DEF 14A 1 ddef14a.txt PETROLEUM & RESOURCES CORP. PETROLEUM & RESOURCES CORPORATION Seven St. Paul Street Baltimore, Maryland 21202 -------------------------------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS -------------------------------------------- February 15, 2002 Notice is hereby given that the Annual Meeting of Stockholders of PETROLEUM & RESOURCES CORPORATION, a Maryland corporation (the "Corporation"), will be held at the Royal Palms Hotel, 5200 East Camelback Road, Phoenix, Arizona, on Tuesday, March 26, 2002, at 10:00 a.m., for the following purposes: (1) to elect directors as identified in the Proxy Statement for the ensuing year; (2) to consider and vote upon the ratification of the selection of PricewaterhouseCoopers LLP as the firm of independent accountants to audit the books and accounts of the Corporation for or during the year ending December 31, 2002; and (3) to transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on February 15, 2002, as the record date for the determination of the stockholders entitled to notice of and to vote at this meeting. By order of the Board of Directors, LAWRENCE L. HOOPER, JR. Vice President, Secretary and General Counsel Baltimore, MD Note: Stockholders who do not expect to attend the meeting are requested to fill in, sign, date and return the accompanying proxy in the enclosed envelope without delay. Telephone and Internet voting are also offered. PETROLEUM & RESOURCES CORPORATION Seven St. Paul Street Baltimore, Maryland 21202 -------------- Proxy Statement -------------- This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Petroleum & Resources Corporation, a Maryland corporation (the "Corporation"), for the Annual Meeting of Stockholders to be held on Tuesday, March 26, 2002, and is first being sent to stockholders on or about February 22, 2002. Only stockholders of record at the close of business on February 15, 2002, may vote at the Annual Meeting to be held on March 26, 2002. On the record date, the Corporation had outstanding 21,147,563 shares of Common Stock ("Common Stock"). The holders of the Common Stock shall be entitled to one vote per share. The Corporation has no other class of security outstanding. For Proposal (1), referred to below, directors shall be elected by a plurality of the votes cast at the meeting, and Proposal (2), referred to below, requires the affirmative vote of a majority of the votes cast at the meeting. Unless otherwise required by the Corporation's Articles of Incorporation or By-laws, or by applicable Maryland law, any other matter properly presented for a vote at the meeting will require the affirmative vote of a majority of the votes cast at the meeting. Proxies received by the Corporation that are marked "without authority" or abstain, or that constitute a broker non-vote, are counted as present for purposes of determining a quorum at the meeting. Broker non-votes are shares held in the name of a broker or nominee for which the broker or nominee indicates that instructions have not been received from the beneficial owner or person entitled to vote and the broker or nominee does not have discretionary voting power. Proxies marked "withhold authority", abstentions and broker non-votes do not count as votes cast with respect to any proposal, and therefore, such proxies would have no effect on the outcome of Proposals (1) and (2), below. The Annual Meeting is being held on March 26, 2002 for the following purposes: (1) election of directors of the Corporation; (2) ratification of the selection of PricewaterhouseCoopers LLP as the firm of independent accountants to audit the books and accounts of the Corporation for or during the year ending December 31, 2002; and (3) transaction of such other business as may properly come before the meeting or any adjournment thereof. At the date of this proxy statement, the only business that the management intends to present, or knows that others will present at the meeting, are Proposals (1) and (2) referred to above. Should any other matter come before the meeting, however, action may be taken thereon pursuant to proxies in the form enclosed. Except for Proposals (1) and (2), referred to above, the proxies confer discretionary authority on the persons named therein or their substitutes with respect to any business that may properly come before the meeting. Stockholders retain the right to revoke executed proxies at any time before they are voted by written notice to the Corporation, by executing a later dated proxy, or by appearing and voting at the meeting. Properly executed proxies will be voted as directed, but, if no direction is specified, the shares covered by a given proxy will be voted in favor of Proposals (1) and (2). Under Maryland Law, there are no appraisal or other dissenter rights with respect to any matter to be voted on at the Annual Meeting that is described herein. 