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, 2007
Date of reporting period: December 31, 2007
Item 1. Reports to Stockholders.
[GRAPHIC]
INVESTMENTS IN GLOBAL ENERGY AND NATURAL RESOURCES
Petroleum & Resources Corporation - Annual Report 2007
2007 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 (12/31/07)
NYSE Symbol.............. PEO
Market Price ......... $38.66
52-Week Range.. $31.12-$42.43
Discount ...............10.1%
Shares Outstanding 22,768,250
SUMMARY FINANCIAL INFORMATION
Year Ended December 31
2007 2006
---------------------------------------------------------------------
Net asset value per share $ 42.99 $ 36.61
Total net assets 978,919,829 812,047,239
Unrealized appreciation 606,901,290 462,398,019
Net investment income 10,070,758 9,844,108
Total realized gain 82,692,239 69,700,053
Total return (based on market value) 28.9% 15.3%
Total return (based on net asset value) 31.0% 15.7%
Expense ratio 0.54% 0.60%
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2007 DIVIDENDS AND DISTRIBUTIONS
Amount
Paid (per share) Type
-----------------------------------------------------
March 1, 2007 $0.07 Long-term capital gain
March 1, 2007 0.03 Short-term capital gain
March 1, 2007 0.03 Investment income
June 1, 2007 0.13 Investment income
September 1, 2007 0.13 Investment income
December 27, 2007 3.71 Long-term capital gain
December 27, 2007 0.01 Short-term capital gain
December 27, 2007 0.20 Investment income
-----------------------------------------------------
$4.31
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2008 ANNUAL MEETING OF STOCKHOLDERS
Location: The Tremont Grand, Baltimore, Maryland
Date: March 13, 2008
Time: 9:45 a.m.
PORTFOLIO REVIEW
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(unaudited)
TEN LARGEST PORTFOLIO HOLDINGS (12/31/07)
Market Value % of Net Assets
-----------------------------------------------------------
Exxon Mobil Corp. $116,644,050 11.9
Chevron Corp. 66,730,950 6.8
Schlumberger Ltd. 55,087,200 5.6
ConocoPhillips 49,173,475 5.0
Noble Corp. 33,906,000 3.5
Weatherford International Ltd. 33,858,216 3.5
Total S.A. ADR 32,214,000 3.3
Occidental Petroleum Corp. 30,796,000 3.2
Valero Energy Corp. 29,762,750 3.0
Devon Energy Corp. 29,340,300 3.0
------------ ----
Total $477,512,941 48.8%
------------ ----
SECTOR WEIGHTINGS (12/31/07)
[CHART]
Integrated 38.7%
Exploration & Production 15.9%
Utilities 13.3%
Services 22.6%
Basic Materials & Other 6.4%
Short-Term Investments 3.4%
1
PETROLEUM & RESOURCES CORPORATION
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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
--------------------------------------------------------------
1993 $10,856 $ 520 $ 311 $11,687 $12,599
1994 9,968 983 644 11,595 12,328
1995 11,152 1,683 1,127 13,962 15,577
1996 13,723 2,754 1,832 18,309 19,539
1997 14,410 3,704 2,325 20,439 23,220
1998 12,094 3,968 2,356 18,418 20,615
1999 12,734 5,213 2,902 20,849 25,523
2000 16,175 8,092 4,096 28,363 33,950
2001 13,895 8,094 3,915 25,904 27,493
2002 11,360 7,360 3,629 22,349 24,446
2003 14,060 10,169 4,988 29,217 29,611
2004 15,269 12,136 6,011 33,416 36,500
2005 19,154 16,773 8,273 44,200 48,164
2006 19,817 21,920 9,196 50,933 55,728
2007 22,897 31,352 11,384 65,633 72,983
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 1993-2007. Fees for the
reinvestment of interim dividends are assumed as 2% of the amount reinvested
(maximum of $2.50) and commissions of $0.05 per share. There is no charge for
reinvestment of year-end distributions. No adjustment has been made for any
income taxes payable by stockholders on income dividends or on capital gains
distributions or the sale of any shares. These results should not be considered
representative of the dividend income or capital gain or loss which may be
realized in the future.
[CHART]
2
LETTER TO STOCKHOLDERS
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We are pleased to report another outstanding year for Petroleum & Resources
Corporation. The Fund realized a total return on net assets of 31% for the
year, nearly twice that of 2006 and only slightly below the 33% increase in the
Dow Jones Oil and Gas Index (DJOGI). The 80% of the portfolio which is
comprised of energy stocks (not including utilities) returned over 35% for the
year. The utility segment of the portfolio, mostly gas pipelines and
distribution companies, also had a strong year, with a 22% return, well ahead
of the utility sector of the S&P 500 Index, which returned 19%. Our non-energy
holdings (primarily chemicals) returned approximately 15%, well ahead of the
broader S&P 500 Index return of 5.5% for the year. Below, we summarize events
driving our performance in 2007 and our perspective on energy markets in 2008.
A REVIEW OF 2007
Oil prices fluctuated in a range of $50-$60 per barrel for most of the first
quarter as a relatively mild winter kept a lid on heating oil demand in this
country and the OPEC
production cut of late 2006 stabilized inventory levels. Modest growth in
general economic activity here and abroad also served to slow the growth in
worldwide demand for crude oil. Late in the quarter, however, a number of
factors pushed the price of oil upward. Economic activity picked up. Gasoline
demand jumped as the driving season kicked off. The slide of the dollar
relative to other currencies picked up speed. OPEC production cuts resulted in
declining inventories worldwide, and the U.S. troop surge in Iraq began. In
addition, speculative interest in oil futures contracts, already significant,
grew larger. The net result was that the oil price rose steadily to $70 a
barrel by the end of the second quarter and oil stocks had one of their best
quarters ever, with the DJOGI up over 14%. The runup continued through the end
of the year, with the price of oil touching $98 a barrel in late December.
Stocks did not follow suit, however, as the U.S. economy showed signs of
weakening and concerns arose about refining margins and demand both here and
overseas.
2007 was not as exciting for natural gas as it was for oil. The mild winter
weather mentioned earlier resulted in less gas being taken out of storage than
normal and a higher level of storage going into the spring. While demand from
gas-fired power plants was good during the warm summer, strong domestic
production growth and increased liquefied natural gas (LNG) imports kept prices
in the $6-$8 per thousand cubic feet range for most of the year. Natural gas in
storage was at record levels going into this winter, but the colder weather has
resulted in larger drawdowns than in the prior winter. While plenty of gas
remains, the level of demand has pushed prices up since the change in season to
$8 per thousand cubic feet and above.
Coal has been in significant oversupply for some period of time, though
speculative interests drove the price up when a series of new coal-fired power
plant construction projects were announced early in the year. Many of these
were subsequently cancelled and prices fell back. Numerous smaller mines have
closed due to increased costs of operations and safety mandates, but there is
still excess production capacity for thermal coal in the U.S. Even so, steam
coal experienced a surge in prices late in the year due to improved
international demand. Until some competitive form of clean-coal technology can
be developed, the pollution associated with coal burning will constrain demand
growth. Producers of metallurgical coal for steelmaking fared somewhat better
in 2007 as steel demand was strong and Australian producers of such coal had
difficulty exporting their production due to shipping bottlenecks.
