Barrett Resources Corp. (C) 125,000 3,742,187
Devon Energy Corp. 164,900 6,060,075
Enron Oil & Gas Co. 190,000 3,443,750
Louisiana Land & Expl. Co. 70,000 3,998,750
Monterey Resources Inc. 250,000 3,718,750
Noble Affiliates Inc. 91,855 3,553,640
Occidental Petroleum Corp.
$3.00 Conv. Exch. Pfd. 30,000 2,430,000
Occidental Petroleum Corp. 175,000 4,385,938
Ocean Energy Inc. (C) 80,000 3,700,000
Oryx Energy Co. 7.50% Conv.
Sub. Debs. due 2014 $1,500,000 1,462,500
Oryx Energy Co. (C) 85,000 1,795,625
Seagull Energy Corp. (C) 230,000 4,025,000
Southwestern Energy Co. 200,000 2,600,000
Union Pacific Resources
Group, Inc. 225,816 5,617,173
United Meridian Corp. (C) 123,500 3,705,000
Vastar Resources, Inc. 125,000 4,382,813
------------
67,531,201
------------
Distributors--15.1%
AGL Resources, Inc. 200,000 4,125,000
Coastal Corp. 110,000 5,850,625
Energen Corp. 64,500 2,172,843
Enron Corp. 6.25% Exch Notes
due 1998 175,000 3,346,875
Prin. Amt.
or Shares Value (A)
---------- ------------
Enron Corp. $12.28 Conv.
Pfd. Ser. J 25,000 $ 13,927,266
Enron Global Power & Pipelines
L.L.C. 125,000 4,164,063
Equitable Resources Inc. 100,000 2,837,500
KN Energy, Inc. 150,000 6,318,750
LG&E Energy Corp. 150,000 3,309,375
MCN Corp. 190,000 5,818,750
National Fuel Gas Co. 100,000 4,193,750
New Jersey Resources, Inc. 185,000 5,804,375
Questar Corp. 134,000 5,410,250
United Cities Gas Co. 200,000 4,700,000+
Washington Gas Light Co. 100,000 2,512,500
Western Gas Resources Inc. 235,000 4,582,500
------------
79,074,422
------------
Services--13.4%
BJ Services Co. (C) 100,000 5,362,500
Camco International Inc. 130,000 7,117,500
Diamond Offshore Drilling, Inc. (C) 48,400 3,769,150
ENSCO International, Inc. (C) 110,000 5,802,500
Halliburton Co. 70,000 5,547,500
Santa Fe International Corp. (C) 90,000 3,060,000
Schlumberger Ltd. 96,100 12,012,500
SEACOR Smit, Inc. (C) 90,000 4,708,125
Tidewater, Inc. 90,000 3,960,000
Transocean Offshore Inc. 125,000 9,078,125
Weatherford/Enterra Inc. (C) 120,000 4,620,000
Western Atlas Inc. (C) 69,000 5,054,250
------------
70,092,150
------------
Basic Industries--16.3%
Basic Materials--5.3%
Calgon Carbon Corp. 184,800 2,564,100
du Pont (E.I.) de Nemours & Co. 100,000 6,287,500
Freeport-McMoRan Copper &
Gold Inc. 127,603 3,732,387
Inco Ltd. 5.75% Conv. Debs.
due 2004 $3,000,000 3,532,500
Medusa Corp. 100,000 3,837,500
Olin Corp. 140,000 5,468,750
United Water Resources Inc. 122,100 2,365,688
-----------
27,788,425
-----------
Capital Goods & Other--7.5%
Caterpillar Inc. 50,000 5,368,750
Deere & Co. 120,000 6,585,000
Dover Corp. 100,200 6,174,825
General Electric Co. 200,000 13,000,000
Jacobs Engineering Group,
Inc. (C) 150,000 4,031,250
Quaker State Corp. 250,000 3,812,500
------------
38,972,325
------------
Paper and Forest Products--3.5%
Consolidated Papers, Inc. 65,000 3,510,000
Kimberly-Clark Corp. 130,000 6,467,500
Mead Corp. 70,000 4,357,500
Temple-Inland, Inc. 75,000 4,050,000
------------
18,385,000
------------
Other -- 0.2%
Stocks under accumulation 837,487
------------
Total Stocks And Convertible Securities
(Cost $273,048,174) (D) 491,070,976
------------
7
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
June 30, 1997
Prin. Amt. Value (A)
Short-Term Investments--5.9% ---------- ------------
Certificates Of Deposit --1.9%
Old Kent Bank & Trust Co.
