LETTER TO STOCKHOLDERS
We are pleased to present summary financial information of Petroleum & Resources Corporation (the Corporation) for the three months ended March 31, 2011.
Net assets of the Corporation at March 31, 2011 were $34.88 per share on 24,801,865 shares outstanding, compared with $30.73 per share at December 31, 2010 on 24,789,698 shares outstanding. On March 1, 2011, a distribution of $0.10 per share was paid, consisting of $0.05 from 2010 long-term capital gain, $0.01 from 2010 short-term capital gain, $0.03 from 2010 investment income, and $0.01 from 2011 investment income, all taxable in 2011. On April 14, 2011, an investment income dividend of $0.10 per share was declared to stockholders of record May 13, 2011, payable June 1, 2011.
Net investment income for the three months ended March 31, 2011 amounted to $2,159,280, compared with $1,953,692 for the same three month period in 2010. These earnings are equal to $0.09 and $0.08 per share, respectively.
Net capital gain realized on investments for the three months ended March 31, 2011 amounted to $18,090,334, or $0.73 per share.
For the three months ended March 31, 2011, the total return on net asset value (with dividends and capital gains reinvested) of shares of the Corporation was 13.9%. The total return on the market value of the Corporation’s shares for the period was 13.7%. These compare to a 17.2% total return for the Dow Jones U.S. Oil and Gas Index, a 5.9% total return for the Dow Jones U.S. Basic Materials Index, an 11.2% total return for the Lipper Global Natural Resources Funds Index (“Lipper Peer Group”) and a 5.9% total return for the Standard & Poor’s 500 Composite Stock Index (“S&P 500”) over the same time period.
For the twelve months ended March 31, 2011, the Corporation’s total return on net asset value was 35.1% and on market value was 34.9%. Comparable figures for the Dow Jones U.S. Oil & Gas Index, the Dow Jones U.S. Basic Materials Index, the Lipper Peer Group, and the S&P 500 were 39.6%, 30.8%, 28.1%, and 15.6%, respectively.
For the twelve months ended March 31, 2011, the annual distribution rate (total dividends and distributions as a percentage of the average daily market price of the Corporation’s Common Stock) was 5.1%. The table on page 3 shows the annual distribution rate over the past five years.
The Annual Meeting was held on March 22, 2011 in Baltimore, Maryland. The results of the voting at the Annual Meeting are shown on page 7.
We are pleased to announce that, effective April 1, 2011, Mr. Michael A. Kijesky has been elected Vice President—Research. Mr. Kijesky joined the Corporation in 2009 as a senior equity analyst with a focus on energy and basic materials stocks.
Current and potential stockholders 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, on our website at www.peteres.com. Also available on the website are a brief history of the Corporation, historical financial information, links for electronic delivery of stockholder reports, and other useful content.
By order of the Board of Directors,
Douglas G. Ober,
Chairman, President and
Chief Executive Officer
April 14, 2011
SUMMARY FINANCIAL INFORMATION
Three Months Ended March 31
(unaudited)
| 2011 | 2010 | |||||||
| Net asset value per share |
$ | 34.88 | $ | 27.12 | ||||
| Total net assets |
865,204,122 | 660,138,236 | ||||||
| Unrealized appreciation |
437,755,567 | 260,911,474 | ||||||
| Net investment income |
2,159,280 | 1,953,692 | ||||||
| Net realized gain |
18,090,334 | 2,630,937 | ||||||
| Market price per share |
30.61 | 23.83 | ||||||
| Shares outstanding |
24,801,865 | 24,339,368 | ||||||
| Total return (based on market price) |
13.7% | 0.8% | ||||||
| Total return (based on net asset value) |
13.9% | 1.8% | ||||||
| Key ratios: |
||||||||
| Net investment income to average net assets (annualized) |
1.05% | 1.22% | ||||||
| Expenses to average net assets (annualized) |
0.54% | 0.58% | ||||||
| Portfolio turnover |
5.39% | 4.03% | ||||||
| Net cash & short-term investments to net assets |
3.3% | 1.4% | ||||||
RETURNS ON NET ASSET VALUE
As of March 31, 2011
(unaudited)
2
FIVE YEAR DISTRIBUTION HISTORY
(unaudited)
| Year |
Income Dividends Per Share |
Short-Term Capital Gains Per Share |
