LETTER TO STOCKHOLDERS
We submit herewith the summary financial information of Petroleum & Resources Corporation (the Corporation) for the three months ended March 31, 2012.
Net assets of the Corporation at March 31, 2012 were $29.90 per share on 25,655,036 shares outstanding, compared with $28.58 per share at December 31, 2011 on 25,641,018 shares outstanding. On March 1, 2012, a distribution of $0.10 per share was paid, consisting of $0.05 from 2011 long-term capital gain, $0.01 from 2011 short-term capital gain, $0.03 from 2011 investment income and $0.01 from 2012 investment income, all taxable in 2012. On April 12, 2012, an investment income dividend of $0.10 per share was declared to stockholders of record May 14, 2012, payable June 1, 2012.
Net investment income for the three months ended March 31, 2012 amounted to $2,760,282, compared with $2,159,280 for the same three month period in 2011. These earnings are equal to $0.11 and $0.09 per share, respectively.
Net capital gain realized on investments for the three months ended March 31, 2012 amounted to $14,709,662, or $0.57 per share.
For the twelve months ended March 31, 2012, 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 7.3%. The table on page 2 shows the annual distribution rate over the past five years.
Performance comparisons for the Corporation, relevant benchmarks, and a Lipper peer group are as follows:
| Performance Comparisons | YTD | 1 Year | 3 Year* | 5 Year* | ||||||||||||
Petroleum & Resources: |
||||||||||||||||
NAV |
5.0 | % | -7.5 | % | 20.7 | % | 3.9 | % | ||||||||
Market price |
6.6 | % | -8.4 | % | 19.5 | % | 3.1 | % | ||||||||
Lipper Global Natural Resources Funds Index |
6.6 | % | -19.8 | % | 18.8 | % | 0.9 | % | ||||||||
Dow Jones U.S. Oil and Gas Index† |
4.8 | % | -6.9 | % | 19.6 | % | 5.1 | % | ||||||||
Dow Jones U.S. Basic Materials Index† |
10.0 | % | -11.5 | % | 28.8 | % | 4.1 | % | ||||||||
| † | Market indices do not include expenses and transaction costs, which are deducted from Fund and Lipper returns. |
| * | Annualized |
The Annual Meeting was held on March 20, 2012 in Baltimore, Maryland. The results of the voting at the Annual Meeting are shown on page 7.
We are pleased to announce that on March 20, 2012, Ms. Nancy J.F. Prue was elected President of the Corporation and Mr. Brian S. Hook was elected Chief Financial Officer. Ms. Prue has served as Executive Vice President since 2009, as Vice President since 2005 and as Vice President—Research since 1986. Mr. Hook has served as the Treasurer since 2009 and as Assistant Treasurer since 2008.
Ms. Geraldine H. Paré will retire from the Corporation as Assistant Secretary in April 2012, after 25 years of service. We thank Ms. Paré for her many contributions over the years and wish her well in her retirement.
Investors 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 and Chief Executive Officer
April 12, 2012 |
Nancy J.F. Prue President |
SUMMARY FINANCIAL INFORMATION
(unaudited)
| 2012 | 2011 | |||||||
| At March 31: | ||||||||
| Net asset value per share |
$ | 29.90 | $ | 34.88 | ||||
| Market price per share |
26.00 | 30.61 | ||||||
| Shares outstanding |
25,655,036 | 24,801,865 | ||||||
| Total net assets |
767,019,534 | 865,204,122 | ||||||
| Unrealized appreciation on investments |
321,534,830 | 437,755,567 | ||||||
| For the three months ended March 31: |
||||||||
| Net investment income |
2,760,282 | 2,159,280 | ||||||
| Net realized gain |
14,709,662 | 18,090,334 | ||||||
| Total return (based on market price) |
