UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-00248
---------------------------------------------
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) (Zip code)
Lawrence L. Hooper, Jr.
The Adams Express Company
7 Saint Paul Street
Suite 1140
Baltimore, Maryland 21202
Registrant's telephone number, including area code: 410-752-5900
Date of fiscal year end: December 31, 2004
Date of reporting period: June 30, 2004
[GRAPHIC APPEARS HERE]
THE ADAMS EXPRESS COMPANY
-------------------------
Board of Directors
Enrique R. Arzac /1/,/2/ W. Perry Neff /2/,/4/
Phyllis O. Bonanno /1/,/3/ Douglas G. Ober /1/
Daniel E. Emerson /1/,/3/ Landon Peters /2/,/3/
Thomas H. Lenagh /1/,/4/ John J. Roberts /1/
W.D. MacCallan /3/,/4/ Susan C. Schwab /2/,/4/
Kathleen T. McGahran /2/,/4/ Robert J.M. Wilson /1/,/3/
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
D. Cotton Swindell Vice President--Research
Christine M. Sloan Assistant Treasurer
Geraldine H. Pare Assistant Secretary
----------
Stock Data
----------
Market Price (6/30/04) $ 12.72
Net Asset Value (6/30/04) $ 14.79
Discount: 14.0%
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
---------------------
Distributions in 2004
---------------------
From Investment Income (paid or declared) $ 0.13
From Net Realized Gains 0.02
---------
Total $ 0.15
=========
---------------------------
2004 Dividend Payment Dates
---------------------------
March 1, 2004
June 1, 2004
September 1, 2004
December 27, 2004*
*Anticipated
LETTER TO STOCKHOLDERS
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We submit herewith the audited financial statements of the Company for the six
months ended June 30, 2004. Also provided are the report of the independent
registered public accounting firm, a schedule of investments and summary
financial information.
Net assets of the Company at June 30, 2004 were $14.79 per share on 84,408,612
shares outstanding, compared with $14.36 per share at December 31, 2003 on
84,886,412 shares outstanding. On March 1, 2004, a distribution of $0.05 per
share was paid, consisting of $0.01 from 2003 long-term capital gain, $0.01 from
2003 short-term capital gain, and $0.03 from 2003 investment income, all taxable
in 2004. A 2004 investment income dividend of $0.05 per share was paid on June
1, 2004 and another $0.05 investment income dividend has been declared to
shareholders of record August 17, 2004, payable on September 1, 2004.
Net investment income for the six months ended June 30, 2004 amounted to
$7,719,995, compared with $7,115,861 for the same period in 2003. These earnings
are equal to $0.09 per share on the average number of shares outstanding during
each period.
Net capital gain realized on investments for the six months ended June 30, 2004
amounted to $22,800,007, the equivalent of $0.27 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 site on the Internet. The address for the
website is www.adamsexpress.com. Also available at the website are a history of
the Company, historical financial information, and more general industry
material. Further information regarding shareholder services is located on page
15 of this report.
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,
/s/ Douglas G. Ober,
Douglas G. Ober,
Chairman and
Chief Executive Officer
/s/ Joseph M. Truta,
Joseph M. Truta,
President
July 23, 2004
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
June 30, 2004
Assets
Investments* at value:
Common stocks and convertible securities
(cost $896,435,558) $ 1,172,484,319
Non-controlled affiliate, Petroleum & Resources Corporation
(cost $27,963,162) 47,286,577
Short-term investments (cost $23,485,648) 23,485,648
Securities lending collateral (cost $70,493,153) 70,493,153 $ 1,313,749,697
---------------------------------------------------------------------------------------
Cash 274,266
Receivables:
Investment securities sold 1,486,964
Dividends and interest 856,321
Prepaid expenses and other assets 7,030,110
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Total Assets 1,323,397,358
-----------------------------------------------------------------------------------------------------------
Liabilities
Investment securities purchased 1,167,174
Open written option contracts at value (proceeds $671,104) 355,925
Obligations to return securities lending collateral 70,493,153
Accrued expenses 2,951,123
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Total Liabilities 74,967,375
-----------------------------------------------------------------------------------------------------------
Net Assets $ 1,248,429,983
===========================================================================================================
Net Assets
Common Stock at par value $1.00 per share, authorized 150,000,000
shares; issued and outstanding 84,408,612 shares $ 84,408,612
Additional capital surplus 838,165,493
Undistributed net investment income 7,336,095
Undistributed net realized gain on investments 22,832,428
Unrealized appreciation on investments 295,687,355
-----------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $ 1,248,429,983
===========================================================================================================
Net Asset Value Per Share of Common Stock $ 14.79
===========================================================================================================
*See Schedule of Investments on pages 8 through 10.
