THE ADAMS EXPRESS COMPANY

 

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Board of Directors

 

Enrique R. Arzac 1,3		Thomas H. Lenagh 1,4
Phyllis O. Bonanno 1,4		Kathleen T. McGahran 2,4
Daniel E. Emerson 2,3		Douglas G. Ober 1
Frederic A. Escherich 2,3		John J. Roberts 1,3
Roger W. Gale 1,3		Craig R. Smith 2,4

1.	Member of Executive Committee

2.	Member of Audit Committee

3.	Member of Compensation Committee

4.	Member of Retirement Benefits Committee

 

Officers

 

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

 

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Stock Data

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Market Price (3/31/06)		$	13.30
Net Asset Value (3/31/06)		$	15.48
Discount:			14.1%

 

New	York Stock Exchange and Pacific Exchange ticker symbol: ADX

NASDAQ Mutual Fund Quotation Symbol: XADEX

Newspaper

stock listings are generally under the abbreviation: AdaEx

 

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Distributions in 2006

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From Investment Income (paid or declared)		$	0.08
From Net Realized Gains			0.02
Total		$	0.10

 

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2006 Dividend Payment Dates

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March 1, 2006

June 1, 2006

September 1, 2006*

December 27, 2006*

 

*Anticipated

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LETTER TO STOCKHOLDERS

 

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We submit herewith the financial statements of the Company for the three months ended March 31, 2006. Also provided are a schedule of investments and other summary financial information.

 

Net assets of the Company at March 31, 2006 were $15.48 per share on 85,308,628 shares outstanding, compared with $14.71 per share at December 31, 2005 on 86,099,607 shares outstanding. On March 1, 2006, a distribution of $0.05 per share was paid, consisting of $0.02 from 2005 investment income, $0.02 from 2005 short-term capital gain, and $0.01 from 2006 investment income, all taxable in 2006. On April 13, 2006, an investment income dividend of $0.05 per share was declared to shareholders of record May 18, 2006, payable June 1, 2006.

 

Net investment income for the three months ended March 31, 2006 amounted to $3,995,963, compared with $4,007,315 for the same period in 2005. These earnings are equal to $0.05 and $0.05 per share, respectively, on the average number of shares outstanding during each period.

 

Net capital gain realized on investments for the three months ended March 31, 2006 amounted to $8,038,717, the equivalent of $0.09 per share.

 

The Annual Meeting, held on March 28, 2006, in Orlando, Florida, was well attended. The results of the voting at the Annual Meeting are shown on page 14.

 

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

 

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After serving 30 years on the Company’s Board of Directors, Mr. Robert J.M. Wilson retired in March 2006. Mr. Wilson started his career with the Company as the President and a Director in 1975. He retired from the Company in 1986 and continued serving on the Board until this year. Over the years, his insight in the financial markets and strong analytical discipline were invaluable to the Company, and all of our shareholders gained from the wisdom and judgment that he provided. We wish him well in his retirement and thank him for all his years of commitment to the Company.

 

We are pleased to announce the appointment of Mr. Frederic A. Escherich to the Board of Directors of the Company, effective February 9, 2006. Mr. Escherich, a 25-year veteran of J.P. Morgan, is now a private investor. He retired from J.P. Morgan in 2002 as the head of Mergers and Acquisition Research. Prior to that he was head of J.P. Morgan’s Financial Advisory Department; he managed industry analyst teams in transportation and technology and in the consumer and health care sectors. With his broad knowledge and experience in the equities markets, he is a valuable addition to the Board of Directors.

 

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

 

By order of the Board of Directors,

Douglas G. Ober,

Chairman and

Chief Executive Officer

Joseph M. Truta,

President

 

April 21, 2006

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STATEMENT OF ASSETS AND LIABILITIES

 

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March 31, 2006

(unaudited)

 

