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
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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: December 31, 2008
Item 1. Reports to Stockholders.
Investing in Resources for the Future
[Graphic]
Petroleum & Resources Corporation
Annual Report 2008
2008 AT A GLANCE
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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 (12/31/08)
NYSE Symbol.............. PEO.
Market Price ......... $19.41.
52-Week Range.. $17.37-$44.41.
Discount ...............13.7%.
Shares Outstanding 23,958,656.
SUMMARY FINANCIAL INFORMATION
Year Ended December 31
2008 2007
----------------------------------------------------------------------
Net asset value per share $ 22.49 $ 42.99
Total net assets 538,936,942 978,919,829
Unrealized appreciation 151,455,732 606,901,290
Net investment income 9,651,706 10,070,758
Net realized gain 57,867,203 82,692,239
Total return (based on market price) (42.2)% 28.9%
Total return (based on net asset value) (39.8)% 31.0%
Expense ratio 0.51% 0.54%
----------------------------------------------------------------------
2008 DIVIDENDS AND DISTRIBUTIONS
Amount
Paid (per share) Type
-------------------------------------------------------
March 1, 2008 $0.05 Long-term capital gain
March 1, 2008 0.04 Short-term capital gain
March 1, 2008 0.04 Investment income
June 1, 2008 0.13 Investment income
September 1, 2008 0.13 Investment income
December 27, 2008 2.52 Long-term capital gain
December 27, 2008 0.08 Investment income
-------------------------------------------------------
$2.99
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2009 ANNUAL MEETING OF STOCKHOLDERS
Location: Sheraton Baltimore North Hotel, Towson, MD
Date: March 19, 2009
Time: 10:00 a.m.
PORTFOLIO REVIEW
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(unaudited)
TEN LARGEST PORTFOLIO HOLDINGS (12/31/08)
Market Value % of Net Assets
--------------------------------------------------------
Exxon Mobil Corp. $ 71,447,850 13.2
Chevron Corp. 67,682,550 12.5
Occidental Petroleum Corp. 23,996,000 4.5
ConocoPhillips 21,335,954 4.0
XTO Energy Inc. 17,194,125 3.2
Noble Corp. 17,119,750 3.2
Noble Energy, Inc. 16,734,800 3.1
Devon Energy Corp. 16,427,500 3.0
Apache Corp. 14,906,000 2.8
Transocean Inc. 14,550,779 2.7
------------ ----
Total $281,395,308 52.2%
------------ ----
SECTOR WEIGHTINGS (12/31/08)
[CHART]
Integrated 36.4%
Exploration & Production 19.2%
Utilities 12.9%
Services 16.2%
Basic Materials & Other 3.1%
Short-Term Investments 12.8%
1
LETTER TO STOCKHOLDERS
--------------------------------------------------------------------------------
[PHOTO]
Douglas G. Ober,
Chairman, President and Chief
Executive Officer
The year 2008 will go down as one of the worst years in history for stock
market returns. The energy sector and Petroleum & Resources Corporation
performed roughly in line with the poor returns of the overall market. The
total return on the net assets of the Fund was -39.8%, whereas the Dow Jones
U.S. Oil and Gas Index (DJOGI) returned -35.8% and the S&P 500 returned -37.0%.
The Fund's energy investments, on average 85.7% of the portfolio, provided a
disappointing -41.2% return.
A Review of 2008
The dramatic increase in energy prices experienced in 2007 accelerated in the
first half of 2008, as the demand for all major forms of energy -- oil, natural
gas, coal, and electricity -- expanded to keep up with world economic growth
and as supplies were constrained by production capacity. It is also believed
that speculation played a part in the rapid price increases, though its direct
role is difficult to pin down. The price of a barrel of oil rose nearly 50% to
$140. Natural gas reached $13.35 per thousand cubic feet (up
80%), and thermal coal hit $132/ton (up 135%). As the economic recession in
this country began to take its toll in July and the credit crisis worsened,
demand for energy began to decline even faster than it had grown, and prices
went into free-fall. By year end, oil was down 68% from its peak to $44.60 per
barrel, despite two announced cuts in production by OPEC totaling 4.2 million
barrels per day. Natural gas producers terminated drilling programs, with an
estimated 300 rigs ceasing work by the end of December. Many drilling programs
were too far along to stop, however, resulting in a steady rise in the amount
of gas going into storage and in even lower prices.
In the first six months of 2008, the impact of increasing energy prices was
seen in the 10.1% rise in the DJOGI despite an 11.6% decline in the S&P 500.
Earnings expectations for energy companies were not rising as fast as the
prices of the commodities because production costs were also rising rapidly,
thus containing stock price increases. When commodity prices fell in the second
half, energy stocks sold off rapidly, down 25% in the third quarter and another
22% in the final quarter.
The principal difference between the Fund's performance and the return of the
DJOGI is the weighting of the integrated oil companies such as Exxon Mobil and
Chevron. The DJOGI had an average weighting of 52.1% for the integrated
companies during the year compared to the Fund's 36.6%. Our holdings of
integrated companies returned -27.1%, whereas the DJOGI's holdings returned
-23.4%. During periods of rising commodity prices, the large integrated
companies often do not perform as well as more commodity-leveraged companies,
and the heavy weighting drags down the performance of the DJOGI. In 2008,
though, with rapidly falling commodity prices in the second half of the year,
the integrated oil companies held up better than other segments of the
industry. Thus, like most investors in the sector, Petroleum & Resources'
performance trailed that of the DJOGI.
The exploration and production companies in the portfolio, with an average
weighting of 17.6%, performed better than the E&P companies in the DJOGI,
returning -31.3% compared to the -40.6% return of the index companies. Within
the oil services segment, the Fund's equipment and services stocks performed in
line with the sub-sector of the DJOGI. Our drilling stocks underperformed by
3.6%, with an absolute return of -65.5%. The utilities in the portfolio were
beneficial to our relative performance, with a return of -32.8%. Our holdings
of coal stocks outperformed the coal producers in the Dow Jones U.S. Basic
Materials Index (DJBMI) and our chemicals holdings performed in line with the
chemicals sub-sector of the DJBMI.
INVESTMENT RESULTS
Net assets of the Corporation on December 31, 2008 were $538,936,942 or $22.49
per share on 23,958,656 shares outstanding. This compares with $978,919,829 or
$42.99 per share on 22,768,250 shares outstanding a year earlier.
Net investment income for 2008 was $9,651,706 compared to $10,070,758 for 2007.
These earnings are equivalent to $0.43 and $0.46 per share, respectively, on
the average number of shares outstanding throughout each year. Our expense
ratio (expenses to average net assets) for 2008 was 0.51% compared to 0.54% for
2007 and was once again at a low level compared to the industry.