The energy sector had a very strong year in 2007, buoyed by rising prices
throughout the period. The best-performing group within the DJOGI was the
exploration and production group, which was up by 43% for the year. Our
holdings, led by Noble Energy and Apache Corp., rose 44% due to their strong
production growth and drilling programs. The oil service segment had the second
best increase of the year, with that portion of the DJOGI up 41%, partially due
to consolidation in the rig companies and other service providers. The Fund's
service names were up by 30% as GlobalSantaFe was bought out by Transocean,
Weatherford was up 64% and Schlumberger, our largest holding in the service
segment, rose 56%.
The difference between the Fund's return and that of the service segment of the
DJOGI can largely be attributed to National Oilwell and Smith International,
the fourth and eighth largest companies in the group, neither of which were
held by the Fund. On the other hand, the performance of the Fund's integrated
companies was very strong, with our investments up 28%, led by Hess, up 103%,
and Murphy, which was up 67% on the ramp-up of production
[PHOTO]
Douglas G. Ober,
Chairman, President and Chief
Executive Officer
3
LETTER TO STOCKHOLDERS (continued)
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at the Kikeh field off Malaysia. The DJOGI integrated companies, in contrast,
were up 26%. The index-beating return came despite our holdings in Royal Dutch
Shell and Total, which are not represented in the index and did not perform as
well as the rest of the group in 2007. As noted above, our utility holdings,
mostly gas distribution companies and pipeline operators, did very well, with a
22% return. Within the DJOGI, the gas pipelines returned 14% and the
distribution companies returned 4%, while the broader S&P Utility sector
returned 19%.
INVESTMENT RESULTS
Net assets of the Corporation on December 31, 2007 were $978,919,829 or $42.99
per share on 22,768,250 shares outstanding. This compares with $812,047,239 or
$36.61 per share on 22,180,867 shares outstanding a year earlier.
Net investment income for 2007 was $10,070,758 compared to $9,844,108 for 2006.
These earnings are equivalent to $0.46 and $0.47 per share, respectively, on
the average number of shares outstanding throughout each year. Our 0.54%
expense ratio (expenses to average net assets) was once again at a low level
compared to the industry.
Net realized gains amounted to $82,692,239 during the year, while the
unrealized appreciation on investments increased from $462,398,019 at
December 31, 2006 to $606,901,290 at year end.
DIVIDENDS AND DISTRIBUTIONS
Total dividends and distributions paid in 2007 were $4.31 per share compared to
$3.80 in 2006. The table on page 19 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 2007, the annual rate of distribution was 11.61%
compared to 11.26% in 2006. As announced on November 8, 2007, a year-end
distribution consisting of investment income of $0.20 per share and capital
gains of $3.72 per share was made on December 27, 2007, both realized and
taxable in 2007. On January 10, 2008, an additional distribution of $0.13 per
share was declared to shareholders of record February 14, 2008, payable
March 1, 2008, representing undistributed net investment income earned in 2007
and an initial distribution from 2008 net investment income, taxable to
shareholders in 2008.
OUTLOOK FOR 2008
Though the oil price briefly touched $100 per barrel early in January, it has
subsequently retreated to below $90 as crude inventories rose more than
anticipated on lower refinery runs. Price volatility is expected to continue to
be high as supplies remain tight and demand depends greatly on world economic
growth. Any impact on supply, whether from the U.S. urging the Saudis for more
oil, unrest in Nigeria, a further decline in the relative value of the dollar,
or a host of other geopolitical reasons, will be reflected in the price almost
instantly. Estimates of the portion of the price representing non-economic
factors, including speculative interests, range from $20 to $40 per barrel.
These are unlikely to go away any time soon, so we expect to see a wide price
range of $75 to $100 per barrel, with possible spikes up or down beyond that
range. This makes it difficult to generate reliable earnings estimates for the
oil companies. With an expected range of oil prices greater than the 2007
average of $72.23, however, we expect that the companies will show earnings
growth in the 5-7% range. This is likely to be somewhat better than the average
growth of companies in the S&P 500 Index. With the current valuations of energy
companies at the low end of their ranges, we think the oils can outperform the
market again in 2008.
The outlook for natural gas is increasingly a function of the weather, both hot
and cold. With demand by industrial users shrinking, power generation and home
heating have become the primary users of natural gas. Demand growth over the
longer term, however, is likely to be more a function of the better
environmental characteristics of the fuel. On the supply side, many of the new
wells coming on stream, largely from more complex geologies, have slower
depletion rates after the first year of production than older wells, and result
in gradually improved supply levels. LNG imports are a modest swing factor, but
are still a very small part of the available supply in this country. Our
expectation is that the growth in demand over time will be increasingly
difficult to satisfy and prices will gradually rise, making the exploration and
production companies an attractive area for investment.
A recession in this country of any length or depth, with repercussions
overseas, would bring demand down sufficiently to take oil prices lower than
the $75 to $100 range and adversely impact earnings. The stocks would then
probably not perform as well as the market. Regardless of what happens in the
short term, the outlook for the energy
4
LETTER TO STOCKHOLDERS (continued)
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industry over the longer term is good. The world will need oil and natural gas
for many years to come, regardless of technical advances and legislation in
favor of alternative fuels. Our broad exposure to the many segments of the
industry provides stockholders with a stable platform for investment in this
complex sector as well as an attractive cash flow.
SHARE REPURCHASE PROGRAM
On December 13, 2007, the Board of Directors authorized the repurchase by
management of up to 5% of the outstanding shares of the Corporation over the
ensuing year. The repurchase program is subject to the restriction that shares
can only be repurchased when the discount of the market price of the shares
from the net asset value is 6.5% or greater.
From the beginning of 2008 through January 25, 2008, 30,000 shares have been
repurchased at a total cost of $1,015,147 and a weighted average discount from
net asset value of 11.4%.
-------------------------
At its meeting in December, the Board of Directors promoted Robert E. Sullivan
to the position of Executive Vice President, effective January 1, 2008. As
such, he becomes a member of the Investment Committee and an integral part of
the portfolio management team for the Fund. In his three and a half years at
the Fund, he has demonstrated strong stock selection skills and a thorough
knowledge of the energy industry.
We are pleased to announce that Mr. Kenneth J. Dale was appointed to the Board
of Directors of the Corporation, effective January 10, 2008. Mr. Dale is Senior
Vice President and Chief Financial Officer of The Associated Press. Prior to
joining the AP he was an investment banker for J. P. Morgan & Company, Inc.,
advising clients on capital structure, equity offerings, debt issuances, and
mergers and acquisitions activity. His extensive investment background combined
with his global perspective make him a valuable addition to the Board of
Directors.
-------------------------
This Annual Report, along with the proxy statement for the Annual Meeting of
Stockholders to be held in Baltimore on March 13, 2008, are expected to be
mailed on or about February 19, 2008.
