Petroleum & Resources posted an attractive performance over the past year, significantly exceeding the returns of our benchmark indices. We are pleased to submit the financial statements for the year ended December 31, 1999. In addition, there is a schedule of investments provided along with other financial information and the report of independent accountants.

THE YEAR IN REVIEW
The return on net assets, including income and capital gains distributions for the calendar year was an excellent 23.8%, exceeding the 21.0% rate of return for the Standard & Poor's 500 Stock Index and the 15.4% return of the Dow Jones Energy Index. Total dividends and distributions paid in 1999 were $2.33 per share compared to $2.29 in 1998.

With robust growth in worldwide energy demand and surging prices for both crude oil and natural gas, the operating environment for energy companies was excellent throughout most of the year. After an initial two-month, 7% decline, energy stocks staged a dramatic recovery during the remainder of the first half as the Dow Jones Energy Index advanced 17.7%. Despite this attractive performance, a tightened oil market and oil prices in a $23-25 range, energy stocks declined a disappointing 2% during the last six months of 1999. The comparable returns for the S&P 500 during these two periods were 11.6% and 7.0% respectively. Investors seemingly disregarded attractive valuations in energy and resource stocks while focusing on technology and internet securities.

All of our energy sectors recorded attractive stock market performance for the full year. Oil service and drilling stocks were the big gainers with advances exceeding 30%. Major international oils, mid-sized exploration companies and natural gas pipeline stocks advanced approximately 10-12%. Gas utilities were the laggards with a 4% gain. Our diverse holdings in basic industries and paper and forest products stocks collectively outperformed the S&P 500. Cash and short term investments at year-end stood at 2.1% of net assets compared to 5.6% the prior year.

Oil prices ended 1999 at approximately $25 per barrel, more than doubling from the year earlier $12 level. The initial low price reflected the combination of substantial excess oil production from OPEC countries and reduced consumption caused by mild domestic winter weather patterns and sluggish foreign economic activity. An agreement by OPEC and several key non-OPEC countries in mid-March to reduce oil production caused oil prices to quickly advance over 60% to $19 per barrel at mid-year. During the second half, the combination of surprisingly solid OPEC discipline (averaging approximately 87% compliance) and strong worldwide growth in energy demand generated a significant reduction in global inventories. With oil inventories declining to ten year lows, oil prices moved steadily higher, recording a 30% gain over the final six months to the highest level since the 1990 Gulf War. Led by the economic recovery in several Southeast Asian countries, worldwide petroleum consumption for the full year advanced in excess of one million barrels per day or 1.5%. On the supply side, production from non-OPEC nations experienced its first decrease in six years with U.S. oil output declining 4.5%.

Despite the warmest winter weather conditions in 100 years and an excess storage build up during the first quarter, domestic natural gas prices were still able to establish a ten percent increase for the year. The weakness in heating demand was offset by a stronger economy and increased consumption by gas-fired electric generators. With supply restricted due to reduced drilling activity, the gas market tightened and prices recovered throughout the summer. While fourth quarter heating consumption was disrupted by 10% warmer than normal temperatures, the natural gas market remained in balance and yearend gas prices held at attractive levels.

INVESTMENT RESULTS
Net assets of the Corporation on December 31, 1999 were $565,075,001 or $39.48 per common share on 14,314,180 common shares outstanding as compared with $474,821,118 or $34.30 per common share on 13,841,375 common shares outstanding a year earlier.

Net investment income for 1999 was $9,806,876 compared to $11,060,345 for 1998. These earnings are equivalent to $0.72 and $0.82 per common share, respectively, on the average number of common shares outstanding throughout each year. It has been increasingly difficult to generate income in the portfolio as both the percentage of stocks paying dividends and the percentage of dividend increases have declined markedly in the past several years. The dividend yield on the Standard & Poor's 500 has fallen from 3.76% in 1990 to 1.16% in 1999. We continue to seek out ways to generate additional income without impacting performance through the use of convertible securities and other actions. In 1999, our 0.43% expense ratio (expenses to net assets) was once again at a very low level compared to the industry.

Net realized gains amounted to $22,803,830 during the year, while the unrealized appreciation on investments increased from $155,040,245 at December 31, 1998 to $230,465,953 at year end.

