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 (6/30/98) $38.375
Net Asset Value (6/30/98) $41.10
Discount: 6.6%
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
(Paid or declared)
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
SEMI-ANNUAL REPORT
JUNE 30, 1998
[PETROLEUM & RESOURCES CORPORATION LOGO HERE](R)
Investing in Resources
for the Future(R)
<PAGE>
LETTER TO STOCKHOLDERS
We are pleased to submit the financial statements of the Corporation for the six
months ended June 30, 1998. In addition there is a schedule of investments
provided along with other financial information.
Net assets of the Corporation at June 30, 1998 were $41.10 per common share as
compared with $39.97 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 0.2%.
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. A regular 1998 investment
income dividend of $0.20 per share was paid June 1, 1998 and another $0.20
investment income dividend has been declared payable September 1, 1998 to
shareholders of record August 20, 1998.
Net investment income for the six months ended June 30, 1998 amounted to
$5,112,174, compared with $5,196,878 for the same period in 1997. These earnings
are equal to $0.38 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, 1998
amounted to $10,285,901, the equivalent of $0.77 per common share.
As you may have noticed in prior reports, the Corporation has established a site
on the Internet to provide information to current and potential shareholders.
The site is located at www.peteres.com and has been substantially expanded in
the past quarter. In addition to the daily net asset value per share of the fund
and the market price discount to the NAV, you will find a brief history of the
Corporation, historical financial information, press releases, and other
information of interest to shareholders. Comments and inquiries can be sent via
e-mail to [email protected].
Effective September 1, 1998, the current Automatic Dividend Reinvestment Plan
will be 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 will sponsor
and administer the Plan.Under the BuyDIRECT plan, shareholders will be able to
reinvest their dividends (as under the current dividend reinvestment plan that
it replaces) and first time shareholders, as well as existing shareholders, will
also be 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 11 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
July 17, 1998
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
<TABLE>
<S><C>
ASSETS
Investments* at value:
Common stocks and convertible securities
(cost $285,135,332) $520,675,241
Short-term investments (cost $26,110,597) 26,110,597 $546,785,838
- ----------------------------------------------------------------------------------------
Cash 496,427
Receivables:
Investment securities sold 4,936,971
Dividends and interest 751,522
Prepaid expenses 1,293,617
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 554,264,375
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES
Investment securities purchased 385,488
Open option contracts at value (proceeds $277,840) 404,687
Accrued expenses 1,781,222
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,571,397
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS $551,692,978
===============================================================================================================
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 816,882
Undistributed net realized gain on investments 10,258,618
Unrealized appreciation on investments 235,413,062
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON STOCK $551,692,978
===============================================================================================================
NET ASSET VALUE PER SHARE OF COMMON STOCK $41.10
===============================================================================================================
</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, 1998
<TABLE>
<S><C>
INVESTMENT INCOME
Income:
Dividends $ 5,259,740
Interest 1,043,907
- --------------------------------------------------------------------------------------------------------------
TOTAL INCOME 6,303,647
- --------------------------------------------------------------------------------------------------------------
Expenses:
Investment research 512,568
Administration and operations 242,235
Directors' fees 98,250
Reports and stockholder communications 85,130
Transfer agent, registrar and custodian expenses 74,350
Auditing services 16,845
Legal services 5,427
Occupancy and other office expenses 50,334
Travel, telephone and postage 49,124
Other 57,210
- --------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,191,473
- --------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 5,112,174
- --------------------------------------------------------------------------------------------------------------
REALIZED GAIN AND CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS
Net realized gain on security transactions 10,285,901
Change in unrealized appreciation on investments (14,788,531)
- --------------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (4,502,630)
- --------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 609,544
==============================================================================================================
</TABLE>
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, 1998 1997
------------- ------------
<S><C>
FROM OPERATIONS:
Net investment income $ 5,112,174 $ 10,026,876
Net realized gain on investments 10,285,901 20,397,716
Change in unrealized appreciation (depreciation) on investments (14,788,531) 58,417,921
- --------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 609,544 88,842,513
- --------------------------------------------------------------------------------------------------------------
DIVIDENDS TO STOCKHOLDERS FROM:
Net investment income (4,295,292) (10,060,682)
Net realized gain from investment transactions (1,073,823) (20,382,678)
- --------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS (5,369,115) (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 (4,759,571) 71,863,559
NET ASSETS:
Beginning of period 556,452,549 484,588,990
- --------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$816,882 and $0, respectively) $551,692,978 $556,452,549
==============================================================================================================
</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, 1998 was $311,620,791, and net
unrealized appreciation aggregated $235,442,884, of which the related gross
unrealized appreciation and depreciation were $249,674,776 and $14,231,892,
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, 1998 were $33,745,539 and
$47,596,572, respectively. Option transactions comprised an insignificant
portion of operations during the period ended June 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 six months ended June 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 six months ended June 30, 1998, the Corporation granted
options including stock appreciation rights for 14,098 shares of common stock
with an exercise price of $36.7950; 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 June
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 5.4258
years and 7.1193 years, respectively. The total compensation expense for stock
options and stock appreciation rights recognized for the six months ended June
30, 1998 was $278,048. At June 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 six months ended June
30, 1998 was $64,532, and consisted of service expense of $46,792, interest
expense of $81,385, expected return on plan assets of $162,277, and a net
amortization credit of $30,432.