Assets
Investments* at value:
Common stocks and convertible securities (cost $894,787,699)		$	1,230,060,709
Non-controlled affiliate, Petroleum & Resources Corporation (cost $27,963,162)			65,935,067
Short-term investments (cost $23,482,450)			23,482,450
Securities lending collateral (cost $19,229,896)			19,229,896		$	1,338,708,122
Cash						276,798
Receivables:
Investment securities sold						537,661
Dividends and interest						1,215,225
Prepaid pension cost						5,404,492
Prepaid expenses and other assets						1,815,731
Total Assets						1,347,958,029
Liabilities
Investment securities purchased						3,710,149
Open written option contracts at value (proceeds $894,706)						760,675
Obligations to return securities lending collateral						19,229,896
Accrued expenses						3,746,193
Total Liabilities						27,446,913
Net Assets					$	1,320,511,116
Net Assets
Common Stock at par value $1.00 per share, authorized 150,000,000 shares; issued and outstanding 85,308,628 shares (includes 53,543 restricted shares, restricted stock units for 13,500 shares and deferred stock units for 1,024 shares) (Note 6)					$	85,308,628
Additional capital surplus						848,626,551
Unearned compensation — restricted stock awards (Note 6)						(704,666	)
Undistributed net investment income						6,095,049
Undistributed net realized gain on investments						7,806,608
Unrealized appreciation on investments						373,378,946
Net Assets Applicable to Common Stock					$	1,320,511,116
Net Asset Value Per Share of Common Stock						$15.48

 

*See Schedule of Investments on pages 8 and 9.

 

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

 

2

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STATEMENT OF OPERATIONS

 

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Three Months Ended March 31, 2006

(unaudited)

 

Investment Income
Income:
Dividends:
From unaffiliated issuers		$	5,372,928
From non-controlled affiliate			119,160
Interest and other income			214,053
Total Income			5,706,141
Expenses:
Investment research			749,455
Administration and operations			390,598
Directors’ fees			95,258
Reports and stockholder communications			110,926
Transfer agent, registrar and custodian expenses			91,014
Auditing and accounting services			32,500
Legal services			27,442
Occupancy and other office expenses			171,197
Travel, telephone and postage			25,969
Other			15,819
Total Expenses			1,710,178
Net Investment Income			3,995,963
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions			7,899,697
Net realized gain distributed by regulated investment company (non-controlled affiliate)			139,020
Change in unrealized appreciation on investments			56,901,579
Net Gain on Investments			64,940,296
Change in Net Assets Resulting from Operations		$	68,936,259

 

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

 

3

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STATEMENTS OF CHANGES IN NET ASSETS

 

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		Three Months Ended March 31, 2006				Year Ended December 31, 2005
		(unaudited)
From Operations:
Net investment income		$	3,995,963			$	18,288,551
Net realized gain on investments			8,038,717				53,817,950
Change in unrealized appreciation on investments			56,901,579				(27,193,045	)
Change in net assets resulting from operations			68,936,259				44,913,456
Distributions to Stockholders from:
Net investment income			(2,573,618	)			(18,634,893	)
Net realized gain from investment transactions			(1,716,452	)			(53,672,531	)
Decrease in net assets from distributions			(4,290,070	)			(72,307,424	)
From Capital Share Transactions:
Value of shares issued in payment of distributions			1,295				30,523,934
Cost of shares purchased (Note 4)			(10,962,838	)			(32,052,187	)
Deferred compensation (Notes 4, 6)			97,818				101,973
Change in net assets from capital share transactions			(10,863,725	)			(1,426,280	)
Total Change in Net Assets			53,782,464				(28,820,248	)
Net Assets:
Beginning of period			1,266,728,652				1,295,548,900
End of period (including undistributed net investment income of $6,095,049 and $4,672,704, respectively)		$	1,320,511,116			$	1,266,728,652

 

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

 

4

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

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1. Significant Accounting Policies

 

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

 

Security Valuation — Investments in securities traded on a national security exchange are valued at the last reported sale price on the day of valuation. Over-the-counter and listed securities for which a sale price is not available are valued at the last quoted bid price. Short-term investments (excluding purchased options) are valued at amortized cost. Purchased and written options are valued at the last quoted asked price.

 

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

 

Security Transactions and Investment Income — Investment transactions are accounted for on the trade date. Gain or loss on sales of securities and options is determined on the basis of identified cost. Dividend income and distributions to shareholders are recognized on the ex-dividend date, and interest income is recognized on the accrual basis.

 

2. Federal Income Taxes

 

The Company’s policy is to distribute all of its taxable income to its shareholders in compliance with the requirements of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required. For federal income tax purposes, the identified cost of securities at March 31, 2006 was $964,975,956 and net unrealized appreciation aggregated $373,732,166, of which the related gross unrealized appreciation and depreciation were $455,814,243 and $82,082,077, respectively.

 

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

 

3. Investment Transactions

 

The Company’s investment decisions are made by a committee of management, and recommendations to that committee are made by the research staff.

 

Purchases and sales of portfolio securities, other than options and short-term investments, during the three months ended March 31, 2006 were $36,007,870 and $49,926,094, 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 March 31, 2006 can be found on page 11.

