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ADAMS
NATURAL RESOURCES
FUND
 
​
THIRD QUARTER REPORT
SEPTEMBER 30, 2018
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Letter to Shareholders
​
Dear Fellow Shareholders,
Over the past three months, if anything stands out to us it is the stock market’s ongoing strength and resiliency. The market shrugged off concerns of escalating tariffs and fears of rising inflation to extend the nine-year stock market rally that, in August, became the longest bull market on record. The S&P 500 posted its best quarter since 2013, increasing 7.7% and is up 10.6% for the year.
Accelerating wage growth and unemployment reaching its lowest levels since 2000 helped push consumer confidence to 18-year highs. Companies in the S&P 500 reported 25% earnings growth in the second quarter, matching the first quarter’s strong performance. While lower tax rates contributed to these results, revenue growth also accelerated in 2018 for many companies. Given the broad economic strength, the Fed raised interest rates a quarter point in September for the third time this year and remains on track to increase rates again in December.
After increasing 13.5% in the second quarter driven by the recovery in oil prices, the Energy sector of the S&P 500 moderated in the third quarter, yet remained positive, increasing 0.6%. Our Fund increased 0.7% on net asset value for the same period and 4.0% for the first nine months of the year.
Oil prices experienced renewed volatility in the third quarter. After dropping to a quarterly low of  $64 per barrel in mid-August, oil prices recovered to $73 by the end of September, ending just shy of where they started the quarter. Concerns over falling supply from Iran and supply outages in Venezuela and Libya drove prices higher. Adding to the positive sentiment on oil prices was the decision by OPEC at their most recent meeting to leave production unchanged. In the U.S., continued infrastructure-related bottleneck issues in the Permian Basin have limited oil production growth in the region.
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Letter to Shareholders (continued)
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Our Exploration & Production (E&P) stocks were the largest positive contributor to our results. ConocoPhillips and Marathon Oil were standouts, benefiting from their diversified asset base. Within this industry group, we added a position in Total S.A., a French global integrated oil and gas company. We like the company’s growth potential driven by the significant number of new projects coming online between now and 2020. The company should also begin to realize the benefits of investments made during the market downturn. Total also has more exposure to oil prices than its mulitnational integrated peers, which we view as a positive in this environment.
The ongoing transportation bottleneck issues in the Permian Basin, which will linger at least to the middle of 2019, led us to focus on companies with less emphasis on this region. To that end, we sold our holdings in Parsley Energy and reduced our exposure to Concho Resources and Pioneer Natural Resources. Longer term, the Permian companies offer some of the most compelling opportunities and once the infrastructure issues are fixed, we will be interested in increasing our exposure to this area.
The return of our Fund’s holdings in Basic Materials was unchanged during the quarter. Our fertilizer stocks generated strong returns driven by higher demand and better pricing. Shares in CF Industries and Mosaic Company increased 23.4% and 15.9%, respectively, during the quarter. However, weakness in the specialty chemicals sector offset this performance. We added Ball Corporation to our portfolio, one of the world’s largest aluminum can manufacturers. The company has been able to increase prices for the first time in 15 years, which should lead to higher top and bottom-line growth. We also believe the company should benefit from the developing “war on plastics.”
For the nine months ended September 30, 2018, the total return on the Fund’s net asset value (“NAV”) per share (with dividends and capital gains reinvested) was 4.0%. This compares to total returns of 6.2% for the Fund's benchmark, comprised of the Dow Jones U.S. Oil & Gas Index (80% weight) and the Dow Jones U.S. Basic Materials Index (20% weight), and 0.3% for the Lipper Global Natural Resources Funds Average over the same time period. The total return on the market price of the Fund’s shares for the period was 2.0%.
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Letter to Shareholders (continued)
​
For the twelve months ended September 30, 2018, the Fund’s total return on NAV was 10.7%. Comparable returns for the Fund's benchmark and the Lipper Global Natural Resources Funds Average were 13.2% and 7.0%, respectively. The Fund’s total return on market price was 7.8%.
During the first nine months of this year, the Fund paid distributions to shareholders in the amount of $8.7 million, or $.30 per share, consisting of $.04 net investment income and $.02 long-term capital gain, realized in 2017, and $.24 of net investment income realized in 2018, all taxable in 2018. These distributions constitute the first three payments toward our annual 6% minimum distribution rate commitment.
We thank you for investing with us and do not take your trust for granted. We remain focused on delivering consistent investment returns for shareholders by identifying quality companies that are executing at high levels and trading at attractive valuations.
