<TABLE>
<S> <C>
THIRD QUARTER REPORT
September 30, 1997
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 Petroleum
Chief Executive Officer & Resources
Richard F. Koloski President Corporation (registered trademark)
Joseph M. Truta Executive Vice President
Nancy J.F. Prue Vice President--Research INVESTING IN RESOURCES
Lawrence L. Hooper, Jr. Secretary and FOR THE FUTURE (registered trademark)
General Counsel
Maureen A. Jones Treasurer
Dana M. Cannon Assistant Treasurer
Geraldine H. Stegner Assistant Secretary
</TABLE>
----------
Stock Data
----------
Price (9/30/97) $40.125
Net Asset Value (9/30/97) $45.01
Discount: 10.9%
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
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
(recycled logo) Printed on Recycled Paper
<PAGE>
LETTER TO STOCKHOLDERS
We are pleased to submit the financial statements of the Corporation for the
nine months ended September 30, 1997, a schedule of investments and a list of
principal changes in portfolio securities for the third quarter.
Net assets of the Corporation at September 30, 1997 were $45.01 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
23.0%. 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
September 1, 1997.
Net investment income for the nine months ended September 30, 1997 amounted to
$7,620,370, compared with $7,865,787 for the same period in 1996. These earnings
are equal to $0.58 and $0.62 per common share, respectively, on the average
number of common shares outstanding during each period.
Net capital gain realized on investments for the nine months ended September 30,
1997 amounted to $17,045,869, the equivalent of $1.30 per common share.
On July 10, 1997, the Board of Directors elected Ms. Dana M. Cannon to the
position of Assistant Treasurer to succeed Ms. Rose Marie Carlsson, who retired
on July 16, 1997 after twenty-four years of much appreciated service.
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
October 17, 1997
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(unaudited)
<TABLE>
<S> <C>
Assets
Investments* at value:
Common stocks and convertible securities
(cost $288,223,107) $566,593,627
Short-term investments (cost $21,415,024) 21,415,024 $588,008,651
- ----------------------------------------------------------------------------------------
Cash 98,917
Receivables:
Investment securities sold 1,634,045
Dividends and interest 1,447,353
Prepaid expenses 1,202,410
- ---------------------------------------------------------------------------------------------------------------
Total Assets 592,391,376
- ---------------------------------------------------------------------------------------------------------------
Liabilities
Investment securities purchased 2,283,642
Open option contracts at value (proceeds $191,831) 106,250
Accrued expenses 1,913,319
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities 4,303,211
- ---------------------------------------------------------------------------------------------------------------
Net Assets $588,088,165
===============================================================================================================
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 826,143
Undistributed net realized gain on investments 17,032,105
Unrealized appreciation on investments 278,456,101
- ---------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $588,088,165
===============================================================================================================
Net Asset Value per Share of Common Stock $45.01
===============================================================================================================
</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
Nine Months Ended September 30, 1997
(unaudited)
<TABLE>
<S> <C>
Investment Income
Income:
Dividends $ 7,885,237
Interest 1,732,921
- --------------------------------------------------------------------------------------------------------------
Total income 9,618,158
- --------------------------------------------------------------------------------------------------------------
Expenses:
Investment research 929,102
Administration and operations 361,243
Directors' fees 130,600
Reports and stockholder communications 132,237
Transfer agent, registrar and custodian expenses 126,684
Auditing services 41,921
Legal services 22,213
Occupancy and other office expenses 80,771
Travel, telephone and postage 74,398
Other 98,619
- --------------------------------------------------------------------------------------------------------------
Total expenses 1,997,788
- --------------------------------------------------------------------------------------------------------------
Net Investment Income 7,620,370
- --------------------------------------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 17,045,869
Change in unrealized appreciation on investments 86,672,429
- --------------------------------------------------------------------------------------------------------------
Net Gain on Investments 103,718,298
- --------------------------------------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $111,338,668
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Nine Months Year ended
