LETTER TO STOCKHOLDERS
--------------------------------------------------------------------------------
We submit herewith the financial statements of the Corporation for the nine
months ended September 30, 2002. In addition, there is a schedule of
investments provided along with other financial information.
Net assets of the Corporation at September 30, 2002 were $20.55 per share on
21,075,063 shares outstanding, compared with $24.90 per share at December 31,
2001 on 21,147,563 shares outstanding. 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. Investment income
dividends of $0.13 per share were paid on June 1, 2002 and September 1, 2002.
Net investment income for the nine months ended September 30, 2002 amounted to
$7,261,163, compared with $8,212,484 for the same period in 2001. These
earnings are equal to $0.34 and $0.40 per share, respectively, on the average
number of shares outstanding during each period.
Net capital gain realized on investments for the nine months ended September
30, 2002 amounted to $11,364,173, the equivalent of $0.54 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
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
12 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
October 18, 2002
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
September 30, 2002
(unaudited)
Assets
Investments* at value:
Common stocks and convertible securities
(cost $280,393,488) $378,970,009
Short-term investments (cost $52,626,275) 52,612,730 $431,582,739
--------------------------------------------------------------------
Cash 52,254
Securities lending collateral 68,394,850
Receivables:
Investment securities sold 616,181
Dividends and interest 518,352
Prepaid expenses and other assets 1,884,792
----------------------------------------------------------------------------------------------------
Total Assets 503,049,168
----------------------------------------------------------------------------------------------------
Liabilities
Open written option contracts at value (proceeds $192,399) 248,750
Obligations to return securities lending collateral 68,394,850
Accrued expenses 1,262,823
----------------------------------------------------------------------------------------------------
Total Liabilities 69,906,423
----------------------------------------------------------------------------------------------------
Net Assets $433,142,745
----------------------------------------------------------------------------------------------------
Net Assets
Common Stock at par value $1.00 per share, authorized 50,000,000 shares;
issued and outstanding 21,075,063 shares $ 21,075,063
Additional capital surplus 300,035,000
Undistributed net investment income 2,188,068
Undistributed net realized gain on investments 11,337,989
Unrealized appreciation on investments 98,506,625
----------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $433,142,745
----------------------------------------------------------------------------------------------------
Net Asset Value Per Share of Common Stock $20.55
----------------------------------------------------------------------------------------------------
* See Schedule of Investments on pages 8 and 9.
The accompanying notes are an integral part of the financial statements.
2
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
Nine Months Ended September 30, 2002
(unaudited)
Investment Income
Income:
Dividends $ 8,164,309
Interest and other income 729,932
---------------------------------------------------------------------------------------
Total income 8,894,241
---------------------------------------------------------------------------------------
Expenses:
Investment research 508,585
Administration and operations 347,316
Directors' fees 152,250
Reports and stockholder communications 166,391
Transfer agent, registrar and custodian expenses 137,324
Auditing and accounting services 56,511
Legal services 37,779
Occupancy and other office expenses 103,237
Travel, telephone and postage 62,064
Other 61,621
---------------------------------------------------------------------------------------
Total expenses 1,633,078
---------------------------------------------------------------------------------------
Net Investment Income 7,261,163
---------------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 11,364,173
Change in unrealized appreciation on investments (102,291,452)
---------------------------------------------------------------------------------------
Net Loss on Investments (90,927,279)
---------------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $ (83,666,116)
---------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
3