2
LETTER TO STOCKHOLDERS (continued)
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Net realized gains amounted to $57,867,203 during the year, while the
unrealized appreciation on investments decreased from $606,901,290 at
December 31, 2007 to $151,455,732 at year end.
DIVIDENDS AND DISTRIBUTIONS
Total dividends and distributions paid in 2008 were $2.99 per share compared to
$4.31 in 2007. The table on page 18 shows the history of our dividends and
distributions over the past fifteen years, including the annual rate of
distribution as a percentage of the average daily market price of the
Corporation's Common Stock. In 2008, the annual rate of distribution was 8.88%
compared to 11.61% in 2007. As announced on November 13, 2008, a year-end
distribution consisting of investment income of $0.08 per share and capital
gains of $2.52 per share was made on December 27, 2008, both realized and
taxable in 2008. On January 8, 2009, an additional distribution of $0.13 per
share was declared to shareholders of record February 13, 2009, payable
March 1, 2009, representing undistributed net investment income and capital
gains earned in 2008 and an initial distribution from 2009 net investment
income, taxable to shareholders in 2009.
OUTLOOK FOR 2009
With the domestic economy as well as those of many other countries in
recession, it is unlikely that the fundamentals of supply and demand in the
energy industry will change much during 2009. With refineries operating at
about 85% of capacity, there is ample crude oil to meet their needs. The
refineries do not need to operate at higher levels because there is plenty of
gasoline, diesel, and heating oil to satisfy consumer and industrial demand.
The second production cut by the members of OPEC, announced in December, will
begin to be felt in deliveries in February, assuming the producers have the
discipline to follow through. Given the budgetary constraints of many OPEC
countries, their cutting back is in question. Until the worldwide economy
resumes its growth, we expect that oil prices will remain in the $40-$50 range,
with possible spikes both up and down depending on factors such as increased
Iraqi production, a resumption of the conflict in Israel, and further
significant cuts from the OPEC cartel.
Our expectation is that the stimulus programs being put together by governments
around the world will begin to have an effect on their economies in the third
quarter of the year. By the end of the year, economic growth should resume in
this country, but that could be tempered by the timing of recoveries elsewhere.
Depending on how much inventories have been built up by then, it will still
take time to draw them down before prices begin to move up in response to
increased economic activity. Many companies have announced that projects to
build productive capacity have been shelved in this period of lower prices in
order to conserve cash. Until adequate returns can be earned on such projects,
and in some cases financing is made available, those projects will not go
forward, and we will once again find ourselves in short supply with little or
no surplus capacity. Over a period of two to three years, we could see the
price of oil rise significantly, depending on how responsive the world economy
is to stimulus. Alternative fuels, hybrid vehicle use, and higher fuel
efficiency in the transportation sector are also likely to impact the demand
for oil in the intermediate term.
The situation with natural gas is much the same as that with oil, but is more
dependent on domestic actions. As mentioned, the number of gas-oriented rigs in
operation, both onshore and offshore the U.S., has declined. We expect that the
number will decline much further, but gas production is still climbing at a
rate approaching 10% due to drilling completions. This can be seen in the
weekly storage statistics, which show much less draw than normal for the
relatively cold weather experienced thus far this winter. With an expected
rapid response to the drilling decline, production is expected to flatten out
by mid-year. Depending on the weather, storage facilities are likely to be
filled well above historic levels by that time. As with oil, production will
have to be flat to down for several months before prices can strengthen. We
therefore expect that natural gas prices will remain in the $4-$5 range for
most of the year. There is very little impact that liquefied natural gas (LNG)
will have on the domestic situation. Prices overseas, particularly in Europe,
are higher than in the U.S., attracting most of the cargoes coming out of
Middle East and Far East LNG-exporting facilities. We do anticipate that, due
to the natural production decline rates of gas-producing fields in the U.S. and
increased economic activity, drilling will have to pick up by 2010 in order to
satisfy domestic demand. Then gas prices will strengthen again.
The coal industry benefited in 2008 from strong export markets for both
metallurgical (for steel-making) and thermal/steam coal (for electricity
generation). Further, in 2008 nuclear electricity-generating stations were
closed in Japan, Australian ports were having logistical problems, and there
was strong demand for steel in China for the Olympics on top of everything
else. The second half of 2008 saw the end of most of these extraordinary demand
3
LETTER TO STOCKHOLDERS (continued)
--------------------------------------------------------------------------------
drivers, and coal prices fell as sharply as crude oil and natural gas prices.
Most coal producers have a good percentage of their 2009 production under
contract, though not at the spot prices of six months ago. They should
therefore do reasonably well until their current contracts are fulfilled.
At this time, the prices of energy and basic materials stocks reflect spot
prices of commodities and large earnings declines for 2009. Current weak
conditions, combined with the possibility of legislation favoring alternative
fuels and carbon reductions, have seemingly outweighed any longer term
potential recovery of commodity prices, earnings, and reserve values. We
believe, however, that there is a solid long-term outlook for traditional
energy companies. Therefore, while we have made some sales to reflect current
conditions, we are looking for opportunities to invest the Fund's cash in these
areas. In addition, companies involved in alternative sources of energy may, at
some point, become profitable without subsidies and thus attractive for
investment, so we are keeping a close eye on them.
Historically, the benchmark against which we have measured the Fund's
performance has been a combination of the DJOGI (80%) and the S&P 500 (20%).
Since our holdings in companies active in areas outside the energy sector have
been limited, we have concluded that the inclusion of the S&P 500 in our
benchmark is no longer warranted. In recognition of the Fund's ability to
invest in a wide variety of natural resources, we have decided that a more
appropriate benchmark for the future is a measurement weighted 80% with the Dow
Jones U.S. Oil & Gas Index and 20% with the Dow Jones U.S. Basic Materials
Index. Basic materials have held a place in the Corporation's portfolio in the
past, but the allocation has typically been well below 20%. It is our view that
the raw materials required for infrastructure building and industrial
production will experience price recoveries as the economic stimulus plans
become a reality, and this will make basic materials companies such as chemical
and mining companies attractive investments. Therefore, we are likely to place
more emphasis on basic materials companies.
SHARE REPURCHASE PROGRAM
On December 11, 2008, the Board of Directors authorized the repurchase by
management of up to 6% 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 2009 through January 23, 2009, 60,400 shares have been
repurchased at a total cost of $1,187,136 and a weighted average discount from
net asset value of 10.0%.
-------------------------
This Annual Report, along with the proxy statement for the Annual Meeting of
Stockholders to be held in Baltimore on March 19, 2009, are expected to be
mailed on or about February 17, 2009.