By order of the Board of Directors,
/s/ Douglas G. Ober
Douglas G. Ober,
Chairman, President and
Chief Executive Officer
January 30, 2008
5
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
December 31, 2007
Assets
Investments* at value:
Common stocks and convertible securities
(cost $342,181,463) $948,962,546
Short-term investments (cost $32,963,306) 32,963,306
Securities lending collateral (cost $37,129,937) 37,129,937 $1,019,055,789
-----------------------------------------------------------------------------------------------
Cash 342,762
Dividends receivable 627,541
Prepaid expenses and other assets 565,035
--------------------------------------------------------------------------------------------------------------
Total Assets 1,020,591,127
--------------------------------------------------------------------------------------------------------------
Liabilities
Investment securities purchased 632,501
Open written option contracts at value (proceeds $156,682) 36,475
Obligations to return securities lending collateral 37,129,937
Accrued pension liabilities 1,996,775
Accrued expenses and other liabilities 1,875,610
--------------------------------------------------------------------------------------------------------------
Total Liabilities 41,671,298
--------------------------------------------------------------------------------------------------------------
Net Assets $ 978,919,829
--------------------------------------------------------------------------------------------------------------
Net Assets
Common Stock at par value $0.001 per share, authorized
50,000,000 shares; issued and outstanding 22,768,250 shares (includes
24,724 restricted shares, 3,200 restricted stock units and 2,238 deferred stock
units) (Note 6) $ 22,768
Additional capital surplus 372,785,978
Accumulated other comprehensive income (Note 5) (2,056,892)
Undistributed net realized gain on investments 1,266,685
Unrealized appreciation on investments 606,901,290
--------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $ 978,919,829
--------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share of Common Stock $42.99
--------------------------------------------------------------------------------------------------------------
* See schedule of investments on pages 14 through 16.
The accompanying notes are an integral part of the financial statements.
6
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
Year Ended December 31, 2007
Investment Income
Income:
Dividends $ 12,001,948
Interest and other income 2,977,967
--------------------------------------------------------------------------------
Total income 14,979,915
--------------------------------------------------------------------------------
Expenses:
Investment research 2,239,077
Administration and operations 1,259,685
Directors' fees 348,787
Reports and stockholder communications 249,870
Transfer agent, registrar and custodian expenses 145,497
Auditing and accounting services 129,340
Legal services 37,592
Occupancy and other office expenses 222,444
Travel, telephone and postage 80,892
Other 195,973
--------------------------------------------------------------------------------
Total expenses 4,909,157
--------------------------------------------------------------------------------
Net Investment Income 10,070,758
--------------------------------------------------------------------------------
Other Comprehensive Income (Note 5) (89,917)
--------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 82,692,239
Change in unrealized appreciation on investments 144,503,271
--------------------------------------------------------------------------------
Net Gain on Investments 227,195,510
--------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $237,176,351
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
7
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Year Ended
--------------------------
Dec. 31, 2007 Dec. 31, 2006
------------------------------------------------------------------------------------------
From Operations:
Net investment income $ 10,070,758 $ 9,844,108
Net realized gain on investments 82,692,239 69,700,053
Change in unrealized appreciation on investments 144,503,271 33,586,674
Change in accumulated other comprehensive income (Note 5) (89,917) (1,966,975)
------------------------------------------------------------------------------------------
Change in net assets resulting from operations 237,176,351 111,163,860
------------------------------------------------------------------------------------------
Distributions to Stockholders From:
Net investment income (10,678,823) (9,928,393)
Net realized gain from investment transactions (82,870,511) (69,654,826)
------------------------------------------------------------------------------------------
Decrease in net assets from distributions (93,549,334) (79,583,219)
------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of shares issued in payment of distributions 41,992,828 46,212,047
Cost of shares purchased (Note 4) (19,224,514) (28,033,719)
Deferred compensation (Notes 4, 6) 477,259 374,618
------------------------------------------------------------------------------------------
Change in net assets from capital share transactions 23,245,573 18,552,946
------------------------------------------------------------------------------------------
Total Increase in Net Assets 166,872,590 50,133,587
Net Assets:
Beginning of year 812,047,239 761,913,652
------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $0 in 2007 and 2006) $978,919,829 $812,047,239
------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
8
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Petroleum & Resources Corporation (the Corporation) is registered under the
Investment Company Act of 1940 as a non-diversified investment company. The
Corporation 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.
Security Valuation -- Investments in securities traded on national securities
exchanges are valued at the last reported sale price on the day of valuation.
Over-the-counter and listed securities for which a sale price is not available
are valued at the last quoted bid price. Short-term investments (excluding
purchased options) are valued at amortized cost. Purchased and written options
are valued at the last quoted asked price.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. Gain or loss on sales of securities and
options is determined on the basis of identified cost. Dividend income and
distributions to shareholders are recognized on the ex-dividend date, and
interest income is recognized on the accrual basis.
2. FEDERAL INCOME TAXES
The Corporation's policy is to distribute all of its taxable income to its
shareholders in compliance with the requirements of the Internal Revenue Code
applicable to regulated investment companies. Therefore, no federal income tax
provision is required. For federal income tax purposes, the identified cost of
securities at December 31, 2007 was $412,244,883, and net unrealized
appreciation aggregated $606,810,906, of which the related gross unrealized
appreciation and depreciation were $609,881,682 and $3,070,776, respectively.
As of December 31, 2007, the tax basis of distributable earnings was $1,506,701
of undistributed ordinary income and $1,110,098 of undistributed long-term
capital gain.
Distributions paid by the Corporation during the year ended December 31, 2007
were classified as ordinary income of $11,559,594 and capital gain of
$81,989,740. In comparison, distributions paid by the Corporation during the
year ended December 31, 2006 were classified as ordinary income of $17,053,276
and capital gain of $62,529,943. 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.
Effective June 29, 2007, the Corporation adopted Financial Accounting Standards
Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes, a clarification of FASB Statement No. 109, Accounting for Income
Taxes. FIN 48 establishes financial reporting rules regarding recognition and
measurement of tax positions taken or expected to be taken on a tax return. The
adoption of FIN 48 had no impact on the Corporation's net assets or results of
operations.
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, 2007 were $63,058,310 and
$120,120,407, respectively. Options may be written (sold) or purchased by the
Corporation. The Corporation, as writer of an option, bears the market risk of
an unfavorable change in the price of the security underlying the written
option. The risk associated with purchasing an option is limited to the premium
originally paid. A schedule of outstanding option contracts as of December 31,
2007 can be found on page 17.
Transactions in written covered call and collateralized put options during the
year ended December 31, 2007 were as follows:
Covered Calls Collateralized Puts
------------------- -------------------
Contracts Premiums Contracts Premiums
--------- --------- --------- ---------
Options outstanding,
December 31, 2006 1,125 $ 242,584 750 $ 85,950
Options written 4,065 499,130 4,555 499,710
Options terminated in
closing purchase
transactions (600) (136,315) (100) (14,345)
Options expired (2,265) (299,341) (4,230) (469,544)
Options exercised (1,600) (218,680) (325) (32,467)
---------------------------------------------------------------
Options outstanding,
December 31, 2007 725 $ 87,378 650 $ 69,304
---------------------------------------------------------------
4. CAPITAL STOCK
The Corporation has 5,000,000 authorized and unissued preferred shares, $0.001
par value.
