THE ADAMS EXPRESS COMPANY

 

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Board of Directors

 

Enrique R. Arzac 1,3		Douglas G. Ober 1
Phyllis O. Bonanno 1,3		John J. Roberts 1,3
Daniel E. Emerson 2,3		Susan C. Schwab 2,4
Thomas H. Lenagh 1,4		Robert J.M. Wilson 1,2
Kathleen T. McGahran 2,4

1.

Member of Executive Committee

2.

Member of Audit Committee

3.

Member of Compensation Committee

4.

Member of Retirement Benefits Committee

 

Officers

 

Douglas G. Ober		Chairman and Chief Executive Officer
Joseph M. Truta		President
Lawrence L. Hooper, Jr.		Vice President, General Counsel and Secretary
Maureen A. Jones		Vice President, Chief Financial Officer and Treasurer
Stephen E. Kohler		Vice President—Research
David R. Schiminger		Vice President—Research
D. Cotton Swindell		Vice President—Research
Christine M. Sloan		Assistant Treasurer
Geraldine H. Paré		Assistant Secretary

 

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Stock Data

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Market Price (9/30/05)		$	13.12
Net Asset Value (9/30/05)		$	15.32
Discount:			14.4%

 

New

York Stock Exchange and Pacific Exchange ticker symbol: ADX

NASDAQ Mutual Fund Quotation Symbol: XADEX

Newspaper

stock listings are generally under the abbreviation: AdaEx

 

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Distributions in 2005

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From Investment Income		$	0.14
From Net Realized Gains			0.01
Total		$	0.15

 

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2005 Dividend Payment Dates

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March 1, 2005

June 1, 2005

September 1, 2005

December 27, 2005*

 

*Anticipated

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LETTER TO STOCKHOLDERS

 

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We submit herewith the financial statements of the Company for the nine months ended September 30, 2005. Also provided are a schedule of investments and other summary financial information.

 

Net assets of the Company at September 30, 2005 were $15.32 per share on 84,090,383 shares outstanding, compared with $15.04 per share at December 31, 2004 on 86,135,292 shares outstanding. On March 1, 2005, a distribution of $0.05 per share was paid, consisting of $0.03 from 2004 investment income, $0.01 from 2004 short-term capital gain, and $0.01 from 2005 investment income, all taxable in 2005. Investment income dividends of $0.05 per share were paid on June 1, 2005 and September 1, 2005.

 

Net investment income for the nine months ended September 30, 2005 amounted to $12,904,578, compared with $12,028,283 for the same period in 2004. These earnings are equal to $0.15 and $0.14 per share, respectively, on the average number of shares outstanding during each period.

 

Net capital gain realized on investments for the nine months ended September 30, 2005 amounted to $37,958,335, the equivalent of $0.45 per share.

 

Current and potential shareholders can find information about the Company, including the daily net asset value (NAV) per share, the market price, and the discount/ premium to the NAV, at its website (www.adamsexpress.com). Also available at the website are a history of the Company, historical financial information, and other useful information. Further information regarding shareholder services is located on page 15 of this report.

 

It is with great sadness that we inform you that our director and former Chairman, W. David MacCallan, passed away on August 19. Mr. MacCallan was first employed by the Company in 1955, was elected Chairman of the Board in 1971, and retired in 1991 while continuing to serve on the Board of Directors until his death. It was our great pleasure to work closely with Mr. MacCallan. His grasp of the nuances of the business of investing was rare in the industry and his loyalty to the Company and its shareholders was unswerving. We have lost a great leader and advisor. Our deepest sympathies go out to his immediate family as well as to his extended family.

 

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The Company is an internally-managed equity fund whose investment policy is based on the primary objectives of preservation of capital, the attainment of reasonable income from investments, and an opportunity for capital appreciation.

