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
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(Exact name of registrant as specified in charter)
7 Saint Paul Street, Suite 1140, Baltimore, Maryland 21202
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(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, 2008
Date of reporting period: June 30, 2008
Item 1: Reports to Stockholders.
PETROLEUM & RESOURCES CORPORATION
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Board of Directors
Enrique R. Arzac /2,4/ Roger W. Gale /1,3,5/
Phyllis O. Bonanno /1,4,5/ Thomas H. Lenagh / 2,3/
Kenneth J. Dale /3,4/ Kathleen T. McGahran /1,4,5/
Daniel E. Emerson /1,3,5/ Douglas G. Ober /1/
Frederic A. Escherich /2,3/ Craig R. Smith /2,4/
1.Member of Executive Committee
2.Member of Audit Committee
3.Member of Compensation Committee
4.Member of Retirement Benefits Committee
5.Member of Nominating and Governance Committee
Officers
Douglas G. Ober Chairman, President and
Chief Executive Officer
Robert E. Sullivan Executive Vice President
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
Christine M. Sloan Assistant Treasurer
Geraldine H. Pare Assistant Secretary
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Stock Data
--------
Market Price (6/30/08) $43.59
Net Asset Value (6/30/08) $50.26
Discount: 13.3%
New York Stock Exchange ticker symbol: PEO
NASDAQ Mutual Fund Quotation Symbol: XPEOX
Newspaper stock listings are generally under the abbreviation: PetRs
----------------
Distributions in 2008
----------------
From Investment Income (paid or declared) $0.30
From Net Realized Gains 0.09
-----
Total $0.39
=====
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2008 Dividend Payment Dates
-----------------------
March 1, 2008
June 1, 2008
September 1, 2008
December 27, 2008*
*Anticipated
Petroleum & Resources Corporation (R)
[GRAPHIC]
INVESTMENTS IN GLOBAL ENERGY AND NATURAL RESOURCES
Petroluem & Resources Corporation
Semi-Annual Report - June 30,2008
LETTER TO STOCKHOLDERS
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We submit herewith the financial statements of Petroleum & Resources
Corporation (the Corporation) for the six months ended June 30, 2008. In
addition, there are provided the report of the independent registered public
accounting firm, a schedule of investments, and other financial information.
Net assets of the Corporation at June 30, 2008 were $50.26 per share on
22,640,707 shares outstanding, compared with $42.99 per share at December 31,
2007 on 22,768,250 shares outstanding. On March 1, 2008, a distribution of
$0.13 per share was paid, consisting of $0.05 from 2007 long-term capital gain,
$0.04 from 2007 short-term capital gain, $0.03 from 2007 investment income, and
$0.01 from 2008 investment income, all taxable in 2008. A 2008 investment
income dividend of $0.13 per share was paid on June 1, 2008, and another $0.13
per share investment income dividend has been declared to shareholders of
record August 12, 2008, payable September 1, 2008.
Net investment income for the six months ended June 30, 2008 amounted to
$4,740,462, compared with $4,576,717 for the same six month period in 2007.
These earnings are equal to $0.21 per share in each period.
Net capital gain realized on investments for the six months ended June 30, 2008
amounted to $38,377,327, or $1.70 per share.
For the six month ended June 30, 2008, the total return on net asset value
(with dividends and capital gains reinvested) of shares of the Corporation was
17.7%. The total return on the market value of the Corporation's shares for the
period was 13.5%. These compare to a 10.1% change in the Dow Jones Oil and Gas
Index and a (11.6)% total return for the Standard & Poor's 500 Composite Stock
Index over the same time period.
For the twelve months ended June 30, 2008, the Corporation's total return on
net asset value was 30.7% and on market value was 25.8%. Comparable figures for
the Dow Jones Oil & Gas Index and the S&P 500 were 24.7% and (13.1)%,
respectively.
Current and potential stockholders can find information about the Corporation,
including the daily net asset value (NAV) per share, the market price, and the
discount/premium to the NAV, on our website at www.peteres.com. Also available
on the website are a brief history of the Corporation, historical financial
information, and other useful content. Further information regarding
stockholder services is located on page 15 of this report.