ended December 31,
September 30, 1997 1996
------------------ ------------
(unaudited)
<S> <C>
From Operations:
Net investment income $ 7,620,370 $ 10,048,674
Net realized gain on investments 17,045,869 17,410,824
Change in unrealized appreciation on investments 86,672,429 71,908,379
- --------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 111,338,668 99,367,877
- --------------------------------------------------------------------------------------------------------------
Dividends to Stockholders from:
Net investment income (6,794,227) (10,446,294)
Net realized gain from investment transactions (1,045,266) (16,815,986)
- --------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions (7,839,493) (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 103,499,175 83,184,019
Net Assets:
Beginning of period 484,588,990 401,404,971
- --------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$826,143 and $0, respectively) $588,088,165 $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 valued at
amortized cost. 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 September 30, 1997 was $309,714,555, and net
unrealized appreciation aggregated $278,485,927, of which the related gross
unrealized appreciation and depreciation were $283,501,707 and $5,015,780,
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 nine months ended September 30, 1997 were $57,942,241
and $58,475,101, respectively. Option transactions comprised an insignificant
portion of operations during the period ended September 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 nine months ended September 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 nine months
ended September 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 12,953 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 4,767 shares, which had exercise prices of $26.8500-$33.8575,
were cancelled during the nine months ended September 30, 1997. At September 30,
1997, there were outstanding exercisable options to purchase 30,592 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 nine
months ended September 30, 1997 was $581,797. At September 30, 1997, there were
350,348 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 nine months ended
September 30, 1997 was $67,726, and consisted of service expense of $55,912,
interest expense of $129,025, expected return on plan assets of $220,037, and a
net amortization credit of $32,626.
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 September
30, 1997 was $1,194,140.
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 September 30, 1997 for employees
and former employees of the Corporation was $1,834,669. Aggregate remuneration
paid or accrued during the nine months ended September 30, 1997 to officers and
directors amounted to $1,210,889.
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 $353,367 for the nine months ended
September 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
September 30, 1997, the value of security loans outstanding was $3,686,000.
5
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
(unaudited) Year Ended December 31
Sept. 30, Sept. 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 0.58 0.62 0.79 0.86 0.94 0.92 1.06
Net realized gains and change in
unrealized appreciation and
other changes 7.94 3.70 6.93 5.90 (1.64) 3.30 0.81
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 8.52 4.32 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 (0.52) (0.56) (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 (0.60) (0.60) (2.14) (2.09) (2.10) (2.24) (2.28)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $45.01 $35.23 $37.09 $31.51 $26.84 $29.64 $27.66
==============================================================================================================
Per share market price, end of
period $40.125 $33.125 $34.75 $28.25 $25.25 $27.50 $25.25
Total Investment Return
Based on market price 17.4% 19.6% 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) $588,088 $448,756 $484,589 $401,405 $332,279 $355,837 $320,241
Ratio of expenses to average net
assets 0.52%+ 0.66%+ 0.63% 0.57% 0.42% 0.57% 0.52%
Ratio of net investment income
to average net assets 1.98%+ 2.48%+ 2.31% 2.89% 3.19% 2.61% 2.79%
Portfolio turnover 15.82%+ 13.50%+ 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
September 30, 1997
(unaudited)
Prin. Amt.
or Shares Value (A)
--------- ---------
Stocks And Convertible Securities--96.3%
Energy--80.2%
Internationals -- 23.4%
British Petroleum plc ADR 177,916 $ 16,156,997
Chevron Corp. 110,000 9,136,875
Exxon Corp. 330,000 21,140,625
Mobil Corp. 240,000 17,760,000
Royal Dutch Petroleum Co. 868,000 48,174,001
"Shell" Transport and Trading
Co., plc ADR 240,000 10,680,000
Texaco Inc. 100,000 6,143,750
TOTAL S.A. ADR 150,000 8,596,875
- --------------------------------------------------------------------------------
137,789,123
- --------------------------------------------------------------------------------
Domestics--12.9%
Amerada Hess Corp. 65,000 4,009,687
Amoco Corp. 50,000 4,818,750
Ashland Inc. 115,950 6,304,781
Atlantic Richfield Co. 90,000 7,689,375
Kerr McGee Corp. 94,100 6,475,256
Murphy Oil Corp. 100,000 5,712,500
Pennzoil Co. 6.50% Conv.
