LETTER TO STOCKHOLDERS
We submit herewith the summary financial information of Petroleum & Resources Corporation (the Corporation) for the nine months ended September 30, 2011.
Net assets of the Corporation at September 30, 2011 were $25.67 per share on 24,802,996 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. A 2011 investment income dividend of $0.10 per share was paid June 1, 2011, and another $0.10 per share investment income dividend was paid September 1, 2011.
Net investment income for the nine months ended September 30, 2011 amounted to $7,388,963, compared with $6,244,046 for the same nine month period in 2010. These earnings are equal to $0.30 and $0.26 per share, respectively.
Net capital gain realized on investments for the nine months ended September 30, 2011 amounted to $42,974,722, or $1.73 per share.
Performance comparisons for the Corporation, relevant benchmarks, and a Lipper peer group are as follows:
| Performance Comparisons | YTD | 1 Year | 5 Year* | |||||||||
Petroleum & Resources: |
||||||||||||
NAV |
(15.6 | )% | 1.6 | % | 2.0 | % | ||||||
Market price |
(15.4 | )% | 2.5 | % | 2.1 | % | ||||||
Dow Jones U.S. Oil and Gas Index |
(11.9 | )% | 6.7 | % | 3.6 | % | ||||||
Dow Jones Basic Materials Index |
(26.0 | )% | (10.8 | )% | 3.3 | % | ||||||
Lipper Global Natural Resources Funds Index |
(24.7 | )% | (11.4 | )% | 0.6 | % | ||||||
S&P 500 Index |
(8.7 | )% | 1.1 | % | (1.2 | )% | ||||||
| * | Annualized |
For the twelve months ended September 30, 2011, the annual distribution rate (total dividends and distributions as a percentage of the average month-end market price of the Corporation’s Common Stock) was 4.5%. The table on page 3 shows the annual distribution rate over the past five years.
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
October 13, 2011
SUMMARY FINANCIAL INFORMATION
(unaudited)
| 2011 | 2010 | |||||||
| At September 30: | ||||||||
Net asset value per share |
$ | 25.67 | $ | 26.48 | ||||
Market price per share |
22.62 | 23.13 | ||||||
Shares outstanding |
24,802,996 | 24,339,480 | ||||||
Total net assets |
636,729,099 | 644,597,577 | ||||||
Unrealized appreciation |
183,830,825 | 231,539,537 | ||||||
For the nine months ended September 30: |
||||||||
Net investment income |
7,388,963 | 6,244,046 | ||||||
Net realized gain |
42,974,722 | 16,804,328 | ||||||
Total return (based on market price) |
(15.4)% | (1.2)% | ||||||
Total return (based on net asset value) |
(15.6)% | 0.4% | ||||||
Key ratios: |
||||||||
Net investment income to average net assets (annualized) |
1.22% | 1.34% | ||||||
Expenses to average net assets (annualized) |
0.53% | 0.62% | ||||||
Portfolio turnover |
12.25% | 14.34% | ||||||
Net cash & short-term investments to net assets |
0.6% | 4.3% | ||||||
RETURNS ON NET ASSET VALUE
As of September 30, 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% |
11.2% |
||||||||||||||||
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 month-end market price of the Corporation’s Common Stock for the year. |
| ** | The annual distribution rate is the total dividends and capital gain distributions during the year divided by the average month-end market price of the Corporation’s Common Stock for the year. |
CHANGES IN PORTFOLIO SECURITIES
During the Three Months Ended September 30, 2011
(unaudited)
| Shares | ||||||||||||
| Additions | Reductions | Held September 30, 2011 |
||||||||||
Anadarko Petroleum Corp. |
20,000 | 185,000 | ||||||||||