On December 27, 2006, the Corporation issued 1,369,675 shares of its Common
Stock at a price of $33.73 per share (the average market price on December 11,
2006) to stockholders of record November 21, 2006 who elected to take stock in
payment of the distribution from 2006 capital gain and investment income. In
addition, 376 shares were issued at a weighted average price of $33.76 per
share as dividend equivalents to holders of deferred stock units and restricted
stock units under the 2005 Equity Incentive Compensation Plan.
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
On December 27, 2007, the Corporation issued 1,109,759 shares of its Common
Stock at a price of $37.825 per share (the average market price on December 11,
2007) to stockholders of record 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.
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 2007 and 2006 were as follows:
Shares Amount
-------------------- --------------------------
2007 2006 2007 2006
--------- --------- ------------ ------------
Shares issued in
payment
of distributions 1,110,205 1,370,051 $ 41,992,828 $ 46,212,047
Shares purchased
(at an average
discount from net
asset value of 9.9%
and 10.1%,
respectively) (538,375) (827,959) (19,224,514) (28,033,719)
Net activity under the
2005 Equity Incentive
Compensation Plan 15,553 17,703 477,259 374,618
------------------------------------------------------------------------
Net change 587,383 559,795 $ 23,245,573 $ 18,552,946
------------------------------------------------------------------------
5. RETIREMENT PLANS
The Corporation's non-contributory qualified defined benefit pension plan
covers all employees with at least one year of service. In addition, the
Corporation has a non-contributory nonqualified defined benefit plan which
provides eligible employees with retirement benefits to supplement the
qualified plan. Benefits are based on length of service and compensation during
the last five years of employment.
The funded status of the plans is recognized as an asset (overfunded plan) or a
liability (underfunded plan) in the Statement of Assets and Liabilities.
Changes in the prior service costs and accumulated actuarial gains and losses
are recognized as accumulated other comprehensive income, a component of net
assets, in the year in which the changes occur.
The Corporation uses a December 31 measurement date for its plans.
2007 2006
---------- ----------
Change in benefit obligation
Benefit obligation at beginning of year $6,290,842 $4,947,252
Service cost 348,352 334,876
Interest cost 374,693 327,991
Actuarial loss 86,279 745,184
Benefits paid (64,461) (64,461)
---------------------------------------------------------------
Benefit obligation at end of year $7,035,705 $6,290,842
---------------------------------------------------------------
2007 2006
----------- -----------
Change in plan assets
Fair value of plan assets at beginning of year $ 4,673,247 $ 3,963,078
Actual return on plan assets 98,936 343,422
Employer contribution 331,208 431,208
Benefits paid (64,461) (64,461)
------------------------------------------------------------------------
Fair value of plan assets at end of year $ 5,038,930 $ 4,673,247
------------------------------------------------------------------------
Funded status $(1,996,775) $(1,617,595)
------------------------------------------------------------------------
Items not yet recognized as a component of net periodic pension cost:
2007 2006
---------- ----------
Prior service cost $ 76,955 $ 114,672
Net (gain)/loss 1,979,937 1,852,303
----------------------------------------------------------------
Total recognized as a charge to net assets $2,056,892 $1,966,975
----------------------------------------------------------------
The accumulated benefit obligation for all defined benefit pension plans was
$5,642,374 and $4,722,250 at December 31, 2007 and 2006, respectively.
2007 2006
--------- ---------
Components of net periodic pension cost
Service cost $ 348,352 $ 334,876
Interest cost 374,693 327,991
Expected return on plan assets (368,752) (312,198)
Amortization of prior service cost 37,717 37,717
Amortization of net loss 226,165 225,362
-------------------------------------------------------------
Net periodic pension cost $ 618,175 $ 613,748
-------------------------------------------------------------
In 2008, the Corporation estimates that $35,904 of prior service cost and
$232,159 of net losses, for a total of $268,063, will be amortized from
accumulated other comprehensive income into net periodic pension cost.
Assumptions used to determine benefit obligations are:
2007 2006
---- ----
Discount rate 6.00% 5.75%
Rate of compensation increase 7.00% 7.00%
The assumptions used to determine net periodic pension cost are:
2007 2006
---- ----
Discount rate 5.75% 5.75%
Expected long-term return on plan assets 8.00% 8.00%
Rate of compensation increase 7.00% 7.00%
The assumption for the expected long-term return on plan assets is based on the
actual long-term historical returns realized by the plan assets, weighted
according to the current asset mix.
The asset allocations at December 31, 2007 and 2006, by asset category, are as
follows:
2007 2006
---- ----
Asset Category
Equity Securities & Equity Mutual Funds 42% 66%
Fixed Income Mutual Funds 58% 28%
Cash -- 6%
10
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Equity securities include common stock of The Adams Express Company, the
Corporation's non-controlled affiliate, in the amount of $241,170 (5% of total
plan assets) and $236,906 (5% of total plan assets) at December 31, 2007 and
2006, 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
$331,208 to the plans in 2007 and anticipates contributions of approximately
$230,000 in 2008.
The following benefit payments, which reflect expected future service, are
expected to be paid:
Pension Benefits
----------------
2008 $ 333,637
2009 331,439
2010 376,156
2011 370,074
2012 363,238
Years 2013-2017 2,303,025
The Corporation also sponsors a defined contribution plan that covers
substantially all employees. The Corporation expensed contributions to this
plan of $105,301 and $97,787 for the years ended December 31, 2007 and December
31, 2006, 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, 2007, and
changes during the period then ended is presented below:
Weighted- Weighted-
Average Average
Exercise Remaining
Options Price Life (Years)
------- --------- ------------
Outstanding at December 31, 2006 83,914 $16.19 4.46
Exercised (34,233) 15.91
Cancelled -- --
----------------------------------------------------------------
Outstanding at December 31, 2007 49,681 $11.53 3.68
----------------------------------------------------------------
Exercisable at December 31, 2007 10,991 $ 9.88 1.65
----------------------------------------------------------------
The options outstanding as of December 31, 2007 are set forth below:
Weighted Weighted
Average Average
Options Exercise Remaining
Exercise price Outstanding Price Life (Years)
-------------- ----------- -------- ------------
$5.00-$7.74 3,975 $ 5.89 1.00
$7.75-$10.49 17,707 9.23 3.43
$10.50-$13.24 10,372 12.40 4.00
$13.25-$16.00 17,627 14.61 4.33
------------------------------------------------------------------
Outstanding at December 31, 2007 49,681 $11.53 3.68
------------------------------------------------------------------
Compensation cost resulting from stock options and stock appreciation rights
granted under the 1985 Plan is based on the intrinsic value of the award,
recognized over the award's vesting period, and remeasured at each reporting
date through the date of settlement. The total compensation cost recognized for
the year ended December 31, 2007 was $655,474.