By order of the Board of Directors,
/s/ Douglas G. Ober
Douglas G. Ober,
Chairman, President and
Chief Executive Officer
January 27, 2009
4
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
December 31, 2008
Assets
Investments* at value:
Common stocks (cost $321,930,975) $473,386,707
Short-term investments (cost $68,677,238) 68,677,238
Securities lending collateral (cost $76,988,162) 76,988,162 $619,052,107
---------------------------------------------------------------------------------
Cash 279,521
Dividends and interest receivable 548,883
Prepaid expenses and other assets 454,355
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Total Assets 620,334,866
----------------------------------------------------------------------------------------------
Liabilities
Obligations to return securities lending collateral 76,988,162
Accrued pension liabilities 3,556,618
Accrued expenses and other liabilities 853,144
----------------------------------------------------------------------------------------------
Total Liabilities 81,397,924
----------------------------------------------------------------------------------------------
Net Assets $538,936,942
----------------------------------------------------------------------------------------------
Net Assets
Common Stock at par value $0.001 per share, authorized
50,000,000 shares; issued and outstanding 23,958,656 shares
(includes 32,402 restricted shares, 7,200 nonvested or deferred
restricted stock units, and 3,501 deferred stock units) (note 6) $ 23,959
Additional capital surplus 389,484,658
Accumulated other comprehensive income (note 5) (3,678,264)
Undistributed net investment income 473,468
Undistributed net realized gain on investments 1,177,389
Unrealized appreciation on investments 151,455,732
----------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $538,936,942
----------------------------------------------------------------------------------------------
Net Asset Value Per Share of Common Stock $22.49
----------------------------------------------------------------------------------------------
* See schedule of investments on pages 14 and 15.
The accompanying notes are an integral part of the financial statements.
5
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
Year Ended December 31, 2008
Investment Income
Income:
Dividends $ 13,079,008
Interest and other income 1,012,707
----------------------------------------------------------------------------------
Total income 14,091,715
----------------------------------------------------------------------------------
Expenses:
Investment research 1,451,282
Administration and operations 1,164,437
Directors' fees 443,306
Travel, training, and other office expenses 259,157
Reports and stockholder communications 242,436
Investment data services 187,445
Transfer agent, registrar, and custodian expenses 175,732
Occupancy 129,825
Auditing and accounting services 113,645
Insurance 75,056
Legal services 43,880
Other 153,808
----------------------------------------------------------------------------------
Total expenses 4,440,009
----------------------------------------------------------------------------------
Net Investment Income 9,651,706
----------------------------------------------------------------------------------
Change in Accumulated Other Comprehensive Income (note 5) (1,621,372)
----------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 57,344,032
Net realized gain on written option contracts 523,171
Change in unrealized appreciation on investments (455,445,558)
----------------------------------------------------------------------------------
Net Loss on Investments (397,578,355)
----------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $(389,548,021)
----------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
6
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Year Ended
---------------------------
Dec. 31, 2008 Dec. 31, 2007
--------------------------------------------------------------------------------------------
From Operations:
Net investment income $ 9,651,706 $ 10,070,758
Net realized gain on investments 57,867,203 82,692,239
Change in unrealized appreciation on investments (455,445,558) 144,503,271
Change in accumulated other comprehensive income (note 5) (1,621,372) (89,917)
--------------------------------------------------------------------------------------------
Change in net assets resulting from operations (389,548,021) 237,176,351
--------------------------------------------------------------------------------------------
Distributions to Stockholders From:
Net investment income (8,577,530) (10,678,823)
Net realized gain from investment transactions (58,737,003) (82,870,511)
--------------------------------------------------------------------------------------------
Decrease in net assets from distributions (67,314,533) (93,549,334)
--------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of shares issued in payment of distributions 29,006,338 41,992,828
Cost of shares purchased (note 4) (12,721,842) (19,224,514)
Deferred compensation (notes 4, 6) 595,171 477,259
--------------------------------------------------------------------------------------------
Change in net assets from capital share transactions 16,879,667 23,245,573
--------------------------------------------------------------------------------------------
Total Change in Net Assets (439,982,887) 166,872,590
Net Assets:
Beginning of year 978,919,829 812,047,239
--------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $473,468 and $0 in 2008 and 2007, respectively) $ 538,936,942 $978,919,829
--------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
7
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 shareholders 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 and money market funds) are valued at amortized cost, which
approximates fair value. Purchased and written options are valued at the last
quoted bid and asked price, respectively. Money market funds are valued at net
asset value on the day of valuation.
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 December 31, 2008 were classified as follows:
Investment in securities
------------------------
Level 1 $602,074,869
Level 2 16,977,238*
Level 3 --
---------------------------------
Total $619,052,107
---------------------------------
* Consists of short-term investments other than money market funds.
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, 2008 was $467,566,552, and net unrealized
appreciation aggregated $151,485,555, of which the related gross unrealized
appreciation and depreciation were $240,671,187 and $89,185,632, respectively.
As of December 31, 2008, the tax basis of distributable earnings was $1,375,994
of undistributed ordinary income and $1,202,727 of undistributed long-term
capital gain.
Distributions paid by the Corporation during the year ended December 31, 2008
were classified as ordinary income of $9,486,049 and long-term capital gain of
$57,828,484. In comparison, distributions paid by the Corporation during the
year ended December 31, 2007 were classified as ordinary income of $11,559,594
and long-term capital gain of $81,989,740. 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. Any
8
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 year ended December 31, 2008 were $145,261,038 and
$215,709,864, respectively. Options may be written (sold) or purchased by the
Corporation. For written options, covered calls or collateralized puts require
deposits of securities or cash to be segregated with the custodian to guarantee
delivery or payment if the options are exercised. When the Corporation writes
an option, an 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 options are treated
as realized gains from investments on the expiration date. Premiums received
from exercised put options reduce 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 associated with
purchasing an option is limited to the premium originally paid for the option.
There were no outstanding option contracts as of December 31, 2008.
Transactions in written covered call and collateralized put options during the
year ended December 31, 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 4,008 583,341 900 110,049
Options terminated in
closing purchase
transactions (1,300) (132,419) (750) (89,944)
Options expired (2,833) (451,135) (800) (89,409)
Options exercised (600) (87,165) -- --
---------------------------------------------------------------
Options outstanding,
December 31, 2008 -- $ -- -- $ --
---------------------------------------------------------------
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 10,
2007) to stockholders of record 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.
On December 27, 2008, the Corporation issued 1,557,059 shares of its Common
Stock at a price of $18.62 per share (the average market price on December 8,
2008) to stockholders of record November 21, 2008 who elected to take stock in
payment of the distribution from 2008 capital gain and investment income. In
addition, 725 shares were issued at a weighted average price of $26.28 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
-------------------- --------------------------
2008 2007 2008 2007
--------- --------- ------------ ------------
Shares issued in payment
of distributions 1,557,784 1,110,205 $ 29,006,338 $ 41,992,828
Shares purchased
(at an average
discount from net
asset value of 12.3%
and 9.9%,
respectively) (381,979) (538,375) (12,721,842) (19,224,514)
Net activity under the
2005 Equity Incentive
Compensation Plan 14,601 15,553 595,171 477,259
---------------------------------------------------------------------------
Net change 1,190,406 587,383 $ 16,879,667 $ 23,245,573
---------------------------------------------------------------------------
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
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 uses a December 31 measurement date for its plans.
