UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02736
---------------------------------------------
PETROLEUM & RESOURCES CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
7 Saint Paul Street, Suite 1140, Baltimore, Maryland 21202
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Lawrence L. Hooper, Jr.
Petroleum & Resources Corporation
7 Saint Paul Street
Suite 1140
Baltimore, Maryland 21202
Registrant's telephone number, including area code: 410-752-5900
Date of fiscal year end: December 31, 2004
Date of reporting period: December 31, 2004
Item 1: Reports to Stockholders
2004 AT A GLANCE
--------------------------------------------------------------------------------
THE CORPORATION
. a closed-end equity investment company emphasizing natural resources stocks
. objectives: preservation of capital
reasonable income
opportunity for capital gain
. internally-managed
. low expense ratio
. low turnover
STOCK DATA (12/31/04)
NYSE Symbol.............. PEO
Market Price ......... $25.78
52-Week Range.. $21.95-$27.38
Discount ............... 8.5%
Shares Outstanding 21,979,676
SUMMARY FINANCIAL INFORMATION
Year Ended December 31
2004 2003
-----------------------------------------------------------------
Net asset value per share $ 28.16 $ 24.06
Total net assets 618,887,401 522,941,279
Unrealized appreciation 275,422,891 185,072,550
Net investment income 8,924,453 8,134,186
Total realized gain 18,979,327 17,219,079
Total return (based on market value) 14.4% 30.8%
Total return (based on net asset value) 23.3% 21.2%
Expense ratio 0.56% 0.74%
-----------------------------------------------------------------
2004 DIVIDENDS AND DISTRIBUTIONS
Amount
Paid (per share) Type
-----------------------------------------------------
March 1, 2004 $0.07 Long-term capital gain
March 1, 2004 0.02 Short-term capital gain
March 1, 2004 0.04 Investment income
June 1, 2004 0.13 Investment income
September 1, 2004 0.13 Investment income
December 27, 2004 0.79 Long-term capital gain
December 27, 2004 0.14 Investment income
-----------------------------------------------------
$1.32
-----------------------------------------------------
2005 ANNUAL MEETING OF STOCKHOLDERS
Location: The Radisson Hotel at Cross Keys, Baltimore, Maryland
Date: April 27, 2005
Time: 11:00 a.m.
PORTFOLIO REVIEW
--------------------------------------------------------------------------------
TEN LARGEST PORTFOLIO HOLDINGS (12/31/04)
Market Value % of Net Assets
----------------------------------------------------------
Exxon Mobil Corp. $ 53,823,000 8.7
BP plc ADR 35,040,000 5.7
ChevronTexaco Corp. 32,818,750 5.3
ConocoPhillips 26,049,000 4.2
Royal Dutch Petroleum Co. ADR 22,952,000 3.7
Schlumberger Ltd. 18,746,000 3.0
BJ Services Co. 17,219,800 2.8
General Electric Co. 16,600,200 2.7
Devon Energy Corp. 15,468,365 2.5
Equitable Resources Inc. 15,165,000 2.4
------------ ---
Total $253,882,115 41.0%
------------ ---
SECTOR WEIGHTINGS (12/31/04)
[CHART]
Internationals 27.7%
Domestics 7.7%
Producers 12.4%
Distributors 15.5%
Services 11.3%
Basic Materials & Other 9.9%
Paper & Forest Products 3.2%
Cash & Equivalent 12.2%
1
PETROLEUM & RESOURCES CORPORATION
--------------------------------------------------------------------------------
Calendar Market Cumulative Cumulative Total Total net
Years value market value market value market asset
of of capital of income value value
original gains dividends
shares distributions taken in
taken in shares
shares
--------------------------------------------------------------
1990 $ 9,280 $ 463 $ 375 $10,118 $11,512
1991 9,601 1,015 752 11,368 12,276
1992 9,324 1,547 1,045 11,916 13,056
1993 10,155 2,311 1,501 13,967 15,057
1994 9,324 2,729 1,799 13,852 14,726
1995 10,432 3,747 2,505 16,684 18,612
1996 12,836 5,427 3,609 21,872 23,342
1997 13,479 6,664 4,261 24,404 27,723
1998 11,313 6,627 4,073 22,013 24,651
1999 11,911 8,220 4,788 24,919 30,505
2000 15,130 12,186 6,576 33,892 40,568
2001 12,997 11,817 6,130 30,944 32,843
2002 10,626 10,540 5,533 26,699 29,204
2003 13,152 14,342 7,427 34,921 35,392
2004 14,282 16,876 8,775 39,933 43,620
ILLUSTRATION OF AN ASSUMED 15 YEAR INVESTMENT OF $10,000
(unaudited)
Investment income dividends and capital gains distributions are taken in
additional shares. This chart covers the years 1990-2004. Fees for the
reinvestment of interim dividends are assumed as 2% of the amount reinvested
(maximum of $2.50) and commissions of $0.05 per share. There is no charge for
reinvestment of year-end distributions. No adjustment has been made for any
income taxes payable by stockholders on income dividends or on capital gains
distributions or the sale of any shares. These results should not be considered
representative of the dividend income or capital gain or loss which may be
realized in the future.
[CHART]
2
LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
For the third consecutive year, the major energy indices outperformed the Dow
Jones Industrial Average and the S&P 500 Index. In this annual report we share
with you our performance for the past year and provide our current perspective
on the energy markets.
THE YEAR IN REVIEW
Performance
Petroleum & Resources outperformed both the S&P 500 Index and the Dow Jones
Industrial Average in 2004. Most of the investments in the Fund benefited from
the surging demand and price environment for oil and gas. The return on net
assets, including income and capital gains distributions for the calendar year,
was an exceptional 23.3%, far surpassing the 10.9% return for the S&P 500 and
the 5.3% return of the Dow Industrials. On a market value basis, the Fund's
return was 14.4%. Strong supply/demand dynamics and the geopolitical turmoil in
major oil-producing countries continued to drive oil and gas equities. Our cash
position, non-energy holdings, and our positions in international companies not
included in the Index caused us to lag the Dow Jones Energy Index for the
entire year. Through December 17, 2004, the Fund's total return was 22.2%
compared to the Energy Index's 28.3%. On December 20, Dow Jones discontinued
publishing the Energy Index and established a new Oil and Gas Index in its
place, with no representation of coal companies. For comparative purposes, in
the remainder of this letter references to annual returns of the sectors of the
Fund and the Dow Jones Energy Index will be for the year through December 17.
Following a strong rebound in the fourth quarter of 2003, energy stocks
continued to outperform in 2004. The first quarter witnessed an increase in the
Petroleum & Resources portfolio of 3.3% compared to a 1.7% rise in the S&P and
a modest decline in the Dow Jones Industrial Average. Benefiting from the
perception of supply constraints in the market and the drilling programs of the
oil companies, oil service and equipment companies in our portfolio gained 16%
in the quarter, besting the 13% return of the service subsector of the Dow
Jones Energy Index. Within the Energy Index, the stronger performance shifted
to exploration and production companies during the second quarter, providing a
return of 13%. Strong demand and apparent supply constraints biased the stocks
upward through the third quarter of the year. The hurricane season pressured an
already tight supply/demand balance and drove energy prices higher in the
second half of the year, with commodity prices peaking in October. Equity
prices in general reflected the commodity move upward, but to a lesser degree.
Companies focused primarily on finding and developing oil and gas reserves,
however, experienced stock movements greater than the commodity prices. Our
holdings in Amerada Hess, Burlington Resources and Devon each gained more than
57%. The larger, more diversified oil companies returned 21.8% during the same
time period, with Exxon Mobil, ChevronTexaco and BP delivering the best
performance of the international oil stocks in our portfolio. Our investments
in the underperforming equities of Royal Dutch/Shell, which are not included in
the Energy Index, were a significant drag on the portfolio's performance. Coal
prices and stocks also rose during the year, reflecting rising demand and a
strong pricing environment.
Pipelines continued to recover financially in 2004, resulting in a 21.7%
increase in the pipeline stocks in the Energy Index and a 65% increase in our
pipeline holdings. Utilities also participated in the move as their index rose
20.2% during the year and our holdings, led by utilities with exploration and
production exposure, increased 22%. The final month of the year witnessed a
correction in oil and gas prices. During December, energy stocks underperformed
the general market due to an oil price decline of 11% and a 19% price
correction in natural gas. Warm weather and sizable crude and product
inventories tempered enthusiasm for oil and gas stocks as 2004 drew to a close.
While increasing during the year, our chemical and paper holdings delivered
returns lower than those provided by energy stocks. The materials sector of our
portfolio gained 9% and industrial stocks, led by General Electric, returned
19%.
Oil Industry
At year-end 2003, our outlook for 2004 was for oil prices to settle in the
upper end of the $22-$28 range and perhaps to correct more as OPEC production
increased. This estimate seemed lofty at the time but was justified by low
inventories and rising worldwide demand. However, tight crude and product
inventories, stronger than anticipated demand, especially from China, and a
large speculative market all conspired to drive oil prices higher than we and
most other analysts anticipated. The actual average price realization in 2004
for oil was $41.25 per barrel.