 

By order of the Board of Directors,

Douglas G. Ober,

Chairman and

Chief Executive Officer

Joseph M. Truta,

President

 

October 19, 2005

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STATEMENT OF ASSETS AND LIABILITIES

 

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September 30, 2005

(unaudited)

 

Assets
Investments* at value:
Common stocks and convertible securities (cost $880,115,520)		$	1,164,189,556
Non-controlled affiliate, Petroleum & Resources Corporation (cost $27,963,162)			69,410,560
Short-term investments (cost $47,188,324)			47,188,324
Securities lending collateral (cost $28,263,605)			28,263,605		$	1,309,052,045
Cash						282,043
Receivables:
Investment securities sold						3,206,836
Dividends and interest						1,127,094
Prepaid pension cost						5,501,066
Prepaid expenses and other assets						1,749,247
Total Assets						1,320,918,331
Liabilities
Investment securities purchased						25,950
Open written option contracts at value (proceeds $567,791)						894,250
Obligations to return securities lending collateral						28,263,605
Accrued expenses						3,491,684
Total Liabilities						32,675,489
Net Assets					$	1,288,242,842
Net Assets
Common Stock at par value $1.00 per share, authorized 150,000,000 shares; issued and outstanding 84,090,383 shares (includes 13,941 restricted shares and restricted stock units for 6,000 shares) (Note 6)					$	84,090,383
Additional capital surplus						834,680,351
Undistributed net investment income						5,836,594
Undistributed net realized gain on investments						38,440,539
Unrealized appreciation on investments						325,194,975
Net Assets Applicable to Common Stock					$	1,288,242,842
Net Asset Value Per Share of Common Stock						$15.32

 

*See Schedule of Investments on pages 9 through 10.

 

The accompanying notes are an integral part of the financial statements.

 

2

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STATEMENT OF OPERATIONS

 

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Nine Months Ended September 30, 2005

(unaudited)

 

Investment Income
Income:
Dividends:
From unaffiliated issuers		$	15,830,606
From non-controlled affiliate			655,379
Interest and other income			656,912
Total Income			17,142,897
Expenses:
Investment research			1,906,998
Administration and operations			918,736
Directors’ fees			222,223
Reports and stockholder communications			242,079
Transfer agent, registrar and custodian expenses			285,768
Auditing and accounting services			91,252
Legal services			137,857
Occupancy and other office expenses			265,305
Travel, telephone and postage			70,282
Other			97,819
Total Expenses			4,238,319
Net Investment Income			12,904,578
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions			37,839,175
Net realized gain distributed by regulated investment company (non-controlled affiliate)			119,160
Change in unrealized appreciation on investments			(18,475,437	)
Net Gain on Investments			19,482,898
Change in Net Assets Resulting from Operations		$	32,387,476

 

The accompanying notes are an integral part of the financial statements.

 

3

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STATEMENTS OF CHANGES IN NET ASSETS

 

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		Nine Months Ended September 30, 2005				Year Ended December 31, 2004
		(unaudited)
From Operations:
Net investment income		$	12,904,578			$	19,008,405
Net realized gain on investments			37,958,335				54,713,903
Change in unrealized appreciation on investments			(18,475,437	)			61,557,921
Change in net assets resulting from operations			32,387,476				135,280,229
Distributions to Stockholders from:
Net investment income			(11,918,223	)			(20,157,724	)
Net realized gain from investment transactions			(856,720	)			(55,099,990	)
Decrease in net assets from distributions			(12,774,943	)			(75,257,714	)
From Capital Share Transactions:
Value of shares issued in payment of distributions			—				35,690,590
Cost of shares purchased (Note 4)			(26,990,164	)			(19,026,661	)
Deferred compensation (Notes 4, 6)			71,573				—
Change in net assets from capital share transactions			(26,918,591	)			16,663,929
Total Change in Net Assets			(7,306,058	)			76,686,444
Net Assets:
Beginning of period			1,295,548,900				1,218,862,456
End of period (including undistributed net investment income of $5,836,594 and $5,038,545, respectively)		$	1,288,242,842			$	1,295,548,900

 

The accompanying notes are an integral part of the financial statements.

 

4

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

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1. Significant Accounting Policies

 

The Adams Express Company (the Company) is registered under the Investment Company Act of 1940 as a diversified investment company. The Company’s investment objectives as well as the nature and risk of its investment transactions are set forth in the Company’s registration statement.

 

Security Valuation — Investments in securities traded on a national security exchange 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.

 

Affiliated Companies — Investments in companies 5% or more of whose outstanding voting securities are held by the Company are defined as “Affiliated Companies” in Section 2(a)(3) of the Investment Company Act of 1940.