Long-Term Capital Gains Per Share |
Total Distributions Per Share |
Dividend Yield* |
Annual Distribution Rate** |
||||||||||||||||||
| 2006 |
$0.47 | $0.34 | $2.99 | $3.80 | 1.4 | % | 11.3 | % | ||||||||||||||||
| 2007 |
0.49 | 0.04 | 3.78 | 4.31 | 1.3 | 11.6 | ||||||||||||||||||
| 2008 |
0.38 | 0.04 | 2.57 | 2.99 | 1.1 | 8.9 | ||||||||||||||||||
| 2009 |
0.37 | 0.14 | 0.89 | 1.40 | 1.7 | 6.6 | ||||||||||||||||||
| 2010 |
0.32 | 0.19 | 0.76 | 1.27 | 1.4 | 5.5 | ||||||||||||||||||
| Average: | 1.4 | % | 8.8 | % | ||||||||||||||||||||
| * | The dividend yield is the total income dividends during the year divided by the average daily market price of the Corporation’s Common Stock. |
| ** | The annual distribution rate is the total dividends and capital gain distributions during the year divided by the average daily market price of the Corporation’s Common Stock. |
CHANGES IN PORTFOLIO SECURITIES
During the Three Months Ended March 31, 2011
(unaudited)
| Shares | ||||||||||||
| Additions | Reductions | Held March 31, 2011 |
||||||||||
| CF Industries Holdings, Inc. |
56,735 | 70,069 | ||||||||||
| FMC Corp. |
130,000 | 130,000 | ||||||||||
| Forest Oil Corp. |
10,771 | 140,771 | ||||||||||
| Freeport-McMoRan Copper & Gold Inc. |
247,500 | (1) | 495,000 | |||||||||
| Halliburton Co. |
125,000 | 525,000 | ||||||||||
| Kinder Morgan, Inc. |
71,000 | 71,000 | ||||||||||
| National Oilwell Varco, Inc. |
50,000 | 50,000 | 200,000 | |||||||||
| Newfield Exploration Co. |
20,000 | 80,000 | ||||||||||
| Potash Corporation of Saskatchewan Inc. |
188,500 | (1) | 282,750 | |||||||||
| Royal Dutch Shell plc (Class A) ADR |
3,930 | (2) | 330,612 | |||||||||
| Schlumberger Ltd. |
25,000 | 500,000 | ||||||||||
| Teck Resources Ltd. |
200,000 | 200,000 | ||||||||||
| AGL Resources Inc. |
147,010 | — | ||||||||||
| Apache Corp. |
25,000 | 150,000 | ||||||||||
| Energen Corp. |
15,000 | 185,000 | ||||||||||
| Massey Energy Co. |
80,000 | 100,000 | ||||||||||
| MDU Resources Group, Inc. |
29,600 | 345,400 | ||||||||||
| Nabors Industries Ltd. |
151,000 | 369,000 | ||||||||||
| National Fuel Gas Co. |
25,000 | 175,000 | ||||||||||
| New Jersey Resources Corp. |
3,000 | 287,000 | ||||||||||
| Noble Corp. |
165,000 | — | ||||||||||
| Noble Energy, Inc. |
15,000 | 225,000 | ||||||||||
| Oasis Petroleum, Inc. |
50,000 | 150,000 | ||||||||||
| Occidental Petroleum Corp. |
43,700 | 350,000 | ||||||||||
| Questar Corp. |
3,700 | 176,300 | ||||||||||
| Total S.A. ADR |
29,500 | — | ||||||||||
| Transocean Ltd. |
30,000 | 227,953 | ||||||||||
| (1) | By stock split. |
| (2) | In lieu of cash dividend. |
3
PORTFOLIO SUMMARY
March 31, 2011
(unaudited)
TEN LARGEST EQUITY PORTFOLIO HOLDINGS
| Market Value | % of Net Assets | |||||||||||
| Exxon Mobil Corp. |
$ | 110,498,866 | 12.8 | % | ||||||||
| Chevron Corp. |
100,984,200 | 11.7 | ||||||||||
| Schlumberger Ltd. |
46,630,000 | 5.4 | ||||||||||
| Occidental Petroleum Corp. |
36,571,500 | 4.2 | ||||||||||
| ConocoPhillips |
27,951,000 | 3.2 | ||||||||||
| Freeport-McMoRan Copper & Gold Inc. |
27,497,250 | 3.2 | ||||||||||
| Halliburton Co. |
26,166,000 | 3.0 | ||||||||||
| Royal Dutch Shell plc (Class A) ADR |
24,088,390 | 2.8 | ||||||||||
| International Coal Group, Inc. |
23,371,598 | 2.7 | ||||||||||
| Dow Chemical Co. |
22,650,000 | 2.6 | ||||||||||
| Total |
$ | 446,408,804 | 51.6 | % | ||||||||
SECTOR WEIGHTINGS
4
SCHEDULE OF INVESTMENTS
March 31, 2011
(unaudited)
| Shares |
Value (A) | ||||||
| Stocks — 96.7% |
|||||||
| Energy — 72.6% |
|||||||
| Exploration & Production — 21.5% |
|
||||||
| Anadarko Petroleum Corp. |
165,000 | $ | 13,516,800 | ||||
| Apache Corp. |
150,000 | 19,638,000 | |||||
| Devon Energy Corp. |
110,000 | 10,094,700 | |||||
| Energen Corp. |
185,000 | 11,677,200 | |||||
| EOG Resources, Inc. |
120,000 | 14,221,200 | |||||
| EQT Corp. |
220,000 | 10,978,000 | |||||
| Forest Oil Corp. (B) |
140,771 | 5,325,367 | |||||
| Newfield Exploration Co. (B) |
80,000 | 6,080,800 | |||||
| Noble Energy, Inc. |
225,000 | 21,746,250 | |||||
| Oasis Petroleum, Inc. (B) |
150,000 | 4,743,000 | |||||
| Occidental Petroleum Corp. |
350,000 | 36,571,500 | |||||
| Pioneer Natural Resources Co. (D) |
140,000 | 14,268,800 | |||||