The year was characterized by volatility and extremes. The early months of the
year saw a trading range for crude oil of $32-$36 per barrel due to a tight
crude oil market, low inventories and the OPEC resolution to lower its
production quota. Demand both in China and in the U.S. gasoline market
influenced the upward move in oil prices. Unrest in Iraq and other countries
such as Nigeria, Venezuela and Saudi Arabia contributed to the speculative
component of the crude price.
As the year progressed, OPEC increased the quota three times, to a level of 27
million barrels per day by November. Production levels exceeded quotas for most
of the year but record prices for crude and gasoline
3
LETTER TO SHAREHOLDERS (CONTINUED)
--------------------------------------------------------------------------------
continued. The low U.S. crude inventories were not replenished early in the
year and the severe hurricane season exacerbated the domestic crude supply
problem. Hurricanes Charley, Frances and Ivan inflicted severe damage on the
Gulf Coast and caused major delays in oil shipments and the temporary shutdown
of refineries. While the oil production losses along the coast were minimal,
the incremental disruption to supply only brought more pressure to bear on the
markets. Compounding the hurricane season's effect was the news that Russia's
biggest oil-exporting company, Yukos, might be forced to halt operations due to
tax debts. The tight oil markets could not absorb the potential Yukos loss, as
it supplied 2% of the world market. By the final quarter of the year, these new
pressures, added to strong demand, the uncertain flow of oil exports from Iraq,
Venezuelan political instability and a Nigerian labor strike all converged on
the markets. The benchmark for U.S. crude, West Texas Intermediate, soared to
$55 per barrel on October 22. Since that peak, higher OPEC output, warm East
Coast weather, and the return to production of a large portion of the Gulf of
Mexico combined to replenish U.S. crude oil inventories. Prices corrected and
ended the year at $42.15 per barrel, 33% higher than the start of the year.
Petroleum product prices such as gasoline also set record prices and, despite
the decline in December, ended the year 20% higher than at the beginning of the
year.
Natural Gas and Coal
Natural gas prices increased during 2004 but to a much lesser extent than crude
and averaged $5.89 per thousand cubic feet for the year, or a 10% increase over
the prior year. Prices spiked early in the year as cold weather and
expectations for strong industrial demand prevailed. Helped by crude oil
prices, natural gas sustained mid $5 per thousand cubic feet pricing despite
weather not being much of a factor and healthy inventory levels as the winter
heating season ended. Long term concern regarding U.S. natural gas production
continues to be reflected in pricing. The domestic industry has not experienced
incremental production increases in recent years despite active drilling
programs. The marginal cost to produce natural gas rose during 2004, reflecting
the continued maturation of the North American producing base. Liquefied
natural gas (LNG) imports, though still representing less than 2% of U.S. gas
demand, increased during the year. Natural gas pricing drifted lower during the
early summer months until the frequency and severity of hurricanes curtailed
output in the Gulf of Mexico. Since approximately 30% of North American gas
production is from the Gulf Region, the hurricane-related shutdowns had an
immediate impact. While most of the lost production was temporary, the concern
over the lack of spare production capacity was heightened. Prices remained
strong into the beginning of the heating season and closed the year just over
$6 per thousand cubic feet. Coal prices increased again in 2004, with spot
prices almost double those of 2002. Improved supply/demand conditions in key
producing regions led to the increases both in spot and contract prices,
especially in the Northern and Central Appalachian basins.
INVESTMENT RESULTS
Net assets of the Corporation on December 31, 2004 were $618,887,401 or $28.16
per share on 21,979,676 shares outstanding. This compares with $522,941,279 or
$24.06 per share on 21,736,777 shares outstanding a year earlier.
Net investment income for 2004 was $8,924,453 compared to $8,134,186 for 2003.
These earnings are equivalent to $0.41 and $0.38 per share, respectively, on
the average number of shares outstanding throughout each year. In 2004, our
0.56% expense ratio (expenses to average net assets) was once again at a low
level compared to the industry.
Net realized gains amounted to $18,979,327 during the year, while the
unrealized appreciation on investments increased from $185,072,550 at December
31, 2003 to $275,422,891 at year end, a 49% increase.
DIVIDENDS AND DISTRIBUTIONS
Total dividends and distributions paid in 2004 were $1.32 per share compared to
$1.19 in 2003. As announced on November 13, 2004, a year-end distribution
consisting of investment income of $0.14 and capital gains of $0.79 was made on
December 27, 2004, both realized and taxable in 2004. On January 13, 2005, an
additional distribution of $0.13 per share was declared payable March 1, 2005,
representing the balance of undistributed net investment income and capital
gains earned in 2004 and an initial distribution from 2005 net investment
income, all taxable to shareholders in 2005.
OUTLOOK FOR 2005
Crude Oil
The relentless rise in commodity prices, particularly oil and gas, has
contributed to strong stock performance in the energy industry for the past
three years. Many of the factors that contributed to the rise in prices are
still in effect. However, the initial move in crude prices in 2005 was a $3
decline as inventories were high and weather, especially in the Northeast, was
warm, resulting in less use of home heating fuels. OPEC (excluding Iraq)
entered the year promising to curtail production to prevent significant
inventory builds. The organization will meet early in the year to
4
LETTER TO SHAREHOLDERS (CONTINUED)
--------------------------------------------------------------------------------
determine the appropriate quota necessary to maintain a desired price level.
While the official price range is lower, it is believed that a U.S. price below
$40 will trigger a quota reduction. Supply from Russia and the changes within
Yukos and the Russian government will influence worldwide supply. Supply
changes due to conflicts and disruptions in the Middle East, Nigeria and
Venezuela cannot currently be quantified but the premium to normalized oil
prices resulting from the uncertainty will remain. Worldwide demand growth is
expected to remain strong. China accounted for 40% of the incremental demand
last year and the sustainability of growth in China, as well as India and other
growth markets, is crucial to supporting high oil prices. Current robust demand
and the lack of increases in productive capacity, combined with the unknown
geopolitical issues, contribute to a strong price outlook. U.S. demand remains
strong despite the jump in crude and gasoline prices. However, a slowdown in
China is likely, especially in the second half of 2005, and OPEC's compliance
with its quotas may again set the price. Our 2005 outlook for oil prices is a
wide range of $35-$40 for the year. If Saudi Arabia defends the market
coincident with terrorist threats and other supply disruptions threatening the
supply/demand balance, the near term floor price is likely to be $30 per
barrel, a figure which used to be considered high.
Natural Gas and Coal
Prices for natural gas early in the year will be significantly influenced by
weather. Inventories are abundant and the absence of cold weather in the
Northeast is creating pressure on the commodity. One year ago, natural gas
prices were approximately $1 lower and the weather was much colder, reflecting
the correlation to crude oil pricing. The lack of new sources of gas entering
the supply stream and rising costs for developing new supplies provide support
for current prices. Exploration and production companies will continue to spend
for new reserves at the same time the larger integrated companies are
concentrating on LNG projects. Over the next year, natural gas volumes and
pricing will vary with crude prices, weather and inventory levels. Our estimate
is for a slightly lower gas price this year, dropping to $5.75 for an average
as compared to $5.89 for 2004. An anticipated pickup in industrial demand
should offset lower weather-related demand. Coal prices should remain strong
throughout the year as prices reflect strong demand. Underinvestment in coal
facilities as well as complex permitting procedures slowed the investment in
reserve development in recent years. The pricing environment will reflect that
dynamic as economic growth, especially from the steel industry, pressures
prices during the next year. Longer term, the comparative cost advantage of
coal versus oil and gas should provide a strong operating environment for coal.
In anticipation of lower average prices for oil and natural gas, we have
reduced our holdings in a number of the exploration and development companies,
whose performance is generally more tied to commodity prices. Investments have
been redirected to international and domestic integrated companies as well as
oil service companies. The large integrated companies should report lesser
declines in income due to lower oil prices. The drillers and service companies
are expected to continue to benefit from higher levels of exploration activity
both domestically and abroad. We have avoided many basic materials stocks due
to the volatility of metal and other materials prices. As these begin to
stabilize at reasonable levels, there may be opportunities to invest more in
the sector.
As noted, investment returns from the energy sector have been exceptional for
three years in a row. After a long period of under-appreciation by investors,
valuations are now more appropriate given the prospects of the companies. We
expect strong earnings from the sector in 2005, barring unforeseen events, and
therefore the stocks should perform reasonably well. General market returns are
expected to be in the 7-10% range for the year; we anticipate that for the
fourth year in a row the energy sector will do as well as, if not better than,
the market as a whole.
SHARE REPURCHASE PROGRAM
On December 9, 2004, the Board of Directors authorized the repurchase by
management of an additional 5% of the outstanding shares of the Corporation
over the ensuing year. The repurchase program is subject to the restriction
that shares can only be repurchased when the discount of the market price of
the shares from the net asset value is 6.5% or greater.