 

Transactions in written covered call and collateralized put options during the three months ended March 31, 2006 were as follows:

 

		Covered Calls							Collateralized Puts
		Contracts			Premiums				Contracts			Premiums
Options outstanding, December 31, 2005		2,320			$	244,294			2,465			$	317,641
Options written		3,400				451,597			3,615				397,467
Options terminated in closing purchase transactions		(300	)			(35,598	)		(800	)			(108,715	)
Options expired		(1,100	)			(117,445	)		(1,900	)			(225,921	)
Options exercised		(170	)			(16,489	)		(125	)			(12,125	)
Options outstanding, March 31, 2006		4,150			$	526,359			3,255			$	368,347

 

4. Capital Stock

 

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

 

On December 27, 2005, the Company issued 2,400,624 shares of its Common Stock at a price of $12.715 per share (the average market price on December 12, 2005) to stockholders of record on November 22, 2005 who elected to take stock in payment of the year-end distribution from 2005 capital gain and investment income.

 

During 2006, the Company issued 99 shares of its Common Stock at a weighted average price of $13.09 per share as dividend equivalents to holders of deferred stock units and restricted stock units under the 2005 Equity Incentive 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 2006 and 2005 were as follows:

 

		Shares						Amount
		Three months ended March 31, 2006			Year ended December 31, 2005			Three months ended March 31, 2006				Year ended December 31, 2005
Shares issued in payment of dividends		99			2,400,624			$	1,295			$	30,523,934
Shares purchased (at a weighted average discount from net asset value of 14.2% and 12.6%, respectively)		(839,200	)		(2,458,500	)			(10,962,838	)			(32,052,187	)
Restricted shares/units granted under the Equity Incentive Compensation Plan		48,122			22,191				97,818				101,973
Net change		(790,979	)		(35,685	)		$	(10,863,725	)		$	(1,426,280	)

 

5. Retirement Plans

 

The Company’s qualified defined benefit pension plan covers all employees with at least one year of service. In addition, the

 

5

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

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Company has a nonqualified defined benefit plan which provides eligible employees with retirement benefits to supplement the qualified plan. Benefits are based on length of service and compensation during the last five years of employment. The Company’s policy is to contribute annually to the plans those amounts that can be deducted for federal income tax purposes, plus additional amounts as the Company deems appropriate in order to provide assets sufficient to meet benefits to be paid to plan participants. During the three months ended March 31, 2006, the Company did not contribute to the plans. The Company does not anticipate making any contributions to the plans in 2006.

 

The following table aggregates the components of the plans’ net periodic pension cost for the three months ended March 31, 2006:

 

Service cost		$	115,242
Interest cost			129,504
Expected return on plan assets			(198,509	)
Amortization of prior service cost			29,944
Amortization of net loss			45,191
Net periodic pension cost		$	121,372

 

The Company also sponsors a defined contribution plan that covers substantially all employees. For the three months ended March 31, 2006, the Company expensed contributions of $45,746. The Company does not provide postretirement medical benefits.

 

6. Stock-Based Compensation

 

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

 

A summary of option activity under the 1985 Plan as of March 31, 2006, and changes during the period then ended, is presented below:

 

		Options			Weighted- Average Exercise Price			Weighted- Average Remaining Life (Years)
Outstanding at December 31, 2005		254,766			$	11.71
Exercised		(34,063	)			7.94
Cancelled		(8,233	)			10.87
Outstanding at March 31, 2006		212,470			$	12.32		5.37
Exercisable at March 31, 2006		134,548			$	12.44		5.25

 

The options outstanding as of March 31, 2006 are set forth below:

 

Exercise Price		Options Outstanding		Weighted Average Exercise Price			Weighted Average Remaining Life (Years)
$8.50-$10.74		57,538		$	9.68		3.75
$10.75-$12.99		103,784			11.51		6.79
$13.00-$15.24		—			—		—
$15.25-$17.50		51,148			16.94		4.34
Outstanding at March 31, 2006		212,470		$	12.32		5.37

 

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 three months ended March 31, 2006 was $113,312.

 

The 2005 Equity Incentive Compensation Plan (“2005 Plan”) permits the grant of stock options, restricted stock awards and other stock incentives to key employees and all non-employee directors. The 2005 Plan provides for the issuance of up to 3,413,131 shares of the Company’s Common Stock, including both performance and nonperformance-based restricted stock. Performance-based restricted stock awards vest at the end of a specified three year period, with the ultimate number of awards earned contingent on achievement of certain performance targets. If performance targets are not achieved, all or a portion of the performance-based awards 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. The 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 number of shares of Common Stock which remains available for future grants under the Plan at March 31, 2006 is 3,342,818 shares.