Exch. Sr. Debs. due 2003 $2,000,000 3,950,000
Phillips Petroleum Co. 120,000 6,195,000
Tesoro Petroleum Corp. (C) 300,000 5,418,750
Tosco Corp. 175,000 6,092,187
Ultramar Diamond Shamrock Corp. 125,000 4,039,063
Unocal Capital Trust $3.125
Conv. Pfd. 72,540 4,424,940
Unocal Corp. 150,000 6,487,500
Valero Energy Corp. 125,000 4,101,563
- --------------------------------------------------------------------------------
75,719,352
- --------------------------------------------------------------------------------
Producers--14.1%
Anadarko Petroleum Corp. 90,000 6,463,125
Apache Corp. 6.00% Conv. Sub.
Debs. due 2002 (B) $3,000,000 4,230,000
Barrett Resources Corp. (C) 125,000 4,867,187
Devon Energy Corp. 164,900 7,255,600
Enron Oil & Gas Co. 190,000 4,227,500
Louisiana Land & Expl. Co. 70,000 5,481,875
Monterey Resources Inc. 250,000 5,250,000
Noble Affiliates Inc. 91,855 4,110,511
Occidental Petroleum Corp.
$3.00 Conv. Exch. Pfd. 30,000 2,910,000
Occidental Petroleum Corp. 175,000 4,539,063
Ocean Energy Inc. (C) 120,000 8,280,000
Oryx Energy Co. 7.50% Conv.
Sub. Debs. due 2014 $1,500,000 1,503,750
Oryx Energy Co. (C) 85,000 2,162,187
Seagull Energy Corp. (C) 230,000 5,865,000
Union Pacific Resources
Group, Inc. 225,816 5,913,557
United Meridian Corp. (C) 123,500 4,538,625
Vastar Resources, Inc. 125,000 5,226,563
- --------------------------------------------------------------------------------
82,824,543
- --------------------------------------------------------------------------------
Distributors--14.4%
AGLResources, Inc. 200,000 3,787,500
Atmos Energy Group 200,000 4,975,000
Coastal Corp. 110,000 6,737,500
El Paso Natural Gas Co. 50,000 3,028,125
Energen Corp. 175,000 6,223,437
Prin. Amt.
or Shares Value (A)
--------- ---------
Enron Corp. 6.25% Exch Notes
due 1998 175,000 $ 3,926,563
Enron Corp. $12.28 Conv.
Pfd. Ser. J 25,000 13,138,125
Equitable Resources Inc. 100,000 3,150,000
KN Energy, Inc. 150,000 6,862,500
LG&E Energy Corp. 150,000 3,328,125
MCN Corp. 190,000 6,080,000
National Fuel Gas Co. 100,000 4,400,000
New Jersey Resources, Inc. 185,000 5,989,375
Questar Corp. 134,000 5,435,375
Washington Gas Light Co. 100,000 2,562,500
Western Gas Resources Inc. 235,000 5,096,563
- --------------------------------------------------------------------------------
84,720,688
- --------------------------------------------------------------------------------
Services--15.4%
BJ Services Co. (C) 100,000 7,425,000
Camco International Inc. 130,000 9,067,500
Diamond Offshore Drilling, Inc. (C) 96,800 5,342,150
ENSCO International, Inc. (C) 200,000 7,887,500
Halliburton Co. 140,000 7,280,000
Loews Corp.
3.125% Exch. Sub. Debs.
due 2007 $1,500,000 1,569,375
Santa Fe International Corp. (C) 90,000 4,185,000
Schlumberger Ltd. 172,200 14,497,088
SEACOR Smit, Inc. (C) 90,000 5,580,000
Tidewater, Inc. 90,000 5,332,500
Transocean Offshore Inc. 230,000 11,025,625
Weatherford/Enterra Inc. (C) 120,000 6,397,500
Western Atlas Inc. (C) 59,000 5,192,000
- --------------------------------------------------------------------------------
90,781,238
- --------------------------------------------------------------------------------
Basic Industries--16.1%
Basic Materials--4.9%
Calgon Carbon Corp. 184,800 2,413,950
du Pont (E.I.) de Nemours & Co. 80,000 4,925,000
Freeport-McMoRan Copper &
Gold Inc. 127,603 3,525,033
Inco Ltd. 5.75% Conv. Debs.