 

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 Company’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 September 30, 2005 was $954,779,755 and net unrealized appreciation aggregated $326,008,685, of which the related gross unrealized appreciation and depreciation were $439,609,769 and $113,601,084, respectively.

 

Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Accordingly, annual reclassifications are made within the Company’s capital accounts to reflect income and gains available for distribution under income tax regulations.

 

3. Investment Transactions

 

The Company’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 nine months ended September 30, 2005 were $116,372,809 and $158,130,759, respectively. Options may be written (sold) or purchased by the Company. The Company, as writer of an option, bears the risks of possible illiquidity of the option markets and from movements in security values. The risk associated with purchasing an option is limited to the premium originally paid. A schedule of outstanding option contracts as of September 30, 2005 can be found on page 12.

 

Transactions in written covered call and collateralized put options during the nine months ended September 30, 2005 were as follows:

 

		Covered Calls							Collateralized Puts
		Contracts			Premiums				Contracts			Premiums
Options outstanding, December 31, 2004		3,600			$	386,349			2,655			$	268,082
Options written		7,925				891,649			6,790				811,478
Options terminated in closing purchase transactions		(1,336	)			(144,804	)		(850	)			(125,699	)
Options expired		(5,414	)			(568,875	)		(4,995	)			(518,553	)
Options exercised		(2,930	)			(339,338	)		(750	)			(92,498	)
Options outstanding, September 30, 2005		1,845			$	224,981			2,850			$	342,810

 

4. Capital Stock

 

The Company has 10,000,000 authorized and unissued preferred shares without par value.

 

On December 27, 2004, the Company issued 2,745,430 shares of its Common Stock at a price of $13.00 per share (the average market price on December 13, 2004) to stockholders of record on November 23, 2004 who elected to take stock in payment of the year-end distribution from 2004 capital gain and investment income.

 

The Company 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 2005 and 2004 were as follows:

 

		Shares						Amount
		Nine months ended September 30, 2005			Year ended December 31, 2004			Nine months ended September 30, 2005				Year ended December 31, 2004
Shares issued in payment of dividends		—			2,745,430			$	—			$	35,690,590
Shares purchased (at a weighted average discount from net asset value of 12.4% and 13.0%, respectively)		(2,065,600	)		(1,496,550	)			(26,990,164	)			(19,026,661	)
Restricted shares/units granted under the Equity Incentive Compensation Plan		20,691			—				71,573				—
Net change		(2,044,909	)		1,248,880			$	(26,918,591	)		$	16,663,929

 

5. Retirement Plans

 

The Company’s qualified defined benefit pension plan covers all employees with at least one year of service. In addition, the Company has a nonqualified defined benefit plan which provides eligible employees with retirement benefits to supplement the qualified plan. Benefits are based on length of service

 

5

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

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and compensation during the last five years of employment. The Company’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 Company deems appropriate in order to provide assets sufficient to meet benefits to be paid to plan participants. During the nine months ended September 30, 2005, the Company contributed $12,563 to the plans. The Company does not anticipate additional contributions to the plans in 2005.

 

The following table aggregates the components of the plans’ net periodic pension cost for the nine months ended September 30, 2005:

 

Service cost		$	269,999
Interest cost			378,248
Expected return on plan assets			(592,004	)
Amortization of prior service cost			94,915
Amortization of net loss			141,347
Net periodic pension cost		$	292,505

 

The Company also sponsors a defined contribution plan that covers substantially all employees. For the nine months ended September 30, 2005, the Company expensed contributions of $136,537. The Company does not provide postretirement medical benefits.

 

6. Stock-Based Compensation

 

The Stock Option Plan adopted in 1985 (“1985 Plan”) permits the issuance of stock options and stock appreciation rights for the purchase of up to 2,610,146 shares of the Company’s Common Stock at the fair market value on the date of grant. The exercise price of the options and related stock appreciation rights is reduced by the per share amount of capital gains paid by the Company during subsequent years. Options are exercisable beginning not less than one year after the date of grant and stock appreciation rights are exercisable beginning not less than two years after the date of grant. The stock appreciation rights allow the holders to surrender their rights to exercise their options and receive cash in an amount equal to the difference between the option exercise price and the fair market value of the Common Stock at the date of surrender. All options terminate 10 years from the date of grant if not exercised. With the adoption of the 2005 Equity Incentive Compensation Plan (“2005 Plan”) at the 2005 Annual Meeting, no further grants will be made under the 1985 Plan, although unexercised awards granted in 2004 and prior years remain outstanding.