 

The Company pays dividends and dividend equivalents on outstanding awards, which are charged to net assets when paid. Dividends and dividend equivalents paid on restricted awards that are later forfeited are reclassified to compensation expense.

 

A summary of the status of the Company’s awards granted as of March 31, 2006, and changes during the period then ended is presented below:

 

Awards		Shares/Units			Weighted Average Grant-Date Fair Value
Balance at December 31, 2005		21,441			$	12.57
Granted:
Restricted stock		39,602				12.93
Restricted stock units		7,500				13.24
Deferred stock units		1,024				12.74
Vested & issued		(1,500	)			(12.56	)
Forfeited		—				—
Balance at March 31, 2006 (includes 39,602 performance-based awards and 28,465 nonperformance-based awards)		68,067			$	12.81

 

6

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NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 

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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, no compensation cost is recognized and any recognized compensation cost is reversed. The total compensation costs for restricted stock granted to employees for the period ending March 31, 2006 were $57,246. The total compensation costs for restricted stock units granted to non-employee directors for the period ended March 31, 2006 were $28,175. As of March 31, 2006, there were total unrecognized compensation costs of $704,666 related to nonvested share-based compensation arrangements granted under the 2005 Plan. Those costs are expected to be recognized over a weighted average period of 2.33 years.

 

7. Expenses

 

The aggregate remuneration paid or accrued during the three months ended March 31, 2006 to officers and directors amounted to $1,303,008, of which $95,258 was paid or accrued as fees to directors who were not officers.

 

8. Portfolio Securities Loaned

 

The Company makes loans of securities to brokers, secured by cash deposits, U.S. Government securities, or bank letters of credit. The Company accounts for securities lending transactions as secured financing and receives compensation in the form of fees or retains a portion of interest on the investment of any cash received as collateral. The Company also continues to receive interest or dividends on the securities loaned. The loans are secured at all times by collateral of at least 102% of the fair value of the securities loaned plus accrued interest. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan will be for the account of the Company. At March 31, 2006, the Company had securities on loan of $18,768,540 and held collateral of $19,229,896, consisting of an investment trust fund which may invest in money market instruments, commercial paper, repurchase agreements, U.S. Treasury Bills, and U.S. agency obligations.

FINANCIAL HIGHLIGHTS

 

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		Three Months Ended
		(unaudited)
		March 31, 2006				March 31, 2005			Year Ended December 31
									2005			2004		2003		2002		2001
Per Share Operating Performance
Net asset value, beginning of period			$14.71			$15.04			$15.04			$14.36		$12.12		$16.05		$23.72
Net investment income			0.05			0.05			0.22			0.23*		0.19		0.20		0.26
Net realized gains and increase (decrease) in unrealized appreciation			0.75			(0.34)			0.32			1.39		2.85		(3.38)		(6.21)
Total from investment operations			0.80			(0.29)			0.54			1.62		3.04		(3.18)		(5.95)
Less distributions
Dividends from net investment income			(0.03)			(0.04)			(0.22)			(0.24)		(0.17)		(0.19)		(0.26)
Distributions from net realized gains			(0.02)			(0.01)			(0.64)			(0.66)		(0.61)		(0.57)		(1.39)
Total distributions			(0.05)			(0.05)			(0.86)			(0.90)		(0.78)		(0.76)		(1.65)
Capital share repurchases			0.02			0.02			0.05			0.02		0.04		0.05		0.04
Reinvestment of distributions			—			—			(0.06)			(0.06)		(0.06)		(0.04)		(0.11)
Total capital share transactions			0.02			0.02			(0.01)			(0.04)		(0.02)		0.01		(0.07)
Net asset value, end of period			$15.48			$14.72			$14.71			$15.04		$14.36		$12.12		$16.05
Per share market price, end of period			$13.30			$12.87			$12.55			$13.12		$12.41		$10.57		$14.22
Total Investment Return
Based on market price			6.4%			(1.5)%			2.2%			13.2%		25.2%		(20.6)%		(24.7)%
Based on net asset value			5.6%			(1.8)%			4.5%			12.1%		26.3%		(19.4)%		(24.7)%
Ratios/Supplemental Data
Net assets, end of period (in 000’s)			$1,320,511			$1,256,421			$1,266,729			$1,295,549		$1,218,862		$1,024,810		$1,368,366
Ratio of expenses to average net assets			0.53%	†		0.44%	†		0.45%			0.43%		0.47%		0.34%		0.19%
Ratio of net investment income to average net assets			1.23%	†		1.26%	†		1.44%			1.54%		1.45%		1.42%		1.33%
Portfolio turnover			11.31%	†		21.79%	†		12.96%			13.43%		12.74%		17.93%		19.15%
Number of shares outstanding at end of period (in 000’s)			85,309			85,343			86,100			86,135		84,886		84,536		85,233

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

†	Ratios presented on an annualized basis.

