UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02736
Name of Registrant: PETROLEUM & RESOURCES CORPORATION
Address of Registrant: 7 St. Paul Street, Suite 1140
Baltimore, MD 21202
Name and address of agent for service: Lawrence L. Hooper, Jr., Esq.
7 St. Paul Street, Suite 1140
Baltimore, MD 21202
Registrant's telephone number, including area code: (410) 752-5900
Date of fiscal year end: December 31
Date of reporting period: January 1, 2003 - June 30, 2003
Item 1: Reports to Shareholders
[LOGO] Petroleum & Resources Corporation
[LOGO] PETROLEUM & RESOURCES CORPORATION
(R)
SEMI-ANNUAL REPORT
--------------------
June 30, 2003
LETTER TO STOCKHOLDERS
--------------------------------------------------------------------------------
We submit herewith the audited financial statements of the Corporation for the
six months ended June 30, 2003. In addition, there is the report of independent
auditors, a schedule of investments, along with other financial information.
Net assets of the Corporation at June 30, 2003 were $22.36 per share on
21,311,767 shares outstanding, compared with $20.98 per share at December 31,
2002 on 21,510,067 shares outstanding. On March 1, 2003, a distribution of
$0.13 per share was paid, consisting of $0.09 from 2002 long-term capital gain,
$0.03 from 2002 investment income and $0.01 from 2003 investment income, all
taxable in 2003. A 2003 income dividend of $0.13 per share was paid on June 1,
2003, and another $0.13 investment income dividend has been declared to
shareholders of record August 15, 2003, payable September 1, 2003.
Net investment income for the six months ended June 30, 2003 amounted to
$3,942,668, compared with $4,655,158 for the same period in 2002. These
earnings are equal to $0.18 and $0.22 per share on the average number of shares
outstanding during each period.
Net capital gain realized on investments for the six months ended June 30, 2003
amounted to $3,283,072, the equivalent of $0.15 per share.
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
website 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 Corporation is
based on the primary objectives of preservation of capital, the attainment of
reasonable income from investments, and an opportunity for capital appreciation.
By order of the Board of Directors,
/s/ DOUGLAS G. OBER
Douglas G. Ober,
Chairman, President and
Chief Executive Officer
July 18, 2003
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
June 30, 2003
Assets
Investments* at value:
Common stocks and convertible securities
(cost $265,867,709) $412,180,065
Short-term investments (cost $63,360,838) 63,360,838
Securities lending collateral (cost $6,207,374) 6,207,374 $481,748,277
----------------------------------------------------------------------------------------------------
Cash 197,036
Receivables:
Investment securities sold 592,294
Dividends and interest 495,713
Prepaid expenses and other assets 1,339,551
----------------------------------------------------------------------------------------------------
Total Assets 484,372,871
----------------------------------------------------------------------------------------------------
Liabilities
Investment securities purchased 162,999
Open written option contracts at value (proceeds $227,414) 262,362
Obligations to return securities lending collateral 6,207,374
Accrued expenses 1,195,444
----------------------------------------------------------------------------------------------------
Total Liabilities 7,828,179
----------------------------------------------------------------------------------------------------
Net Assets $476,544,692
----------------------------------------------------------------------------------------------------
Net Assets
Common Stock at par value $1.00 per share, authorized 50,000,000 shares;
issued and outstanding 21,311,767 shares $ 21,311,767
Additional capital surplus 303,968,013
Undistributed net investment income 1,779,431
Undistributed net realized gain on investments 3,208,073
Unrealized appreciation on investments 146,277,408
----------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $476,544,692
----------------------------------------------------------------------------------------------------
Net Asset Value Per Share of Common Stock $22.36
----------------------------------------------------------------------------------------------------
* 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, 2003
Investment Income
Income:
Dividends $ 5,403,378
Interest and other income 452,108
------------------------------------------------------------------------------------
Total income 5,855,486
------------------------------------------------------------------------------------
Expenses:
Investment research 830,427
Administration and operations 524,534
Directors' fees 109,000
Reports and stockholder communications 147,449
Transfer agent, registrar and custodian expenses 84,198
Auditing and accounting services 38,128
Legal services 10,262
Occupancy and other office expenses 93,419
Travel, telephone and postage 32,352
Other 43,049
------------------------------------------------------------------------------------
Total expenses 1,912,818
------------------------------------------------------------------------------------
Net Investment Income 3,942,668
------------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 3,283,072
Change in unrealized appreciation on investments 27,496,801
------------------------------------------------------------------------------------
Net Gain on Investments 30,779,873
------------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $34,722,541
------------------------------------------------------------------------------------
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, 2003 December 31, 2002
---------------- -----------------
From Operations:
Net investment income $ 3,942,668 $ 8,983,077
Net realized gain on investments 3,283,072 14,332,921
