PETROLEUM & RESOURCES CORPORATION
--------------------------------------------------------------------------------
Board of Directors
Enrique R. Arzac/2,4/ Douglas G. Ober/1/
Daniel E. Emerson/1,3/ Landon Peters/1,3/
Edward J. Kelly, III/1,4/ John J. Roberts/2,4/
Thomas H. Lenagh/3,4/ Susan C. Schwab/1,3/
W.D. MacCallan/2,4/ Robert J.M. Wilson/1,3/
W. Perry Neff/1,2/
1. Member of Executive Committee
2. Member of Audit Committee
3. Member of Compensation Committee
4. Member of Retirement Benefits Committee
Officers
Douglas G. Ober Chairman and
Chief Executive Officer
Richard F. Koloski President
Joseph M. Truta Executive Vice President
Nancy J.F. Prue Vice President--Research
Lawrence L. Hooper, Jr. Vice President, Secretary
and General Counsel
Maureen A. Jones Vice President and
Chief Financial Officer
Christine M. Sloan Assistant Treasurer
Geraldine H. Pare Assistant Secretary
--------
Stock Data
--------
Price (6/30/02) $ 22.77
Net Asset Value (6/30/02) $ 24.55
Discount: 7.3%
New York Stock Exchange and Pacific Exchange ticker symbol: PEO
NASDAQ Mutual Fund Quotation Symbol: XPEOX
Newspaper stock listings are generally under the abbreviation: PetRs
----------------
Distributions in 2002
----------------
From Investment Income
(paid or declared) $0.30
From Net Realized Gains 0.09
-----
Total $0.39
=====
-----------------------
2002 Dividend Payment Dates
-----------------------
March 1, 2002
June 1, 2002
September 1, 2002
December 27, 2002*
*Anticipated
[LOGO] Petroleum & Resources Corporation
[LOGO] PETROLEUM & RESOURCES CORPORATION
(R)
SEMI-ANNUAL REPORT
--------------------
June 30, 2002
LETTER TO STOCKHOLDERS
--------------------------------------------------------------------------------
We submit herewith the financial statements of the Corporation for the six
months ended June 30, 2002. In addition, there is the report of independent
accountants, a schedule of investments, along with other financial information.
Net assets of the Corporation at June 30, 2002 were $24.55 per share, compared
with $24.90 per share at December 31, 2001 on the 21,147,563 shares outstanding
on each date. On March 1, 2002, a distribution of $0.13 per share was paid
consisting of $0.08 from 2001 long-term capital gain, $0.01 from 2001
short-term capital gain, $0.03 from 2001 investment income and $0.01 from 2002
investment income, all taxable in 2002. A 2002 investment income dividend of
$0.13 per share was paid on June 1, 2002 and another $0.13 investment income
dividend has been declared to shareholders of record August 16, 2002, payable
September 1, 2002.
Net investment income for the six months ended June 30, 2002 amounted to
$4,655,158, compared with $4,874,989 for the same period in 2001. These
earnings are equal to $0.22 and $0.23 per share, respectively, on the average
number of shares outstanding during each period.
Net capital gain realized on investments for the six months ended June 30, 2002
amounted to $6,519,269, the equivalent of $0.31 per share.
Mr. Koloski, who has been your President since 1986, has announced his
intention to retire on March 31, 2003. We will utilize the intervening nine
months to make an orderly transition in the management team.
Current and potential shareholders can find information about the Corporation,
including the daily net asset value (NAV) per share, the market price, and the
discount/premium to the NAV, at its site on the Internet. 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. Further information regarding shareholder services is located on page
13 of this report.
The Corporation is an internally-managed equity fund emphasizing petroleum and
other natural resource investments. The investment policy of the fund is based
on the primary objectives of preservation of capital, the attainment of
reasonable income from investments and, in addition, an opportunity for capital
appreciation.