 

7

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SCHEDULE OF INVESTMENTS

 

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March 31, 2006

(unaudited)

 

 

		Shares		Value (A)
Stocks and Convertible Securities — 98.1%
Consumer — 17.0%
Consumer Discretionary — 6.8%
BJ’s Wholesale Club, Inc. (B)		500,000		$	15,755,000
Clear Channel Communications, Inc.		350,000			10,153,500
Comcast Corp. (B)		365,000			9,548,400
Gannett Co., Inc.		112,500			6,741,000
Newell Rubbermaid Inc.		515,000			12,972,850
Outback Steakhouse, Inc.		315,000			13,860,000
Target Corp.		410,000			21,324,100
					90,354,850
Consumer Staples — 10.2%
Avon Products, Inc.		420,000			13,091,400
Bunge Ltd.		235,000			13,091,850
Coca-Cola Co.		200,000			8,374,000
Dean Foods Co. (B)		450,000			17,473,500
Del Monte Foods Co.		1,115,000			13,223,900
PepsiCo, Inc.		440,000			25,427,600
Procter & Gamble Co.		340,000			19,590,800
Safeway Inc.		423,000			10,625,760
Unilever plc ADR		345,000			14,169,150
					135,067,960
Energy — 11.5%
BP plc ADR		270,000			18,613,800
ConocoPhillips		345,000			21,786,750
Exxon Mobil Corp.		130,000			7,911,800
Marathon Oil Co.		110,000			8,378,700
Murphy Oil Corp.		90,000			4,483,800
Petroleum & Resources Corporation (C)		1,985,996			65,935,067
Schlumberger Ltd.		190,000			24,048,300
					151,158,217
Financials — 17.0%
Banking — 12.7%
Bank of America Corp.		550,000			25,047,000
BankAtlantic Bancorp, Inc.		750,000			10,792,500
Compass Bancshares Inc.		300,000			15,183,000
Fifth Third Bancorp		280,000			11,020,800
Investors Financial Services Corp.		382,500			17,927,775
Morgan Stanley		175,000			10,993,500
North Fork Bancorp, Inc.		525,000			15,135,750
Wachovia Corp.		395,000			22,139,750
Wells Fargo & Co.		325,000			20,757,750
Wilmington Trust Corp.		420,000			18,207,000
					167,204,825
Insurance — 4.3%
AMBAC Financial Group, Inc.		295,000			23,482,000
American International Group, Inc.		500,000			33,045,000
					56,527,000

		Shares		Value (A)
Health Care — 13.0%
Abbott Laboratories		350,000		$	14,864,500
Advanced Medical Optics, Inc. (B)		300,000			13,992,000
Bristol-Myers Squibb Co.		345,000			8,490,450
Genentech, Inc. (B)		220,000			18,592,200
HCA Inc.		250,000			11,447,500
Johnson & Johnson		255,000			15,101,100
Laboratory Corp. of America Holdings (B)		225,000			13,158,000
MedImmune, Inc. (B)		225,000			8,230,500
Medtronic, Inc.		310,000			15,732,500
Pfizer Inc.		1,120,000			27,910,400
Wyeth Co.		325,000			15,769,000
Zimmer Holdings, Inc. (B)		125,000			8,450,000
					171,738,150
Industrials — 13.1%
Cintas Corp.		300,000			12,786,000
Curtiss-Wright Corp.		230,000			15,226,000
Donnelley (R.R.) & Sons Co.		260,000			8,507,200
Emerson Electric Co.		200,000			16,726,000
General Electric Co.		1,487,700			51,742,206
Illinois Tool Works Inc. (D)		125,000			12,038,750
Masco Corp.		450,000			14,620,500
3M Co.		160,000			12,110,400
United Parcel Service, Inc.		155,000			12,303,900
United Technologies Corp.		300,000			17,391,000
					173,451,956
Information Technology — 13.3%
Communication Equipment — 2.2%
Avaya Inc. (B)		600,000			6,780,000
Corning Inc. (B)		500,000			13,455,000
Lucent Technologies Inc. (B)		2,900,000			8,845,000
					29,080,000
Computer Related — 9.2%
Automatic Data Processing Inc.		300,000			13,704,000
BEA Systems, Inc. (B)		800,000			10,504,000
Cisco Systems, Inc. (B)		1,200,000			26,004,000
Dell Inc. (B)		400,000			11,904,000
Microsoft Corp.		1,180,000			32,107,800
Oracle Corp. (B)		1,356,001			18,563,654
Sapient Corp. (B)		1,150,000			8,774,500
					121,561,954
Electronics — 1.9%
Cree, Inc. (B)(D)		375,000			12,303,750
Intel Corp.		310,000			5,998,500
Solectron Corp. (B)		1,850,000			7,400,000
					25,702,250