Change in unrealized appreciation on investments 27,496,801 (82,017,470)
-------------------------------------------------------------------------------------------
Change in net assets resulting from operations 34,722,541 (58,701,472)
-------------------------------------------------------------------------------------------
Dividends to Stockholders from:
Net investment income (3,638,128) (9,069,217)
Net realized gain from investment transactions (1,934,492) (14,302,830)
-------------------------------------------------------------------------------------------
Decrease in net assets from distributions (5,572,620) (23,372,047)
-------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of shares issued in payment of distributions -- 9,954,365
Cost of shares purchased (Note 4) (3,880,692) (3,097,181)
-------------------------------------------------------------------------------------------
Change in net assets from capital share transactions (3,880,692) 6,857,184
-------------------------------------------------------------------------------------------
Total Change in Net Assets 25,269,229 (75,216,335)
Net Assets:
Beginning of period 451,275,463 526,491,798
-------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $1,779,431 and $1,474,891, respectively) $476,544,692 $451,275,463
-------------------------------------------------------------------------------------------
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, 2003 was $335,668,460, and net
unrealized appreciation aggregated $146,307,231, of which the related gross
unrealized appreciation and depreciation were $176,102,378 and $29,795,147,
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, 2003 were $9,346,377 and
$28,301,885, respectively. Options may be written (sold) 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 an option is limited to the premium
originally paid. A schedule of outstanding option contracts as of June 30, 2003
can be found on page 10.
Transactions in written covered call and collateralized put options during the
six months ended June 30, 2003 were as follows:
Covered Calls Collateralized Puts
------------------ -------------------
Contracts Premiums Contracts Premiums
--------- -------- --------- ---------
Options outstanding,
December 31, 2002 625 $ 58,228 300 $ 32,392
Options written 1,550 197,266 1,400 190,792
Options terminated in
closing purchase
transactions -- -- (100) (10,143)
Options expired (825) (81,427) (1,100) (159,694)
--------------------------------------------------------------
Options outstanding,
June 30, 2003 1,350 174,067 500 53,347
--------------------------------------------------------------
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 authorized and unissued preferred shares without
par value.
On December 27, 2002, the Corporation issued 521,854 shares of its Common Stock
at a price of $19.075 per share (the average market price on December 9, 2002)
to stockholders of record November 25, 2002 who elected to take stock in
payment of the distribution from 2002 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 2003 and 2002 were as follows:
Shares Amount
---------------------- ------------------------
Six months Six months
ended Year ended ended Year ended
June 30, December 31, June 30, December 31,
2003 2002 2003 2002
---------- ------------ ----------- ------------
Shares issued in
payment of dividends -- 521,854 $ -- $ 9,954,365
Shares purchased
(at a weighted
average discount
from net asset value
of 8.3% and 8.9%,
respectively) (198,300) (159,350) (3,880,692) (3,097,181)
-----------------------------------------------------------------------
Net change (198,300) 362,504 $(3,880,692) $ 6,857,184
-----------------------------------------------------------------------
5
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
The cost of the 213,200 shares of Common Stock held by the Corporation at June
30, 2003 and of the 14,900 shares of Common Stock held at December 31, 2002
amounted to $4,165,909 and $285,217 on each respective date.
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 2003, there were
152,012 options outstanding at a weighted average exercise price of $18.0662
per share. During the six months ended June 30, 2003, the Corporation granted
options including stock appreciation rights for 21,258 shares of Common Stock
with an exercise price of $19.285. During the six months ended June 30, 2003,
stock appreciation rights relating to 10,514 stock option shares were exercised
at a weighted average market price of $20.0289 per share and the stock options
relating to these rights with a weighted average exercise price of $10.6666 per
share were cancelled. Stock options and stock appreciation rights relating to
25,943 shares, with a weighted average exercise price of $19.4609, were
cancelled. At June 30, 2003, there were outstanding exercisable options to
purchase 46,232 common shares at $9.0317-$25.2538 per share (weighted average
price of $17.3058) and unexercisable options to purchase 90,581 common shares
at $11.6367-$25.2538 per share (weighted average price of $19.0276). The
weighted average remaining contractual life of outstanding exercisable and
unexercisable options was 5.0377 years and 6.6797 years, respectively. The
total compensation expense for stock options and stock appreciation rights
recognized for the six months ended June 30, 2003 was $99,616. At June 30,
2003, there were 279,614 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. As of
June 30, 2003, the plan assets, consisting primarily of investments in
individual stocks, bonds and mutual funds were $3,349,405. In determining the
actuarial present value of the projected benefit obligation, the interest rate
used for the weighted average discount rate was 6.75%, 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, 2003 was
$3,854,538. Prepaid pension cost included in other assets at June 30, 2003 was
$900,956.