-----------------
By order of the Board of Directors,
/s/
Douglas G. Ober,
Chairman, President and
Chief Executive Officer
July 10, 2008
STATEMENT OF ASSETS AND LIABILITIES
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June 30, 2008
Assets
Investments* at value:
Common stocks and convertible securities
(cost $402,154,241) $1,135,810,363
Short-term investments (cost $9,140,599) 9,140,599
Securities lending collateral (cost $145,526,187) 145,526,187 $1,290,477,149
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Cash 256,550
Receivables:
Investment securities sold 1,068,259
Dividends and interest 598,671
Prepaid expenses and other assets 590,404
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Total Assets 1,292,991,033
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Liabilities
Investment securities purchased 5,936,600
Open written option contracts at value (proceeds $51,100) 35,000
Obligations to return securities lending collateral 145,526,187
Accrued expenses 3,608,897
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Total Liabilities 155,106,684
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Net Assets $1,137,884,349
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Net Assets
Common Stock at par value $0.001 per share, authorized 50,000,000
shares; issued and outstanding 22,640,707 shares (includes 31,934
restricted shares, 4,000 restricted stock units, and 2,599 deferred stock
units) (Note 6) $ 22,641
Additional capital surplus 367,815,192
Accumulated other comprehensive income (Note 5) (2,111,212)
Undistributed net investment income 213,633
Undistributed net realized gain on investments 38,271,873
Unrealized appreciation on investments 733,672,222
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Net Assets Applicable to Common Stock $1,137,884,349
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Net Asset Value Per Share of Common Stock $50.26
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* See Schedule of Investments on page 10.
The accompanying notes are an integral part of the financial statements.
2
STATEMENT OF OPERATIONS
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Six Months Ended June 30, 2008
Investment Income
Income:
Dividends $ 6,863,647
Interest and other income 588,238
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Total income 7,451,885
---------------------------------------------------------------------------------
Expenses:
Investment research 1,134,489
Administration and operations 721,295
Directors' fees 206,859
Reports and stockholder communications 110,290
Occupancy and other office expenses 89,540
Transfer agent, registrar and custodian expenses 75,933
Insurance 75,056
Investment data services 70,103
Auditing and accounting services 55,270
Travel, telephone and postage 49,093
Legal services 27,104
Other 96,391
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Total expenses 2,711,423
---------------------------------------------------------------------------------
Net Investment Income 4,740,462
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Other Comprehensive Income (Note 5) (54,320)
---------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 38,377,327
Change in unrealized appreciation on investments 126,770,932
---------------------------------------------------------------------------------
Net Gain on Investments 165,148,259
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Change in Net Assets Resulting from Operations $169,834,401
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The accompanying notes are an integral part of the financial statements.
3
STATEMENTS OF CHANGES IN NET ASSETS
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Six Months Ended Year Ended
June 30, 2008 December 31, 2007
---------------- -----------------
From Operations:
Net investment income $ 4,740,462 $ 10,070,758
Net realized gain on investments 38,377,327 82,692,239
Change in unrealized appreciation on investments 126,770,932 144,503,271
Other comprehensive income (Note 5) (54,320) (89,917)
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Increase in net assets resulting from operations 169,834,401 237,176,351
--------------------------------------------------------------------------------------------
Distributions to Stockholders from:
Net investment income (3,851,647) (10,678,823)
Net realized gain from investment transactions (2,047,321) (82,870,511)
--------------------------------------------------------------------------------------------
Decrease in net assets from distributions (5,898,968) (93,549,334)
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From Capital Share Transactions:
Value of shares issued in payment of distributions 5,566 41,992,828
Cost of shares purchased (Note 4) (5,284,463) (19,224,514)
Deferred compensation (Notes 4,6) 307,984 477,259
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Change in net assets from capital share transactions (4,970,913) 23,245,573
--------------------------------------------------------------------------------------------
Total Increase in Net Assets 158,964,520 166,872,590
Net Assets:
Beginning of period 978,919,829 812,047,239
--------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $213,633 and $0, respectively) $1,137,884,349 $978,919,829
--------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
4
NOTES TO FINANCIAL STATEMENTS
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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 is an internally-managed fund emphasizing petroleum and other
natural resource investments. The investment objectives of the Corporation are
preservation of capital, the attainment of reasonable income from investments,
and an opportunity for capital appreciation.
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America, which
require the use of estimates made by Corporation management. Management
believes that estimates and security valuations are appropriate; however,
actual results may differ from those estimates, and the security valuations
reflected in the financial statements may differ from the value the Corporation
ultimately realizes upon sale of the securities.
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 stockholders are recognized on the ex-dividend date, and
interest income is recognized on the accrual basis.
Security Valuation--Investments in securities traded on national security
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 which approximates fair value.
Purchased and written options are valued at the last quoted asked price.