By order of the Board of Directors,
/s/ DOUGLAS G. OBER
Douglas G. Ober,
Chairman and
Chief Executive Officer
/s/ Richard F. Koloski
Richard F. Koloski,
President
July 19, 2002
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
June 30, 2002
Assets
Investments* at value:
Common stocks and convertible securities
(cost $272,016,655) $459,763,606
Short-term investments (cost $57,166,839) 57,166,839 $516,930,445
--------------------------------------------------------------------
Cash 130,929
Securities lending collateral 83,683,948
Receivables:
Investment securities sold 3,081,815
Dividends and interest 467,232
Prepaid expenses and other assets 1,973,446
-----------------------------------------------------------------------------------------
Total Assets 606,267,815
-----------------------------------------------------------------------------------------
Liabilities
Investment securities purchased 1,986,121
Open written option contracts at value (proceeds $232,519) 221,000
Obligations to return securities lending collateral 83,683,948
Accrued expenses 1,248,489
-----------------------------------------------------------------------------------------
Total Liabilities 87,139,558
-----------------------------------------------------------------------------------------
Net Assets $519,128,257
-----------------------------------------------------------------------------------------
Net Assets
Common Stock at par value $1.00 per share, authorized
50,000,000 shares; issued and outstanding 21,147,563 shares $ 21,147,563
Additional capital surplus 301,405,045
Undistributed net investment income 2,324,094
Undistributed net realized gain on investments 6,493,085
Unrealized appreciation on investments 187,758,470
-----------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $519,128,257
-----------------------------------------------------------------------------------------
Net Asset Value per Share of Common Stock $24.55
-----------------------------------------------------------------------------------------
* See Schedule of Investments on pages 8 and 9.
The accompanying notes are an integral part of the financial statements.
2
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
Six Months Ended June 30, 2002
Investment Income
Income:
Dividends $ 5,356,951
Interest and other income 504,250
--------------------------------------------------------------------------------------
Total income 5,861,201
--------------------------------------------------------------------------------------
Expenses:
Investment research 405,584
Administration and operations 230,944
Directors' fees 107,750
Reports and stockholder communications 131,018
Transfer agent, registrar and custodian expenses 88,937
Auditing and accounting services 35,352
Legal services 30,963
Occupancy and other office expenses 76,083
Travel, telephone and postage 49,940
Other 49,472
--------------------------------------------------------------------------------------
Total expenses 1,206,043
--------------------------------------------------------------------------------------
Net Investment Income 4,655,158
--------------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 6,519,269
Change in unrealized appreciation on investments (13,039,607)
--------------------------------------------------------------------------------------
Net Loss on Investments (6,520,338)
--------------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $ (1,865,180)
--------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
3
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2002 December 31, 2001
---------------- -----------------
From Operations:
Net investment income $ 4,655,158 $ 10,098,102
Net realized gain on investments 6,519,269 22,308,303
Change in unrealized appreciation on investments (13,039,607) (164,346,055)
---------------------------------------------------------------------------------------------------
Change in net assets resulting from operations (1,865,180) (131,939,650)
---------------------------------------------------------------------------------------------------
Dividends to Stockholders from:
Net investment income (3,595,082) (8,877,046)
Net realized gain from investment transactions (1,903,279) (22,032,850)
---------------------------------------------------------------------------------------------------
Decrease in net assets from distributions (5,498,361) (30,909,896)
---------------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of shares issued in payment of distributions -- 13,159,002
Cost of shares purchased (Note 4) -- (11,990,525)
---------------------------------------------------------------------------------------------------
Change in net assets from capital share transactions -- 1,168,477
---------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (7,363,541) (161,681,069)
Net Assets:
Beginning of period 526,491,798 688,172,867
---------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of
$2,324,094 and $1,264,018, respectively) $519,128,257 $ 526,491,798
---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
4
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Petroleum & Resources Corporation (the Corporation) is registered under the
Investment Company Act of 1940 as a non-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 (excluding
purchased options) are valued at amortized cost. Purchased and written options
are valued at the last quoted asked price.
Security Transactions and Investment Income--Investment transactions are
accounted for on the trade date. Gain or loss on sales of securities and
options is determined on the basis of identified cost. Dividend income and
distributions to shareholders are recognized on the ex-dividend date, and
interest income is recognized on the accrual basis.
2. FEDERAL INCOME TAXES
The Corporation's policy is to distribute all of its taxable income to its
shareholders in compliance with the requirements of the Internal Revenue Code
applicable to regulated investment companies. Therefore, no federal income tax
provision is required. For federal income tax purposes, the identified cost of
securities, including options, at June 30, 2002 was $329,374,671, and net
unrealized appreciation aggregated $187,788,293, of which the related gross
unrealized appreciation and depreciation were $ 204,325,597 and $16,537,304,
respectively.
Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. Accordingly, annual
reclassifications are made within the Corporation's capital accounts to reflect
income and gains available for distribution under income tax regulations.
3. INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than options and short-term
investments, during the six months ended June 30, 2002 were $23,457,902 and
$22,763,580, respectively. Options may be written or purchased by the
Corporation. The Corporation, as writer of an option, bears the market risk of
an unfavorable change in the price of the security underlying the written
option. The risk associated with purchasing options is limited to the premium
originally paid. Option transactions comprised an insignificant portion of
operations during the period ended June 30, 2002. 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 has 5,000,000 unissued preferred shares without par value.
On December 27, 2001, the Corporation issued 579,054 shares of its Common Stock
at a price of $22.725 per share (the average market price on December 10, 2001)
to stockholders of record November 19, 2001 who elected to take stock in
payment of the distribution from 2001 capital gain and investment income.
The Corporation may purchase shares of its Common Stock from time to time at
such prices and amounts as the Board of Directors may deem advisable.
Transactions in Common Stock for 2002 and 2001 were as follows:
Shares Amount
---------------------- -----------------------
Six months Six months
ended Year ended ended Year ended
June 30, December 31, June 30, December 31,
2002 2001 2002 2001
---------- ------------ ---------- ------------
Shares issued in
payment of dividends -- 579,054 -- $ 13,159,002
------------------------------------------------------------------------
Total increase -- 579,054 -- $ 13,159,002
------------------------------------------------------------------------
Shares purchased (at an
average discount from
net asset value of
16.6% in 2001) -- (429,150) -- (11,990,525)
------------------------------------------------------------------------
Total decrease -- (429,150) -- $(11,990,525)
------------------------------------------------------------------------
Net change -- 149,904 -- $ 1,168,477
------------------------------------------------------------------------
The Corporation held a total of 42,832 shares at June 30, 2002 and December 31,
2001 at a total cost of $1,061,166.
5
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
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 895,522 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 holders 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 2002, there were
148,997 options outstanding at a weighted average exercise price of $17.1543
per share. During the six months ended June 30, 2002, the Corporation granted
options including stock appreciation rights for 23,769 shares of common stock
with an exercise price of $23.1350. During the period stock appreciation rights
relating to 9,127 stock option shares were exercised at a weighted average
market price of $24.0679 per share and the stock options relating to these
rights, which had a weighted average exercise price of $12.1740, were
cancelled. At June 30, 2002, there were outstanding exercisable options to
purchase 39,435 common shares at $9.7117-$25.9338 per share (weighted average
price of $15.9478) and unexercisable options to purchase 124,204 common shares
at $9.7117-$25.9338 per share (weighted average price of $18.9227). The
weighted average remaining contractual life of outstanding exercisable and
unexercisable options was 4.8515 years and 6.5014 years, respectively. The
total compensation expense for stock options and stock appreciation rights
recognized for the six months ended June 30, 2002 was $26,472. At June 30,
2002, there were 274,929 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 five years 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, consisting primarily of investments in individual stocks, bonds
and mutual funds were $4,342,486. In determining the actuarial present value of
the projected benefit obligation, the interest rate used for the weighted
average discount rate was 7.25%, the expected rate of annual salary increases
was 7.0%, and the long-term expected rate of return on plan assets was 8.0%.
The projected benefit obligation as of June 30, 2002 was $3,548,094. Prepaid
pension cost included in other assets at June 30, 2002 was $1,617,896.
In addition, the Corporation has a nonqualified 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, 2002 for employees and
former employees of the Corporation was $1,173,573. Aggregate remuneration paid
or accrued during the six months ended June 30, 2002 to officers and directors
amounted to $438,510.
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 collateral of at least 102%, at all times, of 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 June 30, 2002, the Corporation had outstanding
loans of $81,176,191 and held collateral of $83,683,948.