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. 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, 2007 is
830,520 shares.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
A summary of the status of the Corporation's awards granted under the 2005 Plan
as of December 31, 2007, and changes during the period then ended is presented
below:
Weighted Average
Shares/ Grant-Date Fair
Awards Units Value
------ ------- ----------------
Balance at December 31, 2006 21,398 $33.16
Granted:
Restricted stock 10,983 31.34
Restricted stock units 3,200 34.70
Deferred stock units 949 36.47
Vested (5,542) 31.78
Forfeited (826) 34.32
---------------------------------------------------------------
Balance at December 31, 2007 (includes
23,182 performance-based awards and
6,980 nonperformance-based awards) 30,162 $32.99
---------------------------------------------------------------
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 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, 2007 were $288,123.
The total compensation costs for restricted stock units granted to non-employee
directors for the year ended December 31, 2007 were $114,537. As of
December 31, 2007, there were total unrecognized compensation costs of
$411,802, 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 1.48 years. The
total fair value of shares vested during the years ended December 31, 2007 and
2006 was $194,677 and $196,956.
7. OFFICER AND DIRECTOR COMPENSATION
The aggregate remuneration paid during the year ended December 31, 2007 to
officers and directors amounted to $2,520,806, of which $284,491 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 brokers, secured by cash, U.S.
Government securities, or bank letters of credit. The Corporation accounts for
securities lending transactions as secured financing and receives compensation
in the form of fees or retains a portion of interest on the investment of any
cash received as collateral. The Corporation also continues to receive interest
or dividends on the securities loaned. The loans are secured at all times by
collateral of at least 102% of the fair value of the securities loaned plus
accrued interest. At December 31, 2007, the Corporation had securities on loan
of $35,852,590, and held collateral of $37,129,937, consisting of an investment
trust fund which may invest in money market instruments, commercial paper,
repurchase agreements, U.S. Treasury Bills, and U.S. agency obligations.
9. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB released Statement of Financial Accounting Standard
No. 157, Fair Value Measurement ("FAS 157"), which provides enhanced guidance
for using fair value to measure assets and liabilities. The standard requires
companies to provide expanded information about the assets and liabilities
measured at fair value and the potential effect of these fair valuations on an
entity's financial performance. The standard does not expand the use of fair
value in any new circumstances, but provides clarification on acceptable fair
valuation methods and applications. Adoption of FAS 157 is required for fiscal
years beginning after November 15, 2007. Application of the standard is not
expected to materially impact the Corporation's financial statements.
12
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------
2007 2006 2005 2004 2003
----------------------------------------------------------------------------------------------------
Per Share Operating Performance
Net asset value, beginning of year $36.61 $35.24 $28.16 $24.06 $20.98
----------------------------------------------------------------------------------------------------
Net investment income 0.46 0.47 0.53* 0.41 0.38
Net realized gains and increase (decrease)
in unrealized appreciation 10.37 4.91 8.29 5.05 3.89
Change in accumulated
other comprehensive income 0.00 (0.09) -- -- --
----------------------------------------------------------------------------------------------------
Total from investment operations 10.83 5.29 8.82 5.46 4.27
----------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment income (0.49) (0.47) (0.56) (0.44) (0.38)
Distributions from net realized gains (3.82) (3.33) (1.22) (0.88) (0.81)
----------------------------------------------------------------------------------------------------
Total distributions (4.31) (3.80) (1.78) (1.32) (1.19)
----------------------------------------------------------------------------------------------------
Capital share repurchases 0.10 0.15 0.10 0.01 0.02
Reinvestment of distributions (0.24) (0.27) (0.06) (0.05) (0.02)
----------------------------------------------------------------------------------------------------
Total capital share transactions (0.14) (0.12) 0.04 (0.04) 0.00
----------------------------------------------------------------------------------------------------
Net asset value, end of year $42.99 $36.61 $35.24 $28.16 $24.06
----------------------------------------------------------------------------------------------------
Per share market price, end of year $38.66 $33.46 $32.34 $25.78 $23.74
----------------------------------------------------------------------------------------------------
Total Investment Return
Based on market price 28.9% 15.3% 32.3% 14.4% 30.8%
Based on net asset value 31.0% 15.7% 32.0% 23.3% 21.2%
Ratios/Supplemental Data
Net assets, end of year (in 000's) $978,920 $812,047 $761,914 $618,887 $522,941
Ratio of expenses to average net assets 0.54% 0.60% 0.59% 0.56% 0.74%
Ratio of net investment income to average net assets 1.12% 1.22% 1.61% 1.58% 1.75%
Portfolio turnover 7.36% 9.95% 10.15% 13.44% 10.20%
Number of shares outstanding at end of year
(in 000's) 22,768 22,181 21,621 21,980 21,737
----------------------------------------------------------------------------------------------------
* 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, 2007
Shares Value (A)
-----------------------------------------------------------------
Stocks and Convertible Securities -- 96.9%
Energy -- 90.5%
Integrated -- 38.7%
Chevron Corp........................ 715,000 $ 66,730,950
ConocoPhillips...................... 556,891 49,173,475
Exxon Mobil Corp.................... 1,245,000 116,644,050
Hess Corp. (B)...................... 195,000 19,667,700
Marathon Oil Co..................... 240,000 14,606,400
Murphy Oil Corp..................... 216,500 18,367,860
Royal Dutch Shell plc ADR........... 265,000 22,313,000
Suncor Energy (B)................... 90,000 9,785,700
Total S.A. ADR...................... 390,000 32,214,000
Valero Energy Corp.................. 425,000 29,762,750
------------
379,265,885
------------
Exploration & Production -- 15.9%
Apache Corp......................... 200,000 21,508,000
Devon Energy Corp................... 330,000 29,340,300
EOG Resources, Inc.................. 230,000 20,527,500
Forest Oil Corp. (C)................ 37,000 1,881,080
Noble Energy, Inc................... 340,000 27,036,800
Occidental Petroleum Corp........... 400,000 30,796,000
XTO Energy Inc...................... 487,500 25,038,000
------------
156,127,680
------------
Utilities -- 13.3%
AGL Resources Inc................... 170,000 6,398,800
Duke Energy Corp.................... 217,624 4,389,476
Energen Corp........................ 400,000 25,692,000
Equitable Resources, Inc............ 450,000 23,976,000
MDU Resources Group, Inc. (B)....... 375,000 10,353,750
National Fuel Gas Co................ 200,000 9,336,000
New Jersey Resources Corp........... 200,000 10,004,000
Northeast Utilities................. 111,000 3,475,410
Questar Corp........................ 320,000 17,312,000
Spectra Energy Corp................. 108,812 2,809,526
Williams Companies, Inc............. 450,000 16,101,000
------------
129,847,962
------------
14
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
December 31, 2007
Shares Value (A)
----------------------------------------------------------------------
Services -- 22.6%
Baker Hughes Inc......................... 205,000 $ 16,625,500
BJ Services Co........................... 202,600 4,915,076
ENSCO International, Inc................. 209,150 12,469,523
Grant Prideco Inc. (C)................... 308,000 17,097,080
Hercules Offshore, Inc. (B)(C)........... 542,320 12,896,370
Nabors Industries Ltd. (C)............... 520,000 14,242,800