The Corporation adopted Financial Accounting Standard Board Statement of
Financial Accounting Standards No. 157, Fair Value Measurements ("FAS 157"),
effective January 1, 2008. There was no impact on the fair value of assets
individually or in aggregate upon adoption. In accordance with FAS 157, fair
value is defined as the price that the Corporation would receive upon selling
an investment in an orderly transaction to an independent buyer. FAS 157
established a three-tier hierarchy to establish classification of fair value
measurements, summarized as follows:
. Level 1 -- fair value is determined based on market data obtained from
independent sources; for example, quoted prices in active markets for
identical investments,
. Level 2 -- fair value is determined using other assumptions obtained from
independent sources; for example, quoted prices for similar investments,
. Level 3 -- fair value is determined using the Corporation's own
assumptions, developed based on the best information available in the
circumstances.
The Corporation's investments at June 30, 2008 are classified as follows:
Investment in
securities Written options
-------------- ---------------
Level 1 $1,135,810,363 $35,000
Level 2 154,666,786* --
Level 3 -- --
----------------------------------------
Total $1,290,477,149 $ 35,000
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*Comprised of short-term investments and securities lending collateral.
2. FEDERAL INCOME TAXES
The Corporation's policy is to distribute all of its taxable income to its
stockholders 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 June 30, 2008 was $556,791,203 and net unrealized appreciation
aggregated $733,685,946, of which the related gross unrealized appreciation and
depreciation were $736,359,498 and $2,673,552 respectively.
Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. Accordingly, annual
reclassifications are made within the Corporation's capital accounts to reflect
income and gains available for distribution under income tax regulations. Any
income tax-related interest or penalties would be classified as income tax
expense.
3. INVESTMENT TRANSACTIONS
The Corporation's investment decisions are made by a committee of management,
and recommendations to that committee are made by the research staff.
Purchases and sales of portfolio securities, other than options and short-term
investments, during the six months ended June 30, 2008 were $114,005,745 and
$84,818,249, respectively. Options may be written (sold) or purchased by the
Corporation. When the Corporation writes an option, an
5
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
amount equal to the premium received by the Corporation is recorded as a
liability and is subsequently adjusted to the current fair value of the option
written. Premiums received from unexercised put/call options are treated as
realized gains from investments, premiums received from exercised put options
reduces the cost basis of the securities purchased, and premiums received from
exercised call options are added to the proceeds from the sale of the
underlying security in determining whether there is a realized gain or loss.
The Corporation as writer of an option bears the risks of possible illiquidity
of the option markets and the unfavorable change in the price of the security
underlying the written option. The risk is limited to the premium originally
paid for the option. A schedule of outstanding option contracts as of June 30,
2008 can be found on page 12.
Transactions in written covered call and collateralized put options during the
six months ended June 30, 2008 were as follows:
Covered Calls Collateralized Puts
------------------- ------------------
Contracts Premiums Contracts Premiums
--------- --------- --------- --------
Options outstanding,
December 31, 2007 725 $ 87,378 650 $ 69,304
Options written 3,708 540,366 900 110,049
Options terminated in
closing purchase
transactions (1,000) (89,444) (750) (89,944)
Options expired (2,533) (400,035) (800) (89,409)
Options exercised (600) (87,165) -- --
---------------------------------------------------------------
Options outstanding,
June 30, 2008 300 $ 51,100 -- $ --
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4. CAPITAL STOCK
The Corporation has 5,000,000 authorized and unissued preferred shares, $0.001
par value.
On December 27, 2007, the Corporation issued 1,109,759 shares of its Common
Stock at a price of $37.825 per share (the average market price on December 11,
2007) to stockholders of record on November 21, 2007 who elected to take stock
in payment of the distribution from 2007 capital gain and investment income. In
addition, 446 shares were issued at a weighted average price of $36.09 per
share as dividend equivalents to holders of deferred stock units and restricted
stock units under the 2005 Equity Incentive Compensation Plan.
During 2008, the Corporation has issued 286 shares of its Common Stock at a
weighted average price of $37.44 per share as dividend equivalents to holders
of deferred stock units and restricted stock units under the 2005 Equity
Incentive Compensation Plan.
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 2008 and 2007 were as follows:
Shares Amount
---------------------- -------------------------
Six months Six months
ended Year ended ended Year ended
June 30, December 31, June 30, December 31,
2008 2007 2008 2007
---------- ------------ ----------- ------------
Shares issued in
payment of
dividends 286 1,110,205 $ 5,566 $ 41,992,828
Shares purchased (at a
weighted average
discount from net
asset value of 11.3%
and 9.9%,
respectively) (141,500) (538,375) (5,284,463) (19,224,514)
Net activity under the
Equity-Based
Compensation Plans 13,671 15,553 307,984 477,259
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Net change (127,543) 587,383 $(4,970,913) $ 23,245,573
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5. RETIREMENT PLANS
The Corporation's non-contributory qualified defined benefit pension plan
covers all employees with at least one year of service. In addition, the
Corporation has a non-contributory nonqualified defined benefit plan which
provides eligible employees with retirement benefits to supplement the
qualified plan. Benefits are based on length of service and compensation during
the last five years of employment.