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Nine Months Ended Year Ended
September 30, 2002 December 31, 2001
------------------ -----------------
(unaudited)
From Operations:
Net investment income $ 7,261,163 $ 10,098,102
Net realized gain on investments 11,364,173 22,308,303
Change in unrealized appreciation on investments (102,291,452) (164,346,055)
---------------------------------------------------------------------------------------------
Change in net assets resulting from operations (83,666,116) (131,939,650)
---------------------------------------------------------------------------------------------
Dividends to Stockholders from:
Net investment income (6,337,113) (8,877,046)
Net realized gain from investment transactions (1,903,279) (22,032,850)
---------------------------------------------------------------------------------------------
Decrease in net assets from distributions (8,240,392) (30,909,896)
---------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of shares issued in payment of distributions -- 13,159,002
Cost of shares purchased (Note 4) (1,442,545) (11,990,525)
---------------------------------------------------------------------------------------------
Change in net assets from capital share transactions (1,442,545) 1,168,477
---------------------------------------------------------------------------------------------
Total Decrease in Net Assets (93,349,053) (161,681,069)
Net Assets:
Beginning of period 526,491,798 688,172,867
---------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $2,188,068 and $1,264,018, respectively) $ 433,142,745 $ 526,491,798
---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
4
NOTES TO FINANCIAL STATEMENTS (unaudited)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Petroleum & Resources Corporation (the Corporation) is registered under the
Investment Company Act of 1940 as a 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 September 30, 2002 was $333,238,690, and net
unrealized appreciation aggregated $98,536,448, of which the related gross
unrealized appreciation and depreciation were $143,099,984 and $44,563,536,
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 nine months ended September 30, 2002 were $35,584,450
and $31,192,124, 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 September 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
------------------------- --------------------------
Nine months Nine months
ended Year ended ended Year ended
September 30, December 31, September 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 a weighted
average discount
from net asset
value of 9.0%
and 16.6%,
respectively) (72,500) (429,150) (1,442,545) (11,990,525)
-------------------------------------------------------------------------
Total decrease (72,500) (429,150) $(1,442,545) $(11,990,525)
-------------------------------------------------------------------------
Net change (72,500) 149,904 $(1,442,545) $ 1,168,477
-------------------------------------------------------------------------
The cost of the 115,332 shares and 42,832 shares of Common Stock held by the
Corporation on September 30, 2002 and December 31, 2001, respectively, amounted
to $2,503,711 and $1,061,166 on each respective date.
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 nine months ended September 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 20,754 stock option shares were exercised at a weighted
average market price of $22.4884 per share and the stock options relating to
these rights, which had a weighted average exercise price of $12.2539, were
cancelled. At September 30, 2002, there were outstanding exercisable options to
purchase 27,808 common shares at $9.7117-$25.9338 per share (weighted average
price of $17.4661) 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 5.1666 years and 6.2514 years, respectively. The
total compensation expense for stock options and stock appreciation rights
recognized for the nine months ended September 30, 2002 was $(207,854). At
September 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. As of
September 30, 2002, the plan assets, consisting primarily of investments in
individual stocks, bonds and mutual funds were $4,405,413. 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 September 30, 2002
was $3,620,318. Prepaid pension cost included in other assets at September 30,
2002 was $1,578,006.
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 September 30, 2002 for employees
and former employees of the Corporation was $1,019,980. Aggregate remuneration
paid or accrued during the nine months ended September 30, 2002 to officers and
directors amounted to $418,637, which includes a credit of $207,854 for stock