 

A summary of option activity under the 1985 Plan as of September 30, 2005, and changes during the period then ended is presented below:

 

		Options		Weighted- Average Exercise Price			Weighted- Average Remaining Life (Years)
Outstanding at January 1, 2005		283,297		$	11.76
Exercised		—			—
Forfeited		—			—
Outstanding at September 30, 2005		283,297		$	11.75		5.72
Exercisable at September 30, 2005		180,888		$	11.44		5.61

 

The options outstanding as of September 30, 2005 are set forth below:

 

Exercise Price		Options Outstanding		Weighted Average Exercise Price			Weighted Average Remaining Life (Years)
$3.00-$6.74		23,418		$	4.18		0.90
$6.75-$10.49		72,764			9.67		6.19
$10.50-$14.24		135,967			10.85		6.63
$14.25-$18.00		51,148			17.59		4.84
Outstanding at September 30, 2005		283,297		$	11.75		5.72

 

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 nine months ended September 30, 2005 was $(51,237).

 

The 2005 Plan 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 3,413,131 shares of the Company’s Common Stock. Restricted stock was granted to key employees on April 27, 2005 at fair market value on that date, vesting over a three year period. Restricted stock units were granted to non-employee directors on April 27, 2005 at fair market value on that date and vest over a one year period. The total fair value of units that vested in 2005 was $9,889. The number of shares of Common Stock which remain available for future grants under the Plan at September 30, 2005 is 3,392,440 shares. The Company pays dividends and dividend equivalents on outstanding awards, which are charged to net assets when paid. Dividends and dividend equivalents paid on restricted awards that are later forfeited are reclassified to compensation expense.

 

A summary of the status of the Company’s awards granted as of September 30, 2005, and changes during the period then ended is presented below:

 

Awards		Shares/Units			Grant-Date Fair Value
Balance at January 1, 2005		—				—
Granted:
Restricted stock		13,941			$	12.56
Restricted stock units		6,750				12.56
Vested		(750	)			13.19
Forfeited		—				—
Balance at September 30, 2005		19,941			$	12.56

 

Compensation costs resulting from restricted stock and restricted stock units granted under the 2005 Plan are recognized over the requisite service period based on the fair value of the awards on grant date. Any unearned compensation is included in “Undistributed net investment income” and is subsequently expensed as services are rendered. The fair value of restricted stock is based on the average of the high and low market price on the date an award is granted. The total compensation costs for restricted stock granted to employees for the nine months ended September 30, 2005 were $29,183. The total compensation costs for restricted stock units granted to non-employee

 

6

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

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directors under the 2005 Plan for the nine months ended September 30, 2005 were $42,390. As of September 30, 2005, there was $188,306 of total unrecognized compensation costs related to nonvested share-based compensation arrangements granted under the 2005 Plan. Those costs are expected to be recognized over a weighted average period of 2.13 years.

 

7. Expenses

 

The aggregate remuneration paid or accrued during the nine months ended September 30, 2005 to officers and directors amounted to $1,934,983, of which $222,223 was paid or accrued as fees to directors who were not officers.

 

8. Portfolio Securities Loaned

 

The Company makes loans of securities to brokers, secured by cash deposits, U.S. Government securities, or bank letters of credit. The Company 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 Company 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. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan will be for the account of the Company. At September 30, 2005, the Company had securities on loan of $27,480,230 and held collateral of $28,263,605, 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.

