FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-00248
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THE ADAMS EXPRESS COMPANY
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(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)

 

 

Lawrence L. Hooper, Jr.
The Adams Express Company
7 Saint Paul Street, Suite 1140
Baltimore, Maryland 21202
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(Name and address of agent for service)

 

 

Registrant's telephone number, including area code: (410) 752-5900
Date of fiscal year end: December 31
Date of reporting period: June 30, 2012

Item 1. Reports to Stockholders.

 

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LETTER TO STOCKHOLDERS

 

 

 

We submit herewith the financial statements of The Adams Express Company (the “Company”) for the six months ended June 30, 2012. Also provided are a schedule of investments and other financial information.

 

Net assets of the Company at June 30, 2012 were $12.35 per share on 91,106,318 shares outstanding, compared with $11.54 per share at December 31, 2011 on 91,073,899 shares outstanding. On March 1, 2012, a distribution of $0.05 per share was paid, consisting of $0.03 from 2011 investment income, $0.01 from 2011 short-term capital gain, and $0.01 from 2011 long-term capital gain, all taxable in 2012. A 2012 investment income dividend of $0.05 per share was paid June 1, 2012, and another $0.05 per share investment income dividend has been declared to stockholders of record August 10, 2012, payable September 1, 2012. These constitute the first three payments toward our 6% minimum distribution commitment for the year.

 

Net investment income for the six months ended June 30, 2012 amounted to $7,210,547, compared with $6,322,814 for the same six month period in 2011. These earnings are equal to $0.08 and $0.07 per share, respectively.

 

Net capital gain realized on investments for the six months ended June 30, 2012 amounted to $18,867,284, or $0.21 per share.

 

For the six months ended June 30, 2012, the total return on the net asset value (with dividends and capital gains reinvested) of the Company’s shares was 8.0%. The total return on the market value of the Company’s shares for the period was 10.5%. These compare to a 9.5% total return for the Standard & Poor’s 500 Composite Stock Index (“S&P 500”) and an 8.0% total return for the Lipper Large-Cap Core Mutual Funds Average over the same time period.

 

For the twelve months ended June 30, 2012, the Company’s total return on net asset value was 2.2% and on market value was 1.0%. Comparable figures for the S&P 500 and the Lipper Large-Cap Core Mutual Funds Average were 5.5% and 1.9%, respectively.

 

 

 

Douglas G. Ober has informed the Board of Directors of his plans to retire within the next eighteen months. Daniel E. Emerson, Lead Director of the Board, in commenting on Mr. Ober’s announcement, said “Doug has done an outstanding job guiding the Company through some remarkably turbulent times over the past 21 years. His steady hand and unflappable adherence to his investment principles has served, and will continue to serve, our stockholders well. He has built a strong team at the Company and when he does step down, the Fund will continue in good hands. With his announcement, he has given us the time to carefully identify his successor.”

 

 

 

Investors 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, on our website at www.adamsexpress.com. Also available on the website are a history of the Company, historical financial information, links for electronic delivery of stockholder reports, and other useful content.

 

 

 

By order of the Board of Directors,

Douglas G. Ober

Chairman and

Chief Executive Officer

 

David D. Weaver

President

 

July 12, 2012

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PORTFOLIO REVIEW

 

 

 

June 30, 2012

(unaudited)

 

 

Ten Largest Equity Portfolio Holdings

 

		Market Value				% of Net Assets
Petroleum & Resources Corp.*		$	52,395,105				4.7	%
Apple Inc.			48,472,000				4.3
Oracle Corp.			22,572,000				2.0
JPMorgan Chase & Co.			21,438,000				1.9
Microsoft Corp.			21,413,000				1.9
McDonald’s Corp.			21,247,200				1.9
Intel Corp.			21,053,500				1.9
Wells Fargo & Co.			20,398,400				1.8
AT&T Corp.			19,613,000				1.7
Target Corp.			18,620,800				1.6
Total		$	267,223,005				23.7	%

*Non-controlled affiliate

 

 

Sector Weightings

 

 

2

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STATEMENT OF ASSETS AND LIABILITIES

 

 

 

June 30, 2012

(unaudited)

 

Assets
Investments* at value:
Common stocks (cost $919,758,361)		$	1,021,680,727
Non-controlled affiliate, Petroleum & Resources Corporation (cost $34,735,404)			52,395,105
Short-term investments (cost $37,725,422)			37,725,422
Securities lending collateral (cost $20,518,447)			20,518,447			$	1,132,319,701
Cash							245,238
Investment securities sold							13,012,616
Dividends and interest receivable							939,251
Prepaid pension cost							986,727
Prepaid expenses and other assets							2,736,745
Total Assets							1,150,240,278
Liabilities
Open written option contracts* at value (proceeds $581,810)							369,362
Obligations to return securities lending collateral							20,518,447
Accrued pension liabilities							3,227,910
Accrued expenses and other liabilities							833,314
Total Liabilities							24,949,033
Net Assets						$	1,125,291,245
Net Assets
Common Stock at par value $0.001 per share, authorized 150,000,000 shares; issued and outstanding 91,106,318 shares (includes 139,996 restricted shares, 18,000 nonvested or deferred restricted stock units, and 12,851 deferred stock units) (note 6)						$	91,106
Additional capital surplus							993,417,675
Accumulated other comprehensive income (note 5)							(2,406,266	)
Undistributed net investment income							1,871,954
Undistributed net realized gain on investments							12,522,261
Unrealized appreciation on investments							119,794,515
Net Assets Applicable to Common Stock						$	1,125,291,245
Net Asset Value Per Share of Common Stock							$12.35

 

* See Schedule of Investments on page 10 and Schedule of Outstanding Written Option Contracts on page 12.