From the beginning of 2005 through January 20, 2005, 13,500 shares have been
repurchased under the program.
----------
The proxy statement for the Annual Meeting of Stockholders to be held in
Baltimore, Maryland on April 27, 2005, is expected to be mailed on or about
March 15, 2005.
By order of the Board of Directors,
/s/ Douglas G. Ober
Douglas G. Ober,
Chairman, President and
Chief Executive Officer
January 21, 2005
5
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
December 31, 2004
Assets
Investments* at value:
Common stocks and convertible securities
(cost $295,546,819) $571,166,010
Short-term investments (cost $47,946,427) 47,946,427
Securities lending collateral (cost $28,685,423) 28,685,423 $647,797,860
---------------------------------------------------------------------------
Cash 243,619
Dividends and interest receivable 675,530
Prepaid pension cost 985,707
Prepaid expenses and other assets 475,140
---------------------------------------------------------------------------------------
Total Assets 650,177,856
---------------------------------------------------------------------------------------
Liabilities
Open written option contracts at value (proceeds $371,450) 567,750
Obligations to return securities lending collateral 28,685,423
Accrued expenses and other liabilities 2,037,282
---------------------------------------------------------------------------------------
Total Liabilities 31,290,455
---------------------------------------------------------------------------------------
Net Assets $618,887,401
---------------------------------------------------------------------------------------
Net Assets
Common Stock at par value $1.00 per share, authorized
50,000,000 shares; issued and outstanding 21,979,676 shares $ 21,979,676
Additional capital surplus 318,979,253
Undistributed net investment income 746,047
Undistributed net realized gain on investments 1,759,534
Unrealized appreciation on investments 275,422,891
---------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $618,887,401
---------------------------------------------------------------------------------------
Net Asset Value Per Share of Common Stock $28.16
---------------------------------------------------------------------------------------
* See schedule of investments on pages 13 through 15.
The accompanying notes are an integral part of the financial statements.
6
Investment Income
Income:
Dividends $ 11,213,106
Interest and other income 867,476
-------------------------------------------------------------------------------
Total income 12,080,582
-------------------------------------------------------------------------------
Expenses:
Investment research 1,289,464
Administration and operations 699,039
Directors' fees 273,875
Reports and stockholder communications 220,322
Transfer agent, registrar and custodian expenses 159,345
Auditing and accounting services 81,728
Legal services 70,300
Occupancy and other office expenses 146,979
Travel, telephone and postage 64,637
Other 150,440
-------------------------------------------------------------------------------
Total expenses 3,156,129
-------------------------------------------------------------------------------
Net Investment Income 8,924,453
-------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 18,979,327
Change in unrealized appreciation on investments 90,350,341
-------------------------------------------------------------------------------
Net Gain on Investments 109,329,668
-------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $118,254,121
-------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
7
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Year Ended
--------------------------
Dec. 31, 2004 Dec. 31, 2003
------------------------------------------------------------------------------------------
From Operations:
Net investment income $ 8,924,453 $ 8,134,186
Net realized gain on investments 18,979,327 17,219,079
Change in unrealized appreciation on investments 90,350,341 66,291,943
------------------------------------------------------------------------------------------
Change in net assets resulting from operations 118,254,121 91,645,208
------------------------------------------------------------------------------------------
Distributions to Stockholders From:
Net investment income (9,536,803) (8,108,325)
Net realized gain from investment transactions (19,037,472) (17,260,893)
------------------------------------------------------------------------------------------
Decrease in net assets from distributions (28,574,275) (25,369,218)
------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of shares issued in payment of distributions 9,629,174 9,783,141
Cost of shares purchased (note 4) (3,362,898) (4,393,315)
------------------------------------------------------------------------------------------
Change in net assets from capital share transactions 6,266,276 5,389,826
------------------------------------------------------------------------------------------
Total Increase in Net Assets 95,946,122 71,665,816
Net Assets:
Beginning of year 522,941,279 451,275,463
------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $746,047 and $1,500,752, respectively) $618,887,401 $522,941,279
------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
8
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Petroleum & Resources Corporation (the Corporation) is registered under the
Investment Company Act of 1940 as a non-diversified investment company. The
Corporation's investment objectives as well as the nature and risk of its
investment transactions are set forth in the Corporation's registration
statement.
Security Valuation -- Investments in securities traded on national securities
exchanges are valued at the last reported sale price on the day of valuation.
Over-the-counter and listed securities for which a sale price is not available
are valued at the last quoted bid price. Short-term investments (excluding
purchased options) are valued at amortized cost. Purchased and written options
are valued at the last quoted asked price.
Security Transactions And Investment Income -- Investment transactions are
accounted for on the trade date. Gain or loss on sales of securities and
options is determined on the basis of identified cost. Dividend income and
distributions to shareholders are recognized on the ex-dividend date, and
interest income is recognized on the accrual basis.
2. FEDERAL INCOME TAXES
The Corporation's policy is to distribute all of its taxable income to its
shareholders in compliance with the requirements of the Internal Revenue Code
applicable to regulated investment companies. Therefore, no federal income tax
provision is required. For federal income tax purposes, the identified cost of
securities at December 31, 2004 was $372,148,846, and net unrealized
appreciation aggregated $275,649,014, of which the related gross unrealized
appreciation and depreciation were $283,381,833 and $7,732,819, respectively.
As of December 31, 2004, the tax basis of distributable earnings was $1,031,243
of undistributed ordinary income and $1,296,861 of undistributed long-term
capital gain.
Distributions paid by the Corporation during the year ended December 31, 2004
were classified as ordinary income of $9,971,538 and capital gain of
$18,602,737. In comparison, distributions paid by the Corporation during the
year ended December 31, 2003 were classified as ordinary income of $8,321,192
and capital gain of $17,048,026. The distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. Accordingly, periodic reclassifications are made within the
Corporation's capital accounts to reflect income and gains available for
distribution under income tax regulations.
3. INVESTMENT TRANSACTIONS
The Corporation's investment decisions are made by a committee, and no one
person is primarily responsible for making recommendations to that committee.
Purchases and sales of portfolio securities, other than options and short-term
investments, during the year ended December 31, 2004 were $72,588,871 and
$67,947,551, respectively. Options may be written (sold) or purchased by the
Corporation. The Corporation, as writer of an option, bears the market risk of
an unfavorable change in the price of the security underlying the written
option. The risk associated with purchasing an option is limited to the premium
originally paid. A schedule of outstanding option contracts as of December 31,
2004 can be found on page 16.
Transactions in written covered call and collateralized put options during the
year ended December 31, 2004 were as follows:
Covered Calls Collateralized Puts
------------------- -------------------
Contracts Premiums Contracts Premiums
--------- --------- --------- ---------
Options outstanding,
December 31, 2003 550 $ 62,932 350 $ 36,992
Options written 4,765 609,394 3,677 429,651
Options terminated in
closing purchase
transactions (600) (79,048) (70) (10,990)
Options expired (1,940) (220,157) (2,337) (272,377)
Options exercised (1,225) (168,954) (150) (15,993)
---------------------------------------------------------------
Options outstanding,
December 31, 2004 1,550 $ 204,167 1,470 $ 167,283
---------------------------------------------------------------
4. CAPITAL STOCK
The Corporation has 5,000,000 authorized and unissued preferred shares without
par value.
On December 27, 2003, the Corporation issued 450,110 shares of its Common Stock
at a price of $21.735 per share (the average market price on December 8, 2003)
to stockholders of record November 24, 2003 who elected to take stock in
payment of the distribution from 2003 capital gain and investment income.
On December 27, 2004, the Corporation issued 380,149 shares of its Common Stock
at a price of $25.33 per share (the average market price on December 13, 2004)
to stockholders of record November 23, 2004 who elected to take stock in
payment of the distribution from 2004 capital gain and investment income.
The Corporation may purchase shares of its Common Stock from time to time at
such prices and amounts as the Board of Directors may deem advisable.
Transactions in Common Stock for 2004 and 2003 were as follows:
Shares Amount
------------------ ------------------------
2004 2003 2004 2003
-------- -------- ----------- -----------
Shares issued in payment
of distributions 380,149 450,110 $ 9,629,174 $ 9,783,141
Shares purchased
(at an average discount
from net asset value of
8.0% and 8.2%,
respectively) (137,250) (223,400) (3,362,898) (4,393,315)
----------------------------------------------------------------------
Net change 242,899 226,710 $ 6,266,276 $ 5,389,826
----------------------------------------------------------------------
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The Corporation has an employee incentive stock option and stock appreciation
rights plan which provides for the issuance of options and stock appreciation
rights for the purchase of up to 895,522 shares of the Corporation's Common
Stock at 100% of the fair market value at date of grant. Options are
exercisable beginning not less than one year after the date of grant and extend
and vest over ten years from the date of grant. Stock appreciation rights are
exercisable beginning not less than two years after the date of grant and
extend over the period during which the option is exercisable. The stock
appreciation rights allow the holders to surrender their rights to exercise
their options and receive cash or shares in an amount equal to the difference
between the option price and the fair market value of the common stock at the
date of surrender.