The accompanying notes are an integral part of the financial statements.
2
STATEMENT OF OPERATIONS
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Six Months Ended June 30, 2004
Investment Income
Income:
Dividends:
From unaffiliated issuers $ 9,767,851
From non-controlled affiliate 377,339
Interest and other income 213,009
-----------------------------------------------------------------------------------------------------------
Total income 10,358,199
-----------------------------------------------------------------------------------------------------------
Expenses:
Investment research 1,057,342
Administration and operations 517,952
Directors' fees 153,375
Reports and stockholder communications 198,388
Transfer agent, registrar and custodian expenses 172,688
Auditing and accounting services 49,848
Legal services 105,565
Occupancy and other office expenses 205,370
Travel, telephone and postage 48,070
Other 129,606
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Total expenses 2,638,204
-----------------------------------------------------------------------------------------------------------
Net Investment Income 7,719,995
-----------------------------------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation On Investments
Net realized gain on security transactions 22,660,987
Net realized gain distributed by regulated investment company (non-controlled affiliate) 139,020
Change in unrealized appreciation on investments 13,574,864
-----------------------------------------------------------------------------------------------------------
Net Gain on Investments 36,374,871
-----------------------------------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $ 44,094,866
===========================================================================================================
The accompanying notes are an integral part of the financial statements.
3
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 2004 December 31, 2003
----------------- -----------------
From Operations:
Net investment income $ 7,719,995 $ 15,613,355
Net realized gain on investments 22,800,007 49,120,443
Change in unrealized appreciation on investments 13,574,864 187,524,953
-----------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 44,094,866 252,258,751
-----------------------------------------------------------------------------------------------------------
Distributions to Stockholders from:
Net investment income (6,770,361) (14,099,163)
Net realized gain from investment transactions (1,692,590) (50,229,205)
-----------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions (8,462,951) (64,328,368)
-----------------------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of shares issued in payment of distributions -- 32,667,930
Cost of shares purchased (Note 4) (6,064,388) (26,545,949)
-----------------------------------------------------------------------------------------------------------
Change in net assets from capital share transactions (6,064,388) 6,121,981
-----------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 29,567,527 194,052,364
Net Assets:
Beginning of period 1,218,862,456 1,024,810,092
-----------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $7,336,095 and $6,386,461, respectively) $ 1,248,429,983 $ 1,218,862,456
===========================================================================================================
The accompanying notes are an integral part of the financial statements.
4
NOTES TO FINANCIAL STATEMENTS
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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, including options, at June 30, 2004 was $1,018,246,195 and net
unrealized appreciation aggregated $296,174,606, of which the related gross
unrealized appreciation and depreciation were $428,062,720 and $131,888,114,
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, 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, 2004 were $93,347,907 and
$78,599,807, 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 June 30, 2004 can be
found on page 11.
Transactions in written covered call and collateralized put options during the
six months ended June 30, 2004 were as follows:
Covered Calls Collateralized Puts
--------------------- ---------------------
Contracts Premiums Contracts Premiums
--------- --------- --------- ---------
Options outstanding,
December 31, 2003 1,850 $ 229,289 3,100 $ 385,022
Options written 4,015 435,752 5,110 568,151
Options terminated in closing
purchase transactions (900) (93,746) (650) (81,026)
Options expired (1,100) (113,958) (3,750) (456,809)
Options exercised (1,350) (174,917) (250) (26,654)
------------------------------------------------------------------------------
Options outstanding,
June 30, 2004 2,515 $ 282,420 3,560 $ 388,684
==============================================================================
4. Capital Stock
The Company has 10,000,000 authorized and unissued preferred shares without par
value.