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 June 30,
1998 was $1,281,251.
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, 1998 for employees and
former employees of the Corporation was $1,741,272. Aggregate remuneration paid
or accrued during the six months ended June 30, 1998 to officers and directors
amounted to $693,668.
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 $252,842 for the six months ended June
30, 1998.
7. YEAR 2000 (UNAUDITED)
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.
5
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------- YEAR ENDED DECEMBER 31
JUNE 30, JUNE 30, ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S><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 0.38 0.40 0.77 0.79 0.86 0.94 0.92
Net realized gains and change in
unrealized appreciation (depre-
ciation) and other changes (0.34) 2.88 5.93 6.93 5.90 (1.64) 3.30
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .04 3.28 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 (0.32) (0.32) (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 (0.40) (0.40) (2.33) (2.14) (2.09) (2.10) (2.24)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $41.10 $39.97 $41.46 $37.09 $31.51 $26.84 $29.64
==============================================================================================================
Per share market price, end of
period $38.375 $35.50 $36.50 $34.75 $28.25 $25.25 $27.50
TOTAL INVESTMENT RETURN
Based on market price 6.3% 3.3% 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) $551,693 $522,272 $556,453 $484,589 $401,405 $332,279 $355,837
Ratio of expenses to average net
assets 0.42%+ 0.45%+ 0.47% 0.63% 0.57% 0.42% 0.57%
Ratio of net investment income
to average net assets 1.82%+ 2.12%+ 1.91% 2.31% 2.89% 3.19% 2.61%
Portfolio turnover 12.61%+ 14.27%+ 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
JUNE 30, 1998
Prin. Amt.
or Shares Value (A)
--------- ---------
STOCKS AND CONVERTIBLE SECURITIES--94.3%
ENERGY--77.8%
INTERNATIONALS -- 26.3%
British Petroleum plc ADR 177,916 $ 15,701,087
Chevron Corp. 110,000 9,212,500
Exxon Corp. 330,000 23,553,750
Mobil Corp. 240,000 18,390,000
Royal Dutch Petroleum Co. 868,000 47,577,251
"Shell" Transport and Trading
Co., plc ADR 240,000 10,170,000
Texaco Inc. 186,775 11,148,133
TOTAL S.A. ADR 140,000 9,152,500
------------
144,905,221
------------
DOMESTICS--10.0%
Amoco Corp. 100,000 4,175,000
Ashland Inc. 115,950 5,985,919
Atlantic Richfield Co. 90,000 7,031,250
Kerr McGee Corp. 94,100 5,446,037
Murphy Oil Corp. 100,000 5,068,750
Phillips Petroleum Co. 90,000 4,336,875
Tesoro Petroleum Corp. (B) 300,000 4,818,750
Tosco Corp. 175,000 5,162,500
Unocal Capital Trust $3.125
Conv. Pfd. 72,540 3,917,160+
Unocal Corp. 150,000 5,362,500
Valero Energy Corp. 125,000 4,156,250
------------
55,460,991
------------
PRODUCERS--11.7%
Anadarko Petroleum Corp. 90,000 6,046,875
Apache Corp. 97,783 3,080,164
Barrett Resources Corp. (B) 125,000 4,679,687
Burlington Resources 80,000 3,445,000
Devon Energy Corp. 152,400 5,324,475
Enron Oil & Gas Co. 190,000 3,847,500
Noble Affiliates Inc. 91,855 3,490,490
Occidental Petroleum Corp.