Under the plan, the exercise price of the options and related stock
appreciation rights is reduced by the per share amount of capital gain paid by
the Corporation during subsequent years. At the beginning of 2004, there were
129,447 options outstanding with a weighted average exercise price of $18.35
per share. During 2004, the Corporation granted options, including stock
appreciation rights, for 19,241 shares of Common Stock with an original
weighted average exercise price of $22.86 per share. During the year, stock
appreciation rights relating to 20,145 stock option shares were exercised at a
weighted average market price of $25.31 per share and the stock options
relating to these rights which had a weighted average exercise price of $13.00
per share were cancelled. At December 31, 2004, there were outstanding
exercisable options to purchase 42,060 common shares at $10.04-$23.65 per share
(weighted average price of $18.25) and unexercisable options to purchase 86,483
common shares at $14.26-$23.65 per share (weighted average price of $19.08).
The weighted average remaining contractual life of outstanding exercisable and
unexercisable options was 5.32 years and 6.18 years, respectively. The total
compensation expense recognized in 2004 for the stock option and stock
appreciation rights plan was $435,091. At December 31, 2004, there were 260,373
shares available for future option grants.
In December 2004, the Financial Accounting Standards Board revised the
Statement of Financial Accounting Standards No. 123, Share-Based Payment which
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. Currently, the
Corporation recognizes compensation cost for a stock option award over the
award's vesting period. The revised FAS 123 is effective as of the beginning of
the first interim or annual reporting period that begins after June 15, 2005.
The Corporation is currently evaluating the impact it will have on its
operations and financial statements.
5. RETIREMENT PLANS
The Corporation provides retirement benefits for its employees under a
non-contributory qualified defined benefit pension plan and a non-contributory
nonqualified defined benefit pension plan. The benefits are based on years of
service and compensation during the last five years of employment.
The Corporation uses a December 31 measurement date for its plans.
2004 2003
----------- -----------
Change in benefit obligation
Benefit obligation at beginning of year $ 3,989,256 $ 4,675,724
Service cost 137,080 141,454
Interest cost 245,422 269,838
Actuarial loss 270,897 481,246
Benefits paid (123,287) (1,579,006)
------------------------------------------------------------------------
Benefit obligation at end of year $ 4,519,368 $ 3,989,256
------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ 2,749,114 $ 3,861,986
Actual return on plan assets 243,186 427,261
Employer contribution 636,675 38,873
Benefits Paid (123,287) (1,579,006)
------------------------------------------------------------------------
Fair value of plan assets at end of year $ 3,505,688 $ 2,749,114
------------------------------------------------------------------------
Funded status $(1,013,680) $(1,240,142)
Unrecognized net loss 1,332,884 1,221,107
Unrecognized prior service cost 178,830 236,681
------------------------------------------------------------------------
Net amount recognized $ 498,034 $ 217,646
------------------------------------------------------------------------
Amounts recognized in the statement of assets and liabilities consist of:
2004 2003
--------- ---------
Prepaid pension cost $ 985,707 $ 731,021
Accrued pension cost (487,673) (513,375)
-------------------------------------------
Net amount recognized $ 498,034 $ 217,646
-------------------------------------------
The accumulated benefit obligation for all defined benefit pension plans was
$3,533,866 and $3,055,084 at December 31, 2004, and 2003, respectively.
2004 2003
--------- ---------
Components of net periodic pension cost
Service cost $ 137,080 $ 141,454
Interest cost 245,422 269,838
Actual return on plan assets (243,186) (427,261)
Amortization of prior service cost 57,851 57,851
Amortization of net loss 132,729 164,748
Deferred asset gain 26,391 192,147
-------------------------------------------------------------
Net periodic pension cost $ 356,287 $ 398,777
-------------------------------------------------------------
10
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Assumptions used to determine benefit obligations and
costs are:
2004 2003
----- -----
Discount rate 5.75% 6.25%
Expected long-term return on plan assets 8.00% 8.00%
Rate of compensation increase 7.00% 7.00%
The assumption for the expected long-term return on plan assets is based on the
actual long-term historical returns realized by the plan assets, weighted
according to the current asset mix.
The asset allocations at December 31, 2004 and 2003, by asset category are as
follows:
2004 2003
---- ----
Asset Category
Equity Securities & Equity Mutual Funds 71% 74%
Fixed Income Mutual Funds 25% 25%
Cash 4% 1%
Equity securities include Common Stock of The Adams Express Company, the
Corporation's non-controlled affiliate, in the amount of $201,285 (6% of total
plan assets) and $180,012 (7% of total plan assets) at December 31, 2004, and
2003, respectively.
The primary objective of the Corporation's pension plan is to provide capital
appreciation, current income, and preservation of capital through a portfolio
of stocks and fixed income securities. The equity portion of the portfolio may
range from 50% to 75% of total portfolio assets. The fixed income portion of
the portfolio may range from 25% to 50% of total portfolio assets and cash may
range from 0% to 25% of total portfolio assets. Subject to these allocation
ranges, the portfolio may be invested in any of the following securities:
common stocks, preferred stocks, American Depository Receipts, foreign
securities, mutual funds, convertible securities, municipal bonds, corporate
bonds, US government securities and US government agency securities.
The Corporation's policy is to contribute annually to the plans those amounts
that can be deducted for federal income tax purposes, plus additional amounts
as the Corporation deems appropriate in order to provide assets sufficient to
meet benefits to be paid to plan participants. The Corporation anticipates
making contributions in the amount of approximately $630,000 to the plans in
2005.
The following benefit payments, which reflect expected future service, are
expected to be paid:
Pension Benefits
----------------
2005 $ 122,179
2006 191,811
2007 194,682
2008 306,401
2009 299,797
Years 2010-2014 1,592,920
The Corporation also sponsors a defined contribution plan that covers
substantially all employees. The Corporation expensed contributions of $56,822
and $58,965 for the years ended December 31, 2004 and December 31, 2003,
respectively. The Corporation does not provide postretirement medical benefits.
6. EXPENSES
The amount of accrued expenses at December 31, 2004 for employees and former
employees of the Corporation was $1,669,127. Aggregate remuneration paid or
accrued during the year ended December 31, 2004 to key employees and directors
amounted to $1,672,549.
7. PORTFOLIO SECURITIES LOANED
The Corporation makes loans of securities to brokers, secured by cash, U.S.
Government securities, or bank letters of credit. The Corporation accounts for
securities lending transactions as secured financing and receives compensation
in the form of fees or retains a portion of interest on the investment of any
cash received as collateral. The Corporation also continues to receive interest
or dividends on the securities loaned. The loans are secured by collateral of
at least 102%, at all times, of the fair value of the securities loaned plus
accrued interest. At December 31, 2004, the Corporation had securities on loan
of $27,480,851, and held collateral of $28,685,423, consisting of a money
market fund.