options and stock appreciation rights.
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 September 30, 2002, the Corporation had
outstanding loans of $65,558,569 and held collateral of $68,394,850.
6
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
---------------------
Nine Months Ended
--------------------
Year Ended December 31
(unaudited) --------------------------------------------
Sept. 30, Sept. 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 0.34 0.40 0.49 0.37 0.48 0.55 0.51
Net realized gains and change in unrealized
appreciation (depreciation) and other
changes (4.30) (7.93) (6.84) 7.46 4.51 (3.79) 3.95
-------------------------------------------------------------------------------------------------------------
Total from investment operations (3.96) (7.53) (6.35) 7.83 4.99 (3.24) 4.46
-------------------------------------------------------------------------------------------------------------
Capital share repurchases -- 0.06 0.06 0.28 0.01 -- --
-------------------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment income (0.30) (0.31) (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 (0.39) (0.39) (1.50) (1.74) (1.55) (1.53) (1.55)
-------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.55 $24.83 $24.90 $32.69 $26.32 $22.87 $27.64
-------------------------------------------------------------------------------------------------------------
Per share market price, end of period $19.05 $22.66 $23.46 $27.31 $21.50 $20.42 $24.33
Total Investment Return
Based on market price (17.4)% (15.9)% (8.7)% 36.1% 13.3% (10.0)% 11.7%
Based on net asset value (16.1)% (23.0)% (19.0)% 33.1% 23.8% (11.1)% 18.9%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $433,143 $511,601 $526,492 $688,173 $565,075 $474,821 $556,453
Ratio of expenses to average net assets 0.43%+ 0.27%+ 0.35% 0.59% 0.43% 0.31% 0.47%
Ratio of net investment income to
average net assets 1.91%+ 1.74%+ 1.67% 1.24% 1.86% 2.13% 1.91%
Portfolio turnover 9.26%+ 7.00%+ 6.74% 7.68% 11.89% 12.70% 13.09%
Number of shares outstanding at
end of period (in 000's)* 21,075 20,601 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
--------------------------------------------------------------------------------
September 30, 2002
(unaudited)
Shares Value (A)
--------- ------------------
Stocks And Convertible Securities -- 87.5%
Energy --76.6%
Internationals --27.1%
BP plc ADR 482,000 $ 19,231,800
ChevronTexaco Corp. 300,000 20,775,000
Exxon Mobil Corp. 1,160,000 37,004,000
Royal Dutch Petroleum Co. 670,000 26,913,900
"Shell" Transport and
Trading Co., plc ADR 150,000 5,358,000
TotalFinaElf ADR (B) 125,000 8,231,250
------------------
117,513,950
------------------
Domestics --7.9%
Amerada Hess Corp. 80,000 5,430,400
ConocoPhillips 140,310 6,487,935
Kerr McGee Corp. 177,153 7,695,526
Murphy Oil Corp. (B) 80,000 6,565,600
Unocal Capital Trust
$3.125 Conv. Pfd. 72,540 3,500,055
Unocal Corp. (B) 150,000 4,708,500
------------------
34,388,016
------------------
Producers -- 14.0%
Anadarko Petroleum Corp. (B) 250,000 11,135,000
Apache Corp. (B) 154,000 9,155,300
Devon Energy Corp. (B) 80,000 3,860,000
EOG Resources, Inc. 200,000 7,192,000
Noble Energy 125,000 4,246,250
Occidental Petroleum Corp. 175,000 4,966,500
Ocean Energy, Inc. 550,000 10,972,500
Pioneer Natural Resources Co.
(C) 235,000 5,698,750
Stone Energy Corp. (B)(C) 104,300 3,389,750
------------------
60,616,050
------------------
Distributors -- 15.7%
Atmos Energy Corp. (B) 139,500 2,999,250
Duke Energy Corp. 8.25% Conv.
Pfd. due 2004 (B) 160,000 2,616,000
Duke Energy Corp. (B) 115,000 2,248,250
El Paso Corp. (B) 300,000 2,481,000
Energen Corp. 250,000 6,327,500
Equitable Resources Inc. 361,000 12,472,550
Keyspan Corp. (B) 220,000 7,370,000
Kinder Morgan, Inc. (B) 162,500 5,760,625
National Fuel Gas Co. (B) 200,000 3,974,000
Shares Value (A)
------- ------------
New Jersey Resources Corp. 277,500 $ 9,129,750
Northwestern Corp. (B) 200,000 1,952,000
Questar Corp. 268,000 6,121,120
TECO Energy, Inc. (B) 200,000 3,176,000
Williams Companies 9.0%
FELINE PACS due 2005 120,000 864,000
Williams Companies, Inc. 200,000 452,000
------------
67,944,045
------------
Services --11.9%
Baker Hughes, Inc. 90,000 2,612,700
BJ Services Co. (B)(C) 400,000 10,400,000
Core Laboratories N.V. (C) 209,400 1,962,078
GlobalSantaFe Corp. (B) 200,000 4,470,000
Grant Prideco Inc. (C) 308,000 2,630,320
Nabors Industries, Ltd. (B)(C) 200,000 6,550,000
Noble Corp. (C) 135,000 4,185,000
Schlumberger Ltd. 190,000 7,307,400
Transocean Inc. 200,000 4,160,000
Weatherford International,
Ltd. (B)(C) 190,000 7,056,600
------------
51,334,098
------------
Basic Industries --10.9%
Basic Materials & Other --7.6%
