LETTER TO SHAREHOLDERS
We submit herewith the summary financial information of Petroleum & Resources Corporation (the Fund) for the nine months ended September 30, 2012.
Net assets of the Fund at September 30, 2012 were $30.00 per share on 25,654,412 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 $0.03 from 2011 investment income, $0.01 from 2011 short-term capital gain, $0.05 from 2011 long-term capital gain, and $0.01 from 2012 investment income, all taxable in 2012. A 2012 investment income dividend of $0.10 per share was paid June 1, 2012, and another $0.10 per share investment income dividend was paid on September 1, 2012.
Net investment income for the nine months ended September 30, 2012 amounted to $9,026,278, compared with $7,388,963 for the same nine month period in 2011. These earnings are equal to $0.35 and $0.30 per share, respectively.
Net capital gain realized on investments for the nine months ended September 30, 2012 amounted to $22,471,166, or $0.88 per share.
Performance comparisons for the Fund, relevant benchmarks, and a Lipper peer group are as follows:
| Performance Comparisons | YTD | 1 Year | 3 Year* | 5 Year* | ||||||||||||
Petroleum & Resources: |
||||||||||||||||
NAV |
6.2 | % | 26.3 | % | 11.2 | % | 0.6 | % | ||||||||
Market Price |
8.5 | % | 25.3 | % | 10.6 | % | 0.2 | % | ||||||||
Lipper Global Natural Resources Funds Index |
2.5 | % | 13.7 | % | 2.6 | % | (4.4 | )% | ||||||||
Dow Jones U.S. Oil and Gas Index† |
7.6 | % | 27.1 | % | 11.9 | % | 1.1 | % | ||||||||
Dow Jones U.S. Basic Materials Index† |
7.1 | % | 23.4 | % | 9.8 | % | 0.5 | % | ||||||||
| † | Market indices do not include expenses and transaction costs, which are deducted from Fund and Lipper returns. |
| * | Annualized |
As announced on September 13, 2012, the Fund has committed to distribute annually to its shareholders a per share amount of at least 6% of the average month-end market price of the Fund’s Common Stock on the NYSE for the twelve months ended October 31. This commitment recognizes our history of distributions to shareholders and makes clear our future intentions. More details on the distribution commitment may be found on the Fund’s website: www.peteres.com.
Investors can find the daily net asset value (NAV) per share, the market price, and the discount/premium to the NAV of the Fund on our website: www.peteres.com. Also available there are a brief history of the Fund, historical financial information, links for electronic delivery of shareholder reports, and other useful content.
By order of the Board of Directors,
Douglas G. Ober
Chairman and
Chief Executive Officer
October 11, 2012
Nancy J.F. Prue
President
SUMMARY FINANCIAL INFORMATION
(unaudited)
| 2012 | 2011 | |||||||
| At September 30: | ||||||||
Net asset value per share |
$ | 30.00 | $ | 25.67 | ||||
Market price per share |
26.24 | 22.62 | ||||||
Shares outstanding |
25,654,412 | 24,802,996 | ||||||
Total net assets |
769,552,452 | 636,729,099 | ||||||
Unrealized appreciation on investments |
314,627,571 | 183,830,825 | ||||||
For the nine months ended September 30: |
||||||||
Net investment income |
9,026,278 | 7,388,963 | ||||||
Net realized gain |
22,471,166 | 42,974,722 | ||||||
Total return (based on market value) |
8.5% | (15.4)% | ||||||
Total return (based on net asset value) |
6.2% | (15.6)% | ||||||
Key ratios: |
||||||||
Net investment income to average net assets (annualized) |
1.62% | * | 1.22% | |||||
Expenses to average net assets (annualized) |
0.65% | * | 0.53% | |||||