11
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Year Ended December 31
----------------------------------------------
2004 2003 2002 2001 2000
-----------------------------------------------------------------------------------------------------
Per Share Operating Performance
Net asset value, beginning of year $24.06 $20.98 $24.90 $32.69 $26.32
-----------------------------------------------------------------------------------------------------
Net investment income 0.41 0.38 0.42 0.49 0.37
Net realized gains and change in
unrealized appreciation 5.05 3.89 (3.20) (6.81) 7.67
-----------------------------------------------------------------------------------------------------
Total from investment operations 5.46 4.27 (2.78) (6.32) 8.04
-----------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment income (0.44) (0.38) (0.43) (0.43) (0.39)
Distributions from net realized gains (0.88) (0.81) (0.68) (1.07) (1.35)
-----------------------------------------------------------------------------------------------------
Total distributions (1.32) (1.19) (1.11) (1.50) (1.74)
-----------------------------------------------------------------------------------------------------
Capital share repurchases 0.01 0.02 0.01 0.06 0.28
Reinvestment of distributions (0.05) (0.02) (0.04) (0.03) (0.21)
-----------------------------------------------------------------------------------------------------
Total capital share transactions (0.04) 0.00 (0.03) 0.03 0.07
-----------------------------------------------------------------------------------------------------
Net asset value, end of year $28.16 $24.06 $20.98 $24.90 $32.69
-----------------------------------------------------------------------------------------------------
Per share market price, end of year $25.78 $23.74 $19.18 $23.46 $27.31
-----------------------------------------------------------------------------------------------------
Total Investment Return
Based on market price 14.4% 30.8% (13.7)% (8.7)% 36.1%
Based on net asset value 23.3% 21.2% (11.1)% (19.0)% 33.1%
Ratios/Supplemental Data
Net assets, end of year (in 000's) $618,887 $522,941 $451,275 $526,492 $688,173
Ratio of expenses to average net assets 0.56% 0.74% 0.49% 0.35% 0.59%
Ratio of net investment income to average net assets 1.58% 1.75% 1.84% 1.67% 1.24%
Portfolio turnover 13.44% 10.20% 9.69% 6.74% 7.68%
Number of shares outstanding at end of year
(in 000's) 21,980 21,737 21,510 21,148 21,054
-----------------------------------------------------------------------------------------------------
12
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
December 31, 2004
Shares Value (A)
-----------------------------------------------------------------
Stocks and Convertible Securities -- 92.3%
Energy -- 79.8%
Internationals -- 25.7%
BP plc ADR.......................... 600,000 $ 35,040,000
ChevronTexaco Corp.................. 625,000 32,818,750
Exxon Mobil Corp.................... 1,050,000 53,823,000
Royal Dutch Petroleum Co. ADR....... 400,000 22,952,000
Total S.A. ADR (B).................. 130,000 14,279,200
------------
158,912,950
------------
Domestics -- 9.4%
Amerada Hess Corp................... 100,000 8,238,000
ConocoPhillips...................... 300,000 26,049,000
Kerr-McGee Corp..................... 177,153 10,237,672
Murphy Oil Corp..................... 172,700 13,893,715
------------
58,418,387
------------
Producers -- 15.3%
Apache Corp......................... 190,000 9,608,300
Burlington Resources Inc............ 266,800 11,605,800
Devon Energy Corp................... 397,440 15,468,365
EOG Resources, Inc.................. 180,000 12,844,800
Noble Energy, Inc. (B).............. 215,000 13,256,900
Occidental Petroleum Corp........... 200,000 11,672,000
Pioneer Natural Resources Co........ 316,000 11,091,600
XTO Energy Inc...................... 250,000 8,845,000
------------
94,392,765
------------
Distributors -- 15.4%
AGL Resources Inc................... 250,000 8,310,000
Aquila Inc. (B) (C)................. 2,000,000 7,380,000
Duke Energy Corp. (B)............... 217,624 5,512,416
Energen Corp........................ 200,000 11,790,000
Equitable Resources Inc............. 250,000 15,165,000
Keyspan Corp........................ 188,500 7,436,325
MDU Resources Group, Inc............ 250,000 6,670,000
National Fuel Gas Co................ 200,000 5,668,000
New Jersey Resources Corp........... 277,500 12,026,850
Questar Corp........................ 200,000 10,192,000
Williams Companies, Inc............. 320,000 5,212,800
------------
95,363,391
------------
13
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
December 31, 2004
Shares Value (A)
------------------------------------------------------------------
Services -- 14.0%
Baker Hughes, Inc...................... 130,000 $ 5,547,100
BJ Services Co......................... 370,000 17,219,800
GlobalSantaFe Corp..................... 255,000 8,443,050
Grant Prideco Inc. (C)................. 308,000 6,175,400
Nabors Industries Ltd. (C)............. 215,000 11,027,350
Noble Corp. (C)........................ 185,000 9,201,900
Schlumberger Ltd....................... 280,000 18,746,000
Weatherford International, Ltd. (C).... 205,000 10,516,500
------------
86,877,100
------------
Basic Industries -- 12.5%
Basic Materials & Other -- 10.1%
Air Products and Chemicals, Inc........ 125,000 7,246,250
Aqua America, Inc...................... 315,000 7,745,850
Arch Coal Inc. (B)..................... 100,000 3,554,000
Consol Energy Inc...................... 158,700 6,514,635
duPont (E.I.) de Nemours and Co........ 175,000 8,583,750
General Electric Co.................... 454,800 16,600,200
Martin Marietta Materials, Inc......... 66,400 3,563,024
Rohm & Haas Co......................... 200,000 8,846,000
------------
62,653,709
------------
Paper and Forest Products -- 2.4%
OfficeMax, Inc......................... 285,013 8,943,708
Smurfit-Stone Container Corp. (C)...... 300,000 5,604,000
------------
14,547,708
------------
Total Stocks and Convertible Securities
(Cost $295,546,819) (D).................... $571,166,010
------------
14
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
December 31, 2004
Prin. Amt. Value (A)
-----------------------------------------------------------------------------------------------
Short-Term Investments -- 7.7%
U.S. Government Obligations -- 2.4%
U.S. Treasury Bills, 2.00%, due 2/17/05.......................... $15,000,000 $ 14,960,833
------------
Commercial Paper -- 5.3%
AIG Funding, Inc., 2.28%, due 1/11/05............................ 4,115,000 4,112,394
American General Finance, Inc., 2.29-2.31%, due 1/18/05-1/20/05.. 5,250,000 5,243,861
Caterpillar Financial Services Corp., 2.24%, due 1/27/05......... 5,875,000 5,865,496
ChevronTexaco Funding Corp., 2.20%, due 1/13/05.................. 750,000 749,450
General Electric Capital Corp., 2.10-2.21%, due 1/4/05-1/25/05... 6,300,000 6,295,478
GMAC MINT, 2.34%, due 1/13/05.................................... 6,000,000 5,995,320
Toyota Motor Credit Corp., 2.14%, due 1/6/05..................... 4,725,000 4,723,595
------------
32,985,594
------------
Total Short-Term Investments
(Cost $47,946,427)................................................. 47,946,427
------------
Securities Lending Collateral -- 4.6%
Money Market Fund
BNY Institutional Cash Reserves Fund, 2.35%, due 1/3/05.......... 28,685,423
------------
Total Securities Lending Collateral
(Cost $28,685,423)................................................. 28,685,423
------------
Total Investments -- 104.6%
(Cost $372,178,669)................................................ 647,797,860
Cash, receivables and other assets, less liabilities -- (4.6)%... (28,910,459)
------------
Net Assets -- 100%................................................... $618,887,401
--------------------------------------------------------------------------------
Notes:
(A) See note 1 to financial statements. Securities are listed on the New York
Stock Exchange, the American Stock Exchange, or the NASDAQ.
(B) All or a portion of these securities are on loan. See Note 7 to Financial
Statements.
(C) Presently non-dividend paying.
(D) The aggregate market value of stocks held in escrow at December 31, 2004
covering open call option contracts written was $9,751,000. In addition,
the required aggregate market value of securities segregated by the
custodian to collaterize open put option contracts written was $6,535,000.
15
SCHEDULE OF OUTSTANDING OPTION CONTRACTS
--------------------------------------------------------------------------------
December 31, 2004
Contracts Contract
(100 shares Strike Expiration Appreciation/
each) Security Price Date (Depreciation)
----------------------------------------------------------------------------
COVERED CALLS
150 Amerada Hess Corp.............. $ 90 Jan 05 $ 18,239
150 Arch Coal Inc.................. 40 Jan 05 11,550
200 Burlington Resources Inc....... 40 Jan 05 (56,601)
200 ConocoPhillips................. 80 Jan 05 (112,601)
250 Equitable Resources Inc........ 55 Mar 05 (116,946)
100 Keyspan Corp................... 40 Feb 05 4,477
250 Pioneer Natural Resources Co... 35 Mar 05 (11,051)
150 Royal Dutch Petroleum Co....... 55 Jan 05 (25,850)
100 Total S.A...................... 105 Feb 05 (40,301)
----- ---------
1,550 (329,084)
----- ---------
COLLATERALIZED PUTS
150 ChevronTexaco Corp............. 50 Mar 05 900
100 ConocoPhillips................. 70 Jan 05 8,700
200 Consol Energy Inc.............. 30 Jan 05 25,399
100 GlobalSantaFe Corp............. 25 Apr 05 7,700
85 Martin Marietta Materials, Inc. 45 Apr 05 4,420
100 Murphy Oil Corp................ 60 Jan 05 11,100
135 Murphy Oil Corp................ 65 Jan 05 13,116
100 Noble Energy, Inc.............. 50 Jan 05 11,700
250 Precision Drilling Corp........ 45 Mar 05 9,600
100 Precision Drilling Corp........ 55 Jan 05 25,599
150 Schlumberger Ltd............... 50 Jan 05 14,550
----- ---------
1,470 132,784
----- ---------
$(196,300)
=========
16
CHANGES IN PORTFOLIO SECURITIES
--------------------------------------------------------------------------------
During the Three Months Ended December 31, 2004
(unaudited)
Shares
-----------------------------------------
Held
Additions Reductions Dec. 31, 2004
--------------------------------------------------------------------------------------------
ChevronTexaco Corp................................ 85,000 625,000
Consol Energy Inc................................. 158,700 158,700
Devon Energy Corp................................. 198,720/(1)/ 397,440
GlobalSantaFe Corp................................ 55,000 255,000
Martin Marietta Materials, Inc.................... 66,400 66,400
Murphy Oil Corp................................... 107,700 172,700
Nabors Industries Ltd............................. 40,000 215,000
Noble Energy, Inc................................. 30,000 215,000
OfficeMax, Inc.................................... 285,013/(2)/ 285,013
Williams Companies, Inc........................... 120,000/(3)/ 320,000
Arch Coal Inc..................................... 56,000 100,000
Boise Cascade Corp. 7.5% ACES due 2004............ 51,000/(2)/ --
Boise Cascade Corp................................ 205,000/(2)/ --
Keyspan Corp...................................... 31,500 188,500
"Shell" Transpsort and Trading Co., plc ADR....... 85,000 --
Total S.A. ADR.................................... 10,000 130,000
Williams Companies, Inc. 9.0% FELINE PACS due 2005 120,000/(3)/ --
--------
/(1)/By stock split.