1 The Corporation will pay all costs of soliciting proxies in the accompanying form. See "Other Matters" below. Solicitation will be made by mail, and officers, regular employees, and agents of the Corporation may also solicit proxies by telephone or personal interview. The Corporation expects to request brokers and nominees who hold stock in their names to furnish this proxy material to their customers and to solicit proxies from them, and will reimburse such brokers and nominees for their out-of-pocket and reasonable clerical expenses in connection therewith. (1) ELECTION OF DIRECTORS Unless contrary instructions are given by the stockholder signing a proxy, it is intended that each proxy in the accompanying form will be voted at the Annual Meeting for the election of the following nominees to the Board of Directors for the ensuing year, all of whom have consented to serve if elected: Enrique R. Arzac W. D. MacCallan John J. Roberts Daniel E. Emerson W. Perry Neff Susan C. Schwab Edward J. Kelly, III Douglas G. Ober* Robert J. M. Wilson Thomas H. Lenagh Landon Peters If for any reason one or more of the nominees above named shall become unable or unwilling to serve (which is not now expected) when the election occurs, proxies in the accompanying form will, in the absence of contrary instructions, be voted for the election of the other nominees above named and may be voted for substitute nominees in the discretion of the persons named as proxies in the accompanying form. The directors elected will serve until the next annual meeting or until their successors are elected, except as otherwise provided in the By-laws of the Corporation. Information as to Nominees for Election as Directors (as of December 31, 2001)/1 / Set forth below with respect to each nominee for director are his or her name and age, any positions held with the Corporation, other principal occupations during the past five years, other directorships and business affiliations, the year in which he or she first became a director, and the number of shares of Common Stock beneficially owned by him or her. Also set forth below is the number of shares of Common Stock beneficially owned by all directors and officers of the Corporation as a group. A separate table is provided showing the dollar value range of the shares beneficially owned by each director.

Has Shares of been a Common Stock Name, Age, Positions with the Corporation, Director Beneficially Owned Other Principal Occupations and Other Affiliations since (a)(b)(c)(d) -------------------------------------------------- -------- ------------------ Independent Directors --------------------- Enrique R. Arzac, 60, Professor of Finance and Economics, formerly Vice Dean of 1987 2,917 Academic Affairs of the Graduate School of Business, Columbia University. Director of The Adams Express Company and Credit Suisse Asset Management Funds (8 funds) (investment companies). Daniel E. Emerson, 77, Retired Executive Vice President of NYNEX Corporation, 1987 9,460 retired Chairman of the Board of both NYNEX Information Resources Co. and NYNEX Mobile Communications Co. Previously, Executive Vice President and Director of New York Telephone Company. Presently, Chairman, The National YMCA Fund, Inc. Director of The Adams Express Company. Edward J. Kelly, III, 48, President and Chief Executive Officer of Mercantile 2001 1,000 Bankshares Corporation since March 2001. Formerly Managing Director with J.P. Morgan Chase (investment bank and global financial institution) from February 1996 to January 2001 and a partner with the New York City law firm of Davis Polk & Wardwell prior thereto. Director of The Adams Express Company, Hartford Financial Services Group, and Constellation Energy Group; and member of Board of Trustees of Johns Hopkins University.

