THIRD QUARTER REPORT
September 30, 1998
[Petroleum & Resources Corporation Logo](R)
Investing in Resources for the Future(R)
Board of Directors
Enrique R. Arzac(1,3) Augustine R. Marusi(1,3)
Allan Comrie(1,3) W. Perry Neff(3,4)
Daniel E. Emerson(2,4) Douglas G. Ober(1)
Thomas H. Lenagh(2,4) Landon Peters(1,2)
W.D. MacCallan(1,3) John J. Roberts(1,4)
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
Maureen A. Jones Vice President and
Treasurer
Lawrence L. Hooper, Jr. Secretary and
General Counsel
Dana M. Cannon Assistant Treasurer
Geraldine H. Stegner Assistant Secretary
----------
Stock Data
----------
Price (9/30/98) $33.625
Net Asset Value (9/30/98) $35.95
Discount: 6.5%
New York Stock Exchange and Pacific Exchange ticker symbol: PEO
Newspaper stock listings are generally under the abbreviation: PetRs
---------------------
Distributions in 1998
---------------------
From Investment Income $0.52
From Net Realized Gains 0.08
-----
Total $0.60
=====
---------------------------
1998 Dividend Payment Dates
---------------------------
March 1, 1998
June 1, 1998
September 1, 1998
December 27, 1998*
*Anticipated
[Recycle 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, 1998. In addition there is a schedule of
investments provided along with other financial information.
Net assets of the Corporation at September 30, 1998 were $35.95 per common share
as compared with $41.46 per common share at December 31, 1997 on the 13,422,787
common shares outstanding on each date. The total return on net assets (with
reinvestment of income and capital gains distributions) for the period was
- -11.8%. On March 1, 1998, a distribution of $0.20 per share was paid consisting
of $0.08 from 1997 long-term capital gain, $0.03 from 1997 investment income and
$0.09 from 1998 investment income, all taxable in 1998. Regular 1998 investment
income dividends of $0.20 per share were paid June 1, 1998 and September 1,
1998.
Net investment income for the nine months ended September 30, 1998 amounted to
$8,596,809, compared with $7,620,370 for the same period in 1997. These earnings
are equal to $0.64 and $0.58 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,
1998 amounted to $19,157,791, the equivalent of $1.43 per common share.
Current and potential shareholders can find information about the Corporation,
including the daily net asset value (NAV) per share and the market price
discount to the NAV, at its site on the Worldwide Web. The address for the site
is www.peteres.com. Also available at the website are a brief history of the
Corporation, historical financial information, and more general industry
material.
Included with this report is a press release from the Closed-End Fund
Association discussing a recent study released by CDA/Wiesenberger. The study
examines the effects of the conversion of closed-end funds into open-end funds
and the damage to long-term investors. The study concludes that such conversions
usually result in a dramatic decline in the assets of a fund following
conversion, the generation of significant capital gains necessitated by the
liquidation of holdings to meet redemptions, and a marked increase in a fund's
expense ratio. The complete study can be found at the CDA/Wiesenberger website:
www.wiesenberger.com/adx.htm.
Effective September 1, 1998, the Automatic Dividend Reinvestment Plan was
replaced with The Bank of New York's BuyDIRECT(SM)* Plan. The Bank of New York
("the Bank") is the transfer agent for the Corporation and sponsors and
administers the Plan. Under theBuyDIRECT plan, shareholders are able to reinvest
their dividends (as under the dividend reinvestment plan that it replaced) and
first time shareholders, as well as existing shareholders, are also able to
acquire shares directly from the Bank without the need of going through a
broker, at a substantial cost savings.To obtain further information, please see
page 10 of this report.
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.
*BuyDIRECT is a service mark of the Bank of New York.