$3.00 Conv. Exch. Pfd. 30,000 2,370,000
Occidental Petroleum Corp. 175,000 4,725,000
Ocean Energy Inc. (B) 436,150 8,532,184
Oryx Energy Co. (B) 193,100 4,272,338
Seagull Energy Corp. (B) 230,000 3,809,375
Talisman Energy, Inc. (B) 55,000 1,601,875
Union Pacific Resources
Group, Inc. 225,816 3,965,894
Vastar Resources, Inc. 125,000 5,460,938
------------
64,651,795
------------
DISTRIBUTORS--17.3%
AGL Resources, Inc. 200,000 3,962,500
Atmos Energy Corp. 200,000 6,100,000
Coastal Corp. 110,000 7,679,375
Consolidated Natural Gas Co. 70,000 4,121,250
El Paso Natural Gas Co. 150,000 5,737,500
Energen Corp. 350,000 7,043,750
Enron Corp. 6.25% Exch Notes
due 1998 175,000 3,500,000
Prin. Amt.
or Shares Value (A)
--------- ---------
Enron Corp. $12.97 Conv.
Pfd. Ser. J 25,000 $ 18,448,828
Equitable Resources Inc. 100,000 3,050,000
KN Energy, Inc. 120,000 6,502,500
LG&E Energy Corp. 150,000 4,059,375
MCN Energy Group Inc. 110,000 2,750,000
National Fuel Gas Co. 100,000 4,356,250
New Jersey Resources, Inc. 185,000 6,602,188
Questar Corp. 268,000 5,259,500
Washington Gas Light Co. 100,000 2,675,000
Western Gas Resources Inc. 235,000 3,436,875
------------
95,284,891
------------
SERVICES--12.5%
BJ Services Co. (B) 200,000 5,812,500
Camco International Inc. 130,000 10,123,750
Diamond Offshore Drilling, Inc. 96,800 3,902,250
ENSCO International, Inc. 165,000 2,887,500
EVI Weatherford Inc. (B) 139,000 5,143,000
Global Industries Ltd. (B) 228,400 3,854,250+
Halliburton Co. 140,000 6,221,250
Nabors Industries, Inc. (B) 225,000 4,500,000
Loews Corp. 3.125% Exch.
Sub. Debs. due 2027 $1,500,000 1,365,000
Santa Fe International Corp. 110,000 3,327,500
Schlumberger Ltd. 172,200 11,763,413
Transocean Offshore Inc. 230,000 10,235,000
------------
69,135,413
------------
BASIC INDUSTRIES--16.5%
BASIC MATERIALS--4.2%
Calgon Carbon Corp. 114,800 1,140,825
du Pont (E.I.) de Nemours & Co. 80,000 5,975,000
Freeport-McMoRan Copper &
Gold Inc. 127,603 1,818,343
Medusa Corp. 100,000 6,275,000
Newpark Resources, Inc. (B) 300,000 3,337,500
United Water Resources Inc. 250,000 4,500,000
------------
23,046,668
------------
CAPITAL GOODS & OTHER--6.5%
Caterpillar Inc. 100,000 5,290,625
Deere & Co. 110,000 5,812,812
Dover Corp. 200,400 6,863,700
General Electric Co. 200,000 18,175,000
------------
36,142,137
------------
PAPER AND FOREST PRODUCTS--5.8%
Boise Cascade 150,000 4,912,500
Consolidated Papers, Inc. 150,000 4,087,500
Fort James Corp. 150,000 6,693,750
Kimberly-Clark Corp. 130,000 5,963,750
Mead Corp. 200,000 6,350,000
Temple-Inland, Inc. 75,000 4,040,625
------------
32,048,125
------------
TOTAL STOCKS AND CONVERTIBLE SECURITIES
(Cost $285,135,332) (C) 520,675,241
------------
7
<PAGE>
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1998
Prin. Amt. Value (A)
--------- ---------
SHORT-TERM INVESTMENTS--4.7%
U.S. GOVERNMENT OBLIGATIONS -- 1.2%
U.S. Treasury Bills, 5.02%,
due 8/27/98 $7,000,000 $ 6,944,403
------------
6,944,403
------------
CERTIFICATES OF DEPOSIT -- 0.9%
Northern Trust Co., 5.47%,
due 7/23/98 5,000,000 5,000,000
------------
5,000,000
------------
COMMERCIAL PAPER -- 2.6%
Chevron UK Investments PLC,
5.54%, due 7/30/98 5,000,000 4,977,686
Ford Motor Credit Corp.,
5.56%, due 7/2/98 4,000,000 3,999,382
Prin. Amt. Value (A)
--------- ---------
General Electric Capital Corp.,
5.56%-5.57%, due
7/9/98-7/16/98 $5,200,000 $ 5,189,126
------------
14,166,194
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $26,110,597) 26,110,597
------------
TOTAL INVESTMENTS
(Cost $311,245,929) 546,785,838
Cash, receivables and other
assets, less liabilities 4,907,140
------------
NET ASSETS-- 100.0% $551,692,978
============
=============================================================================
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 June 30, 1998
covering open call option contracts written was $2,861,563. In addition, the
aggregate market value of securities segregated by the custodian required to
collateralize open put option contracts written was $8,549,063.