---------- * Mr. Ober is an "interested person", as defined by the Investment Company Act of 1940, because he is an officer of the Corporation. /1/ The information for Mr. Kelly is as of January 15, 2002. 2

Has Shares of been a Common Stock Name, Age, Positions with the Corporation, Director Beneficially Owned Other Principal Occupations and Other Affiliations since (a)(b)(c)(d) -------------------------------------------------- -------- ------------------ Thomas H. Lenagh, 83, Financial Advisor, Chairman of the Board, Inrad Corp. 1987 2,084 (crystals) since August 1999. Formerly Chairman of the Board and Chief Executive Officer of Greiner Engineering Inc. (formerly Systems Planning Corp.) (consultants). Formerly Treasurer and Chief Investment Officer of the Ford Foundation (charitable foundation). Director of Gintel Fund, Cornerstone Funds, Inc. (3 funds), China Light Industry Fund and The Adams Express Company (investment companies), and ICN Pharmaceuticals International Inc. W. D. MacCallan, 74, Retired Chairman of the Board and Chief Executive Officer of the 1971 19,509 Corporation. Director, former Chairman of the Board and Chief Executive Officer of The Adams Express Company. Formerly consultant to the Corporation and The Adams Express Company. W. Perry Neff, 74, Private Financial Consultant. Retired Executive Vice President of 1971 1,221 Chemical Bank. Director of The Adams Express Company. Landon Peters, 71, Private Investor. Formerly Investment Manager, Y.M.C.A. 1987 5,388 Retirement Fund and Executive Vice President and Treasurer and prior thereto Senior Vice President and Treasurer of The Bank of New York. Director of The Adams Express Company. John J. Roberts, 79, Senior Advisor to American International Group, Inc. (insurance) 1987 1,570 since September 1997 and, formerly Vice-Chairman, External Affairs, American International Group, Inc. from May 1989 to September 1997. Formerly Chairman and Chief Executive Officer of American International Underwriters Corporation (insurance). Previously President of American International Underwriters Corporation-U.S./Overseas Operations. Honorary Director of American International Group, Inc. and Director of The Adams Express Company. Susan C. Schwab, 46, Dean of the School of Public Affairs at the University of 2000 562 Maryland, College Park, since 1995. Formerly Director of Corporate Business Development at Motorola, Inc. Director of Calpine Corp. (energy) and The Adams Express Company. Robert J. M. Wilson, 81, Retired President of the Corporation. Director and retired 1975 10,713 President of The Adams Express Company. Interested Director ------------------- Douglas G. Ober, 55, Chairman of the Board and Chief Executive Officer of the 1989 52,485(e) Corporation since April 1, 1991. Director, Chairman of the Board and Chief Executive Officer of The Adams Express Company. Directors and executive officers of the Corporation as a group. 224,016

The address for each director is the Corporation's office. ---------- (a) To the Corporation's knowledge, other than shares referred to in footnote (c) below, each director had sole investment and voting power with respect to the shares shown opposite his or her name, except (i) Mr. Lenagh, who had only investment power; and (ii) 2,388 shares shown for Mr. Peters, which were beneficially owned by his wife, and as to which he had shared investment power but no voting power and disclaims beneficial ownership. (b) Of the amounts shown as beneficially owned by the directors and executive officers as a group, 51,473 shares were held by the Trustee under the Employee Thrift Plan of the Corporation and the Employee Thrift Plan of The Adams Express Company. (c) The amounts shown include shares subject to option under the Corporation's Stock Option Plan (see "Stock Option Plan" below) held by Mr. Ober (38,187 shares), and directors and executive officers as a group (118,046 shares). Mr. Ober and the other officers with shares subject to option all disclaim beneficial ownership of those shares. 3 (d) Calculated on the basis of 21,147,563 shares of Common Stock outstanding on December 31, 2001, each director owned less than 1.0% of the Common Stock outstanding. The directors and executive officers as a group owned 1.4% of the Common Stock outstanding. (e) Of the amounts shown, 14,237 shares beneficially owned by Mr. Ober were held by the Trustee under the Employee Thrift Plan of the Corporation. Dollar Value of Shares Independent Directors Owned --------------------- ----- Enrique R. Arzac $50,001-$100,000 Daniel E. Emerson greater than $100,000 Edward J. Kelly, III $10,001-$50,000 Thomas H. Lenagh $50,001-$100,000 W. D. MacCallan greater than $100,000 W. Perry Neff $10,001-$50,000 Landon Peters greater than $100,000 John J. Roberts $10,001-$50,000 Susan C. Schwab $10,001-$50,000 Robert J. M. Wilson greater than $100,000 Interested Director ------------------- Douglas G. Ober greater than $100,000 The nominees identified above are also nominees for election to the Board of Directors of The Adams Express Company ("Adams"), the Corporation's largest stockholder (see "Principal Stockholder" below). Section 16(a) Beneficial Ownership Reporting Compliance Each director and officer of the Corporation who is subject to Section 16 