8

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SCHEDULE OF INVESTMENTS (CONTINUED)

 

---

 

March 31, 2006

(unaudited)

 

		Shares		Value (A)
Materials — 5.9%
Air Products and Chemicals, Inc.		250,000		$	16,797,500
du Pont (E.I.) de Nemours and Co.		360,000			15,195,600
Florida Rock Industries Inc.		150,000			8,433,000
Martin Marietta Materials, Inc.		83,000			8,883,490
Rohm & Haas Co.		400,000			19,548,000
Smurfit-Stone Container Corp. (B)		650,000			8,820,500
					77,678,090
Telecom Services — 2.7%
Alltel Corp.		300,000			19,425,000
AT&T Corp.		595,000			16,088,800
					35,513,800
Utilities — 4.6%
Aqua America, Inc.		800,000			22,256,000
Black Hills Corp.		245,000			8,330,000
Duke Energy Corp.		611,560			17,826,974
MDU Resources Group, Inc.		375,000			12,543,750
					60,956,724
Total Stocks and Convertible Securities (Cost $922,750,861) (E)				$	1,295,995,776

		Prin. Amt.			Value (A)
Short-Term Investments — 1.8%
U.S. Government Obligations — 1.4%
U.S. Treasury Bills, 4.40%, due 5/18/06		$	18,500,000		$	18,393,613
Time Deposit — 0.0%
Citibank, N.A., 4.15%, due 4/3/06						493,011
Commercial Paper — 0.4%
AIG Funding Inc., 4.74%, due 4/6/06			1,000,000			999,342
Chevron Funding Corp., 4.71%, due 4/13/06			1,000,000			998,430
General Electric Capital Corp., 4.72%, due 4/4/06			1,600,000			1,599,371
Toyota Motor Credit Corp., 4.74%, due 4/11/06			1,000,000			998,683
						4,595,826
Total Short-Term Investments (Cost $23,482,450)						23,482,450
Securities Lending Collateral — 1.5%
Brown Brothers Investment Trust, 4.67%, due 4/3/06						19,229,896
Total Securities Lending Collateral (Cost $19,229,896)						19,229,896
Total Investments — 101.4% (Cost $965,463,207)						1,338,708,122
Cash, receivables, prepaid expenses and other assets, less liabilities — (1.4)%						(18,197,006	)
Net Assets — 100%					$	1,320,511,116

 

9

 

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Notes:

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

(B)	Presently non-dividend paying.

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

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

(E)	The aggregate market value of stocks held in escrow at March 31, 2006 covering open call option contracts written was $22,374,100. In addition, the aggregate market value of securities segregated by the Company’s custodian required to collateralize open put option contracts written was $15,682,000.

---

PORTFOLIO SUMMARY

 

---

 

March 31, 2006

(unaudited)

 

 

Ten Largest Portfolio Holdings

 

		Market Value			% of Net Assets
Petroleum & Resources Corporation*		$	65,935,067		5.0
General Electric Co.			51,742,206		3.9
American International Group, Inc.			33,045,000		2.5
Microsoft Corp.			32,107,800		2.4
Pfizer Inc.			27,910,400		2.1
Cisco Systems, Inc.			26,004,000		2.0
PepsiCo, Inc.			25,427,600		1.9
Bank of America Corp.			25,047,000		1.9
Schlumberger Ltd.			24,048,300		1.8
AMBAC Financial Group, Inc.			23,482,000		1.8
Total		$	334,749,373		25.3	%

*Non-controlled affiliate

 

 

Sector Weightings

 

10

---

SCHEDULE OF OUTSTANDING OPTION CONTRACTS

 

---

 

March 31, 2006

(unaudited)

 