On December 27, 2003, the Company issued 2,702,062 shares of its Common Stock at
a price of $12.09 per share (the average market price on December 8, 2003) to
stockholders of record on November 24, 2003 who elected to take stock in payment
of the distribution from 2003 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 2004 and 2003 were as follows:
Shares Amount
------------------------ --------------------------
Six months Six months
ended Year ended ended Year ended
June 30, December 31, June 30, December 31,
2004 2003 2004 2003
---------- ------------ ------------ ------------
Shares issued in payment
of dividends -- 2,702,062 $ -- $ 32,667,930
Shares purchased (at a
weighted average
discount from net
asset value of
13.1% and 11.2%,
respectively) (477,800) (2,351,900) (6,064,388) (26,545,949)
-------------------------------------------------------------------------------
Net change (477,800) 350,162 $ (6,064,388) $ 6,121,981
===============================================================================
5
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
On June 30, 2004, the Company held a total of 824,650 shares of its Common Stock
at a cost of $10,351,626. The Company held 346,850 shares of its Common Stock at
a cost of $4,287,238 on December 31, 2003.
The Company has an employee incentive stock option and stock appreciation rights
plan which provides for the issuance of options and stock appreciation rights
for the purchase of up to 2,610,146 shares of the Company's Common Stock at 100%
of the fair market value at date of grant. Options are exercisable beginning not
less than one year after the date of grant and extend and vest over ten years
from the date of grant. Stock appreciation rights are exercisable beginning not
less than two years after the date of grant and extend over the period during
which the option is exercisable. The stock appreciation rights allow the holders
to surrender their rights to exercise their options and receive cash or shares
in an amount equal to the difference between the option price and the fair
market value of the Common Stock at the date of surrender.
Under the plan, the exercise price of the options and related stock appreciation
rights is reduced by the per share amount of capital gain paid by the Company
during subsequent years. At the beginning of 2004, 229,364 options were
outstanding, with a weighted average exercise price of $12.07 per share. During
the six months ended June 30, 2004, the Company granted options including stock
appreciation rights for 62,067 shares of Common Stock at an original weighted
average exercise price of $12.57. At June 30, 2004, there were outstanding
exercisable options to purchase 127,417 common shares at $3.79-$18.41 per share
(weighted average price of $12.43), and unexercisable options to purchase
164,014 common shares at $5.38-$18.41 per share (weighted average price of
$11.95). The weighted average remaining contractual life of outstanding
exercisable and unexercisable options is 6.18 years and 7.32 years,
respectively. Total compensation expense recognized for the six months ended
June 30, 2004 related to the stock options and stock appreciation rights plan
was $58,994. At June 30, 2004, there were 1,180,685 shares available for future
option grants.
5. Retirement Plans
The Company's non-contributory qualified defined benefit pension plan covers all
full-time employees with at least one year of service. Benefits are based on
length of service and compensation during the last five years of employment. The
Company's policy is to contribute annually to the plan 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 six months ended June 30, 2004, no
contributions to the plan have been made. The Company presently does not
anticipate making any contributions to the plan in 2004.
In addition, the Company has a nonqualified defined benefit plan which provides
eligible employees with retirement benefits to supplement the qualified plan.
The following table aggregates the components of the plans' net periodic pension
cost for the six months ended June 30:
June 30, 2004
-------------
Service cost $ 153,537
Interest cost 225,858
Expected return on plan assets (373,421)
Amortization of prior service cost 63,989
Amortization of net loss 56,601
--------------------------------------------------------------------------------
Net periodic pension cost $ 126,564
================================================================================
The Company also sponsors a defined contribution plan that covers substantially
all employees. For the six months ended June 30, 2004, the Company expensed
contributions of $75,303. The Company does not provide postretirement medical
benefits.
6. Expenses
The cumulative amount of accrued expenses at June 30, 2004 for employees and
former employees of the Company was $2,548,982. Aggregate remuneration paid or
accrued during the six months ended June 30, 2004 to directors and key employees
amounted to $1,173,116.