By order of the Board of Directors,
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Mark E. Stoeckle
Chief Executive Officer
October 17, 2018
 
 
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​
Disclaimers​
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 Fund’s actual results are the performance of the portfolio of stocks held by the Fund, the conditions in the U.S. and international financial markets, the price at which shares of the Fund will trade in the public markets, and other factors discussed in the Fund’s periodic filings with the Securities and Exchange Commission.​
This report is transmitted to the shareholders of the Fund for their information. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund 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 no guarantee of future investment results.
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Summary Financial Information
​
(unaudited)
​ ​ ​
2018
​ ​
2017
​
At September 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net asset value per share ​ ​ ​ $ 23.81 ​ ​ ​ ​ $ 22.86 ​ ​
Market price per share ​ ​ ​ $ 19.93 ​ ​ ​ ​ $ 19.65 ​ ​
Shares outstanding ​ ​ ​ ​ 28,995,647 ​ ​ ​ ​ ​ 28,550,279 ​ ​
Total net assets ​ ​ ​ $ 690,335,277 ​ ​ ​ ​ $ 652,532,456 ​ ​
Unrealized appreciation on investments ​ ​ ​ $ 191,688,902 ​ ​ ​ ​ $ 155,447,826 ​ ​
​ ​
For the nine months ended September 30: ​
Net investment income ​ ​ ​ $ 8,982,520 ​ ​ ​ ​ $ 10,389,819 ​ ​
Net realized gain (loss) ​ ​ ​ $ (7,112,800) ​ ​ ​ ​ $ (2,374,976) ​ ​
Total return (based on market price) ​ ​ ​ ​ 2.0% ​ ​ ​ ​ ​ -1.0% ​ ​
Total return (based on net asset value) ​ ​ ​ ​ 4.0% ​ ​ ​ ​ ​ -3.3% ​ ​
​ ​
Key ratios: ​
Expenses to average net assets* ​ ​ ​ ​ 0.78% ​ ​ ​ ​ ​ 0.79% ​ ​
Net investment income to average net assets* ​ ​ ​ ​ 1.78% ​ ​ ​ ​ ​ 2.16% ​ ​
Portfolio turnover* ​ ​ ​ ​ 46.6% ​ ​ ​ ​ ​ 22.6% ​ ​
Net cash & short-term investments to net assets ​ ​ ​ ​ 1.0% ​ ​ ​ ​ ​ 0.9% ​ ​
*
Annualized
​
Ten Largest Equity Portfolio Holdings
​
September 30, 2018
(unaudited)
​ ​ ​
Market Value
​ ​
Percent
of Net Assets
​
Exxon Mobil Corporation ​ ​ ​ $ 120,484,393 ​ ​ ​ ​ ​ 17.5% ​ ​
Chevron Corporation ​ ​ ​ ​ 69,614,004 ​ ​ ​ ​ ​ 10.1 ​ ​
EOG Resources, Inc. ​ ​ ​ ​ 35,515,488 ​ ​ ​ ​ ​ 5.1 ​ ​
ConocoPhillips ​ ​ ​ ​ 33,607,080 ​ ​ ​ ​ ​ 4.9 ​ ​
Occidental Petroleum Corporation ​ ​ ​ ​ 29,318,256 ​ ​ ​ ​ ​ 4.2 ​ ​
DowDuPont Inc. ​ ​ ​ ​ 29,018,923 ​ ​ ​ ​ ​ 4.2 ​ ​
Schlumberger Limited ​ ​ ​ ​ 27,669,864 ​ ​ ​ ​ ​ 4.0 ​ ​
Valero Energy Corporation ​ ​ ​ ​ 22,932,000 ​ ​ ​ ​ ​ 3.3 ​ ​
Phillips 66 ​ ​ ​ ​ 18,990,502 ​ ​ ​ ​ ​ 2.8 ​ ​
Williams Companies, Inc. ​ ​ ​ ​ 17,020,940 ​ ​ ​ ​ ​ 2.5 ​ ​
​ ​ ​ $ 404,171,450 ​ ​ ​ ​ ​ 58.6% ​ ​
​
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​
Schedule of Investments
​
September 30, 2018
(unaudited)
​ ​ ​
Shares
 ​ ​
Value  (a)
 ​
Common Stocks — 99.0% ​
Energy — 79.8%
 ​
Exploration & Production — 27.8%
 ​
Anadarko Petroleum Corporation
 ​ ​ ​ ​ 139,600 ​ ​ ​ ​ $ 9,410,436 ​ ​
Apache Corporation
 ​ ​ ​ ​ 107,300 ​ ​ ​ ​ ​ 5,114,991 ​ ​
Cabot Oil & Gas Corporation
 ​ ​ ​ ​ 113,400 ​ ​ ​ ​ ​ 2,553,768 ​ ​
Cheniere Energy, Inc.  (b)
 ​ ​ ​ ​ 100,700 ​ ​ ​ ​ ​ 6,997,643 ​ ​
Cimarex Energy Company
 ​ ​ ​ ​ 26,900 ​ ​ ​ ​ ​ 2,500,086 ​ ​
Concho Resources Inc.  (b)
 ​ ​ ​ ​ 54,440 ​ ​ ​ ​ ​ 8,315,710 ​ ​
ConocoPhillips
 ​ ​ ​ ​ 434,200 ​ ​ ​ ​ ​ 33,607,080 ​ ​
Continental Resources, Inc.  (b)
 ​ ​ ​ ​ 109,000 ​ ​ ​ ​ ​ 7,442,520 ​ ​
Devon Energy Corporation
 ​ ​ ​ ​ 139,900 ​ ​ ​ ​ ​ 5,587,606 ​ ​
Diamondback Energy, Inc.