Noble Corp............................... 600,000 33,906,000
Schlumberger Ltd......................... 560,000 55,087,200
Transocean Inc. (C)...................... 137,953 19,747,972
Weatherford International Ltd. (C)....... 493,560 33,858,216
------------
220,845,737
------------
Basic Industries -- 6.4%
Basic Materials & Other -- 6.4%
Air Products and Chemicals, Inc.......... 115,000 11,342,450
Aqua America, Inc. (B)................... 281,000 5,957,200
duPont (E.I.) de Nemours and Co.......... 157,500 6,944,175
General Electric Co...................... 328,000 12,158,960
International Coal Group, Inc. (B)(C).... 1,644,076 8,812,247
Lubrizol Corp............................ 135,000 7,311,600
Rohm & Haas Co........................... 195,000 10,348,650
------------
62,875,282
------------
Total Stocks and Convertible Securities
(Cost $342,181,463) (D)...................... $948,962,546
------------
15
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
December 31, 2007
Prin. Amt. Value (A)
------------------------------------------------------------------------------------------------------------------
Short-Term Investments -- 3.4%
U.S. Government Obligations -- 1.0%
U.S. Treasury Bills, 3.40%, due 2/14/08........................................... $10,000,000 $ 9,957,983
--------------
Time Deposit -- 0.0%
Bank of America Corp., 2.53%, due 1/2/08.......................................... 294,141
--------------
Commercial Paper -- 2.3%
American Express Credit Corp., 4.28%, due 1/22/08................................. 5,000,000 4,987,516
General Electric Capital Corp., 4.00-4.25%, due 1/3/08-1/15/08.................... 3,800,000 3,796,603
Prudential Funding, LLC, 4.20%, due 1/3/08........................................ 5,100,000 5,098,810
United Parcel Service of America, Inc., 4.19-4.20%, due
1/17/08-1/29/08................................................................. 8,850,000 8,828,253
--------------
22,711,182
--------------
Total Short-Term Investments
(Cost $32,963,306).................................................................. 32,963,306
--------------
Total Securities Lending Collateral -- 3.8%
(Cost $37,129,937)
Brown Brothers Investment Trust, 5.19%, due 1/2/08................................ 37,129,937
--------------
Total Investments -- 104.1%
(Cost $412,274,706)................................................................. 1,019,055,789
Cash, receivables, prepaid expenses and other assets, less liabilities -- (4.1)%.. (40,135,960)
--------------
Net Assets -- 100%.................................................................... $ 978,919,829
--------------------------------------------------------------------------------
Notes:
(A) See Note 1 to financial statements. Securities are listed on the New York
Stock Exchange, the American Stock Exchange, or the NASDAQ, except
restricted securities.
(B) All or a portion of these securities are on loan. See Note 8 to Financial
Statements.
(C) Presently non-dividend paying.
(D) The aggregate market value of stocks held in escrow at December 31, 2007
covering open call option contracts written was $5,655,900. In addition,
the required aggregate market value of securities segregated by the
custodian to collaterize open put option contracts written was $4,033,800.
16
SCHEDULE OF OUTSTANDING OPTION CONTRACTS
--------------------------------------------------------------------------------
December 31, 2007
Contracts Contract
(100 shares Strike Expiration Appreciation/
each) Security Price Date (Depreciation)
-----------------------------------------------------------------------------
COVERED CALLS
100 Air Products and Chemicals, Inc. $ 110 Jan 08 $ 7,200
200 ConocoPhillips.................. 100 Jan 08 26,721
125 Lubrizol Corp................... 75 Mar 08 11,632
100 Marathon Oil Co................. 70 Jan 08 10,200
100 Rohm & Haas Co.................. 60 Apr 08 2,700
100 Suncor Energy................... 135 Mar 08 2,200
--- --------
725 60,653
--- --------
COLLATERALIZED PUTS
100 Apache Corp..................... 85 Jan 08 12,310
150 Apache Corp..................... 70 Apr 08 11,655
100 Hess Corp....................... 58.38 Jan 08 9,400
100 Occidental Petroleum Corp....... 60 Jan 08 8,700
100 Occidental Petroleum Corp....... 55 Feb 08 10,200
100 Southwestern Energy Co.......... 40 Mar 08 7,289
--- --------
650 59,554
--- --------
$120,207
-----------------------------------------------------------------------------
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Petroleum & Resources Corporation:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Petroleum & Resources Corporation
(the "Corporation") at December 31, 2007, 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, 2007 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 13, 2008
CHANGES IN PORTFOLIO SECURITIES
--------------------------------------------------------------------------------
During the Three Months Ended December 31, 2007
(unaudited)
Shares
------------------------------------------
Held
Additions Reductions Dec. 31, 2007
-------------------------------------------------------------------------
Apache Corp................... 41,800 200,000
International Coal Group, Inc. 1,644,076 1,644,076
Lubrizol Corp................. 10,000 135,000
Northeast Utilities........... 11,000 111,000
Transocean Inc................ 137,953/(1)/ 137,953
XTO Energy Inc................ 97,500/(2)/ 487,500
BJ Services Co................ 37,400 202,600
Bronco Drilling Co., Inc...... 240,000 --
General Electric Co........... 42,000 328,000
GlobalSantaFe Corp............ 290,000/(1)/ --
Newfield Exploration Co....... 175,000 --
Rohm & Haas Co................ 5,000 195,000
SEMCO Energy, Inc............. 670,300/(3)/ --
--------
/(1)/ Received $22.46 and .4757 share for each share of GlobalSantaFe Corp.
surrendered.
/(2)/ By stock split.
/(3)/ Tendered for $8.15 per share.
-----------------
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.
18
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**
---------------------------------------------------------------------------------------------------------
1993 $355,836,592 18,010,007 $19.76 $18.33 $.55 $ .87 $1.42 7.55%
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
--------
* 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 L.L.P.
Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP
Transfer Agent & Registrar: American Stock Transfer & Trust Co.
Custodian of Securities: Brown Brothers Harriman & Co.
19
OTHER INFORMATION
--------------------------------------------------------------------------------
STATEMENT ON QUARTERLY FILING OF COMPLETE PORTFOLIO SCHEDULE
In addition to publishing its complete schedule of portfolio holdings in the
First and Third Quarter Reports to shareholders, the Corporation also files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission for the first and third quarters of each fiscal year on Form N-Q.
The Corporation's Forms N-Q are available on the Commission's website at
www.sec.gov. The Corporation's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room, and information on the operation of the
Public Reference Room may be obtained by calling 1-800-SEC-0330. The
Corporation also posts its Forms N-Q on its website at: www.peteres.com, under
the heading "Financial Reports".
ANNUAL CERTIFICATION
The Corporation's CEO has submitted to the New York Stock Exchange the annual
CEO certification as required by Section 303A.12(a) of the NYSE Listed Company
Manual.
PROXY VOTING POLICIES AND RECORD
A description of the policies and procedures that the Corporation uses to
determine how to vote proxies relating to portfolio securities owned by the
Corporation and information as to how the Corporation voted proxies relating to
portfolio securities during the 12 month period ended June 30, 2007 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.
20
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 22).
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 "PetRs." Local newspapers
determine, usually by volume of traded shares, which securities to list. If
your paper does not carry our listing, please telephone the Corporation at
(800) 638-2479 or visit our website.
How do I replace a lost certificate(s) or how do I correct a spelling error on
my certificate?