Baker Hughes, Inc. |
50,000 | 215,000 | ||||||||||
Devon Energy Corp. |
25,000 | 135,000 | ||||||||||
Kinder Morgan Inc. |
95,000 | 250,000 | ||||||||||
Marathon Oil Corp. |
50,000 | 130,000 | ||||||||||
Marathon Petroleum Corp. |
100,000 | (1) | 100,000 | |||||||||
Newfield Exploration Co. |
30,000 | 110,000 | ||||||||||
Oasis Petroleum, Inc. |
20,000 | 20,000 | 150,000 | |||||||||
Oil States International, Inc. |
140,000 | 140,000 | ||||||||||
Peabody Energy Corp. |
84,000 | 221,600 | ||||||||||
Royal Dutch Shell plc (Class A) ADR |
4,271 | (2) | 338,783 | |||||||||
Alpha Natural Resources, Inc. |
102,500 | — | ||||||||||
Cliffs Natural Resources Inc. |
48,000 | 142,000 | ||||||||||
EOG Resources, Inc. |
10,000 | 110,000 | ||||||||||
MDU Resources Group, Inc. |
20,400 | 299,000 | ||||||||||
Nabors Industries Ltd. |
125,000 | 119,000 | ||||||||||
Pioneer Natural Resources Co. |
20,000 | 120,000 | ||||||||||
| (1) | Received 0.5 shares for each share of Marathon Oil Corp. held and purchased an additional 60,000 shares. |
| (2) | In lieu of cash dividend. |
3
PORTFOLIO SUMMARY
September 30, 2011
(unaudited)
TEN LARGEST EQUITY PORTFOLIO HOLDINGS
| Market Value | % of Net Assets | |||||||
Exxon Mobil Corp. |
$ | 98,662,771 | 15.5% |
|||||
Chevron Corp. |
86,968,800 | 13.6 |
||||||
Schlumberger Ltd. |
34,344,750 | 5.4 |
||||||
Occidental Petroleum Corp. |
25,025,000 | 3.9 |
||||||
ConocoPhillips |
22,162,000 | 3.5 |
||||||
Royal Dutch Shell plc (Class A) ADR |
20,841,930 | 3.3 |
||||||
Halliburton Co. |
16,023,000 | 2.5 |
||||||
Noble Energy, Inc. |
15,930,000 | 2.5 |
||||||
Freeport-McMoRan Copper & Gold Inc. |
15,681,750 | 2.5 |
||||||
Praxair, Inc. |
14,022,000 | 2.2 |
||||||
|
|
|
|
|||||
Total |
$ | 349,662,001 | 54.9% |
|||||
SECTOR WEIGHTINGS
4
SCHEDULE OF INVESTMENTS
September 30, 2011
(unaudited)
| Shares | Value (A) | |||||||
Stocks — 99.4% |
||||||||
Energy — 77.6% |
||||||||
Exploration & Production — 20.8% |
|
|||||||
Anadarko Petroleum Corp. |
185,000 | $ | 11,664,250 | |||||
Apache Corp. |
150,000 | 12,036,000 | ||||||
Devon Energy Corp. |
135,000 | 7,484,400 | ||||||
Energen Corp. |
185,000 | 7,564,650 | ||||||
EOG Resources, Inc. |
110,000 | 7,811,100 | ||||||
EQT Corp. |
160,000 | 8,537,600 | ||||||
Forest Oil Corp. (C) |
200,000 | 2,880,000 | ||||||
Marathon Oil Corp. |
130,000 | 2,805,400 | ||||||
Marathon Petroleum Corp. |
100,000 | 2,706,000 | ||||||
Newfield Exploration Co. (C) |
110,000 | 4,365,900 | ||||||
Noble Energy, Inc. |
225,000 | 15,930,000 | ||||||
Oasis Petroleum, Inc. (C) (E) |
150,000 | 3,349,500 | ||||||
Occidental Petroleum Corp. |
350,000 | 25,025,000 | ||||||
Pioneer Natural Resources Co. (E) |
120,000 | 7,892,400 | ||||||
QEP Resources, Inc. (with attached rights) |
200,000 | 5,414,000 | ||||||
Southwestern Energy Co. (C) (E) |
200,000 | 6,666,000 | ||||||
|
|
|||||||
| 132,132,200 | ||||||||
|
|
|||||||
Integrated Oil & Gas — 38.0% |
||||||||
Chevron Corp. |
940,000 | 86,968,800 | ||||||
ConocoPhillips (E) |
350,000 | 22,162,000 | ||||||
Exxon Mobil Corp. (F) |
1,358,430 | 98,662,771 | ||||||
Hess Corp. |
250,000 | 13,115,000 | ||||||
Royal Dutch Shell plc (Class A) ADR |
338,783 | 20,841,930 | ||||||
|
|
|||||||
| 241,750,501 | ||||||||
|
|
|||||||
Pipelines — 3.5% |
||||||||
Kinder Morgan Inc. (B) |
250,000 | 6,472,500 | ||||||
Spectra Energy Corp. |
208,812 | 5,122,158 | ||||||
Williams Companies, Inc. |
450,000 | 10,953,000 | ||||||
|
|
|||||||