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, 2003 for employees and
former employees of the Corporation was $1,052,222. Aggregate remuneration paid
or accrued during the six months ended June 30, 2003 to key employees and
directors amounted to $655,563.
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 at all times by collateral of at least 102% 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, 2003, the Corporation had securities on
loan of $5,857,056 and held collateral of $6,207,374, consisting of repurchase
agreements.
6
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
------------------
Six Months Ended
-----------------
Year Ended December 31
June 30, June 30, ----------------------------------------------
2003 2002 2002 2001 2000 1999 1998
-------- -------- -------- -------- -------- ---------- --------
Per Share Operating Performance*
Net asset value, beginning of period $20.98 $24.90 $24.90 $32.69 $26.32 $22.87 $27.64
----------------------------------------------------------------------------------------------------------
Net investment income 0.18 0.22 0.42 0.49 0.37 0.48 0.55
Net realized gains and change in un
realized appreciation (depreciation)
and other changes 1.44 (0.31) (3.20) (6.81) 7.67 4.67 (3.73)
----------------------------------------------------------------------------------------------------------
Total from investment operations 1.62 (0.09) (2.78) (6.32) 8.04 5.15 (3.18)
----------------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment income (0.17) (0.17) (0.43) (0.43) (0.39) (0.48) (0.52)
Distributions from net realized gains (0.09) (0.09) (0.68) (1.07) (1.35) (1.07) (1.01)
----------------------------------------------------------------------------------------------------------
Total distributions (0.26) (0.26) (1.11) (1.50) (1.74) (1.55) (1.53)
----------------------------------------------------------------------------------------------------------
Capital share repurchases 0.02 -- 0.01 0.06 0.28 0.01 --
Reinvestment of distributions -- -- (0.04) (0.03) (0.21) (0.16) (0.06)
----------------------------------------------------------------------------------------------------------
Total capital share transactions 0.02 -- (0.03) 0.03 0.07 (0.15) (0.06)
----------------------------------------------------------------------------------------------------------
Net asset value, end of period $22.36 $24.55 $20.98 $24.90 $32.69 $26.32 $22.87
----------------------------------------------------------------------------------------------------------
Per share market price, end of period $20.60 $22.77 $19.18 $23.46 $27.31 $21.50 $20.42
Total Investment Return
Based on market price 8.8% (1.9)% (13.7)% (8.7)% 36.1% 13.3% (10.0)%
Based on net asset value 7.9% (0.3)% (11.1)% (19.0)% 33.1% 23.8% (11.1)%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $476,545 $519,128 $451,275 $526,492 $688,173 $565,075 $474,821
Ratio of expenses to average net assets 0.84%+ 0.46%+ 0.49% 0.35% 0.59% 0.43% 0.31%
Ratio of net investment income to
average net assets 1.74%+ 1.76%+ 1.84% 1.67% 1.24% 1.86% 2.13%
Portfolio turnover 4.68%+ 9.71%+ 9.69% 6.74% 7.68% 11.89% 12.70%
Number of shares outstanding at
end of period (in 000's)* 21,312 21,148 21,510 21,148 21,054 21,471 20,762
------------------
--------
*Prior years have been adjusted to reflect the 3-for-2 stock split effected in
October 2000. Certain prior year amounts have been reclassified to conform to
current year presentation.
+Ratios presented on an annualized basis.