Contracts (100 shares each)		Security		Strike Price		Contract Expiration Date				Appreciation/ (Depreciation)
COVERED CALLS
100		Advanced Medical Optics, Inc.		$    50		Jul		06		$  (1,800	)
100		Air Products and Chemicals, Inc.		70		Sep		06		(11,801	)
200		AMBAC Financial Group, Inc.		85		Aug		06		2,398
250		Aqua America, Inc.		30		Jun		06		8,264
100		Avon Products, Inc.		35		Oct		06		(1,300	)
150		Bunge Ltd.		65		Jul		06		18,299
100		Bunge Ltd.		70		Jul		06		12,725
150		ConocoPhillips		75		May		06		13,799
200		Corning Inc.		30		Aug		06		(9,600	)
100		Cree, Inc.		35		Apr		06		1,199
100		Cree, Inc.		35		Jun		06		(1,300	)
150		Cree, Inc.		40		Sep		06		(450	)
100		Emerson Electric Co.		85		Jun		06		(12,800	)
100		Emerson Electric Co.		95		Sep		06		(38,300	)
100		Genentech, Inc.		100		Jun		06		3,699
150		HCA Inc.		55		Aug		06		12,299
100		Illinois Tool Works Inc.		100		Jun		06		(8,301	)
100		Illinois Tool Works Inc.		100		Sep		06		(28,050	)
100		Illinois Tool Works Inc.		105		Sep		06		(10,800	)
150		Investors Financial Services Corp.		45		Jul		06		(56,240	)
100		Investors Financial Services Corp.		50		Jul		06		(1,301	)
100		Investors Financial Services Corp.		55		Oct		06		(8,175	)
150		Laboratory Corp. of America Holdings		60		May		06		(9,125	)
100		Laboratory Corp. of America Holdings		65		Aug		06		(3,300	)
100		MedImmune, Inc.		42.50		Jun		06		5,199
100		Murphy Oil Corp.		50		Apr		06		2,200
100		Murphy Oil Corp.		55		Jul		06		(800	)
150		Outback Steakhouse, Inc.		50		Aug		06		6,299
250		Rohm & Haas Co.		55		Jul		06		17,024
250		Target Corp.		65		Apr		06		24,248
150		United Technologies Corp.		65		Aug		06		8,399
4,150										(67,392	)
COLLATERALIZED PUTS
20		Advanced Medical Optics, Inc.		35		Apr		06		2,040
200		Advanced Medical Optics, Inc.		40		Apr		06		30,398
170		Advanced Medical Optics, Inc.		35		Jul		06		11,739
250		Automatic Data Processing Inc.		42.50		Aug		06		10,499
250		Avon Products, Inc.		25		Jul		06		16,749
250		Bunge Ltd.		45		Jul		06		14,249
150		Exxon Mobil Corp.		52.50		Oct		06		2,549
100		Fifth Third Bancorp		35		May		06		8,700
100		Florida Rock Industries Inc.		50		Jun		06		1,200
100		Florida Rock Industries Inc.		45		Sep		06		(2,300	)
100		Marathon Oil Corp.		65		Apr		06		10,700
65		Marathon Oil Corp.		70		May		06		(845	)
100		Marathon Oil Corp.		60		Jul		06		7,700
100		Marathon Oil Corp.		65		Jul		06		14,199
100		Marathon Oil Corp.		55		Oct		06		5,700
100		Morgan Stanley		60		May		06		3,200
100		Morgan Stanley		55		Jul		06		6,700
100		North Fork Bancorp, Inc.		25		May		06		7,700
100		Procter & Gamble Co.		55		Oct		06		(5,800	)
100		Target Corp.		47.50		Apr		06		11,699
200		3M Co.		65		Jul		06		12,399
250		Wachovia Corp.		47.50		Jul		06		17,999
250		Zimmer Holdings, Inc.		60		Jun		06		14,249
3,255										201,423
										$134,031

 

11

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CHANGES IN PORTFOLIO SECURITIES

 

---

 

During the Three Months Ended March 31, 2006

(unaudited)

 

		Shares
		Additions			Reductions			Held March 31, 2006
Advanced Medical Optics, Inc.		65,000						300,000
BankAtlantic Bancorp, Inc.		320,000						750,000
Comcast Corp.		12,500						365,000
Florida Rock Industries Inc.		150,000						150,000
Marathon Oil Corp.		110,000						110,000
Morgan Stanley		175,000						175,000
Oracle Corp.		631,001	(1)		155,000			1,356,001
Wachovia Corp.		25,000						395,000
Aqua America, Inc.					62,733			800,000
BellSouth Corp.					200,000			—
Corning Inc.					100,000			500,000
Cree, Inc.					125,000			375,000
DiamondCluster International, Inc.					340,000			—
Keyspan Corp.					140,000			—
Martin Marietta Materials, Inc.					17,000			83,000
MDU Resources Group, Inc.					200,000			375,000
Murphy Oil Corp.					119,600			90,000
Siebel Systems, Inc.					800,000	(1)		—
Vodafone Group plc ADS					492,613			—

---

(1)	Received .789 shares of Oracle Corp. in exchange for each share of Siebel Systems, Inc. held.