/(2)/ Effective November 1, 2004, Boise Cascade Corp. changed its company name
to OfficeMax, Inc. Also received, by conversion, 80,013 shares of
OfficeMax, Inc. for shares of Boise Cascade Corp. 7.5% ACES owned.
/(3)/ Received one share and $1.47 cash for each share of Williams Companies,
Inc. 9.0% FELINE PACS owned.
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Petroleum & Resources Corporation:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Petroleum & Resources Corporation
(hereafter referred to as the "Corporation") at December 31, 2004, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 13, 2005
-------------------------
Common Stock
Listed on the New York Stock Exchange
and the Pacific Exchange
Petroleum & Resources Corporation
Seven St. Paul Street, Suite 1140, Baltimore, MD 21202
(410) 752-5900 or (800) 638-2479
Website: www.peteres.com
E-mail: contact@peteres.com
Counsel: Chadbourne & Parke L.L.P.
Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP
Transfer Agent & Registrar: American Stock Transfer & Trust Co.
Custodian of Securities: The Bank of New York
18
OTHER INFORMATION
--------------------------------------------------------------------------------
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 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 its Forms N-Q on its website at: www.peteres.com, under
the heading "Financial Reports".
ANNUAL CERTIFICATION
The Corporation's CEO has submitted to the New York Stock Exchange the annual
CEO certification as required by Section 303A.12(a) of the NYSE Listed Company
Manual.
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 information as to how the Corporation voted proxies relating to
portfolio securities during the 12 month period ended June 30, 2004 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 by clicking on
"Corporate Information" heading on the website; and (iii) on the Securities and
Exchange Commission's website at http//www.sec.gov.
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934. By their
nature, all forward-looking statements involve risks and uncertainties, and
actual results could differ materially from those contemplated by the
forward-looking statements. Several factors that could materially affect the
Corporation's actual results are the performance of the portfolio of stocks
held by the Corporation, the conditions in the U.S. and international
financial, petroleum and other markets, the price at which shares of the
Corporation will trade in the public markets, and other factors discussed in
the Corporation's periodic filings with the Securities and Exchange Commission.
PRIVACY POLICY
In order to conduct its business, Petroleum & Resources Corporation 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.
This report, including the financial statements herein, 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 not indicative of future investment results.
19
SHAREHOLDER INFORMATION AND SERVICES
--------------------------------------------------------------------------------
WE ARE OFTEN ASKED --
How do I invest in Petroleum & Resources?
Petroleum & Resources Common Stock is listed on the New York Stock Exchange and
Pacific Exchange. The stock's ticker symbol is "PEO" and may be bought and sold
through registered investment security dealers. Your broker will be able to
assist you in this regard. In addition, stock may be purchased through our
transfer agent, American Stock Transfer & Trust Company's INVESTORS CHOICE Plan
(see page 21).
Where do I get information on the stock's price, trading and/or net asset value?
The daily net asset value (NAV) per share and closing market price may be
obtained from our website at www.peteres.com. The daily NAV is also available
on the NASDAQ Mutual Fund Quotation System under the symbol XPEOX. The
week-ending NAV is published on Saturdays in various newspapers and on Mondays
in The Wall Street Journal in a table titled "Closed-End Funds." The table
compares the net asset value at the close of the week's last business day to
the market price of the shares, and shows the amount of the discount or premium.
Petroleum's daily trading is shown in the stock tables of most daily
newspapers, usually with the abbreviated form "PetRs." Local newspapers
determine, usually by volume of traded shares, which securities to list. If
your paper does not carry our listing, please telephone the Corporation at
(800) 638-2479 or visit our website.
How do I replace a lost certificate(s) or how do I correct a spelling error on
my certificate?
Your Petroleum stock certificates are valuable documents and should be kept in
a safe place. For tax purposes, keep a record of each certificate, including
the cost or market value of the shares it covers at the time acquired. If a
certificate is lost, destroyed or stolen, notify the transfer agent immediately
so a "stop transfer" order can be placed on the records to prevent an
unauthorized transfer of your certificate. The necessary forms and requirements
to permit the issuance of a replacement certificate will then be sent to you. A
certificate can be replaced only after the receipt of an affidavit regarding
the loss accompanied by an open surety bond, for which a small premium is paid
by the stockholder.
In the event a certificate is issued with the holder's name incorrectly
spelled, a correction can only be made if the certificate is returned to the
transfer agent with instructions for correcting the error. Transferring shares
to another name also requires that the certificate be forwarded to the transfer
agent with the appropriate assignment forms completed and the signature of the
registered owner Medallion guaranteed by a bank or member firm of The New York
Stock Exchange, Inc.
Is direct deposit of my dividend checks available?
Yes, our transfer agent offers direct deposit of your interim dividend checks.
You can request direct deposit with American Stock Transfer either on-line or
by calling them at the phone number provided on page 21. At this time, AST does
not offer direct deposit of your year-end distribution checks. We have been
advised by AST that it will be able to offer this service for the 2005 year-end
distribution.
Who do I notify of a change of address?
The transfer agent.
We go to Florida (Arizona) every winter. How do we get our mail from Petroleum
& Resources?
The transfer agent can program a seasonal address into its system; simply send
the temporary address and the dates you plan to be there to the transfer agent.
I want to give shares to my children, grandchildren, etc., as a gift. How do I
go about it?
Giving shares of Petroleum is simple and is handled through our transfer agent.
The stock transfer rules are clear and precise for most forms of transfer. They
will vary slightly depending on each transfer, so write to the transfer agent
stating the exact intent of your gift plans and the transfer agent will send
you the instructions and forms necessary to effect your transfer.
20
SHAREHOLDER INFORMATION AND SERVICES (CONTINUED)
--------------------------------------------------------------------------------
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.
INVESTORS CHOICE
INVESTORS CHOICE is a direct stock purchase and sale plan, as well as a
dividend reinvestment plan, sponsored and administered by our transfer agent,
American Stock Transfer & Trust Company (AST). The plan provides registered
stockholders and interested first time investors an affordable alternative for
buying, selling, and reinvesting in Petroleum & Resources shares.
The costs to participants in administrative service fees and brokerage
commissions for each type of transaction are listed below.
Initial Enrollment and
Optional Cash Investments
Service Fee $2.50 per investment
Brokerage Commission $0.05 per share
Reinvestment of Dividends*
Service Fee 2% of amount invested
(maximum of $2.50 per investment)
Brokerage Commission $0.05 per share
Sale of Shares
Service Fee $10.00
Brokerage Commission $0.05 per share
Deposit of Certificates for safekeeping $7.50
Book to Book Transfers Included
To transfer shares to another participant or to a new participant
Fees are subject to change at any time.
Minimum and Maximum Cash Investments
Initial minimum investment (non-holders) $500.00
Minimum optional investment
(existing holders) $50.00
Electronic Funds Transfer
(monthly minimum) $50.00
Maximum per transaction $25,000.00
Maximum per year NONE
A brochure which further details the benefits and features of INVESTORS CHOICE
as well as an enrollment form may be obtained by contacting AST.
For Non-Registered Shareholders
For shareholders whose stock is held by a broker in "street" name, the AST
INVESTORS CHOICE Direct Stock Purchase and Sale Plan remains available through
many registered investment security dealers. If your shares are currently held
in a "street" name or brokerage account, please contact your broker for details
about how you can participate in AST's Plan or contact AST.
----------
The Corporation
Petroleum & Resources Corporation
Lawrence L. Hooper, Jr.
Vice President, General Counsel and Secretary
Seven St. Paul Street, Suite 1140, Baltimore, MD 21202
(800) 638-2479
Website: www.peteres.com
E-mail: contact@peteres.com
The Transfer Agent
American Stock Transfer & Trust Company
Address Shareholder Inquiries to:
Shareholder Relations Department
59 Maiden Lane
New York, NY 10038
(866) 723-8330
Website: www.amstock.com
E-mail: info@amstock.com
Investors Choice Mailing Address:
Attention: Dividend Reinvestment
P.O. Box 922
Wall Street Station
New York, NY 10269
Website: www.InvestPower.com
E-mail: info@InvestPower.com
*The year-end dividend and capital gain distribution will usually be made in
newly issued shares of common stock. There are no fees or commissions in
connection with this dividend and capital gain distribution when made in newly
issued shares.