 

 

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7

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FINANCIAL HIGHLIGHTS

 

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		Nine Months Ended
		(unaudited)
		September 30, 2005				September 30, 2004			Year Ended December 31
									2004			2003		2002		2001		2000
Per Share Operating Performance
Net asset value, beginning of period			$15.04			$14.36			$14.36			$12.12		$16.05		$23.72		$26.85
Net investment income			0.15			0.14			0.23	*		0.19		0.20		0.26		0.26
Net realized gains and increase(decrease) in unrealized appreciation			0.24			0.39			1.39			2.85		(3.38)		(6.21)		(1.51)
Total from investment operations			0.39			0.53			1.62			3.04		(3.18)		(5.95)		(1.25)
Less distributions
Dividends from net investment income			(0.14)			(0.13)			(0.24)			(0.17)		(0.19)		(0.26)		(0.22)
Distributions from net realized gains			(0.01)			(0.02)			(0.66)			(0.61)		(0.57)		(1.39)		(1.63)
Total distributions			(0.15)			(0.15)			(0.90)			(0.78)		(0.76)		(1.65)		(1.85)
Capital share repurchases			0.04			0.03			0.02			0.04		0.05		0.04		0.10
Reinvestment of distributions			—			—			(0.06)			(0.06)		(0.04)		(0.11)		(0.13)
Total capital share transactions			0.04			0.03			(0.04)			(0.02)		0.01		(0.07)		(0.03)
Net asset value, end of period			$15.32			$14.77			$15.04			$14.36		$12.12		$16.05		$23.72
Per share market price, end of period			$13.12			$12.68			$13.12			$12.41		$10.57		$14.22		$21.00
Total Investment Return
Based on market price			1.1%			3.4%			13.2%			25.2%		(20.6)%		(24.7)%		1.7%
Based on net asset value			3.0%			4.1%			12.1%			26.3%		(19.4)%		(24.7)%		(4.3)%
Ratios/Supplemental Data
Net assets, end of period (in 000’s)			$1,288,243			$1,236,604			$1,295,549			$1,218,862		$1,024,810		$1,368,366		$1,951,563
Ratio of expenses to average net assets			0.44%	†		0.42%	†		0.43%			0.47%		0.34%		0.19%		0.24%
Ratio of net investment income to average net assets			1.35%	†		1.30%	†		1.54%			1.45%		1.42%		1.33%		0.97%
Portfolio turnover			12.52%	†		13.32%	†		13.43%			12.74%		17.93%		19.15%		12.74%
Number of shares outstanding at end of period (in 000’s)			84,090			83,732			86,135			84,886		84,536		85,233		82,292

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*

In 2004 the Company received $2,400,000, or $0.03 per share, in an extraordinary dividend from Microsoft Corp.

†

Ratios presented on an annualized basis.

 

8

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SCHEDULE OF INVESTMENTS

 

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September 30, 2005

(unaudited)

 

 

		Shares		Value (A)
Stocks and Convertible Securities — 95.7% Consumer — 16.1%
Consumer Discretionary — 6.7%
BJ’s Wholesale Club, Inc. (B)		500,000		$	13,900,000
Clear Channel Communications Inc.		350,000			11,511,500
Comcast Corp. (B)		350,000			10,283,000
Gannett Co., Inc.		97,500			6,710,925
Newell Rubbermaid Inc.		515,000			11,664,750
Outback Steakhouse, Inc.		300,000			10,980,000
Target Corp.		410,000			21,291,300
					86,341,475
Consumer Staples — 9.4%
Bunge Ltd.		205,000			10,787,100
Coca-Cola Co.		200,000			8,638,000
Dean Foods Co. (B)		500,000			19,430,000
Del Monte Foods Co. (B)		1,115,000			11,963,950
PepsiCo, Inc.		440,000			24,952,400
Procter & Gamble Co.		340,000			20,216,400
Safeway, Inc.		423,000			10,828,800
Unilever plc ADR		345,000			14,565,900
					121,382,550
Energy — 11.6%
BP plc ADR		270,000			19,129,500
ConocoPhillips		380,000			26,565,800
Exxon Mobil Corp.		130,000			8,260,200
Murphy Oil Corp.		209,600			10,452,752
Petroleum & Resources Corporation (C)		1,985,996			69,410,560
Schlumberger Ltd.		190,000			16,032,200
					149,851,012
Financials — 14.7%
Banking — 10.6%
Bank of America Corp.		550,000			23,155,000
BankAtlantic Bancorp Inc.		300,000			5,097,000
Compass Bancshares Inc.		300,000			13,749,000
Fifth Third Bancorp		270,000			9,917,100
Investors Financial Services Corp. (D)		380,000			12,502,000
North Fork Bancorporation, Inc.		450,000			11,475,000
Provident Bankshares Corp.		110,000			3,825,800
Wachovia Corp.		370,000			17,608,300
Wells Fargo & Co.		400,000			23,428,000
Wilmington Trust Corp.		420,000			15,309,000
					136,066,200
Insurance — 4.1%
AMBAC Financial Group, Inc.		295,000			21,257,700
American International Group, Inc.		500,000			30,980,000
					52,237,700