The funded status of the plans is recognized as an asset (overfunded plan) or a
liability (underfunded plan) in the Statement of Assets and Liabilities.
Changes in the prior service costs and accumulated actuarial gains and losses
are recognized as accumulated other comprehensive income, a component of net
assets, in the year in which the changes occur.
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. During the six months ended
June 30, 2008, the Corporation contributed $15,604 to the plans and expects to
contribute up to $500,000 to the plans during the remainder of 2008.
6
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The following table aggregates the components of the plans' net periodic
pension cost.
Six months
ended Year ended
June 30, December 31,
2008 2007
---------- ------------
Service Cost $ 139,760 $ 348,352
Interest Cost 174,835 374,693
Expected return on plan assets (140,557) (368,752)
Amortization of prior service cost 17,952 37,717
Amortization of net loss 115,955 226,165
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Net periodic pension cost $ 307,945 $ 618,175
-----------------------------------------------------------
The Corporation also sponsors a defined contribution plan that covers
substantially all employees. For the six months ended June 30, 2008, the
Corporation expensed contributions of $60,084. The Corporation does not provide
postretirement medical benefits.
6. EQUITY-BASED COMPENSATION
Although the Stock Option Plan of 1985 ("1985 Plan") has been discontinued and
no further grants will be made under this plan, unexercised grants of stock
options and stock appreciation rights granted in 2004 and prior years remain
outstanding. The exercise price of the unexercised options and related stock
appreciation rights is the fair market value on date of grant, reduced by the
per share amount of capital gains paid by the Corporation during subsequent
years. All options and related stock appreciation rights terminate 10 years
from date of grant, if not exercised.
A summary of option activity under the 1985 Plan as of June 30, 2008, and
changes during the six month period then ended is presented below:
Weighted- Weighted-
Average Average
Exercise Remaining
Options Price Life (Years)
------- --------- ------------
Outstanding at December 31, 2007 49,681 $11.53 3.68
Exercised (13,366) 11.31 --
-----------------------------------------------------------------
Outstanding at June 30, 2008 36,315 $11.50 3.47
-----------------------------------------------------------------
Exercisable at June 30, 2008 10,762 $ 8.57 2.81
-----------------------------------------------------------------
The options outstanding as of June 30, 2008 are set forth below:
Weighted Weighted
Average Average
Options Exercise Remaining
Exercise Price Outstanding Price Life (Years)
-------------- ----------- -------- ------------
$5.00-$7.74 3,975 $ 5.80 0.50
$7.75-$10.49 10,370 9.14 4.50
$10.50-$13.24 9,508 12.31 3.50
$13.25-$16.00 12,462 14.66 3.55
---------------------------------------------------------------
Outstanding at June 30, 2008 36,315 $11.50 3.47
---------------------------------------------------------------
Compensation cost resulting from stock options and stock appreciation rights
granted under the 1985 Plan is based on the intrinsic value of the award,
recognized over the award's vesting period, and remeasured at each reporting
date through the date of settlement. The total compensation cost recognized for
the six months ended June 30, 2008 was $222,330.
The 2005 Equity Incentive Compensation Plan ("2005 Plan"), adopted at the 2005
Annual Meeting, permits the grant of stock options, restricted stock awards and
other stock incentives to key employees and all non-employee directors. The
2005 Plan provides for the issuance of up to 872,639 shares of the
Corporation's Common Stock, including both performance and nonperformance-based
restricted stock. Performance-based restricted stock awards vest at the end of
a specified three year period, with the ultimate number of shares earned
contingent on achievement of certain performance targets. If performance
targets are not achieved, all or a portion of the performance-based awards are
forfeited and become available for future grants. Nonperformance-based
restricted stock awards vest ratably over a three year period and
nonperformance-based restricted stock units (granted to non-employee directors)
vest over a one year period. It is the current intention that employee grants
will be performance-based. The 2005 Plan provides for accelerated vesting in
the event of death or retirement. Non-employee directors also may elect to
defer a portion of their cash compensation, with such deferred amount to be
paid by delivery of deferred stock units. Outstanding awards are granted at
fair market value on grant date. The number of shares of Common Stock which
remain available for future grants under the 2005 Plan at June 30, 2008 is
825,137 shares.
