Adams Diversified Equity Fund : Financial Reports

ADAMS DIVERSIFIED EQUITY FUND

THIRD QUARTER REPORT

SEPTEMBER 30, 2020

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L E T T E R T O S H A R E H O L D E R S

Dear Fellow Shareholders,

The stock market's recovery continued in the third quarter as the S&P 500 rose 8.9%. Our Fund increased 8.5%. Driven by fiscal stimulus, signs of economic recovery, and progress toward a vaccine for COVID-19, the S&P 500 was up more than 50% from its March lows. The speed and strength of the recovery were surprising, with the S&P 500 posting its strongest two-quarter performance since 2009 and its best 100-day rally since 1933. For the first nine months of the year our Fund increased 6.4%, exceeding its benchmark, the S&P, which increased 5.6%.

"Investments in Consumer Staples, Consumer Discretionary, and Utilities were the strongest relative contributors to our Fund."

Although the stock market erased all of its losses suffered at the onset of the pandemic, the economy has not recovered as quickly. Unemployment remained elevated at 7.9%, well above the 3.5% level before the pandemic, with 11 million fewer jobs and the potential for additional layoffs. GDP fell at a staggering annual rate of 31.4% in the second quarter and corporate profits collapsed at the steepest rate in a decade. However, signs of recovery in manufacturing, a strong housing market, and hopes for a second stimulus package drove stocks higher. The Federal Reserve supported the market by signaling a shift in how it views interest rates, planning to keep short-term rates near zero for three years or longer.

For the quarter, investments in Consumer Staples, Consumer Discretionary, and Utilities were the strongest relative contributors to our Fund. Technology and Health Care detracted the most from our relative performance.

Our investments in Consumer Staples were the largest positive contributors to our relative return. At the beginning of the quarter, we increased our exposure to Procter & Gamble (P&G), a multinational household and beauty products company. We see P&G, with its focus on cleaning and hygiene products, as well positioned for the current environment. Our investment in Church & Dwight, whose largest consumer brand is Arm & Hammer, also benefited from COVID- 19-related demand for personal and household cleaning products. Costco Wholesale continued to have a positive impact on our returns, increasing 17.3% for the quarter, driven by strong comparable store sales trends and solid execution.

Consumer Discretionary was the best performing sector in the S&P 500, increasing 15.1%. Our holdings in the sector rose 15.8%. Target was a standout

L E T T E R T O S H A R E H O L D E R S ( C O N T I N U E D )

for the Fund, returning 31.9% during the quarter. The retailer continued to generate strong returns both through its stores and online. We added Dick's Sporting Goods, a leading sporting goods retailer, to our portfolio in July. Dick's has invested heavily in its digital capabilities and we felt the company was well positioned to capitalize on the stay-at-home trends, which are driving activewear sales as well as demand for home fitness equipment. The stock performed well, increasing 30.2% after we purchased it.

Although our investments in Technology increased 10.2%, we lagged the 12.0% benchmark return in the third quarter due primarily to stock selection in the semiconductor industry group. Semiconductors were the best performing industry group within Technology, increasing 13.8%. Our investments in capital equipment manufacturers, Lam Research and Applied Materials, suffered from short-term concerns about increased trade friction with China.

For the nine months ended September 30, 2020, the total return on the Fund's net asset value ("NAV") per share (with dividends and capital gains reinvested) was 6.4%. This compares to a 5.6% total return for the S&P 500 and a 4.0% total return for the Lipper Large-Cap Core Funds Average over the same time period. The total return on the market price of the Fund's shares for the period was 3.8%.

For the twelve months ended September 30, 2020, the Fund's total return on NAV was 15.2%. Comparable figures for the S&P 500 and Lipper Large-Cap Core Funds Average were 15.2% and 13.0%, respectively. The Fund's total return on market price was 11.8%.

During the first nine months of this year, the Fund paid distributions to shareholders in the amount of $16.3 million, or $.15 per share, consisting of $.01 net investment income and $.03 long-term capital gain, realized in 2019, and $.11 of net investment income realized in 2020, all taxable in 2020. These constitute the first three payments toward our annual 6.0% minimum distribution rate commitment. Additionally, the Fund repurchased 135,192 shares of its Common Stock during the past nine months. The shares were repurchased at an average price of $11.64 and a weighted average discount to NAV of 15.1%.

During the quarter we opted into the Maryland Control Share Acquisition Act (MCSAA), and put in place an enhanced discount management and liquidity program for the Fund. The MCSAA provides valuable protection to long-term shareholders from the actions of short-term opportunists and the discount management and liquidity program provides protection for our shareholders from outsized discounts in the stock.

As we enter the final quarter of what is proving to be an unpredictable year, we expect more market volatility. An uneven U.S. economic recovery, combined with

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L E T T E R T O S H A R E H O L D E R S ( C O N T I N U E D )

the uncertainty of the presidential race, only adds to the potential volatility. We also face increased risks from a resurgence of COVID-19 and the lack of a second fiscal stimulus, further weakening the economic recovery. During this period of heightened uncertainty, we will stay focused on what we can control, our disciplined investment process. We thank you for trusting us with your investments.

By order of the Board of Directors,

Mark E. Stoeckle

Chief Executive Officer & President

October 15, 2020

Disclaimers

This report contains "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. By their nature, all forward-looking statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect the Fund's actual results are the performance of the portfolio of stocks held by the Fund, the conditions in the U.S. and international financial markets, the price at which shares of the Fund will trade in the public markets, and other factors discussed in the Fund's periodic filings with the Securities and Exchange Commission.

This report is transmitted to the shareholders of the Fund for their information. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in the report. The rates of return will vary and the principal value of an investment will fluctuate. Shares, if sold, may be worth more or less than their original cost. Past performance is no guarantee of future investment results.

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