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 16, 1998
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(unaudited)
Assets
Investments* at value:
Common stocks and convertible securities
(cost $285,450,932) $442,164,637
Short-term investments (cost $39,047,075) 39,047,075 $481,211,712
- ---------------------------------------------------------------
Cash 414,398
Collateral for securities loaned 21,506,657
Receivables:
Investment securities sold 1,046,665
Dividends and interest 927,979
Prepaid expenses 1,318,269
- --------------------------------------------------------------------------------
Total Assets 506,425,680
- --------------------------------------------------------------------------------
Liabilities
Investment securities purchased 651,737
Open option contracts at value (proceeds $130,317) 304,000
Payable upon return of securities loaned 21,506,657
Accrued expenses 1,471,380
- --------------------------------------------------------------------------------
Total Liabilities 23,933,774
- --------------------------------------------------------------------------------
Net Assets $482,491,906
================================================================================
Net Assets
Common Stock at par value $1.00 per share, authorized
25,000,000 shares; issued and outstanding 13,422,787 shares $ 13,422,787
Additional capital surplus 291,781,629
Undistributed net investment income 1,616,960
Undistributed net realized gain on investments 19,130,508
Unrealized appreciation on investments 156,540,022
- --------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $482,491,906
================================================================================
NET ASSET VALUE PER SHARE OF COMMON STOCK $35.95
================================================================================
* 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, 1998
(unaudited)
<TABLE>
<S> <C>
Investment Income
Income:
Dividends $8,111,290
Interest 1,708,985
- -----------------------------------------------------------------------------------
Total income 9,820,275
- -----------------------------------------------------------------------------------
Expenses:
Investment research 350,282
Administration and operations 232,916
Directors' fees 134,250
Reports and stockholder communications 137,001
Transfer agent, registrar and custodian expenses 117,182
Auditing services 32,265
Legal services 5,458
Occupancy and other office expenses 70,838
Travel, telephone and postage 61,832
Other 81,442
- -----------------------------------------------------------------------------------
Total expenses 1,223,466
- -----------------------------------------------------------------------------------
Net Investment Income 8,596,809
- -----------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 19,157,791
Change in unrealized appreciation on investments (93,661,571)
- -----------------------------------------------------------------------------------
Net Loss on Investments (74,503,780)
- -----------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $(65,906,971)
===================================================================================
</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, 1998 1997
------------------ ------------
(unaudited)
<S> <C> <C>
From Operations:
Net investment income $ 8,596,809 $ 10,026,876
Net realized gain on investments 19,157,791 20,397,716
Change in unrealized appreciation on investments (93,661,571) 58,417,921
- ------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations (65,906,971) 88,842,513
- ------------------------------------------------------------------------------------------------------
Dividends to Stockholders from:
Net investment income (6,979,849) (10,060,682)
Net realized gain from investment transactions (1,073,823) (20,382,678)
- ------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions (8,053,672) (30,443,360)
- ------------------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of common shares issued in payment of optional distributions -0- 13,464,406
- ------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (73,960,643) 71,863,559
Net Assets:
Beginning of period 556,452,549 484,588,990
- ------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$1,616,960 and $0, respectively) $482,491,906 $556,452,549
======================================================================================================
</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 which, when combined with accrued interest receivable,
approximates value. 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 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, 1998 was $324,772,182, and net
unrealized appreciation aggregated $156,569,845, of which the related gross
unrealized appreciation and depreciation were $195,795,533 and $39,225,688,
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, 1998 were $43,667,425
and $65,964,148, respectively. Option transactions comprised an insignificant
portion of operations during the period ended September 30, 1998. 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, 1998.
The Corporation has 5,000,000 unissued preferred shares without par value.
The Corporation has an employee incentive stock option and stock appreciation
rights plan which provides for the issuance of options and stock appreciation
rights for the purchase of up to 815,000 shares of the Corporation's common
stock at 100% of the fair market value at date of grant. Options are exercisable
beginning not less than one year after the date of grant and extend and vest
over ten years from the date of grant. Stock appreciation rights are exercisable
beginning not less than two years after the date of grant and extend over the
period during which the option is exercisable. The stock appreciation rights
allow the optionees to surrender their rights to exercise their options and
receive cash or shares in an amount equal to the difference between the option
price and the fair market value of the common stock at the date of surrender.
Under the plan, the exercise price of the options and related stock appreciation
rights is reduced by the per share amount of capital gain paid by the
Corporation during subsequent years. At the beginning of 1998, there were
148,259 options outstanding at a weighted average exercise price of $19.7580 per
share. During the nine months ended September 30, 1998, the Corporation granted
options including stock appreciation rights for 14,098 shares of common stock
with an exercise price of $36.795; stock appreciation rights relating to 16,445
stock option shares were exercised at a weighted average market price of
$37.6701 per share and the stock options relating to these rights, which had a
weighted average exercise price of $18.9084 per share, were cancelled. At
September 30, 1998, there were outstanding exercisable options to purchase
34,218 common shares at $16.9850-$32.2975 (weighted average price of $20.7733)
per share and unexercisable options to purchase 111,694 common shares at
$18.465-$36.795 per share (weighted average price of $25.5612). The weighted
average remaining contractual life of outstanding exercisable and unexercisable
options was 5.1758 years and 6.8693 years, respectively. The total compensation
expense for stock options and stock appreciation rights recognized for the nine
months ended September 30, 1998 was $(115,668). At September 30, 1998, there
were 336,250 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, 1998 was $95,550, and consisted of service expense of $70,188,
interest expense of $122,079, expected return on plan assets of $242,169, and a
net amortization credit of $45,648.