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>
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
June 30, 1998 551,692,978 13,422,787 41.10 .52* .08
</TABLE>
- ---------
*Paid or declared.
8
<PAGE>
PRINCIPAL CHANGES IN PORTFOLIO SECURITIES
DURING THE THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL AMOUNT
------------------------------------------------
HELD
ADDITIONS REDUCTIONS JUNE 30, 1998
--------- ---------- -------------
<S><C>
Amoco Corp. 50,000(1) 100,000
Consolidated Natural Gas Co. 67,800 70,000
Consolidated Papers, Inc. 82,200(2) 150,000
El Paso Natural Gas Co. 75,000(1) 150,000
Global Industries Ltd. 228,400 228,400
Mead Corp. 55,000 200,000
Nabors Industries, Inc. 225,000 225,000
Newpark Resources, Inc. 300,000 300,000
Oryx Energy Co. 68,100 193,100
Questar Corp. 134,000(1) 268,000
ENSCO International, Inc. 35,000 165,000
Inco Ltd. 5.75% Conv. Debs. due 2004 $3,000,000 --
Quaker State Corp. 192,300 --
MCN Energy Group Inc. 80,000 110,000
Olin Corp. 100,000 --
Oryx EnergyCo. 7.50% Conv. Sub. Debs. due 2014 $1,500,000 --
Pennzoil Co. 6.50% Conv. Exch. Sr. Debs. due 2003 $2,000,000 --
</TABLE>
- ---------
(1) By stock split.
(2) Received 67,800 shares by stock split. Also purchased 14,400 shares
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>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
PETROLEUM & RESOURCES CORPORATION:
We have audited the accompanying statement of assets and liabilities of
Petroleum & Resources Corporation, including the schedule of investments, as of
June 30, 1998, 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,
1998 and the year ended December 31, 1997, and the financial highlights for the
six months ended June 30, 1998 and 1997 and for each of the five years in the
period ended December 31, 1997. 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, 1998, 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, 1998, 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.
PricewaterhouseCoopers LLP
Baltimore, Maryland
July 8, 1998
10
<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" payment consisting of the estimated balance of the net investment
income for the year and the net realized capital gain earned through October
31st, payable in late December. Stockholders may elect to receive the year-end
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.
STOCKHOLDERS HOLDING SHARES IN "STREET" OR BROKERAGE ACCOUNTS MAY MAKE THEIR
ELECTIONS BY NOTIFYING THEIR BROKERAGE HOUSE REPRESENTATIVE.
AUTOMATIC DIVIDEND REINVESTMENT PLAN (UNTIL SEPTEMBER 1, 1998)
FOR REGISTERED STOCKHOLDERS
Stockholders of record of Petroleum &Resources stock have an additional way 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 the Corporation's common stock. New shares acquired are held on a book basis
by the Bank.
Additionally, after enrolling in the Plan, participants are eligible to make
cash payments in any amount from $50.00.
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.
A brochure and enrollment card may be obtained by contacting the Bank at (800)
432-8224.
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 is now 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.
WHAT'S NEW?
BuyDIRECT(SM*)
Commencing with the dividend payable September 1st, The Bank of New York will
offer BuyDIRECT, an enhanced version of the Automatic Dividend Reinvestment Plan
which has existed since 1973. BuyDIRECT provides both registered stockholders
and interested first time investors an affordable alternative for buying and
selling Petroleum &Resources Corporation shares. It also will replace the
current Automatic Dividend Reinvestment Plan.
If you are already registered in the Automatic Dividend Reinvestment Plan, you
will automatically be enrolled in BuyDIRECT without further action on your part.
A Plan brochure will be mailed to current participants in early August.
All other registered shareholders will receive a copy of the BuyDIRECT brochure
and enrollment form along with their September 1st dividend checks.
After August 1st, interested investors may request a copy of the Plan brochure
from The Bank of New York at the number or addresses listed below.
*BuyDIRECT is a service mark of The Bank of New York.
--------------
THE CORPORATION THE TRANSFER AGENT
Petroleum & Resources Corp. The Bank of New York
Lawrence L. Hooper, Jr., Shareholder Relations
Secretary and General Dept.-11E
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
11