 ​ ​ ​ ​ 40,700 ​ ​ ​ ​ ​ 5,502,233 ​ ​
EOG Resources, Inc.
 ​ ​ ​ ​ 278,400 ​ ​ ​ ​ ​ 35,515,488 ​ ​
EQT Corporation
 ​ ​ ​ ​ 81,000 ​ ​ ​ ​ ​ 3,582,630 ​ ​
Hess Corporation
 ​ ​ ​ ​ 71,100 ​ ​ ​ ​ ​ 5,089,338 ​ ​
Marathon Oil Corporation
 ​ ​ ​ ​ 614,500 ​ ​ ​ ​ ​ 14,305,560 ​ ​
Newfield Exploration Company  (b)
 ​ ​ ​ ​ 55,900 ​ ​ ​ ​ ​ 1,611,597 ​ ​
Noble Energy, Inc.
 ​ ​ ​ ​ 139,700 ​ ​ ​ ​ ​ 4,357,243 ​ ​
Occidental Petroleum Corporation
 ​ ​ ​ ​ 356,800 ​ ​ ​ ​ ​ 29,318,256 ​ ​
Pioneer Natural Resources Company
 ​ ​ ​ ​ 49,300 ​ ​ ​ ​ ​ 8,587,567 ​ ​
Whiting Petroleum Corporation  (b)
 ​ ​ ​ ​ 51,575 ​ ​ ​ ​ ​ 2,735,538 ​ ​
​ ​ ​ ​ ​ 192,135,290 ​ ​
Integrated Oil & Gas — 28.3%
 ​
Chevron Corporation
 ​ ​ ​ ​ 569,300 ​ ​ ​ ​ ​ 69,614,004 ​ ​
Exxon Mobil Corporation
 ​ ​ ​ ​ 1,417,130 ​ ​ ​ ​ ​ 120,484,393 ​ ​
Total S.A. ADR
​ ​ ​ ​ 78,300 ​ ​ ​ ​ ​ 5,041,737 ​ ​
​ ​ ​ ​ ​ 195,140,134 ​ ​
Oil Equipment & Services — 8.3%
 ​
Baker Hughes, a GE company Class A
 ​ ​ ​ ​ 83,000 ​ ​ ​ ​ ​ 2,807,890 ​ ​
Halliburton Company
 ​ ​ ​ ​ 277,870 ​ ​ ​ ​ ​ 11,262,071 ​ ​
Helmerich & Payne, Inc.
 ​ ​ ​ ​ 33,600 ​ ​ ​ ​ ​ 2,310,672 ​ ​
National Oilwell Varco, Inc.
 ​ ​ ​ ​ 109,000 ​ ​ ​ ​ ​ 4,695,720 ​ ​
Schlumberger Limited
 ​ ​ ​ ​ 454,200 ​ ​ ​ ​ ​ 27,669,864 ​ ​
TechnipFMC plc
 ​ ​ ​ ​ 264,400 ​ ​ ​ ​ ​ 8,262,500 ​ ​
​ ​ ​ ​ ​ 57,008,717 ​ ​
Pipelines — 4.8%
 ​
Kinder Morgan, Inc.
 ​ ​ ​ ​ 504,000 ​ ​ ​ ​ ​ 8,935,920 ​ ​
ONEOK, Inc.