Your Petroleum stock certificates are valuable documents and should be kept in
a safe place. For tax purposes, keep a record of each certificate, including
the cost or market value of the shares it covers at the time acquired. If a
certificate is lost, destroyed or stolen, notify the transfer agent immediately
so a "stop transfer" order can be placed on the records to prevent an
unauthorized transfer of your certificate. The necessary forms and requirements
to permit the issuance of a replacement certificate will then be sent to you. A
certificate can be replaced only after the receipt of an affidavit regarding
the loss accompanied by an open surety bond, for which a small premium is paid
by the stockholder.
In the event a certificate is issued with the holder's name incorrectly
spelled, a correction can only be made if the certificate is returned to the
transfer agent with instructions for correcting the error. Transferring shares
to another name also requires that the certificate be forwarded to the transfer
agent with the appropriate assignment forms completed and the signature of the
registered owner Medallion guaranteed by a bank or member firm of The New York
Stock Exchange, Inc.
Is direct deposit of my dividend checks available?
Yes, our transfer agent offers direct deposit of your interim dividend 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 22.
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.
21
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.
22
BOARD OF DIRECTORS
--------------------------------------------------------------------------------
Number of
Portfolios
in Fund
Position Term Length Complex
Personal Held with of of Time Principal Occupations Overseen Other
Information the Fund Office Served During the Last 5 Years by Director Directorships
--------------------------------------------------------------------------------------------------------------------------
Independent Directors
Enrique R. Arzac, Ph.D. Director One Since Professor of Finance and Two Director of The Adams
7 St. Paul Street, Year 1987 Economics, formerly, Vice Express Company and Credit
Suite 1140 Dean of Academic Affairs of Suisse Asset Management
Baltimore, MD 21202 the Graduate School of Funds (28 funds) (investment
Age 66 Business, Columbia University. companies), and Epoch
Holdings Corporation (asset
management).
--------------------------------------------------------------------------------------------------------------------------
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 64 Columbia, South Carolina, and Mohawk Industries, Inc.
Vice President of Warnaco Inc. (carpets and flooring).
(apparel).
--------------------------------------------------------------------------------------------------------------------------
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 83 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 55 Advisory Department with J.P.
Morgan.
--------------------------------------------------------------------------------------------------------------------------
Roger W. Gale 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 61 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 89 Planning Corp.) (consultants). companies), and Photonics
Formerly, Treasurer and Chief Product Group (crystals).
Investment Officer of the Ford
Foundation (charitable
foundation).
--------------------------------------------------------------------------------------------------------------------------
23
BOARD OF DIRECTORS (CONTINUED)
--------------------------------------------------------------------------------
Number of
Portfolios
in Fund
Position Term Length Complex
Personal Held with of of Time Principal Occupations Overseen Other
Information the Fund Office Served During the Last 5 Years by Director Directorships
--------------------------------------------------------------------------------------------------------------------------
Independent Directors (continued)
Kathleen T. McGahran, Director One Since Principal & Director 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), Adjunct Associate (investment company).
Suite 1140 Professor, Columbia Executive
Baltimore, MD 21202 Education, Graduate School of
Age 57 Business, Columbia University.
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 61 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 61 of the
Board
since
1991
--------------------------------------------------------------------------------------------------------------------------
24
PETROLEUM & RESOURCES CORPORATION
--------------------------------------------------------------------------------
Board Of Directors
Enrique R. Arzac/1,4,5/ Thomas H. Lenagh/2,3/
Phyllis O. Bonanno/1,4,5/ Kathleen T. McGahran/2,4/
Daniel E. Emerson/1,3,5/ Douglas G. Ober/1/
Frederic A. Escherich/2,3/ Craig R. Smith/2,4/
Roger W. Gale/1,3,5/
--------
/1. /Member of Executive Committee
/2./ Member of Audit Committee
/3./ Member of Compensation Committee
/4./ Member of Retirement Benefits Committee
/5./ Member of Nominating and Governance Committee
Officers
Douglas G. Ober Chairman, President
and Chief Executive
Officer
Robert E. Sullivan Executive Vice President
Joseph M. Truta Executive Vice President
Lawrence L. Hooper, Jr. Vice President, General
Counsel and Secretary
Maureen A. Jones Vice President, Chief
Financial Officer and
Treasurer
Nancy J.F. Prue Vice President
Christine M. Sloan Assistant Treasurer
Geraldine H. Pare Assistant Secretary
[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
Kathleen T. McGahran, 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 2007 and 2006 were $65,825 and $64,160, respectively.
(b) Audit Related Fees. There were no audit-related
fees in 2007 and 2006.
(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
2007 and 2006 were $10,200 and $9,523, respectively.
(d) All Other Fees. The aggregate fees to Registrant
by PricewaterhouseCoopers LLP other than for the services
referenced above for 2007 and 2006 were $3,534 and $6,156,
respectively, which related to the review of the
Corporation's procedures for calculating the amounts to be
paid or granted to the Corporation's officers in accordance
with the Corporation's cash incentive plan and the 2005
Equity Incentive Compensation Plan, review of the
Corporation's calculations related to those plans, and
preparation of a report to the Corporation's Compensation
Committee.
(e) (1) Audit Committee Pre-Approval Policy. As of
2007, all services to be performed for Registrant by
PricewaterhouseCoopers LLP must be pre-approved by the audit
committee. All services performed in 2007 were pre-approved
by the committee.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate fees by PricewaterhouseCoopers LLP
for non-audit professional services rendered to Registrant
for 2007 and 2006 were $13,734 and $15,679, 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: Kathleen T. McGahran, Chair, Daniel E.
Emerson, Frederic A. Escherich, and Craig R. Smith.
(B) Not applicable.
Item 6. Schedule of Investments - This schedule is included
as part of the report to shareholders filed under Item 1 of
this form.
Item 7. Disclosure of Proxy Voting Policies and Procedures
for Closed-End Management Investment Companies.
PROXY VOTING 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) Douglas G. Ober, Chairman, Chief Executive
Officer, and President, and Joseph M. Truta, Executive
Vice President, comprised the 2 person portfolio
management team for the Registrant in 2007. Robert E.
Sullivan, Executive Vice President, was added to the
portfolio management team effective January 1, 2008.
Mr. Ober and Mr. Truta have served as portfolio
managers for the Registrant since 1991. This
information is as of February 19, 2008. Mr. Ober is
the lead member of the portfolio management team. Mr.
Ober, Mr. Truta and Mr. 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) Mr. Ober and Mr. Truta also comprise the portfolio
management team for Registrant's non-controlled
affiliate, The Adams Express Company (Adams), a
registered investment company with total net assets of
$1,378,479,527 as of December 31, 2007. Mr. Ober is
Chairman and Chief Executive Officer of Adams and Mr.