In determining the actuarial present value of the projected benefit obligation,
the interest rate used for the weighted average discount rate was 7.0%, 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, 1998, the accumulated benefit obligation, including vested
benefits, was $1,669,968. The fair value of the plan assets was $4,085,098 and
the projected benefit obligation for service rendered to date was $2,362,410,
which resulted in excess plan assets of $1,722,688. The remaining components of
prepaid pension cost included $518,918 in unrecognized net gain, $195,754 in
unrecognized prior service cost and $148,398 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, 1998 was $1,312,267.
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, 1998 for employees
and former employees of the Corporation was $1,388,902. Aggregate remuneration
paid or accrued during the nine months ended September 30, 1998 to officers and
directors amounted to $479,083.
Research, accounting and other office services provided by and reimbursed to The
Adams Express Company, an investment company which owns 8.5% of the
Corporation's common stock, amounted to $353,682 for the nine months ended
September 30, 1998.
7. PORTFOLIO SECURITIES LOANED
The Corporation makes loans of securities to brokers, secured by cash
deposits, U.S. Government securities, or bank letters of credit. The
Corporation accounts for securities lending transactions as secured financing
and receives compensation in the form of fees or retains a portion of interest
on the investment of any cash received as collateral. The Corporation also
continues to receive interest or dividends on the securities loaned. The
loans are secured by col-
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
lateral at least equal, at all times, to the fair value of the securities
loaned plus accrued interest. Gain or loss in the fair value of securities
loaned that may occur during the term of the loan will be for the account of the
Corporation. At September 30, 1998, the Corporation had outstanding loans of
$19,816,833 and held collateral of $21,506,657.
8. Year 2000
The Corporation along with other investment companies and financial institutions
could be adversely affected if computer systems do not properly process and
calculate date-related information relating to the Year 2000. The Corporation is
taking steps designed to address the Year 2000 issue as far as its own computer
systems are concerned. We have also requested assurances from our service
providers that they are taking comparable steps. The Corporation does not expect
to incur any significant costs in order to address the Year 2000 problem. There
is no assurance, nevertheless, that any adverse impact on the Corporation will
be avoided.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Nine Months Ended
---------------------
(unaudited) Year Ended December 31
Sept. 30, Sept. 30, -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- ---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance*
Net asset value, beginning of
period $41.46 $37.09 $37.09 $31.51 $26.84 $29.64 $27.66
- -----------------------------------------------------------------------------------------------------------
Net investment income 0.64 0.58 0.77 0.79 0.86 0.94 0.92
Net realized gains and change in
unrealized appreciation (depre-
ciation) and other changes (5.55) 7.94 5.93 6.93 5.90 (1.64) 3.30
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (4.91) 8.52 6.70 7.72 6.76 (0.70) 4.22
Less distributions
Dividends from net investment
income
To preferred shareholders -- -- -- -- -- -- (0.12)
To common shareholders (0.52) (0.52) (0.77) (0.82) (0.87) (0.92) (0.82)
Distributions from net realized
gains
To common shareholders (0.08) (0.08) (1.56) (1.32) (1.22) (1.18) (1.30)
- -----------------------------------------------------------------------------------------------------------
Total distributions (0.60) (0.60) (2.33) (2.14) (2.09) (2.10) (2.24)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.95 $45.01 $41.46 $37.09 $31.51 $26.84 $29.64
===========================================================================================================
Per share market price, end of
period $33.625 $40.125 $36.50 $34.75 $28.25 $25.25 $27.50
Total Investment Return
Based on market price (6.4)% 17.4% 11.7% 31.2% 20.5% (0.7)% 17.4%
Ratios/Supplemental Data
Net assets applicable to common
stock, end of period
(in 000's) $482,492 $588,088 $556,453 $484,589 $401,405 $332,279 $355,837
Ratio of expenses to average net
assets 0.31%+ 0.52%+ 0.47% 0.63% 0.57% 0.42% 0.57%
Ratio of net investment income
to average net assets 2.15%+ 1.98%+ 1.91% 2.31% 2.89% 3.19% 2.61%
Portfolio turnover 11.56%+ 15.82%+ 13.09% 15.50% 15.86% 10.95% 10.16%
Average brokerage commission rate $0.06 $0.06 $0.06 $0.06 -- -- --
Number of shares outstanding at
end of period (in 000's) 13,423 13,066 13,423 13,066 12,739 12,380 12,007
</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, 1998
(unaudited)
Prin. Amt.