7. 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 approximately 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
June 30, 2004, the Company had securities on loan of $69,157,669 and held
collateral of $70,493,153, consisting of repurchase agreements, time deposits
and commercial paper.
6
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Six Months Ended
------------------------- Year Ended December 31
June 30, June 30, -------------------------------------------------------------------
2004 2003 2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
Per Share Operating Performance*
Net asset value, beginning of
period $ 14.36 $ 12.12 $ 12.12 $ 16.05 $ 23.72 $ 26.85 $ 21.69
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.09 0.09 0.19 0.20 0.26 0.26 0.25
Net realized gains and change in
unrealized appreciation 0.43 0.92 2.85 (3.38) (6.21) (1.51) 6.71
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.52 1.01 3.04 (3.18) (5.95) (1.25) 6.96
------------------------------------------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment
income (0.08) (0.07) (0.17) (0.19) (0.26) (0.22) (0.26)
Distributions from net realized
gains (0.02) (0.03) (0.61) (0.57) (1.39) (1.63) (1.37)
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.10) (0.10) (0.78) (0.76) (1.65) (1.85) (1.63)
------------------------------------------------------------------------------------------------------------------------------------
Capital share repurchases 0.01 0.03 0.04 0.05 0.04 0.10 --
Reinvestment of distributions -- -- (0.06) (0.04) (0.11) (0.13) (0.17)
------------------------------------------------------------------------------------------------------------------------------------
Total capital share transactions 0.01 0.03 (0.02) 0.01 (0.07) (0.03) (0.17)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.79 $ 13.06 $ 14.36 $ 12.12 $ 16.05 $ 23.72 $ 26.85
====================================================================================================================================
Per share market price, end of
period $ 12.72 $ 11.81 $ 12.41 $ 10.57 $ 14.22 $ 21.00 $ 22.38
Total Investment Return
Based on market price 3.3% 12.8% 25.2% (20.6)% (24.7)% 1.7% 36.1%
Based on net asset value 3.8% 8.7% 26.3% (19.4)% (24.7)% (4.3)% 33.6%
Ratios/Supplemental Data
Net assets, end of period
(in 000's) $ 1,248,430 $ 1,082,406 $ 1,218,862 $ 1,024,810 $ 1,368,366 $ 1,951,563 $ 2,170,802
Ratio of expenses to average
net assets 0.43%+ 0.53%+ 0.47% 0.34% 0.19% 0.24% 0.32%
Ratio of net investment income to
average net assets 1.25%+ 1.39%+ 1.45% 1.42% 1.33% 0.97% 1.06%
Portfolio turnover 13.10%+ 10.91%+ 12.74% 17.93% 19.15% 12.74% 15.94%
Number of shares outstanding at
end of period (in 000's)* 84,409 82,909 84,886 84,536 85,233 82,292 80,842
----------------
* Prior years have been adjusted to reflect the 3-for-2 stock split effected in
October 2000. Certain prior year amounts have been reclassified to conform to
current year presentation.
+ Ratios presented on an annualized basis.
7
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
June 30, 2004
Prin. Amt.