5.45%, due 7/17/97 $5,000,000 $ 5,000,000
U.S. Bank of Oregon,
5.50%, due 7/3/97 5,000,000 5,000,000
------------
10,000,000
------------
Commercial Paper -- 4.0%
Chevron Oil Finance Co.,
5.45-5.52%,
due 7/24/97-7/27/97 4,505,000 4,489,268
Ford Motor Credit Corp.,
5.54%, due 7/24/97 5,000,000 4,982,303
Prin. Amt. Value (A)
---------- ------------
General Electric Capital Corp.,
5.53%, due 7/10/97 $5,000,000 $ 4,993,087
PepsiCo, Inc., 6.00%, due 7/1/97 1,690,000 1,690,000
USAA Capital Corp.,
5.56%, due 7/1/97 4,500,000 4,500,000
------------
20,654,658
------------
Total Short-Term Investments
(Cost $30,645,658) 30,654,658
------------
Total Investments
(Cost $303,702,832) 521,725,634
Cash, receivables and other
assets, less liabilities 546,627
------------
Net Assets-- 100.0% $522,272,261
============
================================================================================
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 June 30, 1997
covering open call option contracts written was $7,094,250. In addition,
the required aggregate market value of securities segregated by the
custodian to collateralize open put option contracts written was $2,833,750.
- --------------------------------------------------------------------------------
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
June 30, 1997 522,272,261 13,065,819 39.97 .52* .08
</TABLE>
- --------------------
*Paid or declared.
8
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL CHANGES IN PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
During the Three Months Ended June 30, 1997
<TABLE>
<CAPTION>
Shares
---------------------------------------------
Held
Additions Reductions June 30, 1997
--------- ---------- -------------
<S> <C>
Atlantic Richfield Co. 45,000(1) 90,000
British Petroleum plc ADR 93,958(1) 187,916
Barrett Resources Corp. 64,000 125,000
du Pont (E.I.) de Nemours & Co. 50,000(1) 100,000
ENSCO International, Inc. 30,000 110,000
Exxon Corp. 165,000(1) 330,000
General Electric Co. 100,000(1) 200,000
Kimberly-Clark Corp. 65,000(1) 130,000
Mobil Corp. 120,000(1) 240,000
Olin Corp. 85,000 140,000
Royal Dutch Petroleum Co. 660,000(1) 880,000
Santa Fe International Corp. 90,000 90,000
Temple-Inland, Inc. 20,000 75,000
Tosco Corp. 160,000 160,000
United Water Resources Inc. 122,100 122,100
Valero Energy Corp. 55,500(2) 55,500
Enron Global Power & Pipelines L.L.C. 25,000 125,000
Imperial Oil Ltd. 105,488 --
Occidental Petroleum Corp. 90,000 --
Parker & Parsley Petroleum Co. 125,000 --
Pennzoil Co. 35,000 --
Sonat, Inc. 68,200 --
Valero Energy Corp. $3.125 Conv. Pfd. 30,000(2) --
WMX Technologies Inc. 80,000 --
</TABLE>
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(1) By stock split.
(2) Received shares from conversion of Valero Energy Corp. $3.125 Conv. Pfd.
-------------------
Common Stock
Listed on the New York Stock Exchange
and the Pacific 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.
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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.
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9
<PAGE>
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REPORT OF INDEPENDENT ACCOUNTANTS
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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
June 30, 1997, and the related statement of operations for the six months then
ended, the statement of changes in net assets for the six months ended June 30,
1997 and the year ended December 31, 1996, and the financial highlights for the
six months ended June 30, 1997 and 1996 and for each of the five years in the
period ended December 31, 1996. 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 June
30, 1997, 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 June 30, 1997, 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
July 8, 1997
10
<PAGE>
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DIVIDEND PAYMENT SCHEDULE &
AUTOMATIC DIVIDEND REINVESTMENT PLAN
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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 gains 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 gains
distribution to the extent possible.
(2) Full shares of stock for the capital gains 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 gains 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
participant's "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