or Shares Value (A)
---------- ---------
Stocks And Convertible Securities--91.7%
Energy--76.8%
Internationals -- 28.4%
British Petroleum plc ADR 177,916 $ 15,512,051
Chevron Corp. 110,000 9,246,875
Exxon Corp. 330,000 23,306,250
Mobil Corp. 240,000 18,225,000
Royal Dutch Petroleum Co. 868,000 41,338,501
"Shell" Transport and Trading
Co., plc ADR 240,000 8,745,000
Texaco Inc. 186,775 11,685,111
TOTAL S.A. ADR 140,000 8,793,750
------------
136,852,538
------------
Domestics--9.7%
Amoco Corp. 50,000 2,693,750
Ashland Inc. 115,950 5,362,687
Atlantic Richfield Co. 91,900 6,519,156
Kerr McGee Corp. 100,000 4,550,000
Murphy Oil Corp. 110,000 4,262,500
Phillips Petroleum Co. 90,000 4,061,250
Tesoro Petroleum Corp. (B) 300,000 3,918,750
Tosco Corp. 175,000 3,762,500
Unocal Capital Trust $3.125
Conv. Pfd. 72,540 3,763,013(+)
Unocal Corp. 150,000 5,437,500
Valero Energy Corp. 125,000 2,484,375
------------
46,815,481
------------
Producers--10.9%
Anadarko Petroleum Corp. 180,000 7,076,250
Apache Corp. 97,783 2,621,807
Barrett Resources Corp. (B) 125,000 2,523,437
Burlington Resources 80,000 2,990,000
Devon Energy Corp. 152,400 5,019,675
Enron Oil & Gas Co. 190,000 3,325,000
Noble Affiliates Inc. 91,855 2,927,878
Occidental Petroleum Corp.
$3.00 Conv. Exch. Pfd. 30,000 1,833,750
Occidental Petroleum Corp. 175,000 3,762,500
Ocean Energy Inc. (B) 436,150 5,724,469
Oryx Energy Co. (B) 193,100 2,498,231
Seagull Energy Corp. (B) 230,000 2,831,875
Talisman Energy, Inc. (B) 55,000 1,165,313
Union Pacific Resources
Group, Inc. 225,816 2,780,360
Vastar Resources, Inc. 125,000 5,625,000
------------
52,705,545
------------
Distributors--18.8%
AGL Resources, Inc. 200,000 3,875,000
Atmos Energy Corp. 200,000 5,712,500
Coastal Corp. 220,000 7,425,000
Consolidated Natural Gas Co. 100,000 5,450,000
El Paso Natural Gas Co. 150,000 4,865,625
Energen Corp. 353,900 6,724,100
Enron Corp. 6.25% Exch Notes
due 1998 175,000 3,040,625
Prin. Amt.
or Shares Value (A)
---------- ---------
Enron Corp. $12.97 Conv.
Pfd. Ser. J 25,000 $ 18,256,875
Equitable Resources Inc. 100,000 2,543,750
KN Energy, Inc. 120,000 6,150,000
LG&E Energy Corp. 150,000 4,162,500
National Fuel Gas Co. 100,000 4,700,000
New Jersey Resources, Inc. 185,000 6,590,625
Questar Corp. 268,000 5,159,000
Washington Gas Light Co. 100,000 2,768,750
Western Gas Resources Inc. 186,000 1,534,500
Williams Companies, Inc. 61,200 1,759,500
------------
90,718,350
------------
Services--9.0%
BJ Services Co. (B) 200,000 3,250,000
Diamond Offshore Drilling, Inc. 96,800 2,522,850
ENSCO International, Inc. 140,000 1,522,500
Global Industries Ltd. (B) 243,400 2,814,312(+)
Halliburton Co. 150,000 4,312,500
Loews Corp. 3.125% Exch.