 

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

 

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STATEMENT OF OPERATIONS

 

 

 

Six Months Ended June 30, 2012

(unaudited)

 

Investment Income
Income:
Dividends:
From unaffiliated issuers (net of $38,755 in foreign taxes)		$	10,456,424
From non-controlled affiliate			328,016
Interest and other income			221,685
Total income			11,006,125
Expenses:
Investment research			1,802,787
Administration and operations			823,905
Directors’ fees			252,385
Travel, training, and other office expenses			167,967
Transfer agent, registrar, and custodian			160,316
Reports and stockholder communications			144,243
Investment data services			132,358
Occupancy			79,588
Legal services			69,858
Audit and accounting services			54,127
Insurance			51,359
Other			56,685
Total expenses			3,795,578
Net Investment Income			7,210,547
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions			18,220,951
Net realized gain distributed by regulated investment company (non-controlled affiliate)			109,339
Net realized gain on written option contracts			536,994
Change in unrealized appreciation on securities			57,424,908
Change in unrealized appreciation on written option contracts			(141,589	)
Net Gain on Investments			76,150,603
Other Comprehensive Income (note 5)
Defined benefit pension plans:
Net actuarial loss arising during period			(169,495	)
Amortization of net loss			134,166
Effect of settlement (non-recurring)			267,596
Other Comprehensive Income			232,267
Change in Net Assets Resulting from Operations		$	83,593,417

 

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

 

4

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STATEMENTS OF CHANGES IN NET ASSETS

 

 

 

		(unaudited) Six Months  Ended June 30, 2012				Year Ended December 31, 2011
From Operations:
Net investment income		$	7,210,547			$	13,858,578
Net realized gain on investments			18,867,284				45,998,641
Change in unrealized appreciation on investments			57,283,319				(96,710,494	)
Change in accumulated other comprehensive income (note 5)			232,267				(602,411	)
Change in net assets resulting from operations			83,593,417				(37,455,686	)
Distributions to Stockholders from:
Net investment income			(7,282,153	)			(13,335,356	)
Net realized gain from investment transactions			(1,805,787	)			(44,457,396	)
Decrease in net assets from distributions			(9,087,940	)			(57,792,752	)
From Capital Share Transactions:
Value of shares issued in payment of distributions (note 4)			4,546				20,946,619
Deferred compensation (notes 4, 6)			47,544				363,531
Increase in net assets from capital share transactions			52,090				21,310,150
Total Change in Net Assets			74,557,567				(73,938,288	)
Net Assets:
Beginning of period			1,050,733,678				1,124,671,966
End of period (including undistributed net investment income of $1,871,954 and $1,943,560, respectively)		$	1,125,291,245			$	1,050,733,678

 

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

 

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

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 is an internally-managed closed-end fund whose investment objectives are preservation of capital, the attainment of reasonable income from investments, and an opportunity for capital appreciation.

 

The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by Company management. Management believes that estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the financial statements may differ from the value the Company ultimately realizes upon sale of the securities.

 

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 specific identification. Dividend income and distributions to stockholders are recognized on the ex-dividend date, and interest income is recognized on the accrual basis.

 

Security Valuation — The Company’s investments are reported at fair value as defined under accounting principles general accepted in the United States of America. Investments in securities traded on national security exchanges are valued at the last reported sale price on the day of valuation. Over-the-counter and listed securities for which a sale price is not avail-

 

5

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

 

 

able are valued at the last quoted bid price. Short-term investments (excluding purchased options and money market funds) are valued at amortized cost, which approximates fair value. Purchased and written options are valued at the last quoted bid and asked price, respectively. Money market funds are valued at net asset value on the day of valuation.

 

Various inputs are used to determine the fair value of the Company’s investments. These inputs are summarized in the following three levels:

 

•

Level 1 — fair value is determined based on market data obtained from independent sources; for example, quoted prices in active markets for identical investments,

•

Level 2 — fair value is determined using other assumptions obtained from independent sources; for example, quoted prices for similar investments,

•

Level 3 — fair value is determined using the Company’s own assumptions, developed based on the best information available in the circumstances.

 

The Company’s investments at June 30, 2012 were classified as follows:

 

		Level 1				Level 2				Level 3				Total
Common stocks		$	1,074,075,832			$	—			$	—			$	1,074,075,832
Short-term investments			17,725,722				19,999,700				—				37,725,422
Securities lending collateral			20,518,447				—				—				20,518,447
Total investments		$	1,112,320,001			$	19,999,700			$	—			$	1,132,319,701
Written options		$	(369,362	)		$	—			$	—			$	(369,362	)

 

There were no transfers into or from Level 1 or Level 2 during the six months ended June 30, 2012.