of the Securities Exchange Act of 1934 is required to report to the Securities and Exchange Commission by a specified date his or her beneficial ownership of or transactions in the Corporation's securities. Based upon a review of filings with the Securities and Exchange Commission and written representations that no other reports were required, the Corporation has no reason to believe that such directors and officers have not filed all requisite reports with the Securities and Exchange Commission on a timely basis during 2001, except that Mr. Peters sold shares of the Corporation in January 2001 and in August 2001, which sales were reported on Form 4s filed late by Mr. Peters. In addition, Mr. Peters purchased shares of the Corporation within six months of his sales in August, for which he has reimbursed the Corporation for the gain that he realized on such transactions. Information as to Other Executive Officers Set forth below are the names, ages and positions with the Corporation of all executive officers of the Corporation other than those who also serve as directors. Executive officers serve as such until the election of their successors. Mr. Lawrence L. Hooper, Jr., 49, has served as Vice President since March 30, 1999, and as Secretary and General Counsel since April 1, 1997. Prior thereto, he was a partner in Tydings & Rosenberg L.L.P., a Baltimore, Maryland law firm. Ms. Maureen A. Jones, 54, has served as Vice President since January 1, 1998, and as Treasurer since January 1, 1993. Mr. Richard F. Koloski, 57, has served as President since April 1, 1986. Mr. Joseph M. Truta, 57, has served as Executive Vice President since January 1, 1986. 4

Shares of Common Stock Security Ownership of Management in the Corporation (a) Beneficially Owned Name (b)(c)(d)(e) ---- ------------------ Lawrence L. Hooper, Jr................. 7,193 Maureen A. Jones....................... 9,248 Richard F. Koloski..................... 63,803 Joseph M. Truta........................ 36,863

---------- (a) As of December 31, 2001. Share ownership of directors and executive officers as a group is shown in the table beginning on page 2 and footnotes thereto. (b) To the Corporation's knowledge, each officer had sole investment and voting power with respect to the shares shown opposite his or her name above other than shares referred to in footnote (d) below. (c) Of the amounts shown, the following shares beneficially owned by the respective officer were held by the Trustee under the Employee Thrift Plan of the Corporation and the Employee Thrift Plan of Adams: Mr. Hooper (1,096 shares), Ms. Jones (2,714 shares), Mr. Koloski (29,433 shares), and Mr. Truta (3,993 shares). (d) The amounts shown include shares subject to option under the Corporation's Stock Option Plan (see "Stock Option Plan" below), held by Mr. Hooper (6,085 shares), Ms. Jones (6,534 shares), Mr. Koloski (34,370 shares), and Mr. Truta (32,870 shares). These officers disclaim beneficial ownership of those shares. (e) Calculated on the basis of 21,147,563 shares of Common Stock outstanding on December 31, 2001, each of the officers listed above owned less than 1.0% of the Common Stock outstanding. 5 Principal Stockholder At December 31, 2001, only one person or group of persons was known by the Corporation to own beneficially more than five percent of any class of the Corporation's voting securities.

Amount and Nature of Name and Address Beneficial Percent of Title of Class of Beneficial Owner Ownership Class -------------- ------------------- ---------- ---------- Common Stock The Adams Express Company 1,913,761 9.0% Seven St. Paul Street direct Baltimore, Maryland 21202

Board Meetings The Board of Directors held thirteen meetings during 2001, at which overall attendance was approximately 97%. Each Director attended at least 83% of the total of all (i) meetings of the Board and (ii) meetings of committees of the Board on which he or she served in 2001. Audit Committee Messrs. Arzac, Lenagh, Neff and Roberts, each of whom is an independent director, as such is defined by the Rules of the New York Stock Exchange, constitute the membership of the Board's standing Audit Committee, which met twice in 2001. The Board has adopted a written charter under which the Audit Committee operates, which was most recently amended in January 2001. Set forth below is the report of the Audit Committee: Audit Committee Report The purposes of the Committee are set forth in the Committee's written charter. As provided in the charter, the role of the Committee is to assist the Board of Directors in its oversight on matters relating to accounting, financial reporting, internal control, auditing, and regulatory compliance activities, and other matters the Board deems appropriate. The Committee also recommends to the Board the selection of the Corporation's independent accountants. Management, however, is responsible for the preparation, presentation and integrity of the Corporation's financial statements, and for the procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent accountants are responsible for planning and carrying out proper audits and reviews. In fulfilling its responsibilities, the Committee has reviewed and discussed the audited financial statements contained in the 