or Shares Value (A)
---------- ---------------
Stocks and Convertible Securities -- 97.7%
Consumer -- 13.3%
Consumer Discretionary -- 6.1%
BJ's Wholesale Club, Inc. (B)(C) 500,000 $ 12,500,000
Brinker International Inc. (B) 400,000 13,648,000
Gannett Co., Inc. 87,500 7,424,375
Mattel, Inc. 575,000 10,493,750
Newell Rubbermaid Inc. 515,000 12,102,500
Target Corp. 460,000 19,536,200
---------------
75,704,825
---------------
Consumer Staples -- 7.2%
Coca-Cola Co. 200,000 10,096,000
Dean Foods Co. (B) 562,500 20,986,875
Hershey Foods Corp. 140,000 6,477,800
PepsiCo, Inc. 440,000 23,707,200
Procter & Gamble Co. 340,000 18,509,600
Safeway, Inc. (B) 423,000 10,718,820
---------------
90,496,295
---------------
Energy -- 7.6%
BP plc ADR (C) 270,000 14,463,901
ConocoPhillips 200,000 15,258,000
Exxon Mobil Corp. 130,000 5,773,300
Petroleum & Resources
Corporation (D) 1,985,996 47,286,577
Schlumberger Ltd. 190,000 12,066,900
---------------
94,848,678
---------------
Financials -- 17.7%
Banking -- 11.1%
Bank of America Corp. 220,000 18,616,400
BankNorth Group, Inc. 400,000 12,992,000
Compass Bancshares Inc. 300,000 12,900,000
Fifth Third Bancorp 200,000 10,756,000
Investors Financial Services Corp. (C) 435,000 18,957,300
Provident Bankshares Corp. 335,021 9,662,019
Wachovia Corp. (C) 370,000 16,465,000
Wells Fargo & Co. 400,000 22,892,000
Wilmington Trust Corp. 420,000 15,632,400
---------------
138,873,119
---------------
Insurance -- 6.6%
AMBAC Financial Group, Inc. 400,000 29,376,000
American International Group, Inc. 738,675 52,652,755
---------------
82,028,755
---------------
Health Care -- 13.5%
Abbott Laboratories 350,000 $ 14,266,000
Bristol-Myers Squibb Co. 345,000 8,452,500
Enzon Pharmaceuticals, Inc. (B)(C) 100,000 1,276,000
Genentech, Inc. (B) 250,000 14,050,000
HCA Inc. 450,000 18,715,500
Hospira Inc. (B) 35,000 966,000
Johnson & Johnson 335,000 18,659,500
Laboratory Corp. of America Holdings (B)(C) 360,000 14,292,000
MedImmune, Inc. (B) 225,000 5,265,000
Medtronic Inc. 310,000 15,103,200
Pfizer Inc. 1,100,000 37,708,000
Wyeth Co. 325,000 11,752,000
Zimmer Holdings Inc. (B) 90,000 7,938,000
---------------
168,443,700
---------------
Industrials -- 14.9%
Black & Decker Corp. 250,000 15,532,500
Canadian National Railway Co. (C) 255,000 11,115,450
Donnelley (R.R.) & Sons Co. (C) 375,000 12,382,500
Emerson Electric Co. 200,000 12,710,000
General Electric Co. 1,487,700 48,201,480
Illinois Tool Works Inc. 135,000 12,945,150
Ingersoll-Rand Co. Ltd. (C) 196,000 13,388,760
Parker-Hannifin Corp. 225,000 13,378,500
3M Co. 165,000 14,851,650
United Parcel Service, Inc. 80,000 6,013,600
United Technologies Corp. 275,000 25,157,000
---------------
185,676,590
---------------
8
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
June 30, 2004
Prin. Amt.
or Shares Value (A)
---------- ---------------
Information Technology -- 15.0%
Communication Equipment -- 2.7%
Avaya Inc. (B) 575,000 $ 9,079,250
Corning Inc. (B) 1,170,000 15,280,200
Lucent Technologies Inc. (B)(C) 2,540,000 9,601,200
---------------
33,960,650
---------------
Computer Related -- 9.7%
BEA Systems Inc. (B) 800,000 6,576,000
BMC Software Inc. (B) 310,000 5,735,000
Cisco Systems, Inc. (B) 1,200,000 28,440,000
Dell Inc. (B) 400,000 14,328,000
DiamondCluster International Inc. (B) 497,500 4,323,275
Microsoft Corp. 800,000 22,848,000
Oracle Corp. (B) 880,000 10,498,400
Sapient Corp. (B) 1,150,000 6,911,500
Siebel Systems Inc. (B) 800,000 8,544,000
Sun Microsystems Inc. (B) 515,000 2,235,100
Symantec Corp. 3.00% Conv. Sub.