21
HISTORICAL FINANCIAL STATISTICS
--------------------------------------------------------------------------------
Dividends Distributions
From Net From Net
Net Asset Investment Realized
Value of Shares Value Income Gains
Dec. 31 Net Assets Outstanding* Per Share* Per Share* Per Share*
---------------------------------------------------------------------
1990 $308,599,851 16,189,934 $19.06 $.73 $ .83
1991 314,024,187 16,778,358 18.71 .61 .82
1992 320,241,282 17,369,255 18.44 .51 .82
1993 355,836,592 18,010,007 19.76 .55 .87
1994 332,279,398 18,570,450 17.89 .61 .79
1995 401,404,971 19,109,075 21.01 .58 .81
1996 484,588,990 19,598,729 24.73 .55 .88
1997 556,452,549 20,134,181 27.64 .51 1.04
1998 474,821,118 20,762,063 22.87 .52 1.01
1999 565,075,001 21,471,270 26.32 .48 1.07
2000 688,172,867 21,053,644 32.69 .39 1.35
2001 526,491,798 21,147,563 24.90 .43 1.07
2002 451,275,463 21,510,067 20.98 .43 .68
2003 522,941,279 21,736,777 24.06 .38 .81
2004 618,887,401 21,979,676 28.16 .44 .88
--------
*Adjusted for 3-for-2 stock split effected in October 2000.
22
BOARD OF DIRECTORS
--------------------------------------------------------------------------------
Number of
Portfolios
in Fund
Position Term Length Complex
Personal Held with of of Time Principal Occupations Overseen Other
Information the Fund Office Served During the Last 5 Years by Director Directorships
-------------------------------------------------------------------------------------------------------------------------
Independent Directors
Enrique R. Arzac, Ph.D. Director One Since Professor of Finance and Two Director of The Adams
7 St. Paul Street, Year 1987 Economics, formerly Vice Express Company and Credit
Suite 1140 Dean of Academic Affairs of Suisse Asset Management
Baltimore, MD 21202 the Graduate School of Funds (8 funds) (investment
Age 63 Business, Columbia University. companies).
-------------------------------------------------------------------------------------------------------------------------
Phyllis O. Bonanno Director One Since President & CEO of Two Director of The Adams
7 St. Paul Street, Year Nov. International Trade Solutions, Express Company
Suite 1140 2003 Inc. (consultants). Formerly (investment company), Borg-
Baltimore, MD 21202 President of Columbia College, Warner Inc. (industrial),
Age 61 Columbia, South Carolina, and Mohawk Industries Inc.
Vice President of Warnaco Inc. (carpets and flooring), The
(apparel). Canadian-American Business
Council, and Board of
Advisors for APTE, Inc.
(software).
-------------------------------------------------------------------------------------------------------------------------
Daniel E. Emerson Director One Since Chairman, The National Two Director of The Adams
7 St. Paul Street, Year 1987 YMCA Fund Inc. Retired Express Company
Suite 1140 Executive Vice President of (investment company).
Baltimore, MD 21202 NYNEX Corp.
Age 80 (communications), 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.
-------------------------------------------------------------------------------------------------------------------------
Thomas H. Lenagh Director One Since Financial Advisor, Chairman of Two Director of The Adams
7 St. Paul Street, Year 1987 the Board, Photonics Product Express Company and
Suite 1140 Group (crystals). Formerly Cornerstone Funds, Inc.
Baltimore, MD 21202 Chairman of the Board and (3 funds) (investment
Age 86 CEO of Greiner Engineering companies).
Inc. (formerly Systems
Planning Corp.) (consultants),
and Chief Investment Officer
of the Ford Foundation
(charitable foundation).
-------------------------------------------------------------------------------------------------------------------------
W. D. MacCallan Director One Since Retired Chairman of the Board Two Director of The Adams
7 St. Paul Street, Year 1971 and CEO of the Corporation Express Company
Suite 1140 (since 1991) and The Adams (investment company).
Baltimore, MD 21202 Express Company (since 1991).
Age 77 Formerly consultant to the
Corporation and The Adams
Express Company.
-------------------------------------------------------------------------------------------------------------------------
Kathleen T. McGahran, Director One Since Principal & Director of Pelham Two Director of The Adams
Ph.D., J.D., C.P.A Year Nov. Associates, Inc. (executive Express Company
7 St. Paul Street, 2003 education), Adjunct Associate (investment company).
Suite 1140 Professor, Columbia Executive
Baltimore, Md 21202 Education, Graduate School of
Age 54 Business, Columbia University.
Formerly Associate Dean and
Director of Executive
Education, and Associate
Professor, Columbia
University.
-------------------------------------------------------------------------------------------------------------------------
23
BOARD OF DIRECTORS (CONTINUED)
--------------------------------------------------------------------------------
Number of
Portfolios
in Fund
Position Term Length Complex
Personal Held with of of Time Principal Occupations Overseen Other
Information the Fund Office Served During the Last 5 Years by Director Directorships
------------------------------------------------------------------------------------------------------------------------------
Independent Directors (continued)
W. Perry Neff, J.D. Director One Since Private Financial Consultant. Two Director of The Adams
7 St. Paul Street, Year 1971 Retired Executive Vice President of Express Company
Suite 1140 Chemical Bank. (investment company).
Baltimore, MD 21202
Age 77
------------------------------------------------------------------------------------------------------------------------------
Landon Peters Director One Since Private Investor. Former Investment Two Director of The Adams
7 St. Paul Street, Year 1987 Manager, YMCA Retirement Fund. Express Company
Suite 1140 Formerly Executive Vice President (investment company).
Baltimore, MD and Treasurer and prior thereto Senior
21202 Vice President and Treasurer of The
Age 74 Bank of New York.
------------------------------------------------------------------------------------------------------------------------------
John J. Roberts Director One Since Senior Advisor, formerly Vice-- Two Director of The Adams
7 St. Paul Street, Year 1987 Chairman External Affairs, Express Company
Suite 1140 American International Group, Inc. (investment company) and
Baltimore, MD (insurance). Formerly Chairman and Honorary Director of
21202 CEO of American International American International
Age 82 Underwriters Corporation. Group, Inc.
Previously President of American
International Underwriters
Corporation-U.S./ Overseas
Operations.
------------------------------------------------------------------------------------------------------------------------------
Susan C. Schwab, Ph.D. Director One Since President/CEO, University System Two Director of The Adams
7 St. Paul Street, Year 2000 of Maryland Foundation. Former Express Company
Suite 1140 Dean, School of Public Policy at the (investment company) and
Baltimore, MD University of Maryland, College Calpine Corp. (energy).
21202 Park. Previously Director of
Age 49 Corporate Business Development at
Motorola, Inc. (electronics).
------------------------------------------------------------------------------------------------------------------------------
Robert J. M. Wilson Director One Since Retired President of the Corporation Two Director of The Adams
7 St. Paul Street, Year 1975 (since 1986) and retired President of Express Company
Suite 1140 The Adams Express Company (investment company).
Baltimore, MD (since 1986).
21202
Age 84
------------------------------------------------------------------------------------------------------------------------------
Interested Director
Douglas G. Ober Director, One Director Chairman & CEO of the Two Director of The Adams
7 St. Paul Street, Chairman, Year since Corporation and The Adams Express Company
Suite 1140 President 1989; Express Company. (investment company).
Baltimore, MD and CEO Chairman
21202 of the
Age 58 Board
since
1991
------------------------------------------------------------------------------------------------------------------------------
24
PETROLEUM & RESOURCES CORPORATION
--------------------------------------------------------------------------------
Board Of Directors
Enrique R. Arzac/(1)(2) / W. Perry Neff/(2)(4)/
Phyllis O. Bonanno/(1)(3)/ Douglas G. Ober/(1)/
Daniel E. Emerson/(1)(3) / Landon Peters/(2)(3)/
Thomas H. Lenagh/(1)(4) / John J. Roberts/(1)/
W.D. MacCallan/(3)(4) / Susan C. Schwab/(2)(4)/
Kathleen T. Robert J.M. Wilson/(1)(3)/
McGahran/(2)(4)/
--------
/(1)/ Member of Executive Committee
/(2)/ Member of Audit Committee
/(3)/ Member of Compensation Committee
/(4)/ Member of Retirement Benefits Committee
Officers
Douglas G. Ober Chairman, President
and Chief Executive
Officer
Joseph M. Truta Executive Vice President
Lawrence L. Hooper, Jr. Vice President, General
Counsel and Secretary
Maureen A. Jones Vice President, Chief
Financial Officer and
Treasurer
Nancy J.F. Prue Vice President -- Research
Christine M. Sloan Assistant Treasurer
Geraldine H. Pare Assistant Secretary
25
Item 2. Code of Ethics.
On June 12, 2003, the Board of Directors adopted a code of
ethics that applies to registrant's principal executive
officer and principal financial officer. The code of ethics
is available on registrant's website at: www.peteres.com.
Since the code of ethics was adopted there have been no
amendments to it nor have any waivers from any its
provisions been granted.
Item 3. Audit Committee Financial Expert.
The board of directors has determined that at least one of
the members of registrant's audit committee meets the
definition of audit committee financial expert as that term
is defined by the Securities and Exchange Commission. The
two directors on the registrant's audit committee whom the
board of directors have determined meet such definition are
Enrique R. Arzac and Kathleen T. McGahran, both of whom are
independent pursuant to paragraph (a)(2) of this Item.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees billed for professional
services rendered by its independent auditors,
PricewaterhouseCoopers LLP, for the audits of the Companys
annual and semi-annual financial statements for 2004 and
2003 were $47,142 and $46,162, respectively.