2001 Annual Report of the Corporation with the Corporation's management and the independent accountants. In addition, the Committee has discussed with the independent accountants the matters required to be discussed pursuant to Statement of Auditing Standards No. 61, as modified or supplemented. The Committee has also received from the independent accountants the written statement regarding independence as required by Independence Standards Board Standard No. 1, considered whether the provision of nonaudit services by the independent accountants is compatible with maintaining the accountants' independence, and discussed with the accountants the accountants' independence. The members of the Committee are not professionally engaged in the practice of auditing or accounting nor are they experts in the fields of auditing or accounting, including the issue of auditor 6 independence. Moreover, the Committee relies on and makes no independent verification of the facts presented to it or representations made by management or the independent accountants. Accordingly, the Committee's oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Committee's considerations and discussions referenced above do not assure that the audit of the Corporation's financial statements has been carried out in accordance with generally accepted accounting standards, that the financial statements are presented in accordance with generally accepted accounting principles, or that the Corporation's accountants are in fact "independent." In reliance on the reviews and discussions with management and the independent accountants referred to above, and subject to the limitations on the responsibilities and role of the Committee set forth in the charter and discussed above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Corporation's 2001 Annual Report, for filing with the Securities and Exchange Commission. Respectfully submitted on February 15, 2002 by the members of the Audit Committee of the Board of Directors: Enrique R. Arzac Thomas H. Lenagh W. Perry Neff, Chairman John J. Roberts Compensation Committee Messrs. Lenagh, Peters, Wilson, and Ms. Schwab constitute the membership of the Board's standing Compensation Committee, which met three times during 2001. The Compensation Committee reviews and recommends changes in the salaries of directors, officers, and employees, and advises upon the compensation and stock option plans in which the executive officers, officers, and employees of the Corporation are eligible to participate. Executive Committee Messrs. Emerson, MacCallan, Neff, Ober*, Wilson, and Ms. Schwab constitute the membership of the Board's standing Executive Committee, which met twice during 2001. The Committee has the authority of the Board of Directors between meetings of the Board except as limited by law, the Corporation's By-laws, or Board resolution. The Executive Committee, minus Mr. Ober, also performs the duties of a nominating committee. It recommends to the full Board candidates for directorship. It is the policy of the Executive Committee not to consider unsolicited nominations for director. Retirement Benefits Committee Messrs. Arzac, Emerson, MacCallan, Peters, and Roberts are the director members of the standing Retirement Benefits Committee of the Corporation, which administers the Employees' Retirement Plan, Supplemental Retirement Plan and the Employee Thrift Plan of the Corporation. This Committee met twice during 2001. ---------- * Mr. Ober is an "interested person." 7 Board of Directors Compensation During 2001, each director who is not an interested person received an annual retainer fee of $10,000 and a fee of $500 for each Board meeting attended. All members of each Committee, except executive officers and/or interested persons, receive an additional annual retainer fee of $1,500 for each committee membership and a fee of $500 for each meeting attended; the Chairman of each committee except for the Executive Committee receives an additional fee of $500 for each Committee meeting attended. The total amount of fees paid to the independent directors in 2001 was $203,500. Transactions with Principal Stockholders The Corporation shares certain expenses for research, accounting services and other office services (including proportionate salaries and other employee benefits), rent and related expenses, and miscellaneous expenses such as office supplies, postage, subscriptions and travel, with Adams, of which all the above-named nominees are also directors. These expenses were paid by Adams and, on the date the payment was made, the Corporation simultaneously paid to Adams its allocated share, based on either the proportion of the size of the investment portfolios of the two companies, or, where possible, on an actual usage basis. In 2001, the Corporation's share of such expenses was $403,312. Audit Fees The aggregate fees paid and accrued by the Corporation for professional services rendered by its independent accountants, PricewaterhouseCoopers LLP, for the audits of the Corporation's annual and semi-annual financial statements for 2001 and the reviews of the financial statements contained in the First and Third Quarter reports in 2001 was $49,123. Financial Information Systems Design and Implementation Fees No such fees were billed to the Corporation by its accountants during 2001. All Other Fees The aggregate fees billed for services to the Corporation by PricewaterhouseCoopers LLP, other than for the services referenced above, for 2001 was $1,205. The Board's Audit Committee has considered the provision by PricewaterhouseCoopers LLP of the services covered in this All Other Fees section and found that they are compatible with maintaining PricewaterhouseCoopers LLP's independence. 8 Remuneration of Directors and Others The following table sets forth for each of the persons named below the aggregate current remuneration received from the Corporation during the fiscal year ended December 31, 2001, for services in all capacities:

Pension or Retirement Estimated Benefits Accrued Annual Aggregate During the Last Benefits upon Name of Person, Position Remuneration (1)(2)(3)(4) Fiscal Year (5) Retirement -------------------- --------------------- ------------------------- ---------------- ------------- Douglas G. Ober Chairman of the Board and Chief Executive Officer (A) $143,352 -- $ 83,076 Richard F. Koloski President 228,400 -- 174,408 Joseph M. Truta Executive Vice President 93,220 -- 52,836 Enrique R. Arzac Director (B)(D) 22,000 N/A N/A Daniel E. Emerson Director (A)(D) 23,000 N/A N/A Edward J. Kelly, III Director 4,000 N/A N/A Thomas H. Lenagh Director (B)(C) 23,000 N/A N/A W. D. MacCallan Director (A)(D) 23,000 N/A N/A W. Perry Neff Director (A)(B) 21,000 N/A N/A Landon Peters Director (C)(D) 22,000 N/A N/A John J. Roberts Director (B)(D) 21,000 N/A N/A Susan C. Schwab Director (A)(C) 22,500 N/A N/A Robert J. M. Wilson Director (A)(C) 22,000 N/A N/A

---------- (A) Member of Executive Committee (B) Member of Audit Committee (C) Member of Compensation Committee (D) Member of Retirement Benefits Committee ---------- (1) Of the amounts shown, direct salaries paid by the Corporation to Messrs. Ober, Koloski, and Truta were $105,280, $150,000, and $70,000, respectively. (2) Of the Corporation's direct salaries, $2,836 for Mr. Ober, $7,350 for Mr. Koloski, and $2,835 for Mr. Truta, was deferred compensation under the Corporation's Employee Thrift Plan. Under the Employee Thrift Plan, the Corporation also makes contributions to match the contributions made by eligible employees (see "Employee Thrift Plan" below). Of the amounts shown, $5,672, $14,700, and $5,670 were plan contributions for Messrs. Ober, Koloski, and Truta, respectively. The non-employee Directors do not participate in the Employee Thrift Plan. (3) Of the amounts shown, $32,400, $63,700, and $17,550 were incentive compensation accrued for Messrs. Ober, Koloski, and Truta, respectively, in 2001 and deferred until January 2002. (4) In addition, $178,771 for Mr. Ober, $434,926 for Mr. Koloski, and $593,755 for Mr. Truta was the net gain realized by them upon the exercise of stock appreciation rights during 2001 granted under the Corporation's Stock Option Plan (see "Stock Option Plan" below). These sums are in addition to the aggregate remuneration amounts shown in this summary table. (5) The Corporation has a noncontributory Employees' Retirement Plan. No contributions were made by the Corporation to this plan in 2001. 9 Messrs. Ober, Koloski, and Truta also received direct salaries, deferred compensation, thrift plan contributions, and incentive compensation from Adams, which amounts were included in this summary table in years prior to 2000. Stock Option Plan On December 12, 1985, the Corporation's Board of Directors adopted a Stock Option Plan (the "Plan"), which was approved by the stockholders at the March 26, 1986 Annual Meeting of Stockholders and amended at the March 29, 1994 Annual Meeting of Stockholders. The Plan provides for the grant to "key employees" (as defined in the Plan) of options to purchase shares of Common Stock of the Corporation, together with related stock appreciation rights. As of December 31, 2001, (i) the number of shares subject to outstanding options under the Plan was 148,997 and (ii) the number of shares available for future grants under the Plan was 298,698. All options granted or to be granted under the Plan currently will be treated as non-qualified stock options under the Internal Revenue Code. The Plan is administered by the Compensation Committee of the Board of Directors, which consists of four members of the Board, none of whom is eligible to receive grants under the Plan. The grant of options is at the discretion of the Compensation Committee. The Plan provides that, among other things, (a) the option price per share shall not be less than the fair market value of the Common Stock at the date of grant, except that the option price per share will be reduced after grant of the option to reflect capital gains distributions to the Corporation's stockholders, provided that no such reduction shall be made that will reduce the option price below 25% of the original option price; (b) an option will not become exercisable until the optionee shall have remained in the employ of the Corporation for at least one year after the date of grant and may be exercised for 10 years unless an earlier expiration date is stated in the option; and (c) no option or stock appreciation right shall be granted after December 8, 2003. The