A summary of the status of the Corporations's awards granted under the 2005
Plan as of June 30, 2008, and changes during the six month period then ended is
presented below:
Weighted Average
Shares/ Grant-Date Fair
Awards Units Value
------ ------- ----------------
Balance at December 31, 2007 30,162 $32.99
Granted:
Restricted stock 8,752 37.51
Restricted stock units 4,000 36.85
Deferred stock units 361 37.81
Vested (4,742) 32.54
Forfeited -- --
--------------------------------------------------------------
Balance at June 30, 2008 (includes
31,934 performance-based awards and
6,599 nonperformance-based awards) 38,533 $34.52
--------------------------------------------------------------
Compensation costs resulting from awards granted under the 2005 Plan are based
on the fair value of the award on grant date (determined by the average of the
high and low price on grant date) and recognized on a straight-line basis over
the requisite service period. For those awards with performance conditions,
compensation costs are based on
7
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
the most probable outcome and, if such goals are not met, compensation cost is
not recognized and any previously recognized compensation cost is reversed. The
total compensation costs for restricted stock granted to employees for the
period ended June 30, 2008 were $196,421. The total compensation costs for
restricted stock units granted to non-employee directors for the period ended
June 30, 2008 were $79,392. As of June 30, 2008, there were total unrecognized
compensation costs of $611,807, a component of additional capital surplus,
related to nonvested equity-based compensation arrangements granted under the
2005 Plan. Those costs are expected to be recognized over a weighted average
period of 1.70 years. The total fair value of shares vested during the six
month period ended June 30, 2008 was $146,792.
7. OFFICER AND DIRECTOR COMPENSATION
The aggregate remuneration paid during the six months ended June 30, 2008 to
officers and directors amounted to $1,782,192, of which $198,607 was paid as
fees and compensation to directors who were not officers. These amounts
represent the taxable income to the Corporation's officers and directors and
therefore differ from the amounts reported in the accompanying Statement of
Operations that are recorded and expensed in accordance with generally accepted
accounting principles.
8. PORTFOLIO SECURITIES LOANED
The Corporation makes loans of securities to brokers, secured by cash deposits,
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 at all times by collateral of at least 102% of the fair value of the
securities loaned plus accrued interest. The market value of the loaned
securities is calculated based upon the most recent closing prices and any
additional required collateral is delivered to the Corporation on the next
business day. Gain or loss in the fair value of securities loaned that may
occur during the term of the loan will be for the account of the Corporation.
At June 30, 2008, the Corporation had securities on loan of $143,104,209 and
held collateral of $145,526,187, consisting of an investment trust fund which
may invest in money market instruments, commercial paper, repurchase
agreements, U.S. Treasury Bills, and U.S. agency obligations.
-----------------
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.
8
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
---------------------
Six Months Ended
-------------------
Year Ended December 31
June 30, June 30, --------------------------------------------
2008 2007 2007 2006 2005 2004 2003
---------- -------- -------- -------- -------- -------- --------
Per Share Operating Performance
Net asset value, beginning of period $42.99 $36.61 $36.61 $35.24 $28.16 $24.06 $20.98
-------------------------------------------------------------------------------------------------------------
Net investment income 0.21 0.21 0.46 0.47 0.53* 0.41 0.38
Net realized gains and increase
(decrease) in unrealized appreciation 7.29 6.25 10.37 4.91 8.29 5.05 3.89
Change in accumulated other
comprehensive income (note 5) 0.00 0.00 0.00 (0.09) -- -- --
-------------------------------------------------------------------------------------------------------------
Total from investment operations 7.50 6.46 10.83 5.29 8.82 5.46 4.27
-------------------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment income (0.17) (0.16) (0.49) (0.47) (0.56) (0.44) (0.38)
Distributions from net realized gains (0.09) (0.10) (3.82) (3.33) (1.22) (0.88) (0.81)
-------------------------------------------------------------------------------------------------------------
Total distributions (0.26) (0.26) (4.31) (3.80) (1.78) (1.32) (1.19)
-------------------------------------------------------------------------------------------------------------
Capital share repurchases 0.03 0.05 0.10 0.15 0.10 0.01 0.02
Reinvestment of distributions 0.00 0.00 (0.24) (0.27) (0.06) (0.05) (0.02)
-------------------------------------------------------------------------------------------------------------
Total capital share transactions 0.03 0.05 (0.14) (0.12) 0.04 (0.04) 0.00
-------------------------------------------------------------------------------------------------------------
Net asset value, end of period $50.26 $42.86 $42.99 $36.61 $35.24 $28.16 $24.06
-------------------------------------------------------------------------------------------------------------
Market price, end of period $43.59 $38.62 $38.66 $33.46 $32.34 $25.78 $23.74
Total Investment Return
Based on market price 13.5% 16.3% 28.9% 15.3% 32.3% 14.4% 30.8%
Based on net asset value 17.7% 17.9% 31.0% 15.7% 32.0% 23.3% 21.2%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $1,137,884 $937,676 $978,920 $812,047 $761,914 $618,887 $522,941
Ratio of expenses to average net assets 0.54%+ 0.61%+ 0.54% 0.60% 0.59% 0.56% 0.74%
Ratio of net investment income to
average net assets 0.95%+ 1.07%+ 1.12% 1.22% 1.61% 1.58% 1.75%
Portfolio turnover 17.25%+ 2.36%+ 7.36% 9.95% 10.15% 13.44% 10.20%
Number of shares outstanding at
end of period (in 000's) 22,641 21,877 22,768 22,181 21,621 21,980 21,737
---------------------
--------
* In 2005 the Corporation received dividend income of $3,032,857, or $0.14 per
share, as a result of Precision Drilling Corp.'s reorganization.