 

2. Federal Income Taxes

 

No federal income tax provision is required since the Company’s policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its taxable income to its stockholders. Additionally, management has analyzed and concluded that tax positions included in federal income tax returns from the previous three years that remain subject to examination do not require any provision. Any income tax-related interest or penalties would be recognized as income tax expense. As of June 30, 2012, the identified cost of securities for federal income tax purposes was $1,017,751,884 and net unrealized appreciation aggregated $114,567,817, consisting of gross unrealized appreciation of $224,156,038 and gross unrealized depreciation of $109,588,221.

 

Distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Such differences are primarily related to the Company’s retirement plans, equity-based compensation, and loss deferrals for wash sales. Differences that are permanent are periodically reclassified in the capital accounts of the Company’s financial statements and have no impact on net assets.

 

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 six months ended June 30, 2012 were $147,429,996 and $152,299,742, respectively.

 

The Company is subject to changes in the value of equity securities held (“equity price risk”) in the normal course of pursuing its investment objectives. The Company may purchase and write option contracts to increase or decrease its equity price risk exposure or may write option contracts to generate additional income. Option contracts generally entail risks associated with counterparty credit, liquidity, and unfavorable equity price movements. The Company has mitigated counterparty credit and liquidity risks by trading its options through an exchange. The risk of unfavorable equity price movements is limited for purchased options to the premium paid and for written options by writing only covered call or collateralized put option contracts, which require the Company to segregate certain securities or cash at its custodian when the option is written. A schedule of outstanding written option contracts as of June 30, 2012 can be found on page 12.

 

When the Company writes (purchases) an option, an amount equal to the premium received (paid) by the Company is recorded as a liability (asset) and is subsequently marked to market daily in the Statement of Assets and Liabilities, with any related change recorded as an unrealized gain or loss in the Statement of Operations. Premiums received (paid) from unexercised options are treated as realized gains (losses) on the expiration date. Upon the exercise of written put (purchased call) option contracts, premiums received (paid) are deducted from (added to) the cost basis of the underlying securities purchased. Upon the exercise of written call (purchased put) option contracts, premiums received (paid) are added to (deducted from) the proceeds from the sale of underlying securities in determining whether there is a realized gain or loss.

 

Transactions in written covered call and collateralized put options during the six months ended June 30, 2012 were as follows:

 

		Covered Calls								Collateralized Puts
		Contracts				Premiums				Contracts				Premiums
Options outstanding, December 31, 2011			676			$	116,650				1,259			$	327,066
Options written			5,944				780,937				5,316				916,100
Options terminated in closing purchase transactions			(900	)			(140,182	)			(631	)			(186,904	)
Options expired			(3,564	)			(500,210	)			(3,355	)			(616,385	)
Options exercised			(250	)			(27,049	)			(775	)			(88,213	)
Options outstanding, June 30, 2012			1,906			$	230,146				1,814			$	351,664

 

4. Capital Stock

 

The Company has 10,000,000 authorized and unissued preferred shares, $0.001 par value.

 

 

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

 

 

During 2012, 425 shares of Common Stock were issued at a weighted average price of $10.58 per share as dividend equivalents to holders of deferred stock units and restricted stock units under the 2005 Equity Incentive Compensation Plan.

 

On December 27, 2011, the Company issued 2,147,935 shares of its Common Stock at a price of $9.745 per share (the average market price on December 7, 2011) to stockholders of record on November 21, 2011, who elected to take stock in payment of the distribution from 2011 capital gain and investment income. During 2011, 1,435 shares were issued at a weighted average price of $10.43 per share as dividend equivalents to holders of deferred stock units and restricted stock units under the 2005 Equity Income Compensation Plan.

 

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 2012 and 2011 were as follows:

 

		Shares								Amount
		Six months ended June 30, 2012				Year ended December 31, 2011				Six months ended June 30, 2012				Year ended December  31, 2011
Shares issued in payment of distributions			425				2,149,370			$	4,546			$	20,946,619
Net activity under the 2005 Equity Incentive Compensation Plan			31,994				39,343				47,544				363,531
Net change			32,419				2,188,713				52,090				21,310,150

 

5. Retirement Plans

 

Defined Contribution Plans — The Company sponsors a qualified defined contribution plan for all employees with at least six months of service and a nonqualified defined contribution plan for eligible employees to supplement the qualified plan. The Company expensed contributions to the plans in the amount of $111,009, a portion thereof based on company performance, for the six months ended June 30, 2012. The Company does not provide postretirement medical benefits.

 

Defined Benefit Plans — On October 1, 2009, the Company froze its non-contributory qualified and nonqualified defined benefit pension plans. Benefits are based on length of service and compensation during the last five years of employment through September 30, 2009, with no additional benefits being accrued beyond that date.

 

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 and are subsequently amortized into net periodic pension cost. Non-recurring settlement costs are recognized in net periodic pension cost when a plan participant receives a lump-sum benefit payment and includes the amount of which is in excess of the present value of the projected benefit and any unamortized actuarial losses attributable to the portion of the projected benefit obligation being satisfied.

 

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. The Company made no contributions to the qualified plan and contributed $27,664 to the nonqualified plan during the six months ended June 30, 2012, and anticipates making additional contributions of up to $950,000 in the aggregate over the remainder of 2012.