| 22,547,658 | ||||||||
|
|
|||||||
Services — 15.3% |
||||||||
Baker Hughes, Inc. |
215,000 | 9,924,400 | ||||||
Halliburton Co. |
525,000 | 16,023,000 | ||||||
Nabors Industries Ltd. (C) (E) |
119,000 | 1,458,940 | ||||||
National Oilwell Varco, Inc. (E) |
250,000 | 12,805,000 | ||||||
Oil States International, Inc. (C) |
140,000 | 7,128,800 | ||||||
Schlumberger Ltd. |
575,000 | 34,344,750 | ||||||
Transocean Ltd. (C) |
217,953 | 10,405,076 | ||||||
Weatherford International, Ltd. (C) |
450,000 | 5,494,500 | ||||||
|
|
|||||||
| 97,584,466 | ||||||||
|
|
|||||||
Basic Materials — 16.2% |
||||||||
Chemicals — 10.3% |
||||||||
Air Products and Chemicals, Inc. |
100,000 | 7,637,000 | ||||||
CF Industries Holdings, Inc. (E) |
70,069 | 8,645,815 | ||||||
Dow Chemical Co. |
600,000 | 13,476,000 | ||||||
FMC Corp. |
130,000 | 8,990,800 | ||||||
Potash Corporation of Saskatchewan Inc. (E) |
289,000 | 12,490,580 | ||||||
Praxair, Inc. (E) |
150,000 | 14,022,000 | ||||||
|
|
|||||||
| 65,262,195 | ||||||||
|
|
|||||||
Industrial Metals — 4.5% |
||||||||
Cliffs Natural Resources Inc. (E) |
142,000 | 7,266,140 | ||||||
Freeport-McMoRan Copper & Gold Inc. |
515,000 | 15,681,750 | ||||||
Teck Resources Ltd. (Class B) |
200,000 | 5,838,000 | ||||||
|
|
|||||||
| 28,785,890 | ||||||||
|
|
|||||||
Mining — 1.4% |
||||||||
CONSOL Energy Inc. |
46,300 | 1,570,959 | ||||||
Peabody Energy Corp. |
221,600 | 7,507,808 | ||||||
|
|
|||||||
| 9,078,767 | ||||||||
|
|
|||||||
Utilities — 5.6% |
||||||||
MDU Resources Group, Inc. |
299,000 | 5,737,810 | ||||||
National Fuel Gas Co. (E) |
175,000 | 8,519,000 | ||||||
New Jersey Resources Corp. |
280,000 | 11,919,600 | ||||||
Northeast Utilities |
200,000 | 6,730,000 | ||||||
Questar Corp. |
156,300 | 2,768,073 | ||||||
|
|
|||||||
| 35,674,483 | ||||||||
|
|
|||||||
Total Common Stocks |
632,816,160 | |||||||
|
|
|||||||
5
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2011
(unaudited)
| Principal/ Shares |
Value (A) | ||||||
Short-Term Investments — 1.6% |
|||||||
Time Deposits — 1.6% |
|||||||
M&T Bank, 0.90% |
$ | 10,414,706 | $ | 10,414,706 | |||
|
|
||||||
Money Market Funds — 0.0% |
|||||||
Fidelity Institutional Money Market - Government Portfolio, 0.01% (D) |
10,000 | 10,000 | |||||
RBC U.S. Government Money Market (Institutional Class I), 0.01% (D) |
10,000 | 10,000 | |||||
Vanguard Federal Money Market, 0.01% (D) |
10,000 | 10,000 | |||||
Western Asset Institutional Government Reserves (Institutional Class), |
10,000 | 10,000 | |||||
|
|
||||||
| 40,000 | |||||||
|
|
||||||
Total Short-Term Investments |
10,454,706 | ||||||
|
|
||||||
Securities Lending Collateral — 1.0% |
|||||||
(Cost $6,385,110) |
|||||||
Money Market Funds — 1.0% |
|||||||
Invesco Short-Term Investment Trust - Liquid Assets Portfolio (Institutional Class), 0.11% (D) |
6,385,110 | 6,385,110 | |||||
|
|
||||||
Total Investments — 102.0% |
649,655,976 | ||||||
Cash, receivables, prepaid expenses and other assets, less liabilities — (2.0)% |
(12,926,877 | ||||||
|
|
||||||
Net Assets — 100.0% |
$ | 636,729,099 | |||||
|
|
||||||
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) | A portion of shares held are on loan. |
| (C) | Presently non-dividend paying. |
| (D) | Rate presented is as of period-end and represents the annualized yield earned over the previous seven days. |
| (E) | All or a portion of this security is pledged to cover open written call option contracts. Aggregate market value of such pledged securities is $18,958,228. |