2008 2007
---------- ----------
Change in benefit obligation
Benefit obligation at beginning of year $7,035,705 $6,290,842
Service cost 240,432 348,352
Interest cost 313,509 374,693
Actuarial loss 290,539 86,279
Benefits paid (69,266) (64,461)
Plan changes 21,149 --
----------------------------------------------------------------
Benefit obligation at end of year $7,832,068 $7,035,705
----------------------------------------------------------------
2008 2007
----------- -----------
Change in plan assets
Fair value of plan assets at beginning of year $ 5,038,930 $ 4,673,247
Actual return on plan assets (1,225,422) 98,936
Employer contribution 531,208 331,208
Benefits paid (69,266) (64,461)
-------------------------------------------------------------------------
Fair value of plan assets at end of year $ 4,275,450 $ 5,038,930
-------------------------------------------------------------------------
Funded status $(3,556,618) $(1,996,775)
-------------------------------------------------------------------------
Items recognized in accumulated other comprehensive income:
2008 2007
---------- ----------
Prior service cost $ 62,200 $ 76,955
Net loss 3,616,064 1,979,937
-------------------------------------------------------------
Accumulated other comprehensive income $3,678,264 $2,056,892
-------------------------------------------------------------
In 2009, the Corporation estimates that $17,069 of prior service cost and
$369,363 of net losses, for a total of $386,432, will be amortized from
accumulated other comprehensive income into net periodic pension cost.
The accumulated benefit obligation for all defined benefit pension plans was
$6,435,218 and $5,642,374 at December 31, 2008 and 2007, respectively.
2008 2007
--------- ---------
Components of net periodic pension cost
Service cost $ 240,432 $ 348,352
Interest cost 313,509 374,693
Expected return on plan assets (284,143) (368,752)
Prior service cost component 35,904 37,717
Net loss component 163,977 226,165
--------------------------------------------------------------
Net periodic pension cost $ 469,679 $ 618,175
--------------------------------------------------------------
2008 2007
---------- ---------
Changes recognized in accumulated other
comprehensive income
Net loss $1,801,129 $ 353,799
Prior service cost 20,124 --
Amortization of net loss (163,977) (226,165)
Amortization of prior service cost (35,904) (37,717)
-----------------------------------------------------------------
Change in accumulated other comprehensive
income $1,621,372 $ 89,917
-----------------------------------------------------------------
Assumptions used to determine benefit obligations are:
2008 2007
----- -----
Discount rate 6.30% 6.00%
Rate of compensation increase 7.00% 7.00%
The assumptions used to determine net periodic pension cost are:
2008 2007
----- -----
Discount rate 6.00% 5.75%
Expected long-term return on plan assets 7.25% 8.00%
Rate of compensation increase 7.00% 7.00%
The assumption used to determine expected long-term return on plan assets was
based on historical and future expected returns of multiple asset classes in
order to develop a risk-free real rate of return and risk premiums for each
asset class. The overall rate for each asset class was developed by combining a
long-term inflation component, the risk-free real rate of return, and the
associated risk premium. A weighted average rate was developed based on those
overall rates and the target asset allocation of the plan.
The asset allocations at December 31, 2008 and 2007, by asset category, were as
follows:
2008 2007
---- ----
Asset Category
Equity Mutual Funds & Securities 43% 42%
Fixed Income Mutual Funds 57% 58%
Equity securities included common stock of The Adams Express Company, the
Corporation's non-controlled affiliate, in the amount of $144,866 (3% of total
plan assets) and $241,170 (5% of total plan assets) at December 31, 2008 and
2007, respectively. The primary objective of the Corporation's pension plan is
to provide capital appreciation, current income, and preservation of capital
through a diversified portfolio of stocks and fixed income 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 contributed
$531,208 to the plans in 2008 and anticipates contributions of approximately
$500,000 in 2009.
The following benefit payments, which reflect expected future service and
certain assumptions, are eligible to be paid in the years indicated:
Pension Benefits
----------------
2009 $2,590,000
2010 211,000
2011 212,000
2012 202,000
2013 203,000
Years 2014-2018 4,020,000
10
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The Corporation also sponsors a defined contribution plan that covers
substantially all employees. The Corporation expensed contributions to this
plan of $118,460 and $105,301 for the years ended December 31, 2008 and
December 31, 2007, respectively. 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 December 31, 2008, and
changes during the year 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 (17,341) 10.05
Cancelled -- --
-----------------------------------------------------------------
Outstanding at December 31, 2008 32,340 $ 9.68 3.34
-----------------------------------------------------------------
Exercisable at December 31, 2008 6,787 $ 7.68 3.66
-----------------------------------------------------------------
The options outstanding as of December 31, 2008 are set forth below:
Weighted Weighted
Average Average
Options Exercise Remaining
Exercise price Outstanding Price Life (Years)
-------------- ----------- -------- ------------
$5.00-$6.99 10,370 $ 6.62 4.00
$7.00-$8.99 -- -- --
$9.00-$10.99 9,508 9.79 3.00
$11.00-$12.99 12,462 12.14 3.05
-------------------------------------------------------------------
Outstanding at December 31, 2008 32,340 $ 9.68 3.34
-------------------------------------------------------------------
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/(credit)
recognized for the year ended December 31, 2008 was $(341,764).
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 achieving certain performance targets. If performance targets are
not achieved, all or a portion of the performance-based restricted shares 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. Payment of awards may be deferred, if elected. 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 were 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 December 31, 2008 is 815,767 shares.
A summary of the status of the Corporation's awards granted under the 2005 Plan
as of December 31, 2008, and changes during the year then ended is presented
below:
Weighted Average
Shares/ Grant-Date Fair
Awards Units Value
------ ------- ----------------
Balance at December 31, 2007 32,162* $33.00
Granted:
Restricted stock 9,220 37.50
Restricted stock units 4,000 36.85
Deferred stock units 1,263 30.09
Vested & issued (3,542) 31.63
Forfeited -- --
----------------------------------------------------------------
Balance at December 31, 2008 (includes
31,934 performance-based awards and
11,169 nonperformance-based awards) 43,103 $31.83
----------------------------------------------------------------
* Includes 2,000 units previously denoted as vested that were deferred.
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 the most probable outcome and, if such goals
are not met, compensation cost is not
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
recognized and any previously recognized compensation cost is reversed. The
total compensation costs for restricted stock granted to employees for the year
ended December 31, 2008 were $393,911. The total compensation costs for
restricted stock units granted to non-employee directors for the year ended
December 31, 2008 were $153,089. As of December 31, 2008, there were total
unrecognized compensation costs of $358,094, 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 1.56 years. The total fair value of shares vested and issued
during the year ended December 31, 2008 was $137,207.