+ Ratiospresented on an annualized basis.
9
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
June 30, 2008
Shares Value (A)
- --------- ------------
Stocks And Convertible Securities -- 99.8%
Energy -- 91.8%
Integrated -- 33.6%
Chevron Corp. 915,000 $ 90,703,950
ConocoPhillips (B) 556,891 52,564,941
Exxon Mobil Corp. 1,245,000 109,721,850
Hess Corp. 195,000 24,607,050
Marathon Oil Co. 240,000 12,448,800
Murphy Oil Corp. 216,500 21,227,825
Royal Dutch Shell plc ADR 265,000 21,653,150
Suncor Energy 280,000 16,273,600
Total S.A. ADR 390,000 33,255,300
------------
382,456,466
------------
Exploration & Production -- 17.4%
Apache Corp. 200,000 27,800,000
Devon Energy Corp. 310,000 37,249,600
EOG Resources, Inc. 200,000 26,240,000
Forest Oil Corp (C) 37,000 2,756,500
Noble Energy, Inc. (B) 340,000 34,190,400
Occidental Petroleum Corp. 400,000 35,944,000
XTO Energy Inc. 487,500 33,398,625
------------
197,579,125
------------
Services -- 28.5%
Baker Hughes, Inc. 205,000 17,904,700
Complete Production Services,
Inc. (B)(C) 400,500 14,586,210
Halliburton Co. 600,000 31,842,000
Hercules Offshore, Inc. (B)(C) 600,000 22,812,000
Nabors Industries Ltd. (B)(C) 520,000 25,599,600
National Oilwell Varco, Inc. (C) 138,538 12,291,091
Noble Corp. 600,000 38,976,000
Schlumberger Ltd. 700,000 75,201,000
Transocean Inc. (C) 237,953 36,261,658
Weatherford International,
Ltd. (C) 987,120 48,951,281
------------
324,425,540
------------
Utilities -- 12.3%
Energen Corp. 350,000 27,310,500
Equitable Resources Inc. 440,000 30,386,400
MDU Resources Group, Inc. 375,000 13,072,500
National Fuel Gas Co. 200,000 11,896,000
New Jersey Resources Corp. (B) 300,000 9,795,000
Northeast Utilities 200,000 5,106,000
Questar Corp. 300,000 21,312,000
Spectra Energy Corp. 108,812 3,127,257
Williams Companies, Inc. 450,000 18,139,500
------------
140,145,157
------------
Shares/
Prin. Amt. Value (A)
- ---------- --------------
Basic Industries -- 8.0%
Basic Materials & Other -- 8.0%
Air Products and Chemicals,
Inc. 115,000 $ 11,368,900
du Pont (E.I.) de Nemours and Co. 157,500 6,755,175
International Coal Group,
Inc. (B)(C) 3,000,000 39,150,000
Lubrizol Corp. 135,000 6,254,550
Massey Energy Co. 230,808 21,638,250
Rohm & Haas Co. (B) 130,000 6,037,200
--------------
91,204,075
--------------
Total Stocks And Convertible Securities
(Cost $402,154,241) (D) 1,135,810,363
--------------
Short-Term Investments -- 0.8%
Time Deposit -- 0.0%
Wells Fargo Bank,
1.60%, due 7/1/08 243,322
--------------
Commercial Paper -- 0.8%
American Express Credit
Corp.,
1.95%, due 7/10/08 $1,000,000 999,513
American General Finance
Corp.,
2.65-2.85%, due 7/8/08 $3,700,000 3,697,996
General Electric Capital Corp.,
1.90%, due 7/3/08 $2,200,000 2,199,768
Toyota Motor Credit Corp.,
2.03%, due 7/1/08 $2,000,000 2,000,000
--------------
8,897,277
--------------
Total Short-Term Investments
(Cost $9,140,599) 9,140,599
--------------
Total Securities Lending Collateral -- 12.8%
(Cost $145,526,187)
Brown Brothers Investment
Trust, 2.70%, due 7/1/08 145,526,187
--------------
Total Investments -- 113.4%
(Cost $556,821,027) 1,290,477,149
Cash, receivables, prepaid
expenses and other assets, less
liabilities -- (13.4)% (152,592,800)
--------------
Net Assets --100% $1,137,884,349
==============
--------------------------------------------------------------------------------
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)Some of the shares of this company are on loan. See note 8 to financial
statements.