| (F) | 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 $33,072,500. |
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
OTHER INFORMATION
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.
STATEMENT ON QUARTERLY FILING OF COMPLETE PORTFOLIO SCHEDULE
In addition to publishing its complete schedule of portfolio holdings in the First and Third Quarter Reports to Stockholders, the Corporation also files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Corporation’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Corporation’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Corporation also posts a link to its Forms N-Q on its website at: www.peteres.com, under the headings “Investment Information”, “Financial Reports” and then “SEC Filings”.
PROXY VOTING POLICIES AND RECORD
A description of the policies and procedures that the Corporation uses to determine how to vote proxies relating to portfolio securities owned by the Corporation and the Corporation’s proxy voting record for the 12-month period ended June 30, 2011 are available (i) without charge, upon request, by calling the Corporation’s toll free number at (800) 638-2479; (ii) on the Corporation’s website at www.peteres.com under the headings “About Petroleum & Resources” and “Corporate Information”; and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.
PRIVACY POLICY
In order to conduct its business, the Corporation, through its transfer agent, currently American Stock Transfer & Trust Company, collects and maintains certain nonpublic personal information about our stockholders of record with respect to their transactions in shares of our securities. This information includes the stockholder’s address, tax identification or Social Security number, share balances, and dividend elections. We do not collect or maintain personal information about stockholders whose shares of our securities are held in “street name” by a financial institution such as a bank or broker.
We do not disclose any nonpublic personal information about you, our other stockholders or our former stockholders to third parties unless necessary to process a transaction, service an account or as otherwise permitted by law.
To protect your personal information internally, we restrict access to nonpublic personal information about our stockholders to those employees who need to know that information to provide services to our stockholders. We also maintain certain other safeguards to protect your nonpublic personal information.
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, CFA |
Chairman, President and Chief Executive Officer |
|
Nancy J.F. Prue, CFA |
Executive Vice President |
|
David D. Weaver, CFA |
Executive Vice President |
|
Lawrence L. Hooper, Jr. |
Vice President, General Counsel and Secretary |
|
Michael A. Kijesky, CFA |
Vice President—Research |
|
Brian S. Hook, CFA, CPA |
Treasurer |
|
Christine M. Sloan, CPA |
Assistant Treasurer |
|
Geraldine H. Paré |
Assistant Secretary |
Stock Data
Market Price (9/30/11) |
$ | 22.62 | ||
Net Asset Value (9/30/11) |
$ | 25.67 | ||
Discount |
11.9% |
New York Stock Exchange ticker symbol: PEO
NASDAQ Quotation Symbol for NAV: XPEOX
Distributions in 2011
From Investment Income |
$ | 0.24 | ||
From Net Realized Gains |
0.06 | |||
|
|
|||
Total |
$ | 0.30 | ||
|
|
2011 Dividend Payment Dates
March 1, 2011
June 1, 2011
September 1, 2011
December 27, 2011*
*Anticipated