7. OFFICER AND DIRECTOR COMPENSATION
The aggregate remuneration paid during the year ended December 31, 2008 to
officers and directors amounted to $2,637,962, of which $345,357 was paid as
fees 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 approved brokers to earn
additional income. It receives as collateral cash deposits, U.S. Government
securities, or bank letters of credit valued at 102% of the value of the
securities on loan. 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. Cash
deposits are placed in a registered money market fund. 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. 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 December 31, 2008, the Corporation
had securities on loan of $76,089,513 and held cash collateral of $76,988,162;
additional collateral was delivered the next business day in accordance with
the procedure described above. The Corporation is indemnified by the Custodian,
serving as lending agent, for loss of loaned securities and has the right under
the lending agreement to recover the securities from the borrower on demand.
9. NEW ACCOUNTING PRONOUNCEMENTS
In March 2008, the Financial Accounting Standards Board issued the Statement of
Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities ("FAS 161"), which is effective for fiscal
years and interim periods beginning after November 15, 2008. FAS 161 requires
enhanced disclosures about derivative and hedging activities, including how
such activities are accounted for and their effect on financial position,
performance and cash flows. Application of the standard is not expected to
materially impact the Corporation's financial statements and related
disclosures.
-----------------
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.
12
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Year Ended December 31
----------------------------------------------
2008 2007 2006 2005 2004
-------------------------------------------------------------------------------------------------------
Per Share Operating Performance
Net asset value, beginning of year $42.99 $36.61 $35.24 $28.16 $24.06
-------------------------------------------------------------------------------------------------------
Net investment income 0.43 0.46 0.47 0.53* 0.41
Net realized gains and increase (decrease)
in unrealized appreciation (17.71) 10.37 4.91 8.29 5.05
Change in accumulated
other comprehensive income (0.07) 0.00 (0.09) -- --
-------------------------------------------------------------------------------------------------------
Total from investment operations (17.35) 10.83 5.29 8.82 5.46
-------------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment income (0.38) (0.49) (0.47) (0.56) (0.44)
Distributions from net realized gains (2.61) (3.82) (3.33) (1.22) (0.88)
-------------------------------------------------------------------------------------------------------
Total distributions (2.99) (4.31) (3.80) (1.78) (1.32)
-------------------------------------------------------------------------------------------------------
Capital share repurchases 0.08 0.10 0.15 0.10 0.01
Reinvestment of distributions (0.24) (0.24) (0.27) (0.06) (0.05)
-------------------------------------------------------------------------------------------------------
Total capital share transactions (0.16) (0.14) (0.12) 0.04 (0.04)
-------------------------------------------------------------------------------------------------------
Net asset value, end of year $22.49 $42.99 $36.61 $35.24 $28.16
-------------------------------------------------------------------------------------------------------
Per share market price, end of year $19.41 $38.66 $33.46 $32.34 $25.78
-------------------------------------------------------------------------------------------------------
Total Investment Return
Based on market price (42.2)% 28.9% 15.3% 32.3% 14.4%
Based on net asset value (39.8)% 31.0% 15.7% 32.0% 23.3%
Ratios/Supplemental Data
Net assets, end of year (in 000's) $538,937 $978,920 $812,047 $761,914 $618,887
Ratio of expenses to average net assets 0.51% 0.54% 0.60% 0.59% 0.56%
Ratio of net investment income to average net assets 1.10% 1.12% 1.22% 1.61% 1.58%
Portfolio turnover 16.89% 7.36% 9.95% 10.15% 13.44%
Number of shares outstanding at end of year
(in 000's) 23,959 22,768 22,181 21,621 21,980
-------------------------------------------------------------------------------------------------------
* In 2005, the Fund received dividend income of $3,032,857, or $0.14 per share,
as a result of Precision Drilling Corp.'s reorganization.
13
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
December 31, 2008
Shares Value (A)
---------------------------------------------------------------------
Stocks -- 87.8%
Energy -- 84.7%
Integrated -- 36.4%
Chevron Corp. (B)......................... 915,000 $ 67,682,550
ConocoPhillips (B)........................ 411,891 21,335,954
Exxon Mobil Corp.......................... 895,000 71,447,850
Hess Corp. (B)............................ 195,000 10,459,800
Royal Dutch Shell plc ADR................. 265,000 14,029,100
Total S.A. ADR............................ 200,000 11,060,000
------------
196,015,254
------------
Exploration & Production -- 19.2%
Apache Corp. (B).......................... 200,000 14,906,000
Devon Energy Corp. (B).................... 250,000 16,427,500
EOG Resources, Inc........................ 200,000 13,316,000
Forest Oil Corp. (C)...................... 69,477 1,145,676
Noble Energy, Inc. (B).................... 340,000 16,734,800
Occidental Petroleum Corp. (B)............ 400,000 23,996,000
XTO Energy Inc............................ 487,500 17,194,125
------------
103,720,101
------------
Utilities -- 12.9%
Energen Corp.............................. 300,000 8,799,000
Equitable Resources, Inc.................. 398,800 13,379,740
MDU Resources Group, Inc. (B)............. 375,000 8,092,500
National Fuel Gas Co...................... 200,000 6,266,000
New Jersey Resources Corp. (B)............ 300,000 11,805,000
Northeast Utilities....................... 200,000 4,812,000
Questar Corp.............................. 240,000 7,845,600
Spectra Energy Corp....................... 108,812 1,712,701
Williams Companies, Inc................... 450,000 6,516,000
------------
69,228,541
------------
Services -- 16.2%
Baker Hughes Inc.......................... 205,000 6,574,350
Complete Production Services, Inc. (C).... 400,500 3,264,075
Halliburton Co............................ 700,000 12,726,000
Hercules Offshore, Inc. (B) (C)........... 500,000 2,375,000
Nabors Industries Ltd. (B) (C)............ 520,000 6,224,400
National Oilwell Varco, Inc. (C).......... 138,538 3,385,869
Noble Corp................................ 775,000 17,119,750
Schlumberger Ltd.......................... 250,000 10,582,500
Transocean Inc. (C)....................... 307,953 14,550,779
Weatherford International Ltd. (C)........ 987,120 10,680,638
------------
87,483,361
------------
14
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
December 31, 2008
Shares/
Prin. Amt. Value (A)
--------------------------------------------------------------------------------------------------------
Basic Industries -- 3.1%
Basic Materials & Other -- 3.1%
CONSOL Energy Inc....................................................... 125,000 $ 3,572,500
duPont (E.I.) de Nemours and Co......................................... 157,500 3,984,750
International Coal Group, Inc. (B) (C).................................. 3,000,000 6,900,000
Massey Energy Co........................................................ 180,000 2,482,200
------------
16,939,450
------------
Total Stocks
(Cost $321,930,975) (D)..................................................... 473,386,707