(C)Presently non-dividend paying.
(D)The aggregate market value of stocks held in escrow at June 30, 2008
covering open call option contracts written was $2,729,500.
10
PORTFOLIO SUMMARY
--------------------------------------------------------------------------------
June 30, 2008
(unaudited)
TEN LARGEST PORTFOLIO HOLDINGS
Market Value % of Net Assets
-------------------------------------------------------------
Exxon Mobil Corp. $109,721,850 9.6%
Chevron Corp. 90,703,950 8.0
Schlumberger Ltd. 75,201,000 6.6
ConocoPhillips 52,564,941 4.6
Weatherford International, Ltd. 48,951,281 4.3
International Coal Group, Inc. 39,150,000 3.4
Noble Corp. 38,976,000 3.4
Devon Energy Corp. 37,249,600 3.3
Transocean Inc. 36,261,658 3.2
Occidental Petroleum Corp. 35,944,000 3.2
------------ ----
Total $564,724,280 49.6%
-------------------------------------------------------------
SECTOR WEIGHTINGS
[CHART]
Integrated 33.6
Exploration & Production 17.4
Services 28.5
Utilities 12.3
Basic Materials & Other 8.0
Short-Term Investments 0.8
11
SCHEDULE OF OUTSTANDING OPTION CONTRACTS
--------------------------------------------------------------------------------
June 30, 2008
Contracts Contract
(100 shares Strike Expiration Appreciation/
each) Security Price Date (Depreciation)
--------------------------------------------------------------------------------
COVERED CALLS
100 Air Products and Chemicals, Inc... $ 115 Sep 08 $ 200
100 du Pont (E.I.) de Nemours and Co.. 55 Oct 08 13,700
100 EOG Resources, Inc................ 170 Oct 08 2,200
--- -------
300 $16,100
=== =======
CHANGES IN PORTFOLIO SECURITIES
--------------------------------------------------------------------------------
During the Three Months Ended June 30, 2008
(unaudited)
Shares
-----------------------------------------
Held
Additions Reductions June 30, 2008
--------- ---------- -------------
Chevron Corp....................... 200,000 915,000
Complete Production Services, Inc.. 400,500 400,500
Halliburton Co..................... 600,000 600,000
Massey Energy Co................... 133,929 230,808
National Oilwell Varco, Inc........ 138,538/(1)/ 138,538
Schlumberger Ltd................... 140,000 700,000
Suncor Energy...................... 190,000/(2)/ 280,000
Weatherford International, Ltd..... 493,560/(2)/ 987,120
AGL Resources Inc.................. 170,000 --
Aqua America, Inc.................. 281,000 --
BJ Services Co..................... 202,600 --
Devon Energy Corp.................. 20,000 310,000
Duke Energy Corp................... 217,624 --
Energen Corp....................... 50,000 350,000
ENSCO International, Inc........... 209,150 --
EOG Resources, Inc................. 30,000 200,000
Equitable Resources Inc............ 10,000 440,000
General Electric Co................ 164,000 --
Grant Prideco Inc.................. 308,000/(1)/ --
Rohm & Haas Co..................... 20,000 130,000
Valero Energy Corp................. 425,000 --
--------
/(1)/Received $23.30 and 0.4498 share for each share of Grant Prideco Inc.
surrendered.
/(2)/By stock split.