 

Items impacting the Company’s net investment income and accumulated other comprehensive income were:

 

		Six months ended June 30, 2012				Year ended December 31, 2011
Components of net periodic pension cost
Interest cost		$	179,683			$	389,980
Expected return on plan assets			(139,253	)			(436,909	)
Net loss component			134,166				191,093
Effect of settlement (non-recurring)			267,596				—
Net periodic pension cost		$	442,192			$	144,164
		Six months ended June 30, 2012				Year ended December 31, 2011
Accumulated other comprehensive income
Defined benefit pension plans:
Balance at beginning of period		$	(2,638,533	)		$	(2,036,122	)
Current period other comprehensive income			232,267				(602,411	)
Balance at end of period		$	(2,406,266	)		$	(2,638,533	)

 

6. Equity-Based Compensation

 

The 2005 Equity Incentive Compensation Plan (“2005 Plan”), adopted at the 2005 Annual Meeting and re-approved at the 2010 Annual Meeting, permits the grant of restricted stock awards (both performance and nonperformance-based), as well as stock option and other stock incentives to key employees and all non-employee directors. Performance-based restricted stock awards vest at the end of a specified three year period, with the ultimate number of shares earned contingent on achieving certain performance targets. If performance targets are not achieved, all or a portion of the performance-based restricted shares are forfeited and become available for future grants. Nonperformance-based restricted stock awards vest ratably over a three year period and nonperformance-based restricted stock units (granted to non-employee directors) vest over a one year period. Payment of awards may be deferred, if elected. It is the current intention that employee grants will be performance-based. The 2005 Plan provides for accelerated vesting in the event of death or retirement. Non-employee directors also may elect to defer a portion of their cash compensation, with such deferred amount to be paid by delivery of deferred stock units. Outstanding awards were granted at fair market value on grant date. The 2005 Plan provides for the

 

7

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

 

 

issuance of up to 3,413,131 shares of the Company’s Common Stock, of which 3,109,144 shares remain available for future grants at June 30, 2012.

 

A summary of the status of the Company’s awards granted under the 2005 Plan as of June 30, 2012, and changes during the six month period then ended, is presented below:

 

Awards		Shares/ Units				Weighted Average Grant-Date Fair Value
Balance at December 31, 2011			158,237			$	9.96
Granted:
Restricted stock			55,494				10.15
Restricted stock units			6,000				10.98
Deferred stock units			121				10.54
Vested & issued			(28,367	)			8.78
Forfeited			(20,638	)			8.41
Balance at June 30, 2012 (includes 136,260 performance-based awards and 34,587 nonperformance-based awards)			170,847			$	10.56

 

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 period ended June 30, 2012 were $103,278. The total compensation costs for restricted stock units granted to non-employee directors for the period ended June 30, 2012 were $33,135. As of June 30, 2012, there were total unrecognized compensation costs of $810,796, 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 1.78 years. The total fair value of shares and units vested and issued during the six month period ended June 30, 2012 was $287,336.

 

The Stock Option Plan of 1985 (“1985 Plan”) has been discontinued and, as of June 30, 2012, there are no remaining grants of stock options and stock appreciation rights outstanding.

 

A summary of option activity under the 1985 Plan as of June 30, 2012, and changes during the six month period then ended, is presented below:

 

		Options				Weighted- Average Exercise Price				Weighted- Average Remaining Life (Years)				Aggregate Intrinsic Value
Outstanding at December 31, 2011			24,857			$	8.70				0.16
Exercised			(24,857	)			8.70				—			$	40,049
Outstanding at June 30, 2012			—			$	—				—			$	—

 

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 six months ended June 30, 2012 was $16,919.

 

7. Officer and Director Compensation

 

The aggregate remuneration paid during the six months ended June 30, 2012 to officers and directors amounted to $1,885,692, of which $267,468 was paid to directors who were not officers. These amounts represent the taxable income to the Company’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 Company makes loans of securities to approved brokers to earn additional income. It receives as collateral cash deposits, U.S. Government securities, or bank letters of credit valued at 102% of the value of the securities on loan. The market value of the loaned securities is calculated based upon the most recent closing prices and any additional required collateral is delivered to the Company on the next business day. Cash deposits are placed in a registered money market fund. 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. 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 June 30, 2012, the Company had securities on loan of $20,586,510 and held cash collateral of $20,518,447; additional collateral was delivered the next business day in accordance with the procedure described above. The Company is indemnified by the Custodian, serving as lending agent, for loss of loaned securities and has the right under the lending agreement to recover the securities from the borrower on demand.

 

9. Operating Lease Commitment

 

The Company leases office space and equipment under operating lease agreements expiring at various dates through the year 2016. Petroleum & Resources Corporation, the Company’s non-controlled affiliate, shares in the rental payments, based on a predetermined cost sharing methodology. The Company recognized rental expense of $72,356 in the first half of 2012, and its estimated portion of future minimum rental commitments are as follows:

 

2012		$	79,967
2013			158,100
2014			158,558
2015			158,836
2016			76,736
Total		$	632,197

 

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FINANCIAL HIGHLIGHTS

 

 

 

 

 

*	In 2007, the Company received $5,100,000, or $0.06 per share, in a special cash dividend from Dean Foods Co., of which $2,295,000, or $0.03 per share, was considered a taxable dividend.

†	For 2009, the ratios of expenses and net investment income to average net assets were 0.76% and 1.44%, respectively, after adjusting for non-recurring pension expenses as described in footnote 5. For 2012, the adjusted ratios were 0.63% and 1.33%, respectively.