------------
Short-Term Investments -- 12.8%
Commercial Paper -- 3.1%
Chevron Funding Co., 1.05%, due 1/14/09................................... $ 3,200,000 3,198,787
ConocoPhillips, 0.85-1.20%, due 1/7/09-1/8/09............................. $10,000,000 9,997,758
Toyota Motor Credit Corp., 1.59%, due 1/13/09............................. $ 2,300,000 2,298,781
United Parcel Service of America, Inc., 0.42%, due 1/6/09................. $ 1,300,000 1,299,924
------------
16,795,250
------------
Money Market Funds -- 9.6%
Fidelity Institutional Money Market - Government Portfolio, 1.02% (D)..... 20,000,000 20,000,000
Fidelity Institutional Money Market - Treasury Only Portfolio, 0.54% (D).. 10,000,000 10,000,000
Fidelity Institutional Money Market - Treasury Portfolio, 0.34% (D)....... 1,650,000 1,650,000
Vanguard Federal Money Market, 1.74% (D).................................. 20,000,000 20,000,000
Vanguard Admiral Treasury Money Market, 0.93% (D)......................... 50,000 50,000
------------
51,700,000
------------
Time Deposit -- 0.1%
Citibank, 0.06%, due 1/2/09............................................... 181,988
------------
Total Short-Term Investments
(Cost $68,677,238).......................................................... 68,677,238
------------
Total Securities Lending Collateral -- 14.3%
(Cost $76,988,162)
Money Market Funds -- 14.3%
Invesco Aim Short-Term Investment Trust - Liquid Assets Portfolio
(Institutional Class), 1.67% (D)........................................ 76,988,162
------------
Total Investments -- 114.9%
(Cost $467,596,375)......................................................... 619,052,107
Cash, receivables, prepaid expenses and other assets less
liabilities -- (14.9)%.................................................. (80,115,165)
------------
Net Assets -- 100.0%.......................................................... $538,936,942
--------------------------------------------------------------------------------
Notes:
(A) See note 1 to financial statements. Securities are listed on the New York
Stock Exchange or the NASDAQ.
(B) A portion of shares held are on loan. See note 8 to financial statements.
(C) Presently non-dividend paying.
(D) Rate presented is as of period-end and represents the annualized yield
earned over the previous seven days.
15
CHANGES IN PORTFOLIO SECURITIES
--------------------------------------------------------------------------------
During the Three Months Ended December 31, 2008
(unaudited)
Shares
----------------------------------
Held
Additions Reductions Dec. 31, 2008
------------------------------------------------------------------
Noble Corp..................... 175,000 775,000
Transocean Inc................. 70,000 307,953
Air Products & Chemicals, Inc.. 115,000 --
ConocoPhillips................. 145,000 411,891
CONSOL Energy Inc.............. 75,000 125,000
Exxon Mobil Corp............... 350,000 895,000
Hercules Offshore, Inc......... 88,300 500,000
Marathon Oil Co................ 240,000 --
Massey Energy Co............... 50,808 180,000
Murphy Oil Corp................ 266,500 --
Schlumberger Ltd............... 450,000 250,000
Suncor Energy.................. 300,000 --
Total S.A. ADR................. 190,000 200,000
-------------------------
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 December 31, 2008, 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 opin
ion 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, 2008 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 11, 2009
16
PETROLEUM & RESOURCES CORPORATION
--------------------------------------------------------------------------------
Calendar Market Cumulative Cumulative Total Total net
year value market value market value market asset
end of of capital of income value value
original gains dividends
shares distributions taken in
taken in shares
shares
---------------------------------------------------------------
1994 $ 9,154 $ 431 $ 306 $ 9,891 $10,517
1995 10,242 980 689 11,911 13,289
1996 12,603 1,789 1,228 15,620 16,669
1997 13,234 2,571 1,632 17,437 19,809
1998 11,107 2,891 1,714 15,712 17,595
1999 11,695 3,927 2,164 17,786 21,773
2000 14,855 6,243 3,099 24,197 28,963
2001 12,761 6,337 3,000 22,098 23,454
2002 10,433 5,814 2,817 19,064 20,853
2003 12,913 8,100 3,909 24,922 25,257
2004 14,023 9,728 4,751 28,502 31,133
2005 17,591 13,525 6,584 37,700 41,080
2006 18,200 17,887 7,354 43,441 47,531
2007 21,028 25,805 9,143 55,976 62,246
2008 10,558 16,863 4,928 32,349 37,482
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 1994-2008. 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]
17
HISTORICAL FINANCIAL STATISTICS
--------------------------------------------------------------------------------
(unaudited)
Dividends Distributions Total
Market From From Net Dividends
Net Asset Value Investment Realized and Annual Rate
Value of Shares Value Per Income Gains Distributions of
Dec. 31 Net Assets Outstanding* Per Share* Share* Per Share* Per Share* Per Share* Distribution**
----------------------------------------------------------------------------------------------------------
1994 $332,279,398 18,570,450 $17.89 $16.83 $.61 $ .79 $1.40 7.40%
1995 401,404,971 19,109,075 21.01 18.83 .58 .81 1.39 7.57
1996 484,588,990 19,598,729 24.73 23.17 .55 .88 1.43 6.84
1997 556,452,549 20,134,181 27.64 24.33 .51 1.04 1.55 6.37
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
2008 538,936,942 23,958,656 22.49 19.41 .38 2.61 2.99 8.88
--------
* 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.
-------------------------
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 LLP
Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP
Transfer Agent & Registrar: American Stock Transfer & Trust Co.
Custodian of Securities: Brown Brothers Harriman & Co.
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" and then "All Other SEC Filings".
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, 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 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, the Corporation, through its transfer agent,
currently American Stock Transfer & Trust Company, collects and maintains
certain nonpublic personal information about our stockholders of record with
respect to their transactions in shares of our securities. This information
includes the stockholder's address, tax identification or Social Security
number, share balances, and dividend elections. We do not collect or maintain
personal information about stockholders whose shares of our securities are held
in "street name" by a financial institution such as a bank or broker.
We do not disclose any nonpublic personal information about you, our other
stockholders or our former stockholders to third parties unless necessary to
process a transaction, service an account or as otherwise permitted by law.
To protect your personal information internally, we restrict access to
nonpublic personal information about our stockholders to those employees who
need to know that information to provide services to our stockholders. We also
maintain certain other safeguards to protect your nonpublic personal
information.
19
STOCKHOLDER 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.
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.
Petroleum's daily trading is shown in the stock tables of many daily
newspapers, often with the abbreviated form "PetRes." 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 and
year-end distribution 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.
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.
How do I transfer shares held at American Stock Transfer (AST)?