Sub. Debs. due 2027 $1,500,000 1,192,500
Nabors Industries, Inc. (B) 245,000 3,720,938
Santa Fe International Corp. 116,500 1,791,188
Schlumberger Ltd. 219,400 11,161,975
Transocean Offshore Inc. 230,000 7,978,125
Weatherford International, Inc. 139,000 3,005,875
------------
43,272,763
------------
Basic Industries--14.9%
Basic Materials--3.7%
du Pont (E.I.) de Nemours & Co. 80,000 4,500,000
Freeport-McMoRan Copper &
Gold Inc. 127,603 1,491,360
Newpark Resources, Inc. (B) 420,000 2,887,500
Southdown, Inc. 100,000 4,500,000
United Water Resources Inc. 250,000 4,250,000
------------
17,628,860
------------
Capital Goods & Other--6.2%
Caterpillar Inc. 100,000 4,450,000
Deere & Co. 120,000 3,630,000
Dover Corp. 200,400 6,187,350
General Electric Co. 200,000 15,912,500
------------
30,179,850
------------
Paper and Forest Products--5.0%
Boise Cascade 150,000 3,796,875
Consolidated Papers, Inc. 175,000 4,396,875
Fort James Corp. 178,000 5,840,625
Mead Corp. 200,000 5,887,500
Temple-Inland, Inc. 85,000 4,069,375
------------
23,991,250
------------
Total Stocks And Convertible Securities
(Cost $285,450,932) (C) 442,164,637
------------
7
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1998
(unaudited)
Prin. Amt.
or Shares Value (A)
---------- ---------
Short-Term Investments--8.1%
U.S. Government Obligations -- 2.1%
U.S. Treasury Bills, 4.45-4.92%,
due 11/19/98-11/27/98 $10,000,000 $ 9,927,487
------------
Certificates Of Deposit -- 2.1%
Harris Trust & Savings Bank,
5.45%, due 10/1/98 5,000,000 5,000,000
Old Kent Bank, 5.40%,
due 10/29/98 5,000,000 5,000,000
------------
10,000,000
------------
Commercial Paper -- 3.9%
Chevron USA, 5.35-5.53%,
due 10/1/98-10/2/98 5,000,000 4,999,386
Ford Motor Credit Corp.,
5.30-5.54%,
due 10/1/98-10/15/98 5,000,000 4,995,430
Prin. Amt.
or Shares Value (A)
---------- ---------
Deere (John) Capital Corp.,
5.24%, due 10/8/98 $4,150,000 $ 4,145,772
General Electric Capital Corp.,
5.40%, due 10/29/98 5,000,000 4,979,000
------------
19,119,588
------------
Total Short-Term Investments
(Cost $39,047,075) 39,047,075
------------
Total Investments
(Cost $324,498,007) 481,211,712
Cash, receivables and other
assets, less liabilities 1,280,194
------------
Net Assets -- 100.0% $482,491,906
============
- -------------------------------------------------------------------------------
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) Presently non-dividend paying.
(C) The aggregate market value of stocks held in escrow at September 30, 1998
covering open call option contracts written was $562,500. In addition, the
aggregate market value of securities segregated by the custodian required to
collateralize open put option contracts written was $3,830,000.
HISTORICAL FINANCIAL STATISTICS
<TABLE>
<CAPTION>
Value of Per Common Share
Net Assets Net -------------------------
Applicable Asset Dividends Distributions
to Common Value per from Net from Net
Common Shares Common Investment Realized
Dec. 31 Stock Outstanding Share Income Gains
- ------- ---------- ----------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
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
1997............................ 566,452,549 13,422,787 41.46 .77 1.56
September 30, 1998 (unaudited).. 482,491,906 13,422,787 35.95 .52 .08
</TABLE>
8
<PAGE>
PRINCIPAL CHANGES IN PORTFOLIO SECURITIES
During the Three Months Ended September 30, 1998
(unaudited)
Shares
------------------------------------------
Held
Additions Reductions Sept. 30, 1998
--------- ---------- --------------
Anadarko Petroleum Corp. .......... 90,000(1) 180,000
Coastal Corp. ..................... 110,000(1) 220,000
Consolidated Natural Gas Co. ...... 30,000 100,000
Fort James Corp. .................. 28,000 178,000
Newpark Resources, Inc. ........... 120,000 420,000
Schlumberger Ltd. ................. 47,200(2) 219,400
Southdown, Inc. ................... 100,000(3) 100,000
Williams Companies, Inc. .......... 61,200 61,200
Amoco Corp. ....................... 50,000 50,000
Camco International Inc. .......... 130,000(2) --
Calgon Carbon Corp. ............... 114,800 --
Kimberly-Clark Corp. .............. 130,000 --
MCN Energy Group Inc. ............. 110,000 --
Medusa Corp. ...................... 100,000(3) --
- ------------
(1) By stock split.