Plan permits the grant of stock appreciation rights in conjunction with the grant of an option, either at the time of the option grant or thereafter during its term and in respect of all or part of such option. Stock appreciation rights permit an optionee to request to receive (a) shares of Common Stock of the Corporation with a fair market value, at the time of exercise, equal to the amount by which the fair market value of all shares subject to the option in respect of which such stock appreciation right was granted exceeds the exercise price of such option, (b) in lieu of such shares, the fair market value thereof in cash, or (c) a combination of shares and cash. Stock appreciation rights are exercisable beginning no earlier than two years after the date of grant and extend over the period during which the related option is exercisable. To the extent a stock appreciation right is exercised in whole or in part, the option in respect of which such stock appreciation right was granted shall terminate and cease to be exercisable. Shares of Common Stock acquired as the result of the exercise of an option or stock appreciation right may not be sold until the later of two years after the date of grant of the option or one year after the acquisition of such shares. Employee Thrift Plan Employees of the Corporation who have completed six months of service may elect to have 2% to 6% of their base salary deferred as a contribution to a thrift plan instead of being paid to them currently (see table set forth on page 9 regarding 2001 contributions for the officers and directors identified 10 therein). The Corporation (subject to certain limitations) contributes for each employee out of net investment income an amount equal to 200% of each employee's contribution or to the maximum permitted by law. Employees may also contribute an additional 10% of base salary to the thrift plan, but these post-tax contributions are not matched by the Corporation. All employee contributions are credited to the employee's individual account. Employees may elect that their salary deferral and other contributions be invested in Common Stock of the Corporation, or of Adams, or several mutual funds, or a combination thereof. Fifty percent of the Corporation's matching contributions is invested in the Corporation's Common Stock, and the remaining fifty percent is invested in the same manner that the employee has elected for his or her contributions. An employee's interest in amounts derived from the Company's contributions becomes non-forfeitable upon completion of 36 months of service or upon death or retirement. Payment of amounts not withdrawn or forfeited under the thrift plan may be made upon retirement or other termination of employment in a single distribution, in ten equal installments, or in an annuity. Employees' Retirement Plan The employees of the Corporation with one or more years of service participate in a retirement plan pursuant to which contributions are made solely by the Corporation on behalf of, and benefits are provided for, employees meeting certain age and service requirements. The plan provides for the payment of benefits in the event of an employee's retirement at age 62 or older. Upon such retirement, the amount of the retirement benefit is 2% of an employee's highest thirty-six months average of an employee's final sixty months annual salary, including incentive compensation, multiplied by years of service. Retirement benefits cannot exceed 60% of the highest thirty-six months' average out of the employee's final sixty months annual salary including incentive compensation. Benefits are payable in several alternative methods, each of which must be the actuarial equivalent of a pension payable for the life of the employee only. Retirement benefits (subject to any applicable reduction) are also payable in the event of an employee's early or deferred retirement, disability, or death. Contributions are made to a trust to fund these benefits. On March 10, 1988, the Board of Directors of the Corporation unanimously approved a supplemental retirement benefits plan (the "Supplemental Plan") for employees of the Corporation. On June 11, 1998, the Supplemental Plan was amended and restated as of January 1, 1998. The purpose of the Supplemental Plan is to provide deferred compensation in excess of benefit limitations imposed by the Internal Revenue Code on tax-qualified defined benefit plans, including the retirement plan of the Corporation described above. In accordance with such limitations, the annual benefit payable under the Corporation's retirement plan may not exceed the lesser of $160,000 for 2002 and the employee's average total compensation paid during the three highest-paid consecutive calendar years of employment. The $160,000 limit will be adjusted by the Secretary of the Treasury to reflect cost-of-living increases. The Supplemental Plan authorizes the Corporation to pay annual retirement benefits to beneficiaries in an amount equal to the difference between the maximum benefits payable under such retirement plan and the benefits that would otherwise be payable but for the Internal Revenue Code's limitations on annual retirement benefits. All amounts payable under the Supplemental Plan will be paid from