6
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
-------------------
Six Months Ended
------------------
Year Ended December 31
June 30, June 30, --------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- -------- --------
Per Share Operating Performance*
Net asset value, beginning of period $24.90 $32.69 $32.69 $26.32 $22.87 $27.64 $24.73
-----------------------------------------------------------------------------------------------------------
Net investment income 0.22 0.23 0.49 0.37 0.48 0.55 0.51
Net realized gains and change in unrealized
appreciation (depreciation) and other
changes (0.31) (3.02) (6.84) 7.46 4.51 (3.79) 3.95
-----------------------------------------------------------------------------------------------------------
Total from investment operations (0.09) (2.79) (6.35) 7.83 4.99 (3.24) 4.46
-----------------------------------------------------------------------------------------------------------
Capital share repurchases -- 0.05 0.06 0.28 0.01 -- --
-----------------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment income (0.17) (0.18) (0.43) (0.39) (0.48) (0.52) (0.51)
Distributions from net realized gains (0.09) (0.08) (1.07) (1.35) (1.07) (1.01) (1.04)
-----------------------------------------------------------------------------------------------------------
Total distributions (0.26) (0.26) (1.50) (1.74) (1.55) (1.53) (1.55)
-----------------------------------------------------------------------------------------------------------
Net asset value, end of period $24.55 $29.69 $24.90 $32.69 $26.32 $22.87 $27.64
-----------------------------------------------------------------------------------------------------------
Per share market price, end of period $22.77 $27.25 $23.46 $27.31 $21.50 $20.42 $24.33
Total Investment Return
Based on market price (1.9)% 0.6% (8.7)% 36.1% 13.3% (10.0)% 11.7%
Based on net asset value (0.3)% (8.4)% (19.0)% 33.1% 23.8% (11.1)% 18.9%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $519,128 $612,832 $526,492 $688,173 $565,075 $474,821 $556,453
Ratio of expenses to average net assets 0.46%+ 0.38%+ 0.35% 0.59% 0.43% 0.31% 0.47%
Ratio of net investment income to average
net assets 1.76%+ 1.48%+ 1.67% 1.24% 1.86% 2.13% 1.91%
Portfolio turnover 9.71%+ 8.25%+ 6.74% 7.68% 11.89% 12.70% 13.09%
Number of shares outstanding at end of
period (in 000's)* 21,148 20,641 21,148 21,054 21,471 20,762 20,134
-------------------
--------
*Prior years have been adjusted to reflect the 3-for-2 stock split effected in
October, 2000.
+Ratios presented on an annualized basis.
7
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
June 30, 2002
Shares Value (A)
--------- ------------
Stocks And Convertible Securities -- 88.6%
Energy -- 77.5%
Internationals -- 30.2%
BP plc ADR 482,000 $ 24,336,180
ChevronTexaco Corp. 300,000 26,550,000
Exxon Mobil Corp. 1,200,000 49,104,000
Royal Dutch Petroleum Co. 720,000 39,794,400
"Shell" Transport and
Trading Co., plc ADR 150,000 6,751,500
TotalFinaElf ADR (B) 125,000 10,112,500
------------
156,648,580
------------
Domestics -- 7.8%
Amerada Hess Corp. (B) 80,000 6,600,000
Conoco Inc. 300,000 8,340,000
Kerr McGee Corp. (B) 177,153 9,486,543
Murphy Oil Corp. 83,500 6,888,750
Unocal Capital Trust
$3.125 Conv. Pfd. 72,540 3,663,995
Unocal Corp. 150,000 5,541,000
------------
40,520,288
------------
Producers -- 12.5%
Anadarko Petroleum Corp. (B) 250,000 12,325,000
Apache Corp. (B) 154,000 8,851,920
Devon Energy Corp. (B) 80,000 3,942,400
EOG Resources, Inc. 200,000 7,940,000
Noble Affiliates Inc. 125,000 4,506,250
Occidental Petroleum Corp. 175,000 5,248,250
Ocean Energy, Inc. 550,000 11,918,500
Pioneer Natural Resources Co.
(B)(C) 235,000 6,121,750
Stone Energy Corp. (B)(C) 104,300 4,198,075
------------
65,052,145
------------
Distributors -- 15.5%
Atmos Energy Corp. (B) 139,500 3,269,880
Duke Energy Corp. 8.25% Conv.