12
HISTORICAL FINANCIAL STATISTICS
--------------------------------------------------------------------------------
(unaudited)
Dividends Distributions Total
From From Net Dividends
Net Asset Market Investment Realized and Annual
Value Of Shares Value Per Value Income Gains Distributions Rate of
Dec. 31 Net Assets Outstanding* Share* Per Share* Per Share* Per Share* Per Share* Distribution**
------- ---------- ------------ --------- ---------- ---------- ------------- ------------- --------------
1998 $ 474,821,118 20,762,063 $22.87 $20.42 $.52 $1.01 $1.53 6.48%
1999 565,075,001 21,471,270 26.32 21.50 .48 1.07 1.55 7.00
2000 688,172,867 21,053,644 32.69 27.31 .39 1.35 1.74 6.99
2001 526,491,798 21,147,563 24.90 23.46 .43 1.07 1.50 5.61
2002 451,275,463 21,510,067 20.98 19.18 .43 .68 1.11 5.11
2003 522,941,279 21,736,777 24.06 23.74 .38 .81 1.19 5.84
2004 618,887,401 21,979,676 28.16 25.78 .44 .88 1.32 5.40
2005 761,913,652 21,621,072 35.24 32.34 .56 1.22 1.78 5.90
2006 812,047,239 22,180,867 36.61 33.46 .47 3.33 3.80 11.26
2007 978,919,829 22,768,250 42.99 38.66 .49 3.82 4.31 11.61
June 30, 2008 1,137,884,349 22,640,707 50.26 43.59 .30+ .09+ .39+ --
--------
*Adjusted for 3-for-2 stock split effected in October 2000.
**The Annual Rate of Distribution is the total dividends and capital gain
distributions during the year divided by the average daily market price of
the Corporation's Common Stock.
+Paid or declared.
13
-----------------
Common Stock
Listed on the New York Stock 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: Brown Brothers Harriman & Co.
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
(the "Corporation") at June 30, 2008, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
presented, 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 June 30, 2008 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
July 14, 2008
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 stockholders, the Corporation 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 (800) SEC-0330. The
Corporation also posts its Forms N-Q on its website at: www.peteres.com under
the heading "Financial Reports".
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, 2008 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.
PRIVACY POLICY
In order to conduct its business, Petroleum & Resources Corporation, through
its transfer agent, currently American Stock Transfer & Trust Company, collects
and maintains certain nonpublic personal information about our stockholders of
record with respect to their transactions in shares of our securities. This
information includes the stockholder's address, tax identification or Social
Security number, share balances, and dividend elections. We do not collect or
maintain personal information about stockholders whose shares of our securities
are held in "street name" by a financial institution such as a bank or broker.
We do not disclose any nonpublic personal information about you, our other
stockholders or our former stockholders to third parties unless necessary to
process a transaction, service an account or as otherwise permitted by law.
To protect your personal information internally, we restrict access to
nonpublic personal information about our stockholders to those employees who
need to know that information to provide services to our stockholders. We also
maintain certain other safeguards to protect your nonpublic personal
information.
14
STOCKHOLDER INFORMATION AND SERVICES
--------------------------------------------------------------------------------
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 Stockholders
For stockholders 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 Stockholder Inquiries to:
Stockholder 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 10269-0560
Website: www.amstock.com
E-mail: info@amstock.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.
15
Item 2: Code(s) of Ethics for senior financial officers -
Item not applicable to semi-annual report.
Item 3: Audit Committee Financial Expert - Item not
applicable to semi-annual report.
Item 4: Principal Accountant Fees and Services - Item not
applicable to semi-annual report.
Item 5: Audit Committee of Listed Registrants - Item not
applicable to semi-annual report.
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 - Item not
applicable to semi-annual report.
Item 8: Portfolio Managers of Closed-End Management
Investment Companies - Item not applicable to semi-annual
report.
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
-------- --------- --------- --------- ---------
Jan. 2008 41,400 $ 34.05 41,400 1,043,220
Feb. 2008 25,600 $ 34.49 25,600 1,017,620
Mar. 2008 17,200 $ 36.24 17,200 1,000,420
Apr. 2008 14,200 $ 40.50 14,200 986,220
May 2008 28,400 $ 41.03 28,400 957,820
June 2008 14,700 $ 42.71 14,700 943,120
-------- --------- --------- --------- ---------
Total 141,500(1) $ 37.35 141,500(2) 943,120(2)
(1) There were no shares purchased other than through a
publicly announced plan or program.
(2.a) The Plan was reapproved on December 13, 2007.
(2.b) The share amount approved in 2007 was 5% of
outstanding shares, or approximately 1,084,620 shares.
(2.c) Unless reapproved, the Plan will expire on or about
December 11, 2008.
(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 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as
required by Item 22(b)(15) 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 July 22, 2008, 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
July 22, 2008, 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 attached hereto. (Attach certifications as
exhibits)
(1) Not applicable. See registrant's response to Item 2,
above.
(2) Separate certifications by the registrant's principal
executive officer and principal financial officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 and
required by Rule 30a-2 under the Investment Company Act of
1940, are attached.
A certification by the registrant's principal executive
officer and principal financial officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, is attached.
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: July 22, 2008
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: July 22, 2008
BY: /s/ Maureen A. Jones
-----------------------
Maureen A. Jones
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: July 22, 2008