due 2004 $3,000,000 3,240,000
Medusa Corp. 100,000 4,762,500
Olin Corp. 140,000 6,553,750
United Water Resources Inc. 186,000 3,464,250
- --------------------------------------------------------------------------------
28,884,483
- --------------------------------------------------------------------------------
Capital Goods & Other--6.9%
Caterpillar Inc. 100,000 5,393,750
Deere & Co. 110,000 5,912,500
Dover Corp. 100,200 6,801,075
General Electric Co. 200,000 13,612,500
Jacobs Engineering Group,
Inc. (C) 150,000 4,593,750
Quaker State Corp. 250,000 4,265,625
- --------------------------------------------------------------------------------
40,579,200
- --------------------------------------------------------------------------------
Paper and Forest Products--4.3%
Boise Cascade Corp. 130,000 5,468,125
Consolidated Papers, Inc. 65,000 3,607,500
Kimberly-Clark Corp. 130,000 6,361,875
Mead Corp. 70,000 5,057,500
Temple-Inland, Inc. 75,000 4,800,000
- --------------------------------------------------------------------------------
25,295,000
- --------------------------------------------------------------------------------
Total Stocks And Convertible
Securities
(Cost $288,223,107) (D) 566,593,627
- --------------------------------------------------------------------------------
7
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1997
(unaudited)
Prin. Amt. Value (A)
---------- ---------
Short-Term Investments--3.6%
U.S. Government Obligations --0.8%
U.S. Treasury Bills
5.12%, due 11/28/97 $5,000,000 $ 4,958,770
- --------------------------------------------------------------------------------
Certificates Of Deposit --0.8%
Mercantile Safe Deposit & Trust Co.,
5.75%, due 10/2/97 5,000,000 5,000,000
- --------------------------------------------------------------------------------
Commercial Paper -- 2.0%
Chevron Oil Finance Co.,
5.51%, due 10/9/97 2,510,000 2,506,927
Ford Motor Credit Corp.,
5.51-5.53%,
due 10/9/97-10/23/97 4,180,000 4,172,339
Prin. Amt. Value (A)
---------- ---------
General Electric Capital Corp.,
5.52%, due 10/16/97 $4,788,000 $ 4,776,988
- --------------------------------------------------------------------------------
11,456,254
- --------------------------------------------------------------------------------
Total Short-Term Investments
(Cost $21,415,024) 21,415,024
- --------------------------------------------------------------------------------
Total Investments
(Cost $309,638,131) 588,008,651
Cash, receivables and other
assets, less liabilities 79,514
- --------------------------------------------------------------------------------
Net Assets-- 100.0% $588,088,165
================================================================================
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 September 30, 1997
covering open call option contracts written was $3,645,625. 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
September 30, 1997 (unaudited) 588,088,165 13,065,819 45.01 .52 .08
</TABLE>
8
<PAGE>
PRINCIPAL CHANGES IN PORTFOLIO SECURITIES
During the Three Months Ended September 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Shares or Principal Amount
------------------------------------------------
Held
Additions Reductions Sept. 30, 1997
--------- ---------- --------------
<S><C>
Boise Cascade Corp. 130,000 130,000
Caterpillar Inc. 50,000(1) 100,000
Diamond Offshore Drilling, Inc. 48,400(1) 96,800
Energen Corp. 110,500 175,000
El Paso Natural Gas Co. 50,000 50,000
ENSCO International, Inc. 110,000(1) 20,000 200,000
Halliburton Co. 70,000(1) 140,000
Kerr McGee Corp. 94,100 94,100
Loews Corp. 3.125% Exch. Sub. Debs. due 2007 $1,500,000 $1,500,000
Ocean Energy Inc. 40,000 120,000
Shell Transport & Trading Co., plc ADR 160,000(1) 240,000
Schlumberger Ltd. 96,100(1) 20,000 172,200
Texaco Inc. 50,000(1) 100,000
Transocean Offshore Inc. 115,000(1) 10,000 230,000
United Water Resources Inc. 63,900 186,000
Valero Energy Corp. 69,500 125,000
British Petroleum plc ADR 10,000 177,916
du Pont (E.I.) de Nemours & Co. 20,000 80,000
Enron Global Power & Pipelines L.L.C. 125,000 --
Southwestern Energy Co. 200,000 --
Western Atlas Inc. 10,000 59,000
</TABLE>
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(1) By stock split.
-----------------------------
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.
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>
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 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
10