††	Ratios presented on an annualized basis.

 

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SCHEDULE OF INVESTMENTS

 

 

 

June 30, 2012

(unaudited)

 

		Shares				Value (A)
Common Stocks — 95.4%
Consumer Discretionary — 10.6%
BorgWarner, Inc. (C)			110,000			$	7,214,900
Columbia Sportswear Co.			200,000				10,724,000
Lowe’s Companies, Inc.			600,000				17,064,000
Marriott International Inc. (Class A)			300,000				11,760,000
McDonald’s Corp. (F)			240,000				21,247,200
Newell Rubbermaid Inc.			400,000				7,256,000
Ryland Group, Inc.			333,500				8,530,930
Target Corp.			320,000				18,620,800
Walt Disney Co.			360,000				17,460,000
							119,877,830
Consumer Staples — 10.4%
Avon Products, Inc.			359,600				5,829,116
Bunge Ltd.			130,000				8,156,200
Coca-Cola Co.			150,000				11,728,500
CVS/Caremark Corp.			295,000				13,785,350
Diageo plc ADR			50,000				5,153,500
PepsiCo, Inc. (G)			250,000				17,665,000
Philip Morris International Inc.			150,000				13,089,000
Procter & Gamble Co.			280,000				17,150,000
Safeway Inc. (B)			340,000				6,171,000
Senomyx, Inc. (B) (C)			1,284,400				3,018,340
Unilever plc ADR (B)			440,000				14,841,200
							116,587,206
Energy — 10.7%
Anardarko Petroleum Corp. (F)			50,000				3,310,000
Chevron Corp.			156,000				16,458,000
CONSOL Energy Inc.			73,700				2,228,688
Exxon Mobil Corp. (G)			105,000				8,984,850
Halliburton Co.			150,000				4,258,500
National Oilwell Varco, Inc. (F)			100,000				6,444,000
Noble Corp. (C)			120,000				3,903,600
Peabody Energy Corp.			38,560				945,491
Petroleum & Resources Corp. (D)			2,186,774				52,395,105
Schlumberger Ltd.			120,000				7,789,200
Seadrill Ltd.			40,000				1,420,800
Spectra Energy Corp.			405,780				11,791,967
							119,930,201
Financials — 12.5%
Banks — 3.4%
Hancock Holding Co.			100,000				3,044,000
PNC Financial Services Group, Inc.			235,000				14,360,850
Wells Fargo & Co.			610,000				20,398,400
							37,803,250
Diversified Financials — 5.8%
Affiliated Managers Group, Inc. (C)			40,000				4,378,000
Bank of America Corp.			930,000				7,607,400
Bank of New York Mellon Corp.			403,775				8,862,861
Capital One Financial Corp.			225,000				12,298,500
JPMorgan Chase & Co.			600,000				21,438,000
Morgan Stanley			120,000				1,750,800
T. Rowe Price Group, Inc.			135,000				8,499,600
							64,835,161
Insurance — 3.1%
ACE Ltd. (C)			165,000				12,231,450
AXIS Capital Holdings, Ltd.			220,000				7,161,000
MetLife Inc.			285,000				8,792,250
Prudential Financial, Inc.			150,000				7,264,500
							35,449,200
Real Estate — 0.2%
Digital Realty Trust Inc.			30,000				2,252,100
Health Care — 12.3%
Amerigroup Corp. (C)			115,000				7,579,650
Bristol-Myers Squibb Co.			159,061				5,718,243
Celgene Corp. (C)			120,000				7,699,200
Express Scripts Holding Co. (C)			250,000				13,957,500
Gilead Sciences, Inc. (C)			250,000				12,820,000
Johnson & Johnson			170,000				11,485,200
Life Technologies Corp. (C)			200,000				8,998,000
McKesson Corp.			96,000				9,000,000
Medtronic, Inc.			350,000				13,555,500
Pfizer Inc.			800,000				18,400,000
Teva Pharmaceutical Industries Ltd. ADR			220,000				8,676,800
UnitedHealth Group Inc.			227,500				13,308,750
Zimmer Holdings, Inc.			115,000				7,401,400
							138,600,243
Industrials — 11.0%
Caterpillar Inc.			120,000				10,189,200
Eaton Corp.			205,000				8,124,150
Emerson Electric Co.			170,000				7,918,600
FedEx Corp.			115,000				10,535,150
General Electric Co.			680,000				14,171,200
Goodrich Corp.			67,000				8,502,300
Honeywell International Inc.			255,000				14,239,200
Kansas City Southern			100,000				6,956,000
Masco Corp.			725,000				10,055,750
Norfolk Southern Corp.			100,000				7,177,000
Spirit AeroSystems Holdings, Inc. (Class A) (C)			500,000				11,915,000
Terex Corp. (C)			260,000				4,635,800
United Technologies Corp.			127,500				9,630,075
							124,049,425
Information Technology — 17.3%
Semiconductors — 2.2%
Broadcom Corp. (Class A) (C)			100,000				3,380,000
Intel Corp.			790,000				21,053,500
							24,433,500
Software & Services — 6.9%
Automatic Data Processing, Inc.			200,000				11,132,000
Cognizant Technology Solutions Group (Class A) (C)			160,000				9,600,000
Google Inc. (Class A) (C) (F)			22,400				12,993,568