Notes due 2006 (E) $ 500,000 1,287,188
Symantec Corp. (B)(C) 215,000 9,412,700
---------------
121,139,163
---------------
Electronics -- 2.6%
Cree, Inc. (B)(C) 500,000 11,640,000
Intel Corp. 310,000 8,556,000
Solectron Corp. (B) 1,850,000 11,969,500
---------------
32,165,500
---------------
Materials -- 4.9%
Air Products and Chemicals, Inc. 250,000 $ 13,112,500
Albemarle Corp. (C) 52,850 1,672,703
du Pont (E.I.) de Nemours and Co. 400,000 17,768,000
Rohm & Haas Co. 400,000 16,632,000
Smurfit-Stone Container Corp. (B)(C) 601,350 11,996,933
---------------
61,182,136
---------------
Telecom Services -- 4.3%
Alltel Corp. 350,000 17,717,000
BellSouth Corp. 415,000 10,881,300
SBC Communications Inc. 595,000 14,428,750
Vodafone Group plc
ADS (C) 492,613 10,886,758
---------------
53,913,808
---------------
Utilities -- 6.5%
Aqua America, Inc. 927,500 18,596,375
Black Hills Corp. (C) 255,000 8,032,500
CINergy Corp. (C) 300,000 11,400,000
Duke Energy Corp. (C) 611,560 12,408,552
Keyspan Corp. 400,000 14,680,000
MDU Resources Group, Inc. 675,000 16,220,250
---------------
81,337,677
---------------
Total Stocks and Convertible Securities
(Cost $924,398,720) (F) $ 1,219,770,896
---------------
9
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
June 30, 2004
Prin. Amt. Value (A)
--------------- ---------------
Short-Term Investments -- 1.9%
U.S. Government Obligations -- 1.4%
U.S. Treasury Bills,
0.96%, due 8/19/04 $ 18,000,000 $ 17,976,480
---------------
Commercial Paper -- 0.5%
American General Finance Corp.,
0.95 - 1.26%, due 7/6/04 5,510,000 5,509,168
---------------
Total Short-Term Investments
(Cost $23,485,648) 23,485,648
---------------
Securities Lending Collateral -- 5.6%
Repurchase Agreements
Daiwa Securities America Inc.,
1.65%, due 7/1/04 52,504,003
Time Deposits
Nordeutsche Landesbanken
GIR Hanover, 1.07%, due 7/8/04 3,508,738
Commercial Paper
Citi Corp., 1.38%, due 8/3/04 2,996,088
Giro Balanced Funding Corp.,
1.29%, due 7/15/04 2,998,167
Holland Ltd,
1.08%, due 7/12/04 $ 2,998,557
Jupiter Securitization Corp.,
1.34%, due 8/2/04 1,997,468
Surrey Funding Corp.,
1.07 - 1.51%, due 7/12/04-9/24/04 3,490,132
---------------
Total Securities Lending Collateral
(Cost $70,493,153) 70,493,153
---------------
Total Investments -- 105.2%
(Cost $1,018,377,521) 1,313,749,697
Cash, receivables and other
assets, less liabilities-- (5.2)% (65,319,714)
---------------
Net Assets-- 100.0% $ 1,248,429,983
===============
--------------------------------------------------------------------------------
Notes:
(A) See note 1 to financial statements. Securities are listed on the New York
Stock Exchange, the American Stock Exchange or the NASDAQ, except restricted
securities.
(B) Presently non-dividend paying.
(C) Some or all of these securities are on loan. See note 7 to financial
statements.
(D) Non-controlled affiliate, a closed-end sector fund, registered as an
investment company under the Investment Company Act of 1940.
(E) Restricted security (Symantec Corp. 3.00% Conv. Sub. Notes due 2006 acquired
10/18/01, cost $500,000).
(F) The aggregate market value of stocks held in escrow at June 30, 2004
covering open call option contracts written was $15,571,240. In addition,
the aggregate market value of securities segregated by the Company's
custodian required to collateralize open put option contracts written was
$13,571,875.