Portfolio turnover (annualized) |
12.02% | 16.33% | ||||||
Net cash & short-term investments to net assets |
1.6% | 0.6% | ||||||
| * | The ratios of net investment income and expenses to average net assets were 1.65% and 0.62%, respectively, after adjusting for non-recurring pension expenses. |
FIVE YEAR DISTRIBUTION HISTORY
(unaudited)
Year |
Income Dividends Per Share |
Short-Term Capital Gains Distributions Per Share |
Long-Term Capital Gains Distributions Per Share |
Total Dividends and 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 gains distributions during the year divided by the average month-end market price of the Fund’s Common Stock for the calendar year. Beginning in 2012, the average month-end market price will be based on the twelve months ending October 31, which is consistent with the distribution commitment announced in September 2012. |
2
CHANGES IN PORTFOLIO SECURITIES
During the Three Months Ended September 30, 2012
(unaudited)
| Shares | ||||||||||||
| Additions | Reductions | Held September 30, 2012 |
||||||||||
E.I. du Pont de Nemours and Co. |
75,000 | 75,000 | ||||||||||
HollyFrontier Corp. |
60,000 | 60,000 | ||||||||||
Midstates Petroleum Co., Inc. |
25,000 | 250,000 | ||||||||||
Molycorp, Inc. |
20,000 | 109,800 | — |
|||||||||
Phillips 66 |
125,000 | 250,000 | ||||||||||
Questar Corp. |
50,000 | 206,300 | ||||||||||
Royal Dutch Shell plc (Class A) ADR |
2,241 | (1) | 51,000 | 135,903 | ||||||||
SPDR Gold Trust |
75,000 | 10,000 | 65,000 | |||||||||
LyondellBasell Industries N.V. (Class A) |
1,000 | 134,000 | ||||||||||
MDU Resources Group, Inc. |
24,000 | 187,000 | ||||||||||
Spectra Energy Corp. |
131,800 | 77,012 | ||||||||||
| (1) | In lieu of cash dividend. |
3
PORTFOLIO REVIEW
September 30, 2012
(unaudited)
TEN LARGEST EQUITY PORTFOLIO HOLDINGS
| Market Value | % of Net Assets | |||||||
Exxon Mobil Corp. |
$ | 133,373,424 | 17.3 | % | ||||
Chevron Corp. |
100,241,600 | 13.0 | ||||||
Schlumberger Ltd. |
41,589,750 | 5.4 | ||||||
Occidental Petroleum Corp. |
30,981,600 | 4.0 | ||||||
Anadarko Petroleum Corp. |
20,976,000 | 2.7 | ||||||
National Oilwell Varco, Inc. |
20,027,500 | 2.6 | ||||||
Freeport-McMoRan Copper & Gold Inc. |
19,275,460 | 2.5 | ||||||
CF Industries Holdings, Inc. |
18,683,495 | 2.5 | ||||||
Noble Energy, Inc. |
17,614,900 | 2.3 | ||||||
Dow Chemical Co. |
15,928,000 | 2.1 | ||||||
|
|
|
|
|||||
Total |
$ | 418,691,729 | 54.4 | % | ||||
SECTOR WEIGHTINGS
4
SCHEDULE OF INVESTMENTS
September 30, 2012
(unaudited)
| Shares | Value (A) | |||||||
Common Stocks — 98.4% |
||||||||
Energy — 76.7% |
||||||||
Exploration & Production — 20.8% |
||||||||
Anadarko Petroleum Corp. |
300,000 | $ | 20,976,000 | |||||
Apache Corp. |
160,000 | 13,835,200 | ||||||
Devon Energy Corp. |
135,000 | 8,167,500 | ||||||
Energen Corp. |
175,000 | 9,171,750 | ||||||
EOG Resources, Inc. |
130,000 | 14,566,500 | ||||||
EQT Corp. |
140,000 | 8,260,000 | ||||||
Forest Oil Corp. (C) |
200,000 | 1,690,000 | ||||||
Marathon Oil Corp. |
175,000 | 5,174,750 | ||||||
Midstates Petroleum Co., Inc. (C) |
250,000 | 2,162,500 | ||||||
Newfield Exploration Co. (C) |
80,000 | 2,505,600 | ||||||
Noble Energy, Inc. |
190,000 | 17,614,900 | ||||||
Oasis Petroleum, Inc. (B)(C) |
150,000 | 4,420,500 | ||||||
Occidental Petroleum Corp. (E) |
360,000 | 30,981,600 | ||||||
Pioneer Natural Resources Co. (E) |
100,000 | 10,440,000 | ||||||
QEP Resources, Inc. (with attached rights) |
190,000 | 6,015,400 | ||||||
Southwestern Energy Co. (C) |