Albemarle Corp. 160,000 4,046,400
Arch Coal Inc. (B) 190,000 3,144,500
Engelhard Corp. 200,000 4,766,000
General Electric Co. 350,000 8,627,500
Philadelphia Suburban Corp. 305,000 6,191,500
Rohm & Haas Co. 200,000 6,200,000
------------
32,975,900
------------
Paper and Forest Products --3.3%
Boise Cascade Corp. 7.5% ACES
due 2004 51,000 2,006,850
Boise Cascade Corp. 205,000 4,674,000
Meadwestvaco Corp. (B) 150,000 2,881,500
Temple-Inland Inc. (B) 120,000 4,635,600
------------
14,197,950
------------
Total Stocks And Convertible Securities
(Cost $280,393,488) (D) 378,970,009
------------
8
SCHEDULE OF INVESTMENTS (continued)
--------------------------------------------------------------------------------
September 30, 2002
(unaudited)
Prin. Amt. Value (A)
----------- -----------
Short-Term Investments -- 12.1%
U.S. Government Obligations -- 2.3%
U.S. Treasury Bills, 1.55-1.61%,
due 11/14/02-11/21/02 $10,200,000 $10,178,332
-----------
Certificates of Deposit -- 2.3%
Mercantile-Safe Deposit
Trust Co., 1.95%,
due 10/15/02 10,000,000 10,000,000
-----------
Commercial Paper -- 7.5%
AIG Funding, Inc., 1.74%,
due 10/22/02 5,000,000 4,994,925
ChevronTexaco Corp., 1.72%,
due 10/24/02 5,000,000 4,994,506
Coca-Cola Enterprises, Inc.,
1.71%, due 10/17/02-10/24/02 3,820,000 3,816,609
GMAC MINT,
1.77%, due 11/7/02 5,000,000 4,990,904
General Electric Capital Corp.,
1.74-1.75%,
due 10/3/02-11/12/02 5,000,000 4,995,931
Prin. Amt.
or Shares Value (A)
---------- ------------
Toyota Motor Credit Corp.,
1.72%, due 11/5/02 $4,850,000 $ 4,841,890
Wells Fargo Financial, Inc.,
1.76%, due 10/8/02 $3,775,000 3,773,708
------------
32,408,473
------------
Purchased Options -- 0.0%
TECO Energy, Inc., Put,
November 2002,
Strike Price $15 30,500 25,925
------------
Total Short-Term Investments
(Cost $52,626,275) 52,612,730
------------
Total Investments -- 99.6%
(Cost $333,019,763) 431,582,739
Cash, receivables and other
assets, less liabilities -- 0.4% 1,560,006
------------
Net Assets--100.0% $433,142,745
============
--------------------------------------------------------------------------------
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) Some or all of these securities are on loan. See Note 7 to Financial
Statements.
(C) Presently non-dividend paying.
(D) The aggregate market value of stocks held in escrow at September 30, 2002
covering open call option contracts written was $1,495,600. In addition,
the aggregate market value of securities segregated by the custodian
required to collateralize open put option contracts written was $2,950,000.
-----------------
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.
9
CHANGES IN PORTFOLIO SECURITIES
--------------------------------------------------------------------------------
During the Three Months Ended September 30, 2002
(unaudited)
Shares
-----------------------------------------
Held
September 30,
Additions Reductions 2002
--------- ---------- -------------
Albemarle Corp............. 145,000 160,000
Arch Coal Inc.............. 15,000 190,000
Baker Hughes, Inc.......... 90,000 90,000
ConocoPhillips............. 140,310/(1)/ 140,310
Duke Energy Corp........... 15,000 115,000
Murphy Oil Corp............ 16,500 20,000 80,000
Noble Corp................. 85,000 135,000
Philadelphia Suburban Corp. 5,000 305,000
Rohm & Haas Co............. 20,000 200,000
Conoco Inc................. 300,000/(1)/ --
Exxon Mobil Corp........... 40,000 1,160,000
Meadwestvaco Corp.......... 60,000 150,000
Royal Dutch Petroleum Co... 50,000 670,000
Schlumberger Ltd........... 39,400 190,000
--------
/(1) /Received .4677 share of ConocoPhillips for each share of Conoco Inc. held.
-----------------
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.
10
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
September 30, 2002 (unaudited) 433,142,745 21,075,063 20.55 .30 .09
--------
* Prior years have been adjusted to reflect the 3-for-2 stock split effected in
October, 2000.
-----------------
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
11
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.
12
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
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Stock Data
--------
Price (9/30/02) $19.05
Net Asset Value (9/30/02) $20.55
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 $0.30
From Net Realized Gains 0.09
-----
Total $0.39
=====
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2002 Dividend Payment Dates
-----------------------
March 1, 2002
June 1, 2002
September 1, 2002
December 27, 2002*
*Anticipated
[GRAPHIC]
[LOGO] PETROLEUM & RESOURCES CORPORATION(R)
THIRD QUARTER REPORT
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September 30, 2002