		Shares		Value (A)
Health Care — 12.5%
Abbott Laboratories		350,000		$	14,840,000
Bristol-Myers Squibb Co.		345,000			8,300,700
Genentech, Inc. (B)		240,000			20,210,400
HCA Inc.		310,000			14,855,200
Johnson & Johnson		255,000			16,136,400
Laboratory Corp. of America Holdings (B)		235,000			11,446,850
MedImmune, Inc. (B)		225,000			7,571,250
Medtronic Inc.		310,000			16,622,200
Pfizer Inc.		1,120,000			27,966,400
Wyeth Co.		325,000			15,037,750
Zimmer Holdings Inc. (B)		125,000			8,611,250
					161,598,400
Industrials — 11.4%
Cintas Corp.		300,000			12,315,000
Curtiss-Wright Corp.		195,500			12,064,305
Donnelley (R.R.) & Sons Co.		260,000			9,638,200
Emerson Electric Co.		200,000			14,360,000
General Electric Co.		1,487,700			50,090,859
Illinois Tool Works Inc.		125,000			10,291,250
3M Co.		160,000			11,737,600
United Parcel Service, Inc.		155,000			10,715,150
United Technologies Corp.		300,000			15,552,000
					146,764,364
Information Technology — 13.8%
Communication Equipment — 2.1%
Avaya Inc. (B)		600,000			6,180,000
Corning Inc. (B)		615,000			11,887,950
Lucent Technologies Inc. (B)		2,900,000			9,425,000
					27,492,950
Computer Related — 9.6%
Automatic Data Processing Inc.		300,000			12,912,000
BEA Systems Inc. (B)		800,000			7,184,000
Cisco Systems, Inc. (B)		1,200,000			21,516,000
Dell Inc. (B)		400,000			13,680,000
DiamondCluster International Inc. (B)		497,500			3,771,050
Microsoft Corp.		1,140,000			29,332,200
Oracle Corp. (B)		880,000			10,903,200
Sapient Corp. (B)		1,150,000			7,187,500
Siebel Systems Inc.		800,000			8,264,000
Symantec Corp. (B)		400,000			9,064,000
					123,813,950
Electronics — 2.1%
Cree, Inc. (B)(D)		500,000			12,510,000
Intel Corp.		310,000			7,641,500
Solectron Corp. (B)		1,850,000			7,233,500
					27,385,000

9

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SCHEDULE OF INVESTMENTS (CONTINUED)

 

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September 30, 2005

(unaudited)

 

		Shares		Value (A)
Materials — 4.7%
Air Products and Chemicals, Inc.		250,000		$	13,785,000
du Pont (E.I.) de Nemours and Co.		360,000			14,101,200
Martin Marietta Materials, Inc.		120,000			9,415,200
Rohm & Haas Co.		400,000			16,452,000
Smurfit-Stone Container Corp. (B)		650,000			6,734,000
					60,487,400
Telecom Services — 4.0%
Alltel Corp.		300,000			19,533,000
BellSouth Corp.		200,000			5,260,000
SBC Communications Inc.		595,000			14,262,150
Vodafone Group plc ADS		492,613			12,793,160
					51,848,310
Utilities — 6.9%
Aqua America, Inc.		900,000			34,218,000
Black Hills Corp.		245,000			10,625,650
Duke Energy Corp. (D)		611,560			17,839,205
Keyspan Corp.		140,000			5,149,200
MDU Resources Group, Inc.		575,000			20,498,750
					88,330,805
Total Stocks and Convertible Securities (Cost $908,078,682) (E)				$	1,233,600,116