There are many circumstances that require the transfer of shares to new
registrations, e.g., marriage, death, a child reaching the age of maturity, or
giving shares as a gift. Each situation requires different forms of
documentation to support the transfer. You may obtain transfer instructions and
download the necessary forms from our transfer agent's website:
www.amstock.com. Click on Shareholder Services, then General Shareholder
Information and Transfer Instructions.
20
STOCKHOLDER 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 (waived if sold) $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:
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 10269-0560
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.
21
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 (31 funds) (investment
Age 67 Business, Columbia University. companies), Epoch Holdings
Corporation (asset
management), and
Starcomms Plc
(telecommunications).
--------------------------------------------------------------------------------------------------------------------------------
Phyllis O. Bonanno Director One Since President & CEO of Two Director of The Adams
7 St. Paul Street, Year 2003 International Trade Solutions, Express Company
Suite 1140 Inc. (consultants). Formerly, (investment company), Borg-
Baltimore, MD 21202 President of Columbia College, Warner Inc. (industrial),
Age 65 Columbia, South Carolina, and Mohawk Industries, Inc.
Vice President of Warnaco Inc. (carpets and flooring).
(apparel).
--------------------------------------------------------------------------------------------------------------------------------
Kenneth J. Dale Director One Since Senior Vice President and Two Director of The Adams
7 St. Paul Street, Year 2008 Chief Financial Officer of The Express Company
Suite 1140 Associated Press. (investment company).
Baltimore, MD 21202
Age 52
--------------------------------------------------------------------------------------------------------------------------------
Daniel E. Emerson Director One Since Retired Executive Vice Two Director of The Adams
7 St. Paul Street, Year 1987 President of NYNEX Corp. Express Company
Suite 1140 (communications), retired (investment company).
Baltimore, MD 21202 Chairman of the Board of both
Age 84 NYNEX Information
Resources Co. and NYNEX
Mobile Communications Co.
Previously Executive Vice
President and Director of New
York Telephone Company.
--------------------------------------------------------------------------------------------------------------------------------
Frederic A. Escherich Director One Since Private Investor. Formerly, Two Director of The Adams
7 St. Paul Street, Year 2006 Managing Director and head of Express Company
Suite 1140 Mergers and Acquisitions (investment company).
Baltimore, MD 21202 Research and the Financial
Age 56 Advisory Department with J.P.
Morgan.
--------------------------------------------------------------------------------------------------------------------------------
Roger W. Gale, Ph.D. Director One Since President & CEO of GF Two Director of The Adams
7 St. Paul Street, Year 2005 Energy, LLC (consultants to Express Company
Suite 1140 electric power companies). (investment company), Ormat
Baltimore, MD 21202 Formerly, member of Technologies, Inc.
Age 62 management group, PA (geothermal and renewable
Consulting Group (energy energy), and U.S. Energy
consultants). Association.
--------------------------------------------------------------------------------------------------------------------------------
Thomas H. Lenagh Director One Since Financial Advisor. Formerly, Two Director of The Adams
7 St. Paul Street, Year 1987 Chairman of the Board and Express Company,
Suite 1140 CEO of Greiner Engineering Cornerstone Funds, Inc.
Baltimore, MD 21202 Inc. (formerly Systems (3 funds) (investment
Age 90 Planning Corp.) (consultants). companies), and Photonics
Formerly, Treasurer and Chief Product Group, Inc.
Investment Officer of the Ford (crystals).
Foundation (charitable
foundation).
--------------------------------------------------------------------------------------------------------------------------------
22
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)
Kathleen T. McGahran, Director One Since President & CEO of Pelham Two Director of The Adams
Ph.D., J.D., C.P.A Year 2003 Associates, Inc. (executive Express Company
7 St. Paul Street, education), and Adjunct (investment company).
Suite 1140 Associate Professor, Tuck
Baltimore, MD 21202 School of Business, Dartmouth
Age 58 College. Formerly, Associate
Dean and Director of Executive
Education and Associate
Professor, Columbia
University.
---------------------------------------------------------------------------------------------------------------------------------
Craig R. Smith, M.D. Director One Since President, Williston Consulting Two Director of The Adams
7 St. Paul Street, Year 2005 LLC (consultants to Express Company
Suite 1140 pharmaceutical and (investment company),
Baltimore, MD 21202 biotechnology industries), and LaJolla Pharmaceutical
Age 62 Chief Operating Officer and Company, and Depomed, Inc.
Director of Algenol Biofuels (specialty pharmaceuticals).
Inc. (ethanol manufacturing).
Formerly, Chairman, President
& CEO of Guilford
Pharmaceuticals
(pharmaceuticals and
biotechnology).
---------------------------------------------------------------------------------------------------------------------------------
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 21202 and CEO Chairman
Age 62 of the
Board
since
1991
---------------------------------------------------------------------------------------------------------------------------------
23
PETROLEUM & RESOURCES CORPORATION
--------------------------------------------------------------------------------
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
Brian S. Hook Assistant Treasurer
Christine M. Sloan Assistant Treasurer
Geraldine H. Pare Assistant Secretary
24
Graphic
Petroleum & Resources Corporation
SEVEN ST.PAUL STREET
SUITE 1140
BALTIMORE, MD 21202
(410)752-5900 OR (800)638-2479
www.peteres.com
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
director on the Registrant's audit committee whom the board
of directors has determined meets such definition is
Enrique R. Arzac, who is independent pursuant to paragraph
(a)(2) of this Item.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees for professional
services rendered by its independent auditors,
PricewaterhouseCoopers LLP, for the audits of the
Corporation's annual and semi-annual financial statements
for 2008 and 2007 were $69,116 and $65,825, respectively.
(b) Audit-Related Fees. There were no audit-related
fees in 2008 and 2007.
(c) Tax Fees. The aggregate fees 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
2008 and 2007 were $10,710 and $10,200, respectively.
(d) All Other Fees. The aggregate fees to Registrant by
PricewaterhouseCoopers LLP other than for the services
referenced above for 2008 and 2007 were $4,770 and $3,534,
respectively, which related to the Corporation's cash
incentive plan and the 2005 Equity Incentive Compensation
Plan, and preparation of a report to the Corporation's
Compensation Committee.
(e) (1) Audit Committee Pre-Approval Policy. As of
2008, all services to be performed for Registrant by
PricewaterhouseCoopers LLP must be pre-approved by the audit
committee. All services performed in 2008 were pre-approved
by the committee.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate fees for non-audit professional
services rendered by PricewaterhouseCoopers LLP to
Registrant for 2008 and 2007 were $15,480 and $13,734,
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 LLP's 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, Chair, Frederic A.
Escherich, Thomas H. Lenagh, and Craig R. Smith.
(b) Not applicable.
Item 6. Schedule of Investments.