 

HISTORICAL FINANCIAL STATISTICS

 

---

 

 

December 31		Value of Net Assets			Shares Outstanding*		Net Asset Value per Share*			Dividends from Net Investment Income per Share*				Distributions from Net Realized Gains per Share*
1996		$	1,138,760,396		72,054,792		$	15.80		$	.35			$	.80
1997			1,424,170,425		74,923,859			19.01			.29				1.01
1998			1,688,080,336		77,814,977			21.69			.30				1.10
1999			2,170,801,875		80,842,241			26.85			.26				1.37
2000			1,951,562,978		82,292,262			23.72			.22				1.63
2001			1,368,366,316		85,233,262			16.05			.26				1.39
2002			1,024,810,092		84,536,250			12.12			.19				.57
2003			1,218,862,456		84,886,412			14.36			.17				.61
2004			1,295,548,900		86,135,292			15.04			.24				.66
2005			1,266,728,652		86,099,607			14.71			.22				.64
March 31, 2006 (unaudited)			1,320,511,116		85,308,628			15.48			.08	†			.02	†

---

*	Adjusted to reflect the 3-for-2 stock split effected in October 2000.

†	Paid or declared.

 

12

---

OTHER INFORMATION

 

---

 

 

Statement on Quarterly Filing of Complete Portfolio Schedule

 

In addition to publishing its complete schedule of portfolio holdings in the First and Third Quarter Reports to shareholders, the Company files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Company’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Company’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Company also posts its Forms N-Q on its website at www.adamsexpress.com under the heading “Financial Reports”.

 

Proxy Voting Policies and Record

 

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

 

Privacy Policy

 

In order to conduct its business, The Adams Express Company collects and maintains certain nonpublic personal information about our stockholders of record with respect to their transactions in shares of our securities. This information includes the stockholder’s address, tax identification or Social Security number, share balances, and dividend elections. We do not collect or maintain personal information about stockholders whose shares of our securities are held in “street name” by a financial institution such as a bank or broker.

 

We do not disclose any nonpublic personal information about you, our other stockholders or our former stockholders to third parties unless necessary to process a transaction, service an account or as otherwise permitted by law.

 

To protect your personal information internally, we restrict access to nonpublic personal information about our stockholders to those employees who need to know that information to provide services to our stockholders. We also maintain certain other safeguards to protect your nonpublic personal information.

 

---

 

Common Stock

Listed on the New York Stock Exchange

and the Pacific Exchange

 

The Adams Express Company

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

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

Website: www.adamsexpress.com

E-mail: contact@adamsexpress.com

Counsel: Chadbourne & Parke L.L.P.

Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP

Transfer Agent & Registrar: American Stock Transfer & Trust Co.

Custodian of Securities: Brown Brothers Harriman & Co.

 

13

---

ANNUAL MEETING OF STOCKHOLDERS

 

---

 

 

 

The Annual Meeting of Stockholders was held on March 28, 2006. For those nominated, the following votes were cast for directors:

 

		votes for		votes withheld
(A) Enrique R. Arzac:		69,509,329		2,656,332
(B) Phyllis O. Bonanno:		69,952,014		2,213,647
(C) Daniel E. Emerson:		69,038,044		3,127,617
(D) Frederic A. Escherich:		69,960,781		2,204,880
(E) Roger W. Gale:		69,938,367		2,227,294
(F) Thomas H. Lenagh:		68,922,646		3,243,015
(G) Kathleen T. McGahran:		70,041,626		2,124,035
(H) Douglas G. Ober:		69,988,127		2,177,534
(I) John J. Roberts:		69,091,813		3,073,848
(J) Craig R. Smith:		69,954,171		2,211,490

A proposal to approve and ratify the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for 2006 was approved with 70,433,126 votes for, 1,289,471 votes against, and 443,061 shares abstaining.

 

 

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 10269-0560

Website: www.amstock.com

E-mail: info@amstock.com

 

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

 

15