7
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
June 30, 2003
Shares Value (A)
--------- -----------
Stocks And Convertible Securities -- 86.5%
Energy -- 75.3%
Internationals -- 26.8%
BP plc ADR 500,000 $21,010,000
ChevronTexaco Corp. 300,000 21,660,000
Exxon Mobil Corp. 1,050,000 37,705,500
Royal Dutch Petroleum Co. 660,000 30,769,200
"Shell" Transport and
Trading Co., plc ADR 150,000 5,977,500
Total S.A. ADR 140,000 10,612,000
-----------
127,734,200
-----------
Domestics -- 7.7%
Amerada Hess Corp. 50,000 2,459,000
ConocoPhillips 200,000 10,960,000
Kerr McGee Corp. 177,153 7,936,454
Murphy Oil Corp. 140,000 7,364,000
Unocal Capital Trust
$3.125 Conv. Pfd. 72,540 3,568,061
Unocal Corp. 150,000 4,303,500
-----------
36,591,015
-----------
Producers -- 10.9%
Anadarko Petroleum Corp. 55,000 2,445,850
Apache Corp. 147,000 9,563,820
Devon Energy Corp. 198,720 10,611,649
EOG Resources, Inc. 200,000 8,368,000
Noble Energy, Inc. 125,000 4,725,000
Occidental Petroleum Corp. 175,000 5,871,250
Pioneer Natural Resources Co. (B) 235,000 6,133,500
Stone Energy Corp. (B) 104,300 4,372,256
-----------
52,091,325
-----------
Distributors -- 17.5%
Atmos Energy Corp. 139,500 3,459,600
Duke Energy Corp. 8.25% Conv.
Pfd. due 2004 (C) 160,000 2,537,600
Duke Energy Corp. 115,000 2,294,250
El Paso Corp. 210,000 1,696,800
Energen Corp. 250,000 8,325,000
Equitable Resources Inc. 300,000 12,222,000
Keyspan Corp. 220,000 7,799,000
Kinder Morgan, Inc. 162,500 8,880,625
MDU Resources Group, Inc. 200,000 6,698,000
National Fuel Gas Co. 200,000 5,210,000
Shares Value (A)
------- ------------
New Jersey Resources Corp. 277,500 $ 9,851,250
Northwestern Corp. (B) 16,500 33,000
Questar Corp. 268,000 8,969,960
TECO Energy, Inc. (C) 200,000 2,398,000
Williams Companies, Inc. 9.0%
FELINE PACS due 2005 120,000 1,482,000
Williams Companies, Inc. 200,000 1,580,000
------------
83,437,085
------------
Services -- 12.4%
Baker Hughes, Inc. 130,000 4,364,100
BJ Services Co. (B) 380,000 14,196,800
Core Laboratories N.V. (B) (C) 75,000 810,000
GlobalSantaFe Corp. 200,000 4,668,000
Grant Prideco Inc. (B) 308,000 3,619,000
Nabors Industries Ltd. (B) 125,000 4,943,750
Noble Corp. (B) 135,000 4,630,500
Schlumberger Ltd. 225,000 10,703,250
Transocean Inc. (B) 110,000 2,416,700
Weatherford International,
Ltd. (B) 205,000 8,589,500
------------
58,941,600
------------
Basic Industries -- 11.2%
Basic Materials & Other -- 8.3%
Albemarle Corp. 200,000 5,594,000
Arch Coal Inc. (C) 250,000 5,745,000
General Electric Co. 350,000 10,038,000
Ingersoll-Rand Co. Ltd. 100,000 4,732,000
Philadelphia Suburban Corp. 305,000 7,435,900
Rohm & Haas Co. 200,000 6,206,000
------------
39,750,900
------------
Paper and Forest Products -- 2.9%
Boise Cascade Corp. 7.5% ACES
due 2004 51,000 2,103,240
Boise Cascade Corp. 205,000 4,899,500
MeadWestvaco Corp. 60,000 1,482,000
Temple-Inland Inc. 120,000 5,149,200
------------
13,633,940
------------
Total Stocks And Convertible Securities
(Cost $265,867,709) (D) 412,180,065
------------
8
SCHEDULE OF INVESTMENTS (continued)
--------------------------------------------------------------------------------
June 30, 2003
Prin. Amt. Value (A)
----------- -----------
Short-Term Investments -- 13.3%
U.S. Government Obligations -- 1.5%
U.S. Treasury Bills, 0.95%, due
8/21/03 $ 7,000,000 $ 6,990,678
-----------
Certificates of Deposit -- 2.1%
Mercantile-Safe Deposit &
Trust Co., 1.00%,
due 7/24/03-7/25/03 10,000,000 10,000,000
-----------
Commercial Paper -- 9.7%
American General Finance
Corp., 1.14%, due 7/3/03 5,000,000 4,999,683
Cargill, Inc., 1.07%, due 7/10/03 2,600,000 2,599,305
ChevronTexaco Funding Corp.,
1.15%, due 7/1/03 900,000 900,000
Chevron UK, 1.20-1.22%, due
7/8/03-7/11/03 4,100,000 4,098,785
Coca-Cola Enterprises, Inc.,
0.99-1.22%, due 7/1/03-
7/22/03 5,000,000 4,997,767
GMAC MINT,
1.23%, due 7/15/03 3,050,000 3,048,541