| QEP Resources, Inc. (with attached rights) |
200,000 | 8,108,000 | |||||
| Southwestern Energy Co. (B) (D) |
200,000 | 8,594,000 | |||||
| 185,563,617 | |||||||
| Integrated — 32.9% |
|||||||
| Chevron Corp. |
940,000 | 100,984,200 | |||||
| ConocoPhillips |
350,000 | 27,951,000 | |||||
| Exxon Mobil Corp. (E) |
1,313,430 | 110,498,866 | |||||
| Hess Corp. |
250,000 | 21,302,500 | |||||
| Royal Dutch Shell plc (Class A) ADR |
330,612 | 24,088,390 | |||||
| 284,824,956 | |||||||
| Pipelines — 2.5% |
|||||||
| Kinder Morgan, Inc. (B) |
71,000 | 2,104,440 | |||||
| Spectra Energy Corp. |
208,812 | 5,675,510 | |||||
| Williams Companies, Inc. |
450,000 | 14,031,000 | |||||
| 21,810,950 | |||||||
| Services — 15.7% |
|||||||
| Baker Hughes, Inc. |
112,000 | 8,224,160 | |||||
| Halliburton Co. |
525,000 | 26,166,000 | |||||
| Nabors Industries Ltd. (B) |
369,000 | 11,210,220 | |||||
| National Oilwell Varco, Inc. |
200,000 | 15,854,000 | |||||
| Schlumberger Ltd. |
500,000 | 46,630,000 | |||||
| Transocean Ltd. (B) (D) |
227,953 | 17,768,936 | |||||
| Weatherford International, Ltd. (B) |
450,000 | 10,170,000 | |||||
| 136,023,316 | |||||||
| Basic Materials — 19.1% |
|||||||
| Chemicals — 9.2% |
|||||||
| CF Industries Holdings, Inc. (D) |
70,069 | 9,584,738 | |||||
| Dow Chemical Co. |
600,000 | 22,650,000 | |||||
| FMC Corp. |
130,000 | 11,040,900 | |||||
| Potash Corporation of Saskatchewan Inc. (D) |
282,750 | 16,662,458 | |||||
| Praxair, Inc. |
196,508 | 19,965,213 | |||||
| 79,903,309 | |||||||
| Industrial Metals — 6.1% |
|||||||
| Cliffs Natural Resources Inc. |
150,000 | 14,742,000 | |||||
| Freeport-McMoRan Copper & Gold Inc. |
495,000 | 27,497,250 | |||||
| Teck Resources Ltd. |
200,000 | 10,604,000 | |||||
| 52,843,250 | |||||||
| Mining — 3.8% |
|||||||
| CONSOL Energy Inc. (D) |
46,300 | 2,483,069 | |||||
| International Coal Group, Inc. (B) (D) |
2,068,283 | 23,371,598 | |||||
| Massey Energy Co. (D) |
100,000 | 6,836,000 | |||||
| 32,690,667 | |||||||
| Utilities — 5.0% |
|||||||
| MDU Resources Group, Inc. |
345,400 | 7,933,838 | |||||
| National Fuel Gas Co. |
175,000 | 12,950,000 | |||||
| New Jersey Resources Corp. |
287,000 | 12,326,650 | |||||
| Northeast Utilities |
200,000 | 6,920,000 | |||||
| Questar Corp. |
176,300 | 3,076,435 | |||||
| 43,206,923 | |||||||
| Total Stocks |
836,866,988 | ||||||
5
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2011
(unaudited)
| Principal/ Shares |
Value (A) | ||||||
| Short-Term Investments — 3.3% |
|||||||
| Time Deposits — 1.7% |
|||||||
| Wilmington Trust FSB, 0.90% |
$ | 15,000,000 | $ | 15,000,000 | |||
| Money Market Funds — 1.6% |
|||||||
| Fidelity Institutional Money Market - Government Portfolio, 0.01% (C) |
10,000 | 10,000 | |||||
| RBC U.S. Government Money Market (Institutional Class I), 0.06% (C) |
13,159,484 | 13,159,484 | |||||
| Vanguard Federal Money Market, 0.03% (C) |
10,000 | 10,000 | |||||
| Western Asset Institutional Government Reserves (Institutional Class), 0.05% (C) |
10,000 | 10,000 | |||||
| 13,189,484 | |||||||
| Total Short-Term Investments |
28,189,484 | ||||||
| Total Investments — 100.0% |
865,056,472 | ||||||
| Cash, receivables, prepaid |
147,650 | ||||||
| Net Assets — 100.0% |
$ | 865,204,122 | |||||
Notes:
| (A) | Securities are listed on the New York Stock Exchange or the NASDAQ and are valued at the last reported sale price on the day of valuation. |
| (B) | Presently non-dividend paying. |
| (C) | Rate presented is as of period-end and represents the annualized yield earned over the previous seven days. |
| (D) | All or a portion of this security is pledged to cover open written call option contracts. Aggregate market value of such pledged securities is $17,190,130. |
| (E) | All or a portion of this security is pledged to collateralize open written put option contracts with an aggregate market value to deliver upon exercise of $19,609,000. |
This report 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 the report. The rates of return will vary and the principal value of an investment will fluctuate. Shares, if sold, may be worth more or less than their original cost. Past performance is no guarantee of future investment results.