10
SCHEDULE OF OUTSTANDING OPTION CONTRACTS
--------------------------------------------------------------------------------
June 30, 2004
Contracts
(100 Contract
Shares Strike Expiration Appreciation/
Each) Security Price Date (Depreciation)
--------- -------- ------- ---------- --------------
COVERED CALLS
350 American International Group, Inc. $ 80 Aug 04 $ 33,948
200 Black & Decker Corp. 65 Aug 04 6,499
200 Brinker International Inc. 40 Jan 05 11,549
150 Brinker International Inc. 40 Jul 04 7,299
100 ConocoPhillips 80 Aug 04 3,600
100 Illinois Tool Works Inc. 100 Sep 04 (9,800)
150 Ingersoll-Rand Co. Ltd. 70 Jul 04 1,800
100 Ingersoll-Rand Co. Ltd. 80 Sep 04 12,200
150 Investors Financial Services Corp. 50 Jul 04 22,048
150 Laboratory Corp. of America Holdings 45 Aug 04 12,925
65 Parker-Hannifin Corp. 65 Aug 04 3,380
200 Procter & Gamble Co. 60 Oct 04 3,700
100 Symantec Corp. 55 Jul 04 7,700
100 Symantec Corp. 55 Oct 04 6,100
150 United Technologies Corp. 100 Aug 04 12,149
100 United Technologies Corp. 105 Nov 04 6,099
150 Zimmer Holdings Inc. 95 Sep 04 (9,451)
--------- --------------
2,515 131,745
--------- --------------
COLLATERALIZED PUTS
250 Avaya Inc. 15 Sep 04 7,999
250 Avaya Inc. 12.50 Dec 04 14,249
200 Bank of America Corp. 75 Aug 04 24,199
100 Bank of America Corp. 70.00 Nov 04 5,200
150 Canadian National Railway Co. 36.63 Jul 04 6,849
60 Canadian National Railway Co. 35 Oct 04 4,070
250 du Pont (E.I.) de Nemours and Co. 37.50 Oct 04 15,499
100 Emerson Electric Co. 55 Sep 04 12,599
250 Fifth Third Bancorp 50 Aug 04 15,749
100 Gannett Co., Inc. 75 Oct 04 2,350
250 Microsoft Corp. 22.50 Oct 04 20,499
200 Murphy Oil Corp. 55 Jul 04 16,849
100 Murphy Oil Corp. 50 Oct 04 5,200
250 Smurfit-Stone Container Corp. 15 Aug 04 15,499
200 Target Corp. 40 Aug 04 2,650
200 Target Corp. 40 Oct 04 5,125
100 Target Corp. 35 Jan 05 (300)
250 Wachovia Corp. 40 Jan 05 (5,501)
100 Wyeth Co. 30 Jul 04 8,700
100 Wyeth Co. 30 Oct 04 5,700
100 Wyeth Co. 35 Oct 04 250
--------- --------------
3,560 183,434
--------- --------------
$ 315,179
==============
11
CHANGES IN PORTFOLIO SECURITIES
--------------------------------------------------------------------------------
During the Three Months Ended June 30, 2004
(unaudited)
Shares
----------------------------------------
Held
Additions Reductions June 30, 2004
----------- ---------- -------------
Avaya Inc. 575,000 575,000
Bank of America Corp. 20,000 220,000
Cree, Inc. 256,100 500,000
Duke Energy Corp. 256,560(1) 611,560
du Pont (E.I.) de Nemours and Co. 400,000 400,000
Fifth Third Bancorp 45,000 200,000
Genentech, Inc. 125,000(2) 10,000 250,000
Hershey Foods Corp. 70,000(2) 140,000
Hospira Inc. 35,000(3) 35,000
Lucent Technologies Inc. 440,000 2,540,000
Procter & Gamble Co. 170,000(2) 340,000
Smurfit-Stone Container Corp. 162,850 601,350
Wyeth Co. 25,000 325,000
Affymetrix Inc. 110,000 --
Albemarle Corp. 172,550 52,850
Aqua America, Inc. 22,500 927,500
BankNorth Group, Inc. 74,000 400,000
Black & Decker Corp. 50,000 250,000
Black Hills Corp. 15,000 255,000
CINergy Corp. 140,000 300,000
Donnelley (R.R.) & Sons Co. 25,000 375,000
Duke Energy Corp. 8.25% Conv. Pfd. due 2004 400,000(1) --
Ingersoll-Rand Co. Ltd. 9,000 196,000
Johnson & Johnson 25,000 335,000
Laboratory Corp. of America Holdings 60,000 360,000
Nokia Corp. ADR 400,000 --
Parker-Hannifin Corp. 50,000 225,000
Symantec Corp. 20,000 215,000
TECO Energy, Inc. 650,000 --
----------
(1) By conversion.