(2) Received 1.18 shares of Schlumberger, Ltd. in exchange for each share of
Camco International Inc. held and sold 90,000 shares of Camco International
Inc. separately.
(3) Received .88 shares of Southdown, Inc. in exchange for each share of Medusa
Corp. held and purchased 12,000 shares of Southdown, Inc. separately.
-----------------------
Common Stock
Listed on the New York Stock Exchange
and the Pacific Exchange
Petroleum & Resources Corporation
Seven St. Paul Street, Suite 1140, Baltimore, MD 21202
Website: www.peteres.com
E-mail: [email protected]
Telephone:(410) 752-5900 or (800) 638-2479
Counsel: Chadbourne & Parke L.L.P.
Independent Accountants: PricewaterhouseCoopers LLP
Transfer Agent, Registrar & Custodian of Securities
The Bank of New York
101 Barclay Street
New York, NY 10286
The Bank's Shareholder Relations Department: (800) 432-8224
E-mail: [email protected]
-----------------------------------------------------------------------------
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>
SHAREHOLDER INFO AND SERVICES
DIVIDEND PAYMENT SCHEDULE
The Corporation presently pays dividends four times a year, as follows: (a)
three interim distributions on or about March, June, and September 1st and (b) a
"year-end" distribution, payable in late December, consisting of the estimated
balance of the net investment income for the year and the net realized capital
gain earned through October 31st. Stockholders may elect to receive the year-end
distribution in stock or cash. In connection with this distribution, all
stockholders of record are sent a dividend announcement notice and an election
card in mid-November.
Stockholders holding shares in "street" or brokerage accounts may make their
elections by notifying their brokerage house representative.
BUYDIRECT(SM)*
BuyDIRECT is a direct purchase and sale plan, as well as a dividend reinvestment
plan, sponsored and administered by our transfer agent, The Bank of New York. On
September 1, 1998, the Automatic Dividend Reinvestment Plan was replaced and
enhanced by BuyDIRECT. The Plan provides registered stockholders and interested
first time investors an affordable alternative for buying, selling, and
reinvesting in Petroleum &Resources shares without going through a broker.
Direct purchase plans are growing in popularity and Petroleum &Resources is
pleased to be one of the first closed-end funds to offer such a plan.
The costs to participants in administrative service fees and brokerage
commissions for each type of transaction are listed below. Please note that the
fees for the reinvestment of dividends as well as the $0.05 per share commission
for each share purchased under the Plan are the same fees that you have been
paying under the previous reinvestment plan and have not increased since 1973.
Initial Enrollment $7.50
A one-time fee for new accounts who are not currently registered holders.
Optional Cash Investments
Service Fee $2.50 per investment
Brokerage Commission $0.05 per share
Reinvestment of Dividends**
Service Fee 10% of amount invested
(maximum of $2.50 per investment)
Brokerage Commission $0.05 per share
Sale of Shares
Service Fee $10.00
Brokerage Commission $0.05 per share
Deposit of Certificates for safekeeping Included
Book to Book Transfers Included
To transfer shares to another participant or to a new participant
Fees are subject to change at any time.
Minimum and Maximum Cash Investments
Initial minimum investment (non-holders) $500.00
Minimum optional investment
(existing holders) $50.00
Maximum per transaction $25,000.00
Maximum per year NONE
A brochure which further details the benefits and features of BuyDIRECT as well
as an enrollment form may be obtained by contacting the bank of new york.
For Non-Registered Shareholders
For shareholders whose stock is held by a broker in "street" name, The Bank of
New York's Automatic Dividend Reinvestment Plan remains available through many
registered investment security dealers. If your shares are currently held in a
"street" name or brokerage account, please contact your broker for details about
how you can participate in this Plan or contact The Bank of New York about the
BuyDIRECT Plan.
The Corporation The Transfer Agent
Petroleum & Resources Corp. The Bank of New York
Lawrence L. Hooper, Jr., Shareholder Relations
Secretary and General Dept.-8W
Counsel P.O. Box 11258
Seven St. Paul Street, Church Street Station
Suite 1140 New York, NY 10286
Baltimore, MD 21202 (800) 432-8224
(800) 638-2479 Website: http://stock.
Website: bankofny.com
www.peteres.com E-mail:
E-mail: Shareowner-svcs@
[email protected] bankofny.com
*BuyDIRECT is a service mark of The Bank of New York
**The year-end dividend and capital gain distribution will be made in newly
issued shares of common stock. There will be no fees or commissions in
connection with this dividend and capital gain distribution.
10