 

10

---

SCHEDULE OF INVESTMENTS (CONTINUED)

 

 

 

June 30, 2012

(unaudited)

 

		Shares				Value (A)
Microsoft Corp.			700,000			$	21,413,000
Oracle Corp.			760,000				22,572,000
							77,710,568
Technology Hardware & Equipment — 8.2%
ADTRAN, Inc.			102,200				3,085,418
Apple Inc. (C) (G)			83,000				48,472,000
Cisco Systems, Inc.			850,000				14,594,500
F5 Networks, Inc. (C)			10,000				995,600
Hewlett-Packard Co.			250,000				5,027,500
NetApp, Inc. (C)			125,000				3,977,500
QUALCOMM Inc.			300,000				16,704,000
							92,856,518
Materials — 4.0%
Air Products and Chemicals, Inc.			30,000				2,421,900
CF Industries Holdings, Inc. (F)			38,531				7,464,996
Cliffs Natural Resources Inc. (F)			65,000				3,203,850
Dow Chemical Co.			360,000				11,340,000
Freeport-McMoRan Copper & Gold Inc. (F)			165,700				5,645,399
Potash Corporation of Saskatchewan Inc. (F)			130,100				5,684,069
Praxair, Inc. (F)			67,500				7,339,275
Teck Resources Ltd. (Class B)			76,000				2,351,440
							45,450,929
Telecom Services — 4.2%
AT&T Corp.			550,000				19,613,000
CenturyLink, Inc.			360,000				14,216,400
Verizon Communications Inc.			300,000				13,332,000
							47,161,400
Utilities — 2.4%
MDU Resources Group, Inc.			310,600				6,712,066
NiSource Inc.			132,500				3,279,375
Northeast Utilities			156,000				6,054,360
South Jersey Industries, Inc.			100,000				5,097,000
Wisconsin Energy Corp.			150,000				5,935,500
							27,078,301
Total Common Stocks (Cost $954,493,765)							1,074,075,832
Short-Term Investments — 3.4%
Commercial Paper — 1.8%
ENI Finance USA Inc., 0.54%, due 7/2/12		$	20,000,000				19,999,700
Money Market Account — 1.6%
M&T Bank, 0.25%		$	17,685,722				17,685,722
Money Market Funds — 0.0%
Fidelity Institutional Money Market - Government Portfolio, 0.01% (E)			10,000				10,000
RBC U.S. Government Money Market (Institutional Class I), 0.01% (E)			10,000				10,000
Vanguard Federal Money Market, 0.01% (E)			10,000				10,000
Western Asset Institutional Government Reserves (Institutional Class), 0.05% (E)			10,000				10,000
							40,000
Total Short-Term Investments (Cost $37,725,422)							37,725,422
Securities Lending Collateral — 1.8% (Cost $20,518,447)
Money Market Funds — 1.8%
Invesco Short-Term Investment Trust - Liquid Assets Portfolio (Institutional Class), 0.16% (E)			20,518,447				20,518,447
Total Investments — 100.6% (Cost $1,012,737,634)							1,132,319,701
Cash, receivables, prepaid expenses and other assets, less liabilities — (0.6)%							(7,028,456	)
Net Assets — 100.0%						$	1,125,291,245

 

Notes:

(A)	Securities are listed on the New York Stock Exchange or the NASDAQ and are valued at the last reported sale price on the day of valuation. See note 1 to financial statements.

(B)	A portion of shares held are on loan. See note 8 to financial statements.

(C)	Presently non-dividend paying.

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

(E)	Rate presented is as of period-end and represents the annualized yield earned over the previous seven days.

(F)	All or a portion of this security is pledged to cover open written call option contracts. Aggregate market value of such pledged securities is $16,239,020.

(G)	All or a portion of this security is pledged to collateralize open written put option contracts with an aggregate market value to deliver upon exercise of $20,005,500.

 

11

---

SCHEDULE OF OUTSTANDING WRITTEN OPTION CONTRACTS

 

 

 

June 30, 2012

(unaudited)

 

Contracts (100 shares each)				Security		Strike Price		Contract Expiration Date								Value
	COVERED CALLS
	160			Anadarko Petroleum Corp.		$    80			Aug				12			$	7,360
	92			CF Industries Holdings, Inc.		195			Aug				12				90,620
	76			CF Industries Holdings, Inc.		220			Aug				12				14,440
	76			CF Industries Holdings, Inc.		250			Aug				12				1,140
	200			Cliffs Natural Resources Inc.		57.50			Jul				12				3,800
	200			Cliffs Natural Resources Inc.		60			Jul				12				2,600
	144			Cliffs Natural Resources Inc.		95			Jul				12				576
	411			Freeport-McMoRan Copper & Gold Inc.		35			Jul				12				24,249
	50			Google Inc.		640			Jul				12				11,750
	100			McDonald's Corp.		95			Sep				12				4,200
	200			National Oilwell Varco, Inc.		80			Aug				12				2,200
	130			Potash Corporation of Saskatchewan Inc.		47.50			Sep				12				14,430
	67			Praxair, Inc.		120			Jul				12				1,005
	1,906																178,370
	COLLATERALIZED PUTS
	100			ADTRAN, Inc.		27			Jul				12				4,500
	50			Apple Inc.		500			Jul				12				1,500
	100			Apple Inc.		525			Jul				12				8,400
	100			BorgWarner, Inc.		60			Jul				12				4,500
	200			Caterpillar Inc.		75			Jul				12				5,600
	200			Caterpillar Inc.		70			Aug				12				14,000
	100			Caterpillar Inc.		82.50			Aug				12				31,500
	76			CF Industries Holdings, Inc.		140			Aug				12				3,572
	38			CF Industries Holdings, Inc.		140			Nov				12				12,920
	100			Diageo plc ADR		90			Jul				12				1,500
	100			Diageo plc ADR		80			Oct				12				5,500
	200			National Oilwell Varco, Inc.		65			Aug				12				76,000
	100			Panera Bread Co. (Class A)		130			Jul				12				10,000
	150			Philip Morris International Inc.		72.50			Sep				12				4,500
	200			Seadrill Ltd.		34			Jul				12				7,000
	1,814																190,992
				Total Option Liability (Unrealized Gain of $212,448)												$	369,362