DIVIDENDS AND DISTRIBUTIONS
As announced on November 11, 1999, a year-end distribution consisting of investment income of $0.22 and capital gains of $1.51 was made on December 27, 1999, both realized and taxable in 1999. On January 13, 2000, an additional distribution of $0.20 per share was declared payable March 1, 2000, representing the balance of undistributed net investment income and capital gains earned in 1999 and an initial distribution from 2000 net investment income, all taxable to shareholders in 2000.

OUTLOOK FOR 2000
Continued favorable worldwide energy demand growth, lean global inventories and steadfast OPECproduction compliance suggest that the oil market will remain in solid balance. With further expansion of the U.S. and Southeast Asian economies anticipated for this year, the growth of oil consumption should again exceed 1 million barrels per day or 1.5%. On the supply side, since non-OPEC production will increase modestly as drilling activity slowly expands in response to higher prices, inventory reductions will continue until OPEC increases production. Also, Iraqi exports are nearing capacity and will only expand gradually during the year. The major oil-producing nations are scheduled to establish new output ceilings in late March. Oil prices for the second half will be dependent on OPEC's ability to maintain their newfound discipline to these new production targets. While the current lofty $25 per barrel price exceeds all industry and OPEC expectations, the tight supply/demand balance for the remainder of the year suggests that crude oil prices will stabilize above $20 per barrel.

While energy stocks outperformed the S&P 500 over the past year, valuations for the group remain attractive, as investors appear reticent to incorporate current oil pricing into a longer term forecast. Once the crude oil price stabilizes, investor attention is expected to refocus on the favorable ongoing industry fundamentals. The Exxon/Mobil and BP/Amoco combinations were the largest of the numerous energy mergers completed last year. Although the scale will be smaller, several consolidations within the various energy sectors are anticipated.

Domestic natural gas prices are expected to average 5-10% higher this year. This positive forecast reflects the benefits of a surging domestic economy on gas demand and supply constraints. The risk to this outlook is that improving commodity pricing and attractive drilling costs could stimulate excessive investment and exploration activity. The themes for the year 2000 in the natural gas industry are consolidation, capital discipline and share repurchase.

SHARE REPURCHASE PROGRAM
On November 11, 1999, the Board of Directors authorized the management to repurchase up to 5% of the outstanding shares of the Corporation (approximately 700,000 shares) over the ensuing twelve months, as long as the discount of the market price of the shares from the net asset value is greater than 8%. It was felt that, by so doing, the growth in the number of shares outstanding would slow, the net asset value per share would increase, and the dilution caused by the issuance of shares in lieu of cash for the year-end capital gain distribution would diminish. In addition, the liquidity of the Corporation's shares in the marketplace should increase and the discount to net asset value could decrease. This program is expected to benefit all the shareholders of the Corporation.

As of January 13, 2000, a total of 125,400 shares have been repurchased at a total cost of $4,021,973 and a weighted average discount to net asset value of 17.7%. The Corporation was restricted from buying shares until late in December, 1999.

YEAR 2000 READINESS DISCLOSURE
The countdown is over for Year 2000, and we have entered into the new century unscathed. We are pleased to report there were no system failures, either in- house or reported by any of our critical vendors or portfolio companies. The Corporation incurred no significant costs relating to the Year 2000 issue.

The Corporation included in its Third Quarter Report to Shareholders a postcard inviting shareholders to send us the names of investors who might be interested in learning more about the Corporation. We have received a good response to this initiative, with over 140 cards returned and information packages mailed out to prospective holders. It is our intention to repeat the insertion in our First Quarter Report and periodic future mailings. Please feel free to provide us with names and addresses at any time, either by mail, telephone, or through our soon to be updated website at www. peteres.com.

Mr. Allan Comrie resigned from the Board of Directors as of December 31, 1999. Mr. Comrie, a director since 1984, shared his extensive investment knowledge with the Board as former President and Chief Executive Officer of the U.S. & Foreign Securities Corp. We have been enriched by his participation on the Board and wish him all the best in the future.

The proxy statement for the Annual Meeting of Stockholders to be held in Palm Beach, Florida on March 28, 2000, will be mailed on or about February 17, 2000 to holders of record on February 14, 2000.

By order of the Board of Directors,

Douglas G. Ober,
Chairman and Chief

Richard F. Koloski,
President

January 21, 2000