6.6% | 13.7% | ||||||
| Total return (based on net asset value) |
5.0% | 13.9% | ||||||
| Key ratios: |
||||||||
| Net investment income to average net assets (annualized) |
1.45% | 1.05% | ||||||
| Expenses to average net assets (annualized) |
0.64% | 0.54% | ||||||
| Portfolio turnover (annualized) |
8.59% | 21.54% | ||||||
| Net cash & short-term investments to net assets |
5.1% | 3.3% | ||||||
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 |
Annual Distribution Rate* |
|||||||||||||||
| 2007 |
$ | 0.49 | $ | 0.04 | $ | 3.78 | $ |
4.31 |
|
11.6 | % | |||||||||
| 2008 |
0.38 | 0.04 | 2.57 | 2.99 | 8.9 | |||||||||||||||
| 2009 |
0.37 | 0.14 | 0.89 | 1.40 | 6.6 | |||||||||||||||
| 2010 |
0.32 | 0.19 | 0.76 | 1.27 | 5.5 | |||||||||||||||
| 2011 |
0.39 | 0.02 | 1.56 | 1.97 | 7.1 | |||||||||||||||
|
|
|
|||||||||||||||||||
| Average: | 7.9 | % | ||||||||||||||||||
| * | 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. |
2
CHANGES IN PORTFOLIO SECURITIES
During the Three Months Ended March 31, 2012
(unaudited)
| Shares | ||||||||||||
| Additions | Reductions | Held March 31, 2012 |
||||||||||
| CF Industries Holdings, Inc. |
14,000 | 84,069 | ||||||||||
| LyondellBasell Industries N.V. |
75,000 | 75,000 | ||||||||||
| Marathon Oil Corp. |
45,000 | 175,000 | ||||||||||
| Marathon Petroleum Corp. |
25,000 | 10,000 | 190,000 | |||||||||
| Occidental Petroleum Corp. |
35,000 | 360,000 | ||||||||||
| Royal Dutch Shell plc (Class A) ADR |
2,273 | (1) | 86,783 | 182,273 | ||||||||
| Transocean Ltd. |
100,000 | 100,000 | ||||||||||
| WPX Energy, Inc. |
150,000 | (2) | 150,000 | |||||||||
| Apache Corp. |
10,000 | 140,000 | ||||||||||
| Baker Hughes, Inc. |
155,000 | 60,000 | ||||||||||
| Chevron Corp. |
80,000 | 860,000 | ||||||||||
| CONSOL Energy Inc. |
46,300 | — |
||||||||||
| Energen Corp. |
10,000 | 175,000 | ||||||||||
| Freeport-McMoRan Copper & Gold Inc. |
28,000 | 487,000 | ||||||||||
| Hess Corp. |
25,000 | 225,000 | ||||||||||
| MDU Resources Group, Inc. |
68,000 | 211,000 | ||||||||||
| National Fuel Gas Co. |
65,000 | 100,000 | ||||||||||
| Noble Energy, Inc. |
35,000 | 190,000 | ||||||||||
| Northeast Utilities |
163,000 | 37,000 | ||||||||||
| Peabody Energy Corp. |
16,660 | 204,940 | ||||||||||
| Pioneer Natural Resources Co. |
25,000 | 75,000 | ||||||||||
| Potash Corporation of Saskatchewan Inc. |
49,000 | 240,000 | ||||||||||
| QEP Resources, Inc. |
10,000 | 190,000 | ||||||||||
| Southwestern Energy Co. |
145,000 | 55,000 | ||||||||||
| Williams Companies, Inc. |
50,000 | 400,000 | ||||||||||
| (1) | In lieu of cash dividend. |
| (2) | Received 0.33 share for each share of Williams Companies, Inc. owned. |
3
PORTFOLIO SUMMARY
March 31, 2012
(unaudited)
TEN LARGEST EQUITY PORTFOLIO HOLDINGS
| Market Value | % of Net Assets | |||||||
| Exxon Mobil Corp. |
$ | 117,816,634 | 15.4 | % | ||||
| Chevron Corp. |
92,226,400 | 12.0 | ||||||
| Schlumberger Ltd. |
40,209,750 | 5.2 | ||||||
| Occidental Petroleum Corp. |
34,282,800 | 4.5 | ||||||
| ConocoPhillips |
26,603,500 | 3.5 | ||||||
| Anadarko Petroleum Corp. |
21,543,500 | 2.8 | ||||||
| National Oilwell Varco, Inc. |
19,867,500 | 2.6 | ||||||
| Dow Chemical Co. |
19,052,000 | 2.5 | ||||||
| Noble Energy, Inc. |
18,578,200 | 2.4 | ||||||
| Freeport-McMoRan Copper & Gold Inc. |
18,525,480 | 2.4 | ||||||
|
|
|
|
|
|||||
| Total |
$ | 408,705,764 | 53.3 | % | ||||
SECTOR WEIGHTINGS
4
SCHEDULE OF INVESTMENTS
March 31, 2012
(unaudited)
| Shares | Value (A) | |||||||