 

12

---

CHANGES IN PORTFOLIO SECURITIES

 

 

 

During the Three Months Ended June 30, 2012

(unaudited)

 

		Shares
		Additions				Reductions				Held June 30, 2012
Affiliated Managers Group, Inc.			21,000								40,000
Amerigroup Corp.			115,000								115,000
Anadarko Petroleum Corp.			50,000								50,000
Apple, Inc			3,000								83,000
AT&T Corp.			75,000								550,000
AXIS Capital Holdings, Ltd.			30,000								220,000
BorgWarner, Inc.			10,000				35,000				110,000
Cognizant Technology Solutions Group (Class A)			10,000								160,000
Diageo plc ADR			48,000								50,000
Digital Realty Trust Inc.			15,000								30,000
Eaton Corp.			205,000								205,000
Express Scripts Holding Co.			30,000								250,000
Facebook, Inc.			1,000				1,000				—
General Electric Co.			140,000								680,000
Goodrich Corp.			37,000								67,000
Hancock Holding Co.			100,000								100,000
Kansas City Southern			45,000								100,000
McKesson Corp.			75,200								96,000
NiSource Inc.			57,500								132,500
Noble Corp.			120,000								120,000
Terex Corp.			240,000								260,000
United Technologies Corp.			27,500								127,500
Verizon Communications Inc.			70,000								300,000
Capital One Financial Corp.							15,000				225,000
Caterpillar Inc.							40,000				120,000
Chevron Corp.							10,000				156,000
Cliffs Natural Resources Inc.							16,000				65,000
Coca-Cola Co.							50,000				150,000
Emerson Electric Co.							50,000				170,000
Exxon Mobil Corp.							10,000				105,000
F5 Networks, Inc .							35,000				10,000
Freeport-McMoRan Copper & Gold Inc.							40,000				165,700
Johnson & Johnson							85,000				170,000
Northeast Utilities							37,000				156,000
Old Dominion Freight Line, Inc.							35,000				—
Peabody Energy Corp.							2,500				38,560
PepsiCo, Inc.							50,000				250,000
Ryland Group, Inc.							280,000				333,500
Seadrill Ltd.							60,100				40,000
T. Rowe Price Group, Inc.							15,000				135,000
Teck Resources Ltd. (Class B)							19,000				76,000
Unilever plc ADR							20,000				440,000
Walt Disney Co.							120,000				360,000
Wells Fargo & Co.							45,000				610,000

 

13

---

HISTORICAL FINANCIAL STATISTICS

 

 

 

(unaudited)

 

 

Dec. 31		Value Of Net Assets				Shares Outstanding				Net Asset Value Per Share				Market Value Per Share				Dividends From Investment Income Per Share				Distributions From Net Realized Gains Per Share				Total Dividends and Distributions Per Share				Annual Distribution Rate*
2002		$	1,024,810,092				84,536,250			$	12.12			$	10.57			$	.19			$	.57			$	.76				6.2	%
2003			1,218,862,456				84,886,412				14.36				12.41				.17				.61				.78				6.8
2004			1,295,548,900				86,135,292				15.04				13.12				.24				.66				.90				7.1
2005			1,266,728,652				86,099,607				14.71				12.55				.22				.64				.86				6.7
2006			1,377,418,310				86,838,223				15.86				13.87				.23				.67				.90				6.8
2007			1,378,479,527				87,668,847				15.72				14.12				.32				.71				1.03				7.1
2008			840,012,143				87,406,443				9.61				8.03				.26				.38				.64				5.7
2009			1,045,027,339				87,415,193				11.95				10.10				.15				.30				.45				5.2
2010			1,124,671,966				88,885,186				12.65				10.72				.14				.37				.51				5.1
2011			1,050,733,678				91,073,899				11.54				9.64				.15				.50				.65				6.1
June 30, 2012			1,125,291,245				91,106,318				12.35				10.55				.13	†			.02	†			.15	†			—

 

*

The annual distribution rate is the total dividends and capital gain distributions during the year divided by the average month-end market price of the Company’s Common Stock for the calendar year in years prior to 2011 and for the twelve months ended October 31 beginning in 2011, which is consistent with the calculation to determine the distribution commitment announced in September 2011.