GMAC New Center Asset Trust,
1.03%, due 7/29/03 1,950,000 1,948,438
General Electric Capital Corp.,
0.95-1.23%,
due 7/15/03-7/31/03 4,255,000 4,252,183
Marsh & McLennan Companies,
Inc., 1.18%, due 7/9/03 2,550,000 2,549,331
Prin. Amt. Value (A)
------------ ------------
New Jersey Natural Gas,
1.05%, due 7/21/03 $ 2,885,000 $ 2,883,317
Toyota Motor Credit Corp.,
1.16%, due 7/8/03 5,000,000 4,998,872
Verizon Network Funding
Inc., 1.02-1.18%,
due 7/10/03-7/17/03 4,100,000 4,098,146
Wells Fargo & Company
1.01%, due 7/31/03 5,000,000 4,995,792
------------
46,370,160
------------
Total Short-Term Investments
(Cost $63,360,838) 63,360,838
------------
Investments of Proceeds from Security Lending -- 1.3%
CS First Boston, repurchase
agreement, 1.35%, due
7/1/03 2,000,066
JP Morgan Securities,
repurchase agreement,
1.19%, 7/1/03 4,207,308
------------
Total Investments of Proceeds from
Security Lending
(Cost $6,207,374) 6,207,374
------------
Total Investments -- 101.1%
(Cost $335,435,921) 481,748,277
Cash, receivables and other
assets, less liabilities -- (1.1)% (5,203,585)
------------
Net Assets--100.0% $476,544,692
============
--------------------------------------------------------------------------------
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) Presently non-dividend paying.
(C) Some or all of these securities are on loan. See note 7 to financial
statements.
(D) The aggregate market value of stocks held in escrow at June 30, 2003
covering open call option contracts written was $6,886,095. In addition,
the aggregate market value of securities segregated by the custodian
required to collateralize open put option contracts written was $1,987,500.
9
SCHEDULE OF OUTSTANDING OPTION CONTRACTS
--------------------------------------------------------------------------------
June 30, 2003
Contracts Contract
(100 shares Strike Expiration Appreciation/
each) Security Price Date (Depreciation)
----------- -------- ------ ---------- --------------
COVERED CALLS
150 Amerada Hess Corp. $ 55 Nov 03 $ (3,326)
100 Apache Corp. 65 Jul 03 5,499
100 Apache Corp. 70 Jul 03 7,100
150 Apache Corp. 71.38 Jul 03 19,537
100 Devon Energy Corp. 55 Oct 03 (8,001)
100 Murphy Oil Corp. 50 Jul 03 (21,500)
150 Murphy Oil Corp. 50 Oct 03 (59,251)
100 Murphy Oil Corp. 55 Oct 03 (14,400)
100 Nabors Industries Ltd. 47.50 Sep 03 8,999
200 Nabors Industries Ltd. 50 Sep 03 15,999
100 Pioneer Natural Resources Co. 25 Sep 03 (13,951)
----- --------
1,350 (63,295)
----- --------
COLLATERALIZED PUTS
50 Albemarle Corp. 22.50 Dec 03 2,550
100 ConocoPhillips 47.50 Aug 03 7,599
100 ConocoPhillips 50 Aug 03 7,050
150 ConocoPhillips 45 Nov 03 10,649
50 ConocoPhillips 50 Nov 03 (1)
50 Schlumberger Ltd. 45 Aug 03 500
----- --------
500 28,347
----- --------
$(34,948)
========
CHANGES IN PORTFOLIO SECURITIES
--------------------------------------------------------------------------------
During the Three Months Ended June 30, 2003
(unaudited)
Shares
-----------------------------------------
Held
Additions Reductions June 30, 2003
--------- ---------- -------------
Arch Coal Inc........................... 10,000 250,000
ConocoPhillips.......................... 59,690 200,000
Devon Energy Corp....................... 198,720/(1)/ 80,000 198,720
Schlumberger Ltd........................ 35,000 225,000
Anadarko Petroleum Corp................. 195,000 55,000
Core Laboratories N.V................... 134,400 75,000
Engelhard Corp.......................... 124,900 --
Equitable Resources Inc................. 61,000 300,000
Nabors Industries, Ltd.................. 55,000 125,000
Northwestern Corp....................... 183,500 16,500
Ocean Energy, Inc....................... 480,000/(1)/ --
Transocean Inc.......................... 90,000 110,000
--------
/(1)/ Received .414 shares for each share of Ocean Energy, Inc. held.