55,000 | 1,912,900 | ||||||
WPX Energy, Inc. (C) |
150,000 | 2,488,500 | ||||||
|
|
|||||||
| 160,383,600 | ||||||||
|
|
|||||||
Integrated Oil & Gas — 35.0% |
||||||||
Chevron Corp. (E) |
860,000 | 100,241,600 | ||||||
ConocoPhillips |
250,000 | 14,295,000 | ||||||
Exxon Mobil Corp. (E)(F) |
1,458,430 | 133,373,424 | ||||||
Hess Corp. (E) |
225,000 | 12,087,000 | ||||||
Royal Dutch Shell plc (Class A) ADR (E) |
135,903 | 9,433,027 | ||||||
|
|
|||||||
| 269,430,051 | ||||||||
|
|
|||||||
Pipelines — 3.3% |
||||||||
Kinder Morgan Inc. |
250,000 | 8,880,000 | ||||||
Spectra Energy Corp. |
77,012 | 2,261,072 | ||||||
Williams Companies, Inc. |
400,000 | 13,988,000 | ||||||
|
|
|||||||
| 25,129,072 | ||||||||
|
|
|||||||
Refiners — 3.2% |
||||||||
HollyFrontier Corp. |
60,000 | 2,476,200 | ||||||
Marathon Petroleum Corp. |
190,000 | 10,372,100 | ||||||
Phillips 66 |
250,000 | 11,592,500 | ||||||
|
|
|||||||
| 24,440,800 | ||||||||
|
|
|||||||
Services — 14.4% |
||||||||
Baker Hughes, Inc. (E) |
60,000 | 2,713,800 | ||||||
Halliburton Co. |
427,500 | 14,402,475 | ||||||
Nabors Industries Ltd. (C)(E) |
119,000 | 1,669,570 | ||||||
National Oilwell Varco, Inc. (E) |
250,000 | 20,027,500 | ||||||
Oil States International, Inc. (C)(E) |
140,000 | 11,124,400 | ||||||
Schlumberger Ltd. |
575,000 | 41,589,750 | ||||||
Seadrill Ltd. (B) |
200,003 | 7,844,118 | ||||||
Transocean Ltd. (C) |
145,000 | 6,509,050 | ||||||
Weatherford International Ltd. (C)(E) |
400,000 | 5,072,000 | ||||||
|
|
|||||||
| 110,952,663 | ||||||||
|
|
|||||||
Basic Materials — 18.2% |
||||||||
Chemicals — 12.2% |
||||||||
Air Products and Chemicals, Inc. (E) |
100,000 | 8,270,000 | ||||||
CF Industries Holdings, Inc. (E) |
84,069 | 18,683,495 | ||||||
Dow Chemical Co. |
550,000 | 15,928,000 | ||||||
E.I. du Pont de Nemours and Co. |
75,000 | 3,770,250 | ||||||
FMC Corp. (E) |
260,000 | 14,398,800 | ||||||
LyondellBasell Industries N.V. (Class A) |
134,000 | 6,922,440 | ||||||
Potash Corporation of Saskatchewan Inc. (E) |
240,000 | 10,420,800 | ||||||
Praxair, Inc. |
150,000 | 15,582,000 | ||||||
|
|
|||||||
| 93,975,785 | ||||||||
|
|
|||||||
Gold & Precious Metals — 1.4% |
||||||||
SPDR Gold Trust (C)(E) |
65,000 | 11,181,300 | ||||||
|
|
|||||||
Industrial Metals — 4.0% |
||||||||
Cliffs Natural Resources Inc. (E) |
142,000 | 5,556,460 | ||||||
Freeport-McMoRan Copper & Gold Inc. |
487,000 | 19,275,460 | ||||||
Teck Resources Ltd. (Class B) (E) |
200,000 | 5,890,000 | ||||||
|
|
|||||||
| 30,721,920 | ||||||||
|
|
|||||||
Mining — 0.6% |
||||||||
Peabody Energy Corp. |
192,440 | 4,289,487 | ||||||
|
|
|||||||
Utilities — 3.5% |
||||||||
MDU Resources Group, Inc. |
187,000 | 4,121,480 | ||||||
National Fuel Gas Co. (E) |
100,000 | 5,404,000 | ||||||
New Jersey Resources Corp. |
280,000 | 12,801,600 | ||||||
Questar Corp. |
206,300 | 4,194,078 | ||||||
|
|
|||||||
| 26,521,158 | ||||||||
|
|
|||||||
Total Common Stocks |
757,025,836 | |||||||
|
|
|||||||
5
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2012
(unaudited)
| Principal/ Shares |
Value (A) | ||||||
Short-Term Investments — 2.0% |
|||||||
Money Market Account — 0.3% |
|||||||
M&T Bank, 0.20% |
$ | 2,505,980 | $ | 2,505,980 | |||
|
|
||||||
Money Market Funds — 1.7% |
|||||||
Fidelity Institutional Money Market - Money Market Portfolio (Institutional Class), 0.20% (D) |
13,078,802 | 13,078,802 | |||||
RBC U.S. Government Money Market (Institutional Class I), |
10,000 | 10,000 | |||||
Vanguard Federal Money Market, 0.01% (D) |