†	Paid or declared.

 

 

 

This report, including the financial statements herein, is transmitted to the stockholders of The Adams Express Company for their information. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Company 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.

 

14

---

OTHER INFORMATION

 

 

 

Dividend Payment Schedule

 

The Company 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 and, if applicable, a return of capital. 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.

 

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 Stockholders, the Company 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 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 a link to its Forms N-Q on its website at www.adamsexpress.com under the headings “Investment Information”, “Financial Reports” and then “SEC Filings”.

 

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 the Company’s proxy voting record for the 12-month period ended June 30, 2012 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 at www.adamsexpress.com under the headings “About Adams Express” and “Corporate Information”; and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.

 

Privacy Policy

 

In order to conduct its business, the Company, 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.

 

 

 

The Adams Express Company

 

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

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

Website: www.adamsexpress.com

E-mail: contact@adamsexpress.com

Counsel: Chadbourne & Parke LLP

Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP

Custodian of Securities: Brown Brothers Harriman & Co.

Transfer Agent & Registrar: American Stock Transfer & Trust Company

Stockholder Relations Department

59 Maiden Lane

New York, NY 10038

(877) 260-8188

Website: www.amstock.com

E-mail: info@amstock.com

 

15

 

 

THE ADAMS EXPRESS COMPANY

 

 

Board of Directors

 

Enrique R. Arzac 2,3		Roger W. Gale 2,4
Phyllis O. Bonanno 1,3,5		Kathleen T. McGahran  2,3
Kenneth J. Dale 2,4		Douglas G. Ober 1
Daniel E. Emerson 1,3,5		Craig R. Smith 1,3,5
Frederic A. Escherich 1,4,5

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, CFA		Chairman and Chief Executive Officer
David D. Weaver, CFA		President
Nancy J. F. Prue, CFA		Executive Vice President
Lawrence L. Hooper, Jr.		Vice President, General Counsel and Secretary
Richard A. Church		Vice President—Research
David R. Schiminger, CFA		Vice President—Research
D. Cotton Swindell, CFA		Vice President—Research
Brian S. Hook, CFA, CPA		Chief Financial Officer and Treasurer
Christine M. Sloan, CPA		Assistant Treasurer

 

 

Stock Data

 

 

Market Price (6/30/12)		$	10.55
Net Asset Value (6/30/12)		$	12.35
Discount:			14.6%

 

New York Stock Exchange ticker symbol: ADX

 

NASDAQ Quotation Symbol for NAV: XADEX

 

 

Distributions in 2012

 

 

From Investment Income (paid or declared)		$	0.13
From Net Realized Gains			0.02
Total		$	0.15

 

 

2012 Dividend Payment Dates

 

 

March 1, 2012

June 1, 2012

September 1, 2012

December 27, 2012*

 

*Anticipated

---

Item 2. Code of Ethics.

Item not applicable to semi-annual report.

 

Item 3. Audit Committee Financial Expert.

Item not applicable to semi-annual report.

 

Item 4. Principal Accountant Fees and Services.

Item not applicable to semi-annual report.

 

Item 5. Audit Committee of Listed Registrants.

Item not applicable to semi-annual report.

 

Item 6. Investments.

(a) This schedule is included as part of the Report to Stockholders filed under Item 1 of this form.

(b) Not applicable.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Item not applicable to semi-annual report.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Item not applicable to semi-annual report.

 

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

 

	Total Number of Shares (or Units Purchased)		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs
	----------------------------------		----------------------------------		----------------------------------		----------------------------------
January 2012	0		$0.00		0		4,446,272
February 2012	0		$0.00		0		4,446,272
March 2012	0		$0.00		0		4,446,272
April 2012	0		$0.00		0		4,446,272
May 2012	0		$0.00		0		4,446,272
June 2012	0		$0.00		0		4,446,272	(2)
	----------------------------------		----------------------------------		----------------------------------
Total	0	(1)	$0.00		0	(2)

 

(1) There were no shares purchased other than through a publicly announced plan or program.

(2.a) The Plan was announced on December 8, 2011.

(2.b) The share amount approved in 2011 was 5% of outstanding shares, or 4,446,272 shares.

(2.c) Unless reapproved, the Plan will expire on December 31, 2012.

(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 407(c)(2)(iv) of Regulation S-K (as required by Item 22(b)(15) of Schedule 14A), or this Item.

 

Item 11. Controls and Procedures.

(a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of the disclosure controls and procedures as of a date within 90 days of the filing date of this report.

(b) There have been no significant changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

 

Item 12. Exhibits.

(a)	(1)	Not applicable. See registrant's response to Item 2 above.
	(2)	Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached.
	(3)	Written solicitation to purchases securities: not applicable.
(b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached.

 

 

SIGNATURES
	Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
The Adams Express Company
By:	/s/ Douglas G. Ober
	Douglas G. Ober
	Chairman and Chief Executive Officer
	(Principal Executive Officer)
Date:	July 20, 2012
	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.
By:	/s/ Douglas G. Ober
	Douglas G. Ober
	Chairman and Chief Executive Officer
	(Principal Executive Officer)
Date:	July 20, 2012
By:	/s/ Brian S. Hook
	Brian S. Hook
	Chief Financial Officer and Treasurer
	(Principal Financial Officer)
Date:	July 20, 2012