Pfd. due 2004 (B) 160,000 3,600,000
Duke Energy Corp. (B) 100,000 3,110,000
El Paso Corp. (B) 300,000 6,183,000
Energen Corp. 250,000 6,875,000
Equitable Resources Inc. 361,000 12,382,300
Keyspan Corp. (B) 220,000 8,283,000
Kinder Morgan, Inc. (B) 162,500 6,178,250
National Fuel Gas Co. 200,000 4,502,000
Shares Value (A)
------- ------------
New Jersey Resources, Inc. 277,500 $ 8,283,375
Northwestern Corp. (B) 200,000 3,390,000
Questar Corp. 268,000 6,619,600
TECO Energy, Inc. (B) 200,000 4,950,000
Williams Companies 9.0%
FELINE PACS due 2005 120,000 1,509,600
Williams Companies, Inc. 200,000 1,198,000
------------
80,334,005
------------
Services -- 11.5%
BJ Services Co. (B)(C) 400,000 13,552,000
Core Laboratories N.V. (C) 209,400 2,516,988
GlobalSantaFe Corp. (B) 200,000 5,470,000
Grant Prideco Inc. (C) 308,000 4,188,800
Nabors Industries, Ltd. (C) 200,000 7,030,000
Noble Corp. (C) 50,000 1,930,000
Schlumberger Ltd. 229,400 10,667,100
Transocean Sedco Forex Inc. 200,000 6,230,000
Weatherford International,
Ltd. (B)(C) 190,000 8,208,000
------------
59,792,888
------------
Basic Industries -- 11.1%
Basic Materials & Other -- 6.5%
Albemarle Corp. 15,000 461,250
Arch Coal Inc. (B) 175,000 3,974,250
Engelhard Corp. 200,000 5,664,000
General Electric Co. 350,000 10,167,500
Philadelphia Suburban Corp. 300,000 6,060,000
Rohm & Haas Co. 180,000 7,288,200
------------
33,615,200
------------
Paper and Forest Products -- 4.6%
Boise Cascade Corp. 7.5% ACES
due 2004 51,000 2,731,050
Boise Cascade Corp. 205,000 7,078,650
Meadwestvaco Corp. 210,000 7,047,600
Temple-Inland Inc. (B) 120,000 6,943,200
------------
23,800,500
------------
Total Stocks And Convertible Securities
(Cost $272,016,655) (D) 459,763,606
------------
8
SCHEDULE OF INVESTMENTS (continued)
--------------------------------------------------------------------------------
June 30, 2002
Prin. Amt. Value (A)
---------- ----------
Short-Term Investments -- 11.0%
U.S. Government Obligations -- 1.3%
U.S. Treasury Bills,
1.68%, due 8/22/02 $7,000,000 $6,983,013
----------
Commercial Paper -- 9.7%
ChevronTexaco Corp.,
1.75%, due 7/16/02 6,000,000 5,995,625
Coca-Cola Co.,
1.73%, due 7/18/02 2,950,000 2,947,590
GMAC MINT,
1.80%, due 8/8/02 2,000,000 1.996,200
GMAC New Center Asset Trust,
1.79%, due 7/23/02 3,000,000 2,996,718
General Electric Capital Corp.,
1.70-1.76%,
due 7/9/02-7/11/02 5,000,000 4,997,819
Gillette Co.,
1.70%, due 7/29/02 4,875,000 4,868,554
IBM Corp.,
1.69-1.74%,
due 7/18/02-7/25/02 5,000,000 4,995,105
Prin. Amt. Value (A)
---------- ------------
Procter & Gamble Co.,
1.70%, due 7/31/02 $3,550,000 $ 3,544,971
Schering Corp., 1.70%, due
8/26/02 4,775,000 4,762,373
Verizon Network Funding
Corp., 1.72%, due 7/16/02 5,000,000 4,996,417
Wells Fargo Financial, Inc.,
1.74-1.75%,
due 8/6/02-8/20/02 8,100,000 8,082,454
------------
50,183,826
------------
Total Short-Term Investments
(Cost $57,166,839) 57,166,839
------------
Total Investments -- 99.6%
(Cost $329,183,494) 516,930,445
Cash, receivables and other
assets, less liabilities -- 0.4% 2,197,812
------------
Net Assets--100.0% $519,128,257
============
--------------------------------------------------------------------------------
Notes:
(A) See note 1 to financial statements. Securities are listed on the New York
Stock Exchange, the American Stock Exchange, or the NASDAQ.
(B) All or a portion of these securities is on loan. See Note 7 to Financial
Statements.
(C) Presently non-dividend paying.
(D) The aggregate market value of stocks held in escrow at June 30, 2002
covering open call option contracts written was $2,598,700. In addition,
the aggregate market value of securities segregated by the custodian
required to collateralize open put option contracts written was $3,262,500.