6
ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders was held on March 22, 2011. The following votes were cast for directors:
| Votes For | Votes Withheld | |||||||
| Enrique R. Arzac |
20,355,639 | 1,291,486 | ||||||
| Phyllis O. Bonanno |
20,452,896 | 1,194,229 | ||||||
| Kenneth J. Dale |
20,556,773 | 1,090,352 | ||||||
| Daniel E. Emerson |
20,360,967 | 1,286,158 | ||||||
| Frederic A. Escherich |
20,557,755 | 1,089,370 | ||||||
| Roger W. Gale |
20,540,881 | 1,106,244 | ||||||
| Thomas H. Lenagh |
20,292,464 | 1,354,661 | ||||||
| Kathleen T. McGahran |
20,492,509 | 1,154,616 | ||||||
| Douglas G. Ober |
20,557,588 | 1,089,537 | ||||||
| Craig R. Smith |
20,539,868 | 1,107,257 | ||||||
A proposal to approve and ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Corporation for 2011 was approved with 20,692,595 votes for, 475,266 votes against, and 479,273 shares abstaining.
The Corporation
Petroleum & Resources Corporation
Seven St. Paul Street, Suite 1140, Baltimore, MD 21202
(410) 752-5900 (800) 638-2479
Website: www.peteres.com
E-mail: contact@peteres.com
Counsel: Chadbourne & Parke LLP
Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP
Custodian of Securities: Brown Brothers Harriman & Co.
Transfer Agent & Registrar: American Stock Transfer & Trust Company
Stockholder Relations Department
59 Maiden Lane
New York, NY 10038
(866) 723-8330
Website: www.amstock.com
E-mail: info@amstock.com
7
PETROLEUM & RESOURCES CORPORATION
Board of Directors
Enrique R. Arzac 2,3 |
Roger W. Gale 2,4 | |
Phyllis O. Bonanno 3,4 |
Thomas H. Lenagh 2,4 | |
Kenneth J. Dale 2,4 |
Kathleen T. McGahran 1,3,5 | |
Daniel E. Emerson 1,3,5 |
Douglas G. Ober 1 | |
Frederic A. Escherich 1,4,5 |
Craig R. Smith 1,3,5 |
| 1. | Member of Executive Committee |
| 2. | Member of Audit Committee |
| 3. | Member of Compensation Committee |
| 4. | Member of Retirement Benefits Committee |
| 5. | Member of Nominating and Governance Committee |
Officers
Douglas G. Ober |
Chairman, President and Chief Executive Officer |
|
Nancy J.F. Prue |
Executive Vice President |
|
David D. Weaver |
Executive Vice President |
|
Lawrence L. Hooper, Jr. |
Vice President, General Counsel and Secretary |
|
Michael A. Kijesky |
Vice President—Research |
|
Brian S. Hook |
Treasurer |
|
Christine M. Sloan |
Assistant Treasurer |
|
Geraldine H. Paré |
Assistant Secretary |
Stock Data
Market Price (3/31/11) |
$ | 30.61 | ||
Net Asset Value (3/31/11) |
$ | 34.88 | ||
Discount |
12.2% |
New York Stock Exchange ticker symbol: PEO
NASDAQ Quotation Symbol for NAV: XPEOX
Distributions in 2011
From Investment Income (paid or declared) |
$ | 0.14 | ||
From Net Realized Gains |
0.06 | |||
Total |
$ | 0.20 | ||
2011 Dividend Payment Dates
March 1, 2011
June 1, 2011
September 1, 2011*
December 27, 2011*
*Anticipated