| Stocks — 94.9% |
||||||||
| Energy — 74.1% |
||||||||
| Exploration & Production — 21.9% |
|
|||||||
| Anadarko Petroleum Corp. (E) |
275,000 | $ | 21,543,500 | |||||
| Apache Corp. |
140,000 | 14,061,600 | ||||||
| Devon Energy Corp. |
135,000 | 9,601,200 | ||||||
| Energen Corp. |
175,000 | 8,601,250 | ||||||
| EOG Resources, Inc. |
110,000 | 12,221,000 | ||||||
| EQT Corp. |
140,000 | 6,749,400 | ||||||
| Forest Oil Corp. (C) |
200,000 | 2,424,000 | ||||||
| Marathon Oil Corp. |
175,000 | 5,547,500 | ||||||
| Marathon Petroleum Corp. |
190,000 | 8,238,400 | ||||||
| Newfield Exploration Co. (C) |
80,000 | 2,774,400 | ||||||
| Noble Energy, Inc.(E) |
190,000 | 18,578,200 | ||||||
| Oasis Petroleum, Inc. (C)(E) |
150,000 | 4,624,500 | ||||||
| Occidental Petroleum Corp. |
360,000 | 34,282,800 | ||||||
| Pioneer Natural Resources Co. |
75,000 | 8,369,250 | ||||||
| QEP Resources, Inc. (with attached rights) |
190,000 | 5,795,000 | ||||||
| Southwestern Energy Co. (C) |
55,000 | 1,683,000 | ||||||
| WPX Energy, Inc. (C) |
150,000 | 2,701,500 | ||||||
|
|
|
|||||||
| 167,796,500 | ||||||||
|
|
|
|||||||
| Integrated Oil & Gas — 34.3% |
||||||||
| Chevron Corp. (E) |
860,000 | 92,226,400 | ||||||
| ConocoPhillips |
350,000 | 26,603,500 | ||||||
| Exxon Mobil Corp. (E)(F) |
1,358,430 | 117,816,634 | ||||||
| Hess Corp. |
225,000 | 13,263,750 | ||||||
| Royal Dutch Shell plc (Class A) ADR (E) |
182,273 | 12,782,805 | ||||||
|
|
|
|||||||
| 262,693,089 | ||||||||
|
|
|
|||||||
| Pipelines — 3.7% |
||||||||
| Kinder Morgan Inc. (B) |
250,000 | 9,662,500 | ||||||
| Spectra Energy Corp. |
208,812 | 6,588,019 | ||||||
| Williams Companies, Inc. |
400,000 | 12,324,000 | ||||||
|
|
|
|||||||
| 28,574,519 | ||||||||
|
|
|
|||||||
| Services — 14.2% |
||||||||
| Baker Hughes, Inc. (E) |
60,000 | 2,516,400 | ||||||
| Halliburton Co. |
427,500 | 14,188,725 | ||||||
| Nabors Industries Ltd. (C) |
119,000 | 2,081,310 | ||||||
| National Oilwell Varco, Inc. (E) |
250,000 | 19,867,500 | ||||||
| Oil States International, Inc. (C) |
140,000 | 10,928,400 | ||||||
| Schlumberger Ltd. |
575,000 | 40,209,750 | ||||||
| Seadrill Ltd. (B) |
200,003 | 7,502,113 | ||||||
| Transocean Ltd. (C)(E) |
100,000 | 5,470,000 | ||||||
| Weatherford International, Ltd. (C) |
400,000 | 6,036,000 | ||||||
|
|
|
|||||||
| 108,800,198 | ||||||||
|
|
|
|||||||
| Basic Materials — 17.4% |
||||||||
| Chemicals — 11.6% |
||||||||
| Air Products and Chemicals, Inc. (E) |
100,000 | 9,180,000 | ||||||
| CF Industries Holdings, Inc. (E) |
84,069 | 15,355,203 | ||||||
| Dow Chemical Co. |
550,000 | 19,052,000 | ||||||
| FMC Corp. (E) |
130,000 | 13,761,800 | ||||||
| LyondellBasell Industries N.V. |
75,000 | 3,273,750 | ||||||
| Potash Corporation of Saskatchewan Inc. (E) |
240,000 | 10,965,600 | ||||||
| Praxair, Inc. (E) |
150,000 | 17,196,000 | ||||||
|
|
|
|||||||
| 88,784,353 | ||||||||
|
|
|
|||||||
| Industrial Metals — 4.6% |
||||||||
| Cliffs Natural Resources Inc. (E) |
142,000 | 9,834,920 | ||||||
| Freeport-McMoRan Copper & Gold Inc. |
487,000 | 18,525,480 | ||||||
| Teck Resources Ltd. (Class B) |
200,000 | 7,132,000 | ||||||
|
|
|
|||||||
| 35,492,400 | ||||||||
|
|
|
|||||||
| Mining — 1.2% |
||||||||
| Molycorp, Inc. (B)(C) |
89,800 | 3,037,934 | ||||||
| Peabody Energy Corp. |
204,940 | 5,935,062 | ||||||
|
|
|
|||||||
| 8,972,996 | ||||||||
|
|
|
|||||||
| Utilities — 3.4% |
||||||||
| MDU Resources Group, Inc. |
211,000 | 4,724,290 | ||||||
| National Fuel Gas Co. |
100,000 | 4,812,000 | ||||||