		Prin. Amt.			Value (A)
Short-Term Investments — 3.7%
U.S. Government Obligations — 1.4%
U.S. Treasury Bills, 3.39%, due 11/17/05		$	17,500,000		$	17,422,548
Time Deposit — 0.0%
Brown Brothers Harriman & Co., 3.31%, due 10/3/05						18,616
Commercial Paper — 2.3%
American General Finance Corp., 3.69-3.77%, due 10/4/05-10/25/05			6,000,000			5,993,743
ChevronTexaco Funding Corp., 3.60-3.67%, due 10/13/05-10/18/05			8,800,000			8,787,841
General Electric Capital Corp., 3.63-3.78%, due 10/11/05-11/3/05			6,840,000			6,824,345
Toyota Motor Credit Corp., 3.52-3.69%, due 10/4/05-10/20/05			8,150,000			8,141,231
						29,747,160
Total Short-Term Investments (Cost $47,188,324)						47,188,324
Securities Lending Collateral — 2.2%
Brown Brothers Investment Trust, 3.75%, due 10/3/05						28,263,605
Total Securities Lending Collateral (Cost $28,263,605)						28,263,605
Total Investments — 101.6% (Cost $983,530,611)						1,309,052,045
Cash, receivables, prepaid expenses and other assets, less liabilities — (1.6)%						(20,809,203	)
Net Assets — 100%					$	1,288,242,842

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Notes:

(A)

See note 1 to financial statements. Securities are listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ.

(B)

Presently non-dividend paying.

(C)

Non-controlled affiliate, a closed-end sector fund, registered as an investment company under the Investment Company Act of 1940.

(D)

Some or all of these securities are on loan. See note 8 to financial statements.

(E)

The aggregate market value of stocks held in escrow at September 30, 2005 covering open call option contracts written was $12,876,420. In addition, the aggregate market value of securities segregated by the Company’s custodian required to collateralize open put option contracts written was $14,475,000.

 

10

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PORTFOLIO SUMMARY

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September 30, 2005

(unaudited)

 

Ten Largest Portfolio Holdings

 

		Market Value			% of Net Assets
Petroleum & Resources Corporation*		$	69,410,560		5.4
General Electric Co.			50,090,859		3.9
Aqua America, Inc.			34,218,000		2.6
American International Group, Inc.			30,980,000		2.4
Microsoft Corp.			29,332,200		2.3
Pfizer Inc.			27,966,400		2.2
ConocoPhillips			26,565,800		2.1
PepsiCo, Inc.			24,952,400		1.9
Wells Fargo & Co.			23,428,000		1.8
Bank of America Corp.			23,155,000		1.8
Total		$	340,099,219		26.4	%

*Non-controlled affiliate

 

Sector Weightings

 

11

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SCHEDULE OF OUTSTANDING OPTION CONTRACTS

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September 30, 2005

(unaudited)

 

 

12

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CHANGES IN PORTFOLIO SECURITIES

 

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During the Three Months Ended September 30, 2005

(unaudited)

 

		Shares
		Additions		Reductions		Held September 30, 2005
Comcast Corp.		25,000				350,000
Curtiss-Wright Corp.		195,500				195,500
Gannett Co., Inc.		10,000				97,500
Microsoft Corp.		340,000				1,140,000
Outback Steakhouse, Inc.		75,000				300,000
Alltel Corp.				50,000		300,000
American International Group, Inc.				50,000		500,000
Brinker International Inc.				190,000		—
Canadian National Railway Co.				67,000		—
CINergy Corp.				300,000		—
Corning Inc.				385,000		615,000
Donnelley (R.R.) & Sons Co.				40,000		260,000
duPont (E.I.) de Nemours & Co.				40,000		360,000
Genentech, Inc.				10,000		240,000
HCA Inc.				15,000		310,000
Martin Marietta Materials, Inc.				21,600		120,000
Murphy Oil Corp.				20,000		209,600
Provident Bankshares Corp.				90,000		110,000
Sun Microsystems Inc.				95,000		—
Target Corp.				50,000		410,000
Treehouse Foods Inc.				100,000		—

 

HISTORICAL FINANCIAL STATISTICS

 