 ​ ​ ​ ​ 109,200 ​ ​ ​ ​ ​ 7,402,668 ​ ​
Williams Companies, Inc.
 ​ ​ ​ ​ 626,000 ​ ​ ​ ​ ​ 17,020,940 ​ ​
​ ​ ​ ​ ​ 33,359,528 ​ ​
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Schedule of Investments (continued)
​
September 30, 2018
(unaudited)
​ ​ ​
Shares
 ​ ​
Value  (a)
 ​
Refiners — 10.6%
 ​
Andeavor
 ​ ​ ​ ​ 97,480 ​ ​ ​ ​ $ 14,963,180 ​ ​
HollyFrontier Corporation
 ​ ​ ​ ​ 50,300 ​ ​ ​ ​ ​ 3,515,970 ​ ​
Marathon Petroleum Corporation
 ​ ​ ​ ​ 156,100 ​ ​ ​ ​ ​ 12,483,317 ​ ​
Phillips 66
 ​ ​ ​ ​ 168,475 ​ ​ ​ ​ ​ 18,990,502 ​ ​
Valero Energy Corporation
 ​ ​ ​ ​ 201,600 ​ ​ ​ ​ ​ 22,932,000 ​ ​
​ ​ ​ ​ ​ 72,884,969 ​ ​
Materials — 19.2%
 ​
Chemicals — 14.1%
 ​
Air Products and Chemicals, Inc.
 ​ ​ ​ ​ 83,400 ​ ​ ​ ​ ​ 13,931,970 ​ ​
Albemarle Corporation
 ​ ​ ​ ​ 15,100 ​ ​ ​ ​ ​ 1,506,678 ​ ​
CF Industries Holdings, Inc.
 ​ ​ ​ ​ 101,600 ​ ​ ​ ​ ​ 5,531,104 ​ ​
DowDuPont Inc.
 ​ ​ ​ ​ 451,235 ​ ​ ​ ​ ​ 29,018,923 ​ ​
Eastman Chemical Company
 ​ ​ ​ ​ 72,200 ​ ​ ​ ​ ​ 6,910,984 ​ ​
Ecolab Inc.
 ​ ​ ​ ​ 49,000 ​ ​ ​ ​ ​ 7,682,220 ​ ​
FMC Corporation
 ​ ​ ​ ​ 19,700 ​ ​ ​ ​ ​ 1,717,446 ​ ​
International Flavors & Fragrances Inc.
 ​ ​ ​ ​ 10,400 ​ ​ ​ ​ ​ 1,446,848 ​ ​
LyondellBasell Industries N.V.
 ​ ​ ​ ​ 129,200 ​ ​ ​ ​ ​ 13,244,292 ​ ​
Mosaic Company
 ​ ​ ​ ​ 118,901 ​ ​ ​ ​ ​ 3,861,904 ​ ​
PPG Industries, Inc.
 ​ ​ ​ ​ 41,500 ​ ​ ​ ​ ​ 4,528,895 ​ ​
Praxair, Inc.
 ​ ​ ​ ​ 49,200 ​ ​ ​ ​ ​ 7,907,916 ​ ​
​ ​ ​ ​ ​ 97,289,180 ​ ​
Construction and Materials — 1.3%
 ​
Martin Marietta Materials, Inc.
 ​ ​ ​ ​ 8,700 ​ ​ ​ ​ ​ 1,582,965 ​ ​
Sherwin-Williams Company
 ​ ​ ​ ​ 11,400 ​ ​ ​ ​ ​ 5,189,394 ​ ​
Vulcan Materials Company
 ​ ​ ​ ​ 18,700 ​ ​ ​ ​ ​ 2,079,440 ​ ​
​ ​ ​ ​ ​ 8,851,799 ​ ​
General Industrials — 2.1%
 ​
Avery Dennison Corporation
 ​ ​ ​ ​ 12,800 ​ ​ ​ ​ ​ 1,386,880 ​ ​
Ball Corporation
 ​ ​ ​ ​ 157,300 ​ ​ ​ ​ ​ 6,919,627 ​ ​
International Paper Company
 ​ ​ ​ ​ 56,000 ​ ​ ​ ​ ​ 2,752,400 ​ ​
Packaging Corporation of America
 ​ ​ ​ ​ 13,200 ​ ​ ​ ​ ​ 1,447,908 ​ ​
WestRock Company
 ​ ​ ​ ​ 38,700 ​ ​ ​ ​ ​ 2,068,128 ​ ​
​ ​ ​ ​ ​ 14,574,943 ​ ​
Industrial Metals — 1.4%
 ​
Freeport-McMoRan, Inc.