(b) Audit Related Fees. There were no audit-related fees in
2004 and 2003.
(c) Tax Fees. The aggregate fees billed to registrant for
professional services rendered by PricewaterhouseCoopers LLP
for the review of registrant's excise tax calculations and
preparations of federal, state and excise tax returns for
2004 and 2003 were $8,524 and $7,038, respectively.
(d) All Other Fees. The aggregate fees billed to registrant
by PricewaterhouseCoopers LLP other than for the services
referenced above for 2004 and 2003 was $0.
(e) (1) Audit Committee Pre-Approval Policy. As of 2004,
all services to be performed for registrant by
PricewaterhouseCoopers LLP must be pre-approved by the audit
committee. All services performed in 2004 were pre-approved
by the committee.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate fees billed by PricewaterhouseCoopers LLP
for non-audit professional services rendered to registrant
for 2004 and 2003 were $8,524 and $7,038, respectively.
(h) The registrant's audit committee has considered the
provision by PricewaterhouseCoopers LLP of the non-audit
services described above and found that they are compatible
with maintaining PricewaterhouseCoopers LLPs independence.
Item 5. Audit Committee of Listed registrant's.
(a) The registrant has a standing audit committee
established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934. The members of the audit
committee are: Enrique R. Arzac, chairman, Kathleen T.
McGahran, W. Perry Neff, Landon Peters and Susan C. Schwab.
(B) Not applicable.
Item 6. Schedule of Investments - This schedule is included
as part of the report to shareholders filed under Item 1 of
this form.
Item 7. Disclosure of Proxy Voting Policies and Procedures
for Closed-End Management Investment Companies.
PROXY VOTING POLICIES & PROCEDURES
Petroleum & Resources Corporation (Petroleum) follows long-
standing general guidelines for the voting of portfolio
company proxies and takes very seriously its responsibility
to vote all such proxies. The portfolio company proxies are
evaluated by our research staff and voted by our portfolio
management team, and we annually provide the Board of
Directors with a report on how proxies were voted during the
previous year. We do not use an outside service to assist us
in voting our proxies.
As an internally-managed investment company, Petroleum uses
its own staff of research analysts and portfolio managers.
In making the decision to invest in a company for the
portfolio, among the factors the research team analyzes is
the integrity and competency of the companys management. We
must be satisfied that the companies we invest in are run by
managers with integrity. Therefore, having evaluated this
aspect of our portfolio companies managements, we give
significant weight to the recommendations of the companys
management in voting on proxy issues.
We vote proxies on a case-by-case basis according to what we
deem to be the best long-term interests of our shareholders.
The key over-riding principle in any proxy vote is that
stockholders be treated fairly and equitably by the
portfolio companys management. In general, on the election
of directors and on routine issues that we do not believe
present the possibility of an adverse impact upon our
investment, after reviewing whether applicable corporate
governance requirements as to board and committee
composition have been met, we will vote in accordance with
the recommendations of the companys management. When we
believe that the managements recommendation is not in the
best interests of our stockholders, we will vote against
that recommendation.
Our general guidelines for when we will vote contrary to the
recommendation of the portfolio company managements
recommendation are:
Stock Options
Our general guideline is to vote against stock option plans
that we believe are unduly dilutive of our stock holdings in
the company. We use a general guideline that we will vote
against any stock option plan that results in dilution in
shares outstanding exceeding 4%. Most stock option plans are
established to motivate and retain key employees and to
reward them for their achievement. An analysis of a stock
option plan can not be made in a vacuum but must be made in
the context of the companys overall compensation scheme. In
voting on stock option plans, we give consideration to
whether the stock option plan is broad-based in the number
of employees who are eligible to receive grants under the
plan. We generally vote against plans that permit re-pricing
of grants or the issuance of options with exercise prices
below the grant date value of the companys stock.
Corporate Control/ Governance Issues
Unless we conclude that the proposal is favorable to our
interests as a long-term shareholder in the company, we have
a long-standing policy of voting against proposals to create
a staggered board of directors. Staggered boards are used to
help create a roadblock to a possible takeover of a company
or to entrench incumbent management and board. In
conformance with that policy, we will generally vote in
favor of shareholder proposals to eliminate the staggered
election of directors.
Unless we conclude that the proposal is favorable to our
interests as a long-term shareholder in the company, our
general policy is to vote against amendments to a companys
charter that can be characterized as anti-takeover
provisions. For example, we generally vote in favor of
stockholder proposals to rescind or require a stockholder
vote on anti-takeover provisions such as poison pills and
the like.
With respect to so-called golden parachutes and other
severance packages, it is our general policy to vote against
proposals relating to future employment contracts that
provide that compensation will be paid to any director,
officer or employee that is contingent upon a merger or
acquisition of the company.
We generally vote for proposals to require that the majority
of a board of directors consist of independent directors and
vote against proposals to establish a retirement plan for
non-employee directors.
We have found that most stockholder proposals relating to
social issues focus on very narrow issues that either fall
within the authority of the companys management, under the
oversight of its board of directors, to manage the day-to-
day operations of the company or concern matters that are
more appropriate for global solutions rather than company-
specific ones. We consider these proposals on a case-by-case
basis but usually are persuaded managements position is
reasonable and vote in accordance with managements
recommendation on these types of proposals.
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
This disclosure requirement, which is effective for annual
reports for fiscal years ending on or after December 31,
2005, is not applicable to Registrant at this time.
Item 9. Purchases of Equity Securities by Closed-End
Management Investment Company and Affiliated Purchasers.
Maximum
Total Number (or
Number of Approximate
Shares (or Dollar Value)
Total Units) of Shares (or
Number Purchased Units) that
of Average as Part of May Yet Be
Shares Price Publicly Purchased
(or Paid per Announced Under the
Units) Share (or Plans or Plans or
Period(2) Purchased Unit) Programs Programs
-------- --------- --------- --------- ---------
Jul. 2004 32,200 $ 24.35 32,200 977,683
Aug. 2004 0 -- 0 977,683
Sep. 2004 13,800 $ 24.73 13,800 963,883
Oct. 2004 0 -- 0 963,683
Nov. 2004 21,400 $ 26.20 21,400 942,483
Dec. 2004 15,400 $ 25.83 15,400 1,065,346
-------- --------- --------- --------- ---------
Total 82,800(1) $ 25.17 82,800(2) 1,065,346(2)
(1) There were no shares purchased other than through a
publicly announced plan or program.
(2.a) The Plan was announced on December 11, 2003 and was
reapproved on December 9, 2004.
(2.b) The share amount approved in 2003 was 5% of
outstanding shares, or approximately 1,064,333 shares, and
in 2004 was 5% of outstanding shares, or approximately
1,080,746 shares.
(2.c) The Plan will expire on or about December 9, 2005.
(2.d) None.
(2.e) None.
Item 10. Submission of Matters to a Vote of Security Holders.
There were no material changes to the procedures by which
shareholders may recommend nominees to the registrant's
board of directors made or implemented after the registrant
last provided disclosure in response to the requirements of
Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or
this Item.
Item 11. Controls and Procedures.
Conclusions of principal officers concerning controls and
procedures.
(a) As of February 11, 2005, an evaluation was performed
under the supervision and with the participation of the
officers of registrant, including the principal executive
officer (PEO) and principal financial officer (PFO), of the
effectiveness of registrant's disclosure controls and
procedures. Based on that evaluation, the registrant's
officers, including the PEO and PFO, concluded that, as of
February 11, 2005, the registrant's disclosure controls and
procedures were reasonably designed so as to ensure that
material information relating to the registrant is made
known to the PEO and PFO.
(b) There have been no significant changes in the
registrant's internal control over financial reporting (as
defined in Rule 30a-3(d) under the Investment Company Act of
1940 (17 CFR 270.30a-3(d)) that occurred during the
registrant's last fiscal half-year that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits.
(1) Not applicable. See Registrant's response to
Item 2, above.
(2) The certifications of the PEO and PFO pursuant to
Rule 30a-2(a) under the Investment Company Act of 1940 are
attached hereto as Exhibit 99 CERT.
(c) The certifications of the PEO and PFO pursuant to Rule
30a-2(b) under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.906 CERT.
Signatures:
Pursuant to the requirements of the Securities Exchange Act
of 1934 and the Investment Company Act of 1940, the
registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PETROLEUM & RESOURCES CORPORATION
BY: /s/ Douglas G. Ober
-----------------------
Douglas G. Ober
Chief Executive Officer
(Principal Executive Officer)
Date: February 11, 2005
Pursuant to the requirements of the Securities Exchange Act
of 1934 and the Investment Company Act of 1940, this report
has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
BY: /s/ Douglas G. Ober
-----------------------
Douglas G. Ober
Chief Executive Officer
(Principal Executive Officer)
Date: February 11, 2005
BY: /s/ Maureen A. Jones
-----------------------
Maureen A. Jones
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: February 11, 2005