| New Jersey Resources Corp. |
280,000 | 12,479,600 | ||||||
| Northeast Utilities |
37,000 | 1,373,440 | ||||||
| Questar Corp. |
156,300 | 3,010,338 | ||||||
|
|
|
|||||||
| 26,399,668 | ||||||||
|
|
|
|||||||
| Total Stocks |
727,513,723 | |||||||
|
|
|
|||||||
5
SCHEDULE OF INVESTMENTS (CONTINUED)
March 31, 2012
(unaudited)
| Principal/ Shares |
Value (A) | |||||||
| Short-Term Investments — 4.7% |
| |||||||
| Money Market Account — 1.9% |
| |||||||
| M&T Bank, 0.25% |
$ | 15,009,268 | $ | 15,009,268 | ||||
|
|
|
|||||||
| 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), 0.05% (D) |
10,000 | 10,000 | ||||||
|
|
|
|||||||
| 40,000 | ||||||||
|
|
|
|||||||
| Time Deposits — 2.8% |
||||||||
| Brown Brothers Harriman & Co. (Grand Cayman), |
$ | 21,151,817 | 21,151,817 | |||||
|
|
|
|||||||
| Total Short-Term Investments |
36,201,085 | |||||||
|
|
|
|||||||
| Securities Lending Collateral — 1.6% |
| |||||||
| (Cost $12,282,505) |
||||||||
| Money Market Funds — 1.6% |
| |||||||
| Invesco Short-Term Investment Trust - Liquid Assets Portfolio (Institutional Class), 0.16% (D) |
12,282,505 | 12,282,505 | ||||||
|
|
|
|||||||
| Total Investments — 101.2% |
775,997,313 | |||||||
| Cash, receivables, prepaid expenses and other assets, less liabilities — (1.2)% |
(8,977,779 | ) | ||||||
|
|
|
|||||||
| Net Assets — 100.0% |
$ | 767,019,534 | ||||||
|
|
|
|||||||
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 $36,219,692. |
| (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 $46,437,500. |
6
ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders was held on March 20, 2012. The following votes were cast for directors:
| Votes For | Votes Withheld | |||||||
| Enrique R. Arzac |
20,876,380 | 1,588,129 | ||||||
| Phyllis O. Bonanno |
21,085,631 | 1,378,878 | ||||||
| Kenneth J. Dale |
21,174,024 | 1,290,485 | ||||||
| Daniel E. Emerson |
20,945,253 | 1,519,256 | ||||||
| Frederic A. Escherich |
21,152,178 | 1,312,331 | ||||||
| Roger W. Gale |
21,196,839 | 1,267,670 | ||||||
| Kathleen T. McGahran |
21,153,221 | 1,311,288 | ||||||
| Douglas G. Ober |
21,126,128 | 1,338,381 | ||||||
| Craig R. Smith |
21,172,219 | 1,292,290 | ||||||
A proposal to approve and ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Corporation for 2012 was approved with 22,031,771 votes for, 237,539 votes against, and 195,199 shares abstaining.
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
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.
7
PETROLEUM & RESOURCES CORPORATION
Board of Directors
Enrique R. Arzac 2,3 |
Roger W. Gale 2,4 | |
Phyllis O. Bonanno 1,3,5 |
Kathleen T. McGahran 2,3 |
|
Kenneth J. Dale 2,4 |
Douglas G. Ober 1 |
|
Daniel E. Emerson 1,3,5 |
Craig R. Smith 1,3,5 |
|
Frederic A. Escherich 1,4,5 |
| 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 and Chief Executive Officer |
|
Nancy J.F. Prue, CFA |
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 |
Chief Financial Officer and Treasurer |
|
Christine M. Sloan, CPA |
Assistant Treasurer |
|
Geraldine H. Paré |
Assistant Secretary |
Stock Data
Market Price (3/31/12) |
$ | 26.00 | ||
Net Asset Value (3/31/12) |
$ | 29.90 | ||
Discount |
13.0% |
New York Stock Exchange ticker symbol: PEO
NASDAQ Quotation Symbol for NAV: XPEOX
Distributions in 2012
From Investment Income (paid or declared) |
$ | 0.14 | ||
From Net Realized Gains |
0.06 | |||
|
|
|||
Total |
$ | 0.20 | ||
|
|
2012 Dividend Payment Dates
March 1, 2012
June 1, 2012
September 1, 2012*
December 27, 2012*
*Anticipated