 ​ ​ ​ ​ 177,100 ​ ​ ​ ​ ​ 2,465,232 ​ ​
Nucor Corporation
 ​ ​ ​ ​ 43,900 ​ ​ ​ ​ ​ 2,785,455 ​ ​
Steel Dynamics, Inc.
 ​ ​ ​ ​ 98,800 ​ ​ ​ ​ ​ 4,464,772 ​ ​
​ ​ ​ ​ ​ 9,715,459 ​ ​
Mining — 0.3%
 ​
Newmont Mining Corporation
 ​ ​ ​ ​ 73,500 ​ ​ ​ ​ ​ 2,219,700 ​ ​
Total Common Stocks ​
(Cost $491,490,617)
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 683,179,719 ​ ​
​ ​
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​
Schedule of Investments (continued)
​
September 30, 2018
(unaudited)
​ ​ ​
Shares
 ​ ​
Value  (a)
 ​
Short-Term Investments — 0.9% ​
Money Market Funds — 0.9%
 ​
 Fidelity Investments Money Market Funds - Prime Money
Market Portfolio (Institutional Class), 2.11%  (c)
 ​ ​ ​ ​ 3,999,200 ​ ​ ​ ​ $ 4,000,400 ​ ​
 Northern Institutional Treasury Portfolio, 1.94%  (c)
 ​ ​ ​ ​ 2,170,587 ​ ​ ​ ​ ​ 2,170,587 ​ ​
Total Short-Term Investments ​
(Cost $6,171,187)
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 6,170,987 ​ ​
Total — 99.9% ​
(Cost $497,661,804)
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 689,350,706 ​ ​
Other Assets Less Liabilities — 0.1% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​  984,571 ​ ​
Net Assets — 100.0% ​ ​ ​ ​ ​ ​ ​ ​ ​
$
690,335,277
 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(a)
Common stocks are listed on the New York Stock Exchange or NASDAQ and are valued at the last reported sale price on the day of valuation.
​
(b)
Presently non-dividend paying.
​
(c)
Rate presented is as of period-end and represents the annualized yield earned over the previous seven days.
​
Information regarding transactions in equity securities during the quarter can be found on our website at: www.adamsfunds.com.
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Adams Natural Resources Fund, Inc.
​
Board of Directors
​ Enrique R. Arzac  (2), (3) ​ ​
Roger W. Gale ​  (1), (2), (4)
 ​ ​
Craig R. Smith  (3), (4)
 ​
​
Kenneth J. Dale  (1), (3), (4)
 ​ ​
Lauriann C. Kloppenburg  (2), (3)
 ​ ​
Mark E. Stoeckle  (1)
 ​
​
Frederic A. Escherich  (1), (2), (4)
 ​ ​ Kathleen T. McGahran  (1), (5) ​ ​ ​ ​
(1)
Member of Executive Committee
​
(2)
Member of Audit Committee
​
(3)
Member of Compensation Committee
​
(4)
Member of Nominating and Governance Committee
​
(5)
Chair of the Board
​
Officers
​
Mark E. Stoeckle
​ ​ Chief Executive Officer ​
​
James P. Haynie, CFA
​ ​ President ​
​
Brian S. Hook, CFA, CPA
​ ​ Vice President, Chief Financial Officer and Treasurer ​
​ Gregory W. Buckley ​ ​
Vice President—Research
 ​
​ Michael A. Kijesky, CFA ​ ​
Vice President—Research
 ​
​ Michael E. Rega, CFA ​ ​
Vice President—Research
 ​
​
Janis F. Kerns
​ ​
General Counsel, Secretary and Chief Compliance Officer
 ​
​
Christine M. Sloan, CPA
​ ​ Assistant Treasurer and Director of Human Resources ​
​
500 East Pratt Street, Suite 1300, Baltimore, MD 21202
410.752.5900   800.638.2479
Website: www.adamsfunds.com
Email: contact@adamsfunds.com
Tickers: PEO (NYSE), XPEOX (NASDAQ)
Counsel: Norton Rose Fulbright US LLP
Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP
Custodian of Securities: The Northern Trust Company
Transfer Agent & Registrar: American Stock Transfer & Trust Company, LLC
Stockholder Relations Department
6201 15th Avenue
Brooklyn, NY 11219
(866) 723-8330
Website: www.astfinancial.com
Email: info@astfinancial.com