Truta is President. This information is as of February
19, 2008. The Petroleum fund 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. 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 over one and
three year periods as well as individual success at
meeting goals and objectives set by the Board of
Directors at the beginning of each year. Target
incentives are set based on 80% of salary for the Chief
Executive Officer and 60% of salary for the Executive
Vice President. Two-thirds of each individual's annual
cash incentive is based on fund performance and one
third on individual success. The portion based on
performance is determined using a scale in which the
target can be earned by absolute fund pre-tax
performance of 10%. The scale ranges from zero to 125%
of target. The result is then modified by an average
of the one and three year performance of the fund
relative to that of the Dow Jones Oil and Gas Index
(DJOGI) and the S&P 500 Index, with 80% based upon the
relative performance of the fund compared to the DJOGI
and 20% based on the relative performance compared to
the S&P 500. Each one percent outperformance or
underperformance by the fund adds or deducts 5% from
the percentage of target earned based on the scale.
The maximum percentage of target which may be earned is
200% and the minimum is zero. 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 January 2006, with vesting in
equal proportions over a three year period. The size
of the grants was determined by the Compensation
Committee with the assistance of an outside
compensation consultant. Grants of restricted stock
were also made on January 11, 2007, and January 12,
2006, each of which will vest at the end of three years
thereafter, but only upon the achievement of specified
performance criteria. For the 2007 grants, the target
number of restricted shares will vest on January 11,
2010, if, on January 1, 2010, the Corporation's total
three year net asset value ("NAV") return meets or
exceeds the three year total NAV return of a
hypothetical portfolio comprised of a 80/20 blend of
the Dow Jones Oil & Gas Index and the S&P 500 Index
("Hypothetical Portfolio"), with a lesser percentage or
no shares being earned if the Corporation's total NAV
return trails that of the Hypothetical Portfolio,
depending on the level of underperformance on that
date. In addition, if, on January 1, 2010, the
Corporation's three year total NAV return exceeds that
of the Hypothetical Portfolio, an additional number of
shares will be earned and vest, depending on the level
of outperformance. For the 2006 grants, the target
number of restricted shares will vest at the end of
three years, with certain percentages of shares being
deemed to have been earned based on achieving
performance goals over specified intervening time
periods. Only 52.1% of the first-one sixth of the
target number of shares was earned on January 1, 2007,
because the Corporation's one year total NAV return
trailed that of the Hypothetical Portfolio on that
date. The next one-third of the target number of
shares were earned on January 1, 2008, because the
Corporation's two year total NAV return exceeded that
of the Hypothetical Portfolio on that date. The
remaining 50% of the target number of shares will be
deemed to have been earned if, on January 1, 2009, the
Corporation's three year total NAV return meets or
exceeds that of the Hypothetical Portfolio, with a
lesser percentage or no shares being earned if the
Corporation's total NAV return trails that of the
Hypothetical Portfolio, depending on the level of
underperformance. In addition, as with the 2007
grants, additional shares will be earned and vest if
the Corporation's three year total NAV exceeds that of
the Hypothetical Portfolio, depending on the level of
outperformance on that date. Dividends and capital
gains paid on the Corporation's shares of Common Stock
("dividends") will be paid on all of the target number
of shares of restricted stock, when such dividends are
paid on the Common Stock, except that no dividends or
capital gains will be paid on any shares that are
forfeited due to the failure to achieve the performance
criteria described above. The basis for the cash
incentive and equity incentive compensation
determinations for Adams is the same as for Petroleum,
except that the portion of the cash incentive based
upon fund performance uses the S&P 500 Index as the
benchmark, over a one and three year period, and the
benchmark used to measure fund performance for equity
incentive compensation is a hypothetical portfolio
comprised of a 50/50 blend of the S&P 500 Index and the
Lipper Large Cap Core Mutual Fund Average. All of the
above information is as of December 31, 2007, except as
noted.
(4) Using a valuation date of December 31, 2007, Mr.
Ober beneficially owns equity securities in Registrant
of over $1,000,000. Mr. Truta beneficially owns equity
securities in Registrant of over $1,000,000.
Item 9. Purchases of Equity Securities by Closed-End
Management Investment Company and Affiliated Purchasers.
Maximum
Total Number (or
Number of Approximate
Shares (or Dollar Value)
Total Units) of Shares (or
Number Purchased Units) that
of Average as Part of May Yet Be
Shares Price Publicly Purchased
(or Paid per Announced Under the
Units) Share (or Plans or Plans or
Period(2) Purchased Unit) Programs Programs
-------- --------- --------- --------- ---------
Jan. 2007 51,425 $ 31.64 51,425 921,230
Feb. 2007 58,500 $ 33.03 58,500 862,730
Mar. 2007 145,052 $ 33.50 145,052 717,678
Apr. 2007 37,970 $ 35.52 37,970 679,708
May 2007 0 $ 0 0 679,708
June 2007 26,100 $ 39.06 26,100 653,608
Jul. 2007 39,797 $ 39.42 39,797 613,811
Aug. 2007 92,459 $ 37.24 92,459 521,352
Sep. 2007 17,712 $ 39.55 17,712 503,640
Oct. 2007 35,260 $ 41.11 35,260 468,380
Nov. 2007 0 $ 0 0 468,380
Dec. 2007 34,100 $ 37.44 34,100 1,050,520
-------- --------- --------- --------- ---------
Total 538,375(1) $ 35.71 538,375(2) 1,050,520(2)
(1) There were no shares purchased other than through a
publicly announced plan or program.
(2.a) The Plan was reapproved on December 13, 2007.
(2.b) The share amount approved in 2007 was 5% of
outstanding shares, or approximately 1,084,620 shares.
(2.c) Unless reapproved, the Plan will expire on or about
December 11, 2008.
(2.d) None.
(2.e) None.
Item 10. Submission of Matters to a Vote of Security Holders.
There were no material changes to the procedures by which
shareholders may recommend nominees to the Registrant's
board of directors made or implemented after the Registrant
last provided disclosure in response to the requirements of
Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or
this Item.
Item 11. Controls and Procedures.
Conclusions of principal officers concerning controls and
procedures.
(a) As of February 28, 2008, an evaluation was performed
under the supervision and with the participation of the
officers of Registrant, including the principal executive
officer (PEO) and principal financial officer (PFO), of the
effectiveness of Registrant's disclosure controls and
procedures. Based on that evaluation, the Registrant's
officers, including the PEO and PFO, concluded that, as of
February 28, 2008, the Registrant's disclosure controls and
procedures were reasonably designed so as to ensure that
material information relating to the Registrant is made
known to the PEO and PFO.
(b) There have been no significant changes in the
Registrant's internal control over financial reporting (as
defined in Rule 30a-3(d) under the Investment Company Act of
1940 (17 CFR 270.30a-3(d)) that occurred during the
Registrant's last fiscal half-year that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
Item 12. Exhibits attached hereto. (Attach certifications as
exhibits)
(1) Not applicable. See Registrant's response to Item 2,
above.
(2) Separate certifications by the Registrant's principal
executive officer and principal financial officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 and
required by Rule 30a-2 under the Investment Company Act of
1940, are attached.
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 28, 2008
Pursuant to the requirements of the Securities Exchange Act
of 1934 and the Investment Company Act of 1940, this report
has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates
indicated.
BY: /s/ Douglas G. Ober
-----------------------
Douglas G. Ober
Chief Executive Officer
(Principal Executive Officer)
Date: February 28, 2008
BY: /s/ Maureen A. Jones
-----------------------
Maureen A. Jones
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: February 28, 2008