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December 31		Value of Net Assets			Shares Outstanding*		Net Asset Value per Share*			Dividends from Net Investment Income per Share*			Distributions from Net Realized Gains per Share*
1995		$	986,230,914		69,248,276		$	14.24		$	.35		$	.76
1996			1,138,760,396		72,054,792			15.80			.35			.80
1997			1,424,170,425		74,923,859			19.01			.29			1.01
1998			1,688,080,336		77,814,977			21.69			.30			1.10
1999			2,170,801,875		80,842,241			26.85			.26			1.37
2000			1,951,562,978		82,292,262			23.72			.22			1.63
2001			1,368,366,316		85,233,262			16.05			.26			1.39
2002			1,024,810,092		84,536,250			12.12			.19			.57
2003			1,218,862,456		84,886,412			14.36			.17			.61
2004			1,295,548,900		86,135,292			15.04			.24			.66
September 30, 2005 (unaudited)			1,288,242,842		84,090,383			15.32			.14			.01

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*

Prior years have been adjusted to reflect the 3-for-2 stock split effected in October 2000.

 

13

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OTHER INFORMATION

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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 Company 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 Company’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Company’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 Company also posts its Forms N-Q on its website at www.adamsexpress.com under the heading “Financial Reports”.

 

Proxy Voting Policies and Record

 

A description of the policies and procedures that the Company uses to determine how to vote proxies relating to portfolio securities owned by the Company and information as to how the Company voted proxies relating to portfolio securities during the 12 month period ended June 30, 2005 are available (i) without charge, upon request, by calling the Company’s toll free number at (800) 638-2479; (ii) on the Company’s website by clicking on “Corporate Information” heading on the website; and (iii) on the Securities and Exchange Commission’s website at http//www.sec.gov.

 

Privacy Policy

 

In order to conduct its business, The Adams Express 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.

 

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Common Stock

Listed on the New York Stock Exchange

and the Pacific Exchange

 

The Adams Express Company

Seven St. Paul Street, Suite 1140, Baltimore, MD 21202

(410) 752-5900 or (800) 638-2479

Website: www.adamsexpress.com

E-mail: contact@adamsexpress.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.

 

14

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SHAREHOLDER INFORMATION AND SERVICES

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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 election 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 Adams Express shares.

 

The costs to participants in administrative service fees and brokerage commissions for each type of transaction are listed below.

 

Initial Enrollment and Optional Cash Investments
Service Fee		$2.50 per investment
Brokerage Commission		$0.05 per share
Reinvestment of Dividends*
Service Fee		2% of amount invested
(maximum of $2.50 per investment)
Brokerage Commission		$0.05 per share
Sale of Shares
Service Fee		$10.00
Brokerage Commission		$0.05 per share
Deposit of Certificates for safekeeping $7.50
Book to Book Transfers		Included

To transfer shares to another participant or to a new participant

 

Fees are subject to change at any time.

Minimum and Maximum Cash Investments

Initial minimum investment (non-holders)		$500.00
Minimum optional investment (existing holders)		$50.00
Electronic Funds Transfer (monthly minimum)		$50.00
Maximum per transaction		$25,000.00
Maximum per year		NONE

 

A brochure which further details the benefits and features of INVESTORS CHOICE as well as an enrollment form may be obtained by contacting AST.

 

For Non-Registered Shareholders

 

For shareholders whose stock is held by a broker in “street” name, the AST INVESTORS CHOICE Direct Stock Purchase and Sale Plan remains available through many registered investment security dealers. If your shares are currently held in a “street” name or brokerage account, please contact your broker for details about how you can participate in AST’s Plan or contact AST.

 

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The Company

The Adams Express Company

Lawrence L. Hooper, Jr.

Vice President, General Counsel and Secretary

Seven St. Paul Street, Suite 1140, Baltimore, MD 21202

(800) 638-2479

Website: www.adamsexpress.com

E-mail: contact@adamsexpress.com

 

The Transfer Agent

American Stock Transfer & Trust Company

Address Shareholder Inquiries to:

Shareholder Relations Department

59 Maiden Lane

New York, NY 10038

(877) 260-8188

Website: www.amstock.com

E-mail: info@amstock.com

 

Investors Choice Mailing Address:

Attention: Dividend Reinvestment

P.O. Box 922

Wall Street Station

New York, NY 10269

Website: www.InvestPower.com

E-mail: info@InvestPower.com

 

*The year-end dividend and capital gain distribution will usually be made in newly issued shares of common stock. There are no fees or commissions in connection with this dividend and capital gain distribution when made in newly issued shares.

 

15