10
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
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, 2003, 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, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
July 10, 2003
11
-----------------
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.
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*
----------- ------------ ------------ --------- -------------- -------------
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......... 556,452,549 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
2002......... 451,275,463 21,510,067 20.98 .43 .68
June 30, 2003 476,544,692 21,311,767 22.36 .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
(410) 752-5900 or (800) 638-2479
Website: www.peteres.com
E-mail: contact@peteres.com
Counsel: Chadbourne & Parke L.L.P.
Independent Auditors: PricewaterhouseCoopers LLP
Transfer Agent, Registrar & Custodian of Securities: The Bank of New York
12
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
Petroleum & Resources Corporation
Lawrence L. Hooper, Jr.
Vice President, Secretary and General Counsel
Seven St. Paul Street, Suite 1140,
Baltimore, MD 21202
(800) 638-2479
Website: www.peteres.com
E-mail: contact@peteres.com
The Transfer Agent
The Bank of New York
Address Shareholder Inquiries to:
Shareholder Relations Department
P.O. Box 11258 Church Street Station
New York, NY 10286
(866) 723-8330
Website: www.stockbny.com
E-mail: Shareowners@bankofny.com
Send Certificates for Transfer
and Address Changes to:
Receive and Deliver Department
P.O. Box 11002 Church Street Station
New York, NY 10286
*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
<![CDATA[
PETROLEUM & RESOURCES CORPORATION
--------------------------------------------------------------------------------
Board of Directors
Enrique R. Arzac/ 2,4/ Douglas G. Ober/ 1/
Daniel E. Emerson/ 1,3/ Landon Peters/ 2,3/
Edward J. Kelly, III/ 1,4/ John J. Roberts/ 1,2/
Thomas H. Lenagh/ 1,4/ Susan C. Schwab/ 1,3/
W.D. MacCallan/ 3,4/ Robert J.M. Wilson/ 1,3/
W. Perry Neff/ 2,4/
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, President and
Chief Executive Officer
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 (6/30/03) $20.60
Net Asset Value (6/30/03) $22.36
Discount: 7.9%
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 2003
----------------
From Investment Income (paid or declared) $0.30
From Net Realized Gains 0.09
-----
Total $0.39
=====
-----------------------
2003 Dividend Payment Dates
-----------------------
March 1, 2003
June 1, 2003
September 1, 2003
December 27, 2003*
*Anticipated
Item 2: Code(s) of Ethics for senior financial officers - Item not applicable to
semi-annual report.
Item 3: Audit Committee Financial Expert - Item not applicable to semi-annual
report.
Item 4: Principal Accountant Fees and Services - Item not applicable to
semi-annual report.
Item 5: Audit Committee of Listed Registrants - Item not applicable to semi
annual report.
Item 6: Reserved.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Item not applicable to semi-annual
report.
Item 8: Reserved.
Item 9: Controls and Procedures.
(a) The registrant's Principal Executive Officer and Principal Financial
Officer have evaluated the registrant's disclosure controls and procedures
within 90 days of this filing and have concluded that the registrant's
disclosure controls and procedures were effective, as of that date, in
ensuring that information required to be disclosed by the registrant in
this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) Internal Controls. There were no significant changes in Registrant's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Item 10: Exhibits attached hereto. (Attach certifications as exhibits)
(a) Not required at this time.
(b) Separate certifications by the registrant's principal executive officer and
principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2 under the Investment Company Act of 1940, are
attached.
A certification by the registrant's principal executive officer and principal
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is
attached.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PETROLEUM & RESOURCES CORPORATION
BY: /s/ Douglas G. Ober
-----------------------
Douglas G. Ober
Chairman & CEO
Date: July 28, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
PETROLEUM & RESOURCES CORPORATION
BY: /s/ Douglas G. Ober
-----------------------
Douglas G. Ober
Chairman & CEO
Date: : July 28, 2003
PETROLEUM & RESOURCES CORPORATION
BY: /s/ Maureen A. Jones
-----------------------
Maureen A. Jones
Chief Financial Officer
Date: : July 28, 2003
</pre>
</div>
</body>
]]></plaintext></pre></div></div>