the general funds of the Corporation as benefits become due. The Corporation has established a funding vehicle using life insurance policies owned by the Corporation for the Supplemental Plan. Payment of benefits under the Supplemental Plan will be made concurrently with and in the same form as payment of benefits under the Corporation's retirement plan. During 2001, the Corporation made payments of $15,467 under the Supplemental Plan. 11 Brokerage Commissions During the past fiscal year, the Corporation paid brokerage commissions in the amount of $236,762 on the purchase and sale of portfolio securities traded on the New York Stock Exchange and the American Stock Exchange, substantially all of which were paid to brokers providing research and other investment services to the Corporation. The average per share commission rate paid by the Corporation was $0.05. No commissions were paid to an affiliated broker. Portfolio Turnover The portfolio turnover rate (purchases or sales, whichever is lower, as a percentage of weighted average portfolio value) for the past three years has been as follows: 2001 2000 1999 ---- ---- ---- 6.74% 7.68% 11.89% Expense Ratio The ratio of expenses to the average net assets of the Corporation for the past three years has been as follows: 2001 2000 1999 ---- ---- ---- 0.35% 0.59% 0.43% (2) RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS The Investment Company Act of 1940 (the "Act") requires, in effect, that the Corporation's independent accountants be selected by a majority of those members of the Board of Directors who are not "interested persons" (as defined by the Act) of the Corporation; that such selection may be submitted for ratification or rejection at the annual meeting of stockholders; and that the employment of such independent accountants be conditioned on the right of the Corporation, by vote of the holders of a majority of its outstanding voting securities, to terminate such employment at any time without penalty. In accordance with such provisions, PricewaterhouseCoopers LLP, 250 W. Pratt Street, Baltimore, Maryland, independent accountants, which firm was the Corporation's principal auditor during the year 2001, has been selected as independent accountants of the Corporation to audit the books and accounts of the Corporation for or during the year ending December 31, 2002, by a majority of those members of the Board of Directors who were not "interested persons" of the Corporation, voting in person, and their selection is submitted to the stockholders for ratification by the affirmative vote of a majority of all votes cast at the meeting. Representatives of PricewaterhouseCoopers LLP are expected to be present at the meeting to make a statement if they desire to do so and to respond to appropriate questions. The Corporation has been informed that PricewaterhouseCoopers LLP does not have any direct financial or any material indirect financial interest in the Corporation. The Board of Directors unanimously recommends ratification of the selection of PricewaterhouseCoopers LLP. ------------------------------------------- (3) OTHER MATTERS AND ANNUAL REPORT As of the date of this proxy statement, management knows of no other business that will come before the meeting. Should other business be properly brought up, it is intended that proxies in the accompanying form will be voted thereon in accordance with the judgment of the person or persons voting such proxies. 12 The Annual Report of the Corporation for the year ended December 31, 2001, including financial statements, has been mailed to all stockholders entitled to notice of and to vote at the annual meeting to be held on March 26, 2002. A copy of the Corporation's Annual Report will be furnished to stockholders, without charge, upon request. You may request a copy by telephoning Lawrence L. Hooper, Jr., Vice President, Secretary and General Counsel, at (800) 638-2479 or by sending Mr. Hooper an e-mail message at contact@peteres.com. The Corporation has retained Georgeson Shareholder Communications Inc. ("GS") to assist in the solicitation of proxies. The Corporation will pay GS a fee for its services not to exceed $5,000 and will reimburse GS for its expenses, which the Corporation estimates will not exceed $2,500. Stockholder Proposals for 2003 Annual Meeting Stockholder proposals for inclusion in the proxy statement and form of proxy relating to the 2003 Annual Meeting must be received at the office of the Corporation, Seven St. Paul Street, Baltimore, MD 21202, no later than October 25, 2002. In addition, pursuant to the Corporation's By-laws, stockholder proposals for consideration at the 2003 Annual Meeting which are not to be included in the Corporation's proxy statement and form of proxy must be received at the office of the Corporation at the address listed in the preceding paragraph no later than January 24, 2003, in order to be eligible for presentation at the 2003 Annual Meeting. Should the Corporation determine to allow a stockholder proposal that is received by the Corporation after January 24, 2003 to be presented at the 2003 Annual Meeting nevertheless, the persons named as proxies in the accompanying form will have discretionary voting authority with respect to such stockholder proposal. 13