9
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Directors and Stockholders of
Petroleum & Resources Corporation:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Petroleum & Resources Corporation
(hereafter referred to as the "Corporation") at June 30, 2002, and the results
of its operations, the changes in its net assets and the financial highlights
for each of the fiscal periods presented, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 2002 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
July 10, 2002
10
CHANGES IN PORTFOLIO SECURITIES*
--------------------------------------------------------------------------------
During the Three Months Ended June 30, 2002
Shares
----------------------------------
Held
Additions Reductions June 30, 2002
--------- ---------- -------------
Albemarle Corp.......................... 15,000 15,000
ChevronTexaco Corp...................... 30,000 300,000
GlobalSantaFe Corp...................... 20,000 200,000
Noble Corp.............................. 50,000 50,000
Philadelphia Suburban Corp.............. 180,000 300,000
Pioneer Natural Resources Co............ 35,000 235,000
Rohm & Haas Co.......................... 50,000 180,000
Dynegy, Inc. Class A.................... 175,000 --
Engelhard Corp.......................... 50,000 200,000
Murphy Oil Corp......................... 10,000 83,500
Royal Dutch Petroleum Co................ 60,000 720,000
"Shell" Transport & Trading Co., plc ADR 50,000 150,000
--------
* In our previous quarterly reports, this unaudited schedule disclosed only
"principal changes" in portfolio securities. We have changed this schedule to
reflect all purchases and sales of portfolio securities during the quarter.
-----------------
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of the
Securities Act of 1933 and the Securities and Exchange Act of 1934. By their
nature, all forward-looking statements involve risks and uncertainties, and
actual results could differ materially from those contemplated by the
forward-looking statements. Several factors that could materially affect the
Corporation's actual results are the performance of the portfolio of stocks
held by the Corporation, the conditions in the U.S. and international
financial, petroleum and other markets, the price at which shares of the
Corporation will trade in the public markets, and other factors discussed in
the Corporation's periodic filings with the Securities and Exchange Commission.
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. The rates of return will vary and the market value of an investment
will fluctuate. Shares, if sold, may be worth more or less than their original
cost. Past performance is not indicative of future investment results.
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HISTORICAL FINANCIAL STATISTICS
--------------------------------------------------------------------------------
Dividends Distributions
Net from from
Asset Net Investment Net Realized
Value of Shares Value per Income Gains
December 31 Net Assets Outstanding* Share* per Share* per Share*
----------- ------------ ------------ --------- -------------- -------------
1992......... $320,241,282 17,369,255 $18.44 $.51 $ .82
1993......... 355,836,592 18,010,007 19.76 .55 .87
1994......... 332,279,398 18,570,450 17.89 .61 .79
1995......... 401,404,971 19,109,075 21.01 .58 .81
1996......... 484,588,990 19,598,729 24.73 .55 .88
1997......... 566,452,549 20,134,181 27.64 .51 1.04
1998......... 474,821,118 20,762,063 22.87 .52 1.01
1999......... 565,075,001 21,471,270 26.32 .48 1.07
2000......... 688,172,867 21,053,644 32.69 .39 1.35
2001......... 526,491,798 21,147,563 24.90 .43 1.07
June 30, 2002 519,128,257 21,147,563 24.55 .30+ .09
--------
* Prior years have been adjusted to reflect the 3-for-2 stock split effected in
October, 2000.
+ Paid or declared.
-----------------
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: contact@peteres.com
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: (866) 723-8330
E-mail: Shareowner-svcs@bankofny.com
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SHAREHOLDER INFORMATION AND SERVICES
--------------------------------------------------------------------------------
DIVIDEND PAYMENT SCHEDULE
The Corporation presently pays dividends four times a year, as follows: (a)
three interim distributions on or about March 1, June 1, and September 1 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 31. 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. The Plan provides registered stockholders and interested first
time investors an affordable alternative for buying, selling, and reinvesting
in Petroleum & Resources shares.
The costs to participants in administrative service fees and brokerage
commissions for each type of transaction are listed below.
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
Electronic Funds Transfer (monthly
minimum) $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 the 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
Dept.-8W
Vice President, Secretary and P.O. Box 11258
General Counsel Church Street Station
Seven St. Paul Street, Suite 1140 New York, NY 10286
Baltimore, MD 21202 (866) 723-8330
(800) 638-2479
Website: Website: http://stock.bankofny.com
www.peteres.com E-mail:
E-mail: Shareowner-svcs@
contact@peteres.com bankofny.com
*BuyDIRECT is a service mark of The Bank of New York.
**The year-end dividend and capital gain distribution may be made in newly
issued shares of common stock. There would be no fees or commissions in
connection with this dividend and capital gain distribution when made in newly
issued shares.
13