(a) This schedule is included as part of the
report to stockholders filed under Item 1 of this form.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures
for Closed-End Management Investment Companies.
PROXY VOTING GUIDELINES
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 analyses is
the integrity and competency of the company's 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 company's
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 company's 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 company's management. When we
believe that the management's 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 management's
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 company's 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 company's 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. 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 company's
charter that can be characterized as blatant anti-takeover
provisions.
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 company's 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.
(a) (1) As of the date of this filing, Douglas G. Ober,
Chairman, Chief Executive Officer, and President, Joseph M.
Truta, Executive Vice President, and Robert E. Sullivan,
Executive Vice President, comprise the 3 person portfolio
management team for the Registrant. Mr. Ober and Mr. Truta
have served as portfolio managers for the Registrant since
1991 and Mr. Sullivan since 2008. Mr. Sullivan served as
Vice President-Research from April 2006 to January 2008 and
as a research analyst from 2004 to April 2006. Mr. Ober is
the lead member of the portfolio management team. Messrs.
Ober, Truta and Sullivan receive investment recommendations
from a team of research analysts and make decisions jointly
about any equity transactions in the portfolio. Concurrence
of the portfolio managers is required for an investment
recommendation to be approved.
(2) As of the date of this filing, Mr. Ober and Mr.
Truta also serve on the portfolio management team for
Registrant's non-controlling affiliate, The Adams Express
Company (Adams), a registered investment company with total
net assets of $840,012,143 as of December 31, 2008. Mr.
Ober is Chairman and Chief Executive Officer of Adams and
Mr. Truta is President. The Registrant is a non-diversified
fund focusing on the energy and natural resources sectors
and Adams is a diversified fund with a different focus, and
there are few material conflicts of interest that may arise
in connection with these portfolio managers' management of
both funds. The funds do not buy or sell securities or
other portfolio holdings to or from the other, and
procedures and policies are in place covering the sharing of
expenses and the allocation of investment opportunities,
including bunched orders and investments in initial public
offerings, between the funds.
(3) The portfolio managers are compensated through a
three-component plan, consisting of salary, annual cash
incentive compensation, and equity incentive compensation.
The value of each component in any year is determined by the
Compensation Committee, comprised solely of independent
director members of the Board of Directors ("Committee").
The Committee has periodically employed a compensation
consultant to review the plan and its components. Salaries
are determined by using appropriate industry surveys and
information about the local market as well as general
inflation statistics. Cash incentive compensation is based
on a combination of absolute and relative fund performance,
with a two-thirds weighting, and individual success at
meeting goals and objectives set by the Board of Directors
at the beginning of each year, with a one-third weighting.
Target incentives are set annually based on 80% of salary
for the Chief Executive Officer and 60% of salary for the
Executive Vice Presidents. The fund performance used in
determining cash incentive compensation is measured over
both a one-year period, accounting for two-thirds of the
calculation, and a three-year period, which accounts for one-
third. The total return on net asset value of the Fund over
each of the two periods is used to determine a base
percentage of target, which, for 2008, is then adjusted by
performance relative to a hypothetical portfolio comprised
of an 80/20 blend of the Dow Jones U.S. Oil and Gas Index
and the S&P 500 Index ("Hypothetical Portfolio"). Using
these calculations, the cash incentive compensation can
range from 0% to a maximum of 200% of the established
target. Equity incentive compensation, based on a plan
approved by shareholders in 2005, can take several forms.
Following approval of the plan, grants of restricted stock
were made to the portfolio managers in April 2005, with
vesting in equal proportions over a three year period. The
size of the grants was determined by the Committee with the
assistance of an outside compensation consultant. Grants of
restricted stock were also made on January 10, 2008,
(previous grants had been made on January 11, 2007, and
January 12, 2006), which vest three years after grant, but
only upon the achievement of specified performance criteria.
For the 2008 grants, the target number of restricted shares
will vest if, on the January 1 prior to the vest date
("measurement date"), the Registrant's total three year net
asset value ("NAV") return meets or exceeds the three year
total NAV return of a performance benchmark comprised of,
for year 2008, the Hypothetical Portfolio, and for years
2009 and 2010, a hypothetical portfolio consisting of an
80/20 blend of the Dow Jones U. S. Oil and Gas Index and the
Dow Jones U. S. Basic Materials Index. Depending on the
level of Registrant's outperformance or underperformance of
the performance benchmark on the measurement date, an
additional number of shares, a lesser percentage, or no
shares will be earned and vest.
(4) Using a valuation date of December 31, 2008, Mr.
Ober beneficially owns equity securities in Registrant
valued over $1,000,000. Mr. Truta beneficially owns equity
securities in Registrant valued between $500,001 and
$1,000,000. Mr. Sullivan beneficially owns equity
securities in Registrant valued between $100,001 and
$500,000.
(b) Not applicable.
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 Purchased Unit) Programs Programs
-------- --------- --------- --------- ---------
Jan. 2008 41,400 $34.05 41,400 1,009,120
Feb. 2008 25,600 $34.49 25,600 983,520
Mar. 2008 17,200 $36.24 17,200 966,320
Apr. 2008 14,200 $40.50 14,200 952,120
May 2008 28,400 $41.03 28,400 923,720
June 2008 14,700 $42.71 14,700 909,020
Jul. 2008 143,500 $38.71 143,500 765,520
Aug. 2008 0 $0 0 765,520
Sep. 2008 0 $0 0 765,520
Oct. 2008 0 $0 0 765,520
Nov. 2008 0 $0 0 765,520
Dec. 2008 96,979 $19.41 96,979 1,252,893(2)
-------- --------- --------- ---------
Total 381,979(1) $33.31 381,979(2)
(1) There were no shares purchased other than through a
publicly announced plan or program.
(2.a) The Plan was announced on December 13, 2007.
(2.b) The share amount approved for 2008 was 5% of
outstanding shares, or approximately 1,084,620 shares.
(2.c) The Plan was set to expire December 2008, but was
extended by the Board on December 11, 2008 for twelve
months, authorizing purchases of up to 6% of the outstanding
shares, or approximately 1,349,872 shares, through December
2009.
(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) The Registrant's principal executive officer and
principal financial officer have concluded that the
Registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940)
are effective based on their evaluation of the disclosure
controls and procedures as of a date within 90 days of the
filing date of this report.
(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) that occurred during the Registrant's second fiscal
quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial
reporting.
Item 12. Exhibits.
(a)(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(a) under the Investment Company
Act of 1940, are attached.
(3) Written solicitation to purchase securities: not
applicable.
(b) A certification by the Registrant's principal executive
officer and principal financial officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and required by Rule
30a-2(b) under the Investment Company Act of 1940, is
attached.
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 23, 2009
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 23, 2009
BY: /s/ Maureen A. Jones
-----------------------
Maureen A. Jones
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: February 23, 2009