10,000 | 10,000 | |||||
Western Asset Institutional Government Reserves (Institutional Class), 0.06% (D) |
10,000 | 10,000 | |||||
|
|
||||||
| 13,108,802 | |||||||
|
|
||||||
Total Short-Term Investments |
15,614,782 | ||||||
|
|
||||||
Securities Lending Collateral — 0.3% |
|||||||
(Cost $1,945,350) |
|||||||
Money Market Funds — 0.3% |
|||||||
Invesco Short-Term Investment Trust - Liquid Assets Portfolio (Institutional Class), 0.17% (D) |
1,945,350 | 1,945,350 | |||||
|
|
||||||
Total Investments — 100.7% |
774,585,968 | ||||||
Cash, receivables, prepaid expenses and other assets, less liabilities — (0.7)% |
(5,033,516) | ||||||
|
|
||||||
Net Assets — 100.0% |
$ | 769,552,452 | |||||
|
|
||||||
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 $64,666,132. |
| (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 $41,673,300. |
This report is transmitted to the shareholders 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 Fund 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 Fund 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 gains earned through October 31 and, if applicable, a return of capital. Shareholders may elect to receive the year-end distribution in stock or cash. In connection with this distribution, all shareholders of record are sent a dividend announcement notice and an election card in mid-November. Shareholders 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 Shareholders, the Fund 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 Fund’s Forms N-Q are available on the Commission’s website: www.sec.gov. The Fund’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 Fund also posts a link to its Forms N-Q on its website: 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 Fund uses to determine how to vote proxies relating to portfolio securities owned by the Fund and the Fund’s proxy voting record for the 12-month period ended June 30, 2012 are available (i) without charge, upon request, by calling the Fund’s toll free number at (800) 638-2479; (ii) on the Fund’s website: www.peteres.com under the headings “About Petroleum & Resources” and “Corporate Information”; and (iii) on the Securities and Exchange Commission’s website: www.sec.gov.
PRIVACY POLICY
In order to conduct its business, the Fund, through its transfer agent, American Stock Transfer & Trust Company, collects and maintains certain nonpublic personal information about our shareholders of record with respect to their transactions in shares of our securities. This information includes the shareholder’s address, tax identification or Social Security number, share balances, and dividend elections. We do not collect or maintain personal information about shareholders 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 shareholders or our former shareholders 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 shareholders to those employees who need to know that information to provide services to our shareholders. 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
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 |
Stock Data
Market Price (9/30/12) |
$ | 26.24 | ||
Net Asset Value (9/30/12) |
$ | 30.00 | ||
Discount: |
12.5% |
New York Stock Exchange ticker symbol: PEO
NASDAQ Quotation Symbol for NAV: XPEOX
Distributions in 2012
From Investment Income |
$ | 0.24 | ||
From Net Realized Gains |
0.06 | |||
|
|
|||
Total |
$ | 0.30 | ||
|
|
2012 Dividend Payment Dates
March 1, 2012
June 1, 2012
September 1, 2012
December 27, 2012*
*Anticipated
7