(2) By stock split.
(3) Received 1 share for 10 shares of Abbott Laboratories held.
----------
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 market value of an investment will fluctuate.
Shares, if sold, may be worth more or less than their original cost. Past
performance is not indicative of future investment results.
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Directors and Stockholders of
The Adams Express Company:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Adams Express Company
(hereafter referred to as the "Company") at June 30, 2004, and the results of
its operations, the changes in its net assets and the financial highlights for
each of the fiscal periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States), which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at June 30, 2004, by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
July 8, 2004
13
HISTORICAL FINANCIAL STATISTICS
--------------------------------------------------------------------------------
Dividends Distributions
Net from from
Asset Net Investment Net Realized
Value of Shares Value per Income Gains
December 31 Net Assets Outstanding* Share* per Share* per Share*
----------- ----------------- ------------ --------- -------------- -------------
1994 $ 798,297,600 66,584,985 $ 11.99 $ .33 $ .73
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
June 30, 2004 1,248,429,983 84,408,612 14.79 .13+ .02+
----------
* Prior years have been adjusted to reflect the 3-for-2 stock split effected in
October 2000.
+ Paid or declared.
----------
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: The Bank of New York
14
SHAREHOLDER INFORMATION AND SERVICES
--------------------------------------------------------------------------------
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.
----------
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 will be no fees or commissions in
connection with this dividend and capital gain distribution when made in newly
issued shares.
15
Item 2: Code(s) of Ethics for senior financial officers - 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: Schedule of Investments - This schedule is included as part of the
report to shareholders filed under Item 1 of this form.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Item not applicable to semi-annual report.
Item 8: Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Maximum
Total Number (or
Number of Approximate
Shares (or Dollar Value)
Total Units) of Shares (or
Number Purchased Units) that
of Average as Part of May Yet Be
Shares Price Publicly Purchased
(or Paid per Announced Under the
Units) Share (or Plans or Plans or
Period(2) Purchased Unit) Programs Programs
-------- --------- --------- --------- ---------
Jan. 2004 175,900 $ 12.72 175,900 3,936,747
Feb. 2004 81,000 $ 12.96 81,000 3,855,747
Mar. 2004 0 -- 0 3,855,747
Apr. 2004 0 -- 0 3,855,747
May 2004 25,800 $ 12.34 25,800 3,829,947
June 2004 195,100 $ 12.60 195,100 3,634,847
-------- --------- --------- --------- ---------
Total 477,800(1) $ 12.69 477,800(2) 3,634,847(2)
(1) There were no shares purchased other than through a publicly announced
plan or program.
(2.a) The Plan was announced on December 11, 2003.
(2.b) The share amount approved was 5% of outstanding shares, or
approximately 4,112,647 shares.
(2.c) The Plan will expire on or about December 9, 2004.
(2.d) None.
(2.e) None.
Item 9: Submission of Matters to a Vote of Security Holders - There were no
material changes to the procedures by which shareholders may recommend
nominees to the registrant's board of directors made or implemented
after the registrant last provided disclosure in response to the
requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101),
or this Item.
Item 10: Controls and Procedures.
(a) The registrant's Principal Executive Officer and Principal Financial
Officer have evaluated the registrant's disclosure controls and procedures
within 90 days of this filing and have concluded that the registrant's
disclosure controls and procedures were effective, as of that date, in
ensuring that information required to be disclosed by the registrant in
this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) Internal Controls. There were no significant changes in the
registrant's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Item 11: Exhibits attached hereto. (Attach certifications as exhibits)
(1) Not required at this time.
(2) Separate certifications by the registrant's principal executive officer and
principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2 under the Investment Company Act of 1940, are
attached.
A certification by the registrant's principal executive officer and principal
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is
attached.
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
Chief Executive Officer
(Principal Executive Officer)
Date: August 2, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
BY: /s/ Douglas G. Ober
-----------------------
Douglas G. Ober
Chief Executive Officer
(Principal Executive Officer)
Date: August 2, 2004
BY: /s/ Maureen A. Jones
-----------------------
Maureen A. Jones
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: August 2, 2004