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
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THE ADAMS EXPRESS COMPANY
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(Exact name of Registrant as specified in charter)
7 Saint Paul Street, Suite 1140, Baltimore, Maryland 21202
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(Address of principal executive offices) (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, 2007
Date of reporting period: December 31, 2007
Item 1. Reports to Stockholders.
Generation after generation -
[Graphic]
we grow with you.TM
INVEST PROTECT GROW The Adams Express Company
Annual Report 2007
2007 AT A GLANCE
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The Company
.. a closed-end equity investment company
.. objectives: preservation of capital
reasonable income
opportunity for capital gain
.. internally-managed
.. low expense ratio
.. low turnover
Stock Data (12/31/07)
NYSE Symbol............. ADX
Market Price......... $14.12
52-Week Range. $13.01-$15.38
Discount.............. 10.2%
Shares Outstanding87,668,847
Summary Financial Information
Year Ended December 31
2007 2006
-----------------------------------------------------------------------
Net asset value per share $ 15.72 $ 15.86
Total net assets 1,378,479,527 1,377,418,310
Unrealized appreciation 410,454,970 418,756,256
Net investment income 25,884,799 19,691,488
Total realized gain 60,426,376 56,553,881
Total return (based on market value) 9.4% 17.9%
Total return (based on net asset value) 6.5% 15.0%
Expense ratio 0.44% 0.50%
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2007 Dividends and Distributions
Amount
Paid (per share) Type
-----------------------------------------------------
March 1, 2007 $0.01 Short-term capital gain
March 1, 2007 0.04 Investment income
June 1, 2007 0.05 Investment income
September 1, 2007 0.05 Investment income
December 27, 2007 0.63 Long-term capital gain
December 27, 2007 0.07 Short-term capital gain
December 27, 2007 0.18 Investment income
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$1.03
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2008 Annual Meeting of Stockholders
Location: The Tremont Grand, Baltimore, Maryland
Date: March 13, 2008
Time: 9:00 a.m.
PORTFOLIO REVIEW
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(unaudited)
Ten Largest Portfolio Holdings (12/31/07)
Market Value % of Net Assets
------------ ---------------
Petroleum & Resources Corporation* $ 84,540,683 6.1
General Electric Co. 51,453,160 3.7
Microsoft Corp. 42,008,000 3.1
Schlumberger Ltd. 37,380,600 2.7
PepsiCo, Inc. 30,360,000 2.2
Bank of America Corp. 30,119,800 2.2
American International Group, Inc. 29,150,000 2.1
State Street Corp. 26,300,274 1.9
ConocoPhillips 26,048,500 1.9
Pfizer Inc. 25,457,600 1.9
------------ ----
Total $382,818,617 27.8%
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*Non-controlled affiliate
Sector Weightings (12/31/07)
[CHART]
Consumer 17.4%
Energy 14.2%
Financial 14.1%
Health Care 10.7%
Industrials 14.9%
Information Technology 11.4%
Materials 5.2%
Telecom Services 1.5%
Utilities 3.8%
Short-Term Investments 6.6%
1
THE ADAMS EXPRESS COMPANY
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Calendar Market Cumulative Cumulative Total Total net
year value market value market value market asset
end of of capital of income value value
original gains dividends
shares distributions taken in
taken in shares
shares
--------------------------------------------------------------
1993 $ 8,902 $ 589 $ 197 $ 9,688 $10,720
1994 7,781 1,113 422 9,316 10,723
1995 9,211 2,014 824 12,049 13,916
1996 9,836 2,957 1,225 14,018 16,820
1997 12,046 4,721 1,877 18,644 21,979
1998 13,259 6,535 2,428 22,222 27,155
1999 16,714 10,077 3,433 30,224 36,270
2000 15,687 11,572 3,478 30,737 34,718
2001 10,623 9,860 2,669 23,152 26,131
2002 7,896 8,233 2,242 18,371 21,064
2003 9,270 10,776 2,940 22,986 26,598
2004 9,801 12,602 3,599 26,002 29,806
2005 9,375 13,319 3,860 26,554 31,124
2006 10,361 16,123 4,810 31,294 35,783
2007 10,548 18,052 5,611 34,211 38,087
Illustration of an assumed
15 year investment of $10,000
(unaudited)
Investment income dividends and capital gains distributions are taken in
additional shares. This chart covers the years 1993-2007. Fees for the
reinvestment of interim dividends are assumed as 2% of the amount reinvested
(maximum of $2.50) and commissions of $0.05 per share. There is no charge for
reinvestment of year-end distributions. No adjustment has been made for any
income taxes payable by stockholders on income dividends or on capital gains
distributions, or the sale of any shares. These results should not be
considered representative of the dividend income or capital gain or loss which
may be realized in the future.
[CHART]
2
LETTER TO STOCKHOLDERS
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The Year in Review
We are pleased to report that the Fund generated a 6.5% total return on net
assets in 2007 despite a challenging investment climate. This return
outperformed the 5.5% return of the S&P 500 Index and the 5.8% return of the
Lipper Large Cap Core Mutual Fund Average for the year.
Our holdings in energy, consumer staples, telecom services and technology were
the principal contributors to the Fund's return in 2007. Overweight positions
(a higher percentage of assets than the S&P 500 Index) in energy and consumer
staples and underweightings in financials and consumer discretionary stocks
augmented our returns relative to the benchmark. The health care, industrial,
and materials holdings in the portfolio did not perform as well as their
corresponding sectors of the index.
The Fund's total return on market price was 9.4%. A portion of this return
resulted from trading late in the day on December 31. Without the effect of
these trades, the total market return would have been approximately 1.7% lower.
It should be noted that we were not in the market buying back any of our shares
during the final six business days of the year.
At the beginning of the year, we expected that returns would reflect a
generally improved earnings outlook, but the credit crisis in the U.S.
financial system that surfaced in the summer dramatically impacted those
expectations. The Federal Reserve cut short-term interest rates by 1/2% in
September and by the end of the year cut them another 1/2%. Massive amounts of
liquidity have been injected into U.S. and overseas money markets and billions
of dollars worth of collateralized debt obligation investments have been
written down by banks, hedge funds, and other investors. So far, most of the
problems have related to low quality "subprime" home mortgages, but banks have
indicated that credit quality is also deteriorating in home equity, auto, and
credit card loans.
The trauma in credit markets spilled over into the equity markets in the fourth
quarter of the year, as the huge write-offs at homebuilders and financial
institutions threw assumptions about the strength of the rest of the economy
into question. Steadily rising gasoline and food prices finally began to take
their toll on consumers, and what had been relatively tame inflation figures
started to worsen. The holiday retail selling season was the worst since 2003
as consumers tightened their belts and spent only modestly and principally at
the sale counters. The stock market reflected investor disappointment with
these conditions and other areas of weakness with the S&P 500 Index returning
-3.3% in the final quarter. We were pleased that the Fund's return for the year
as a whole remained a full percentage point above that of the index.
Investment Results
At the end of 2007, our net assets were $1,378,479,527 or $15.72 per share on
87,668,847 shares outstanding. This compares with $1,377,418,310 or $15.86 per
share on 86,838,223 shares outstanding a year earlier.
Net investment income for 2007 was $25,884,799 compared to $19,691,488 for
2006. These earnings are equal to $0.30 and $0.23 per share, respectively, on
the average number of shares outstanding throughout each year. Our 0.44%
expense ratio (expenses to average net assets) in 2007 was once again very low
compared to the fund industry in general.
Net realized gains amounted to $60,426,376 during the year, while the
unrealized appreciation on investments decreased from $418,756,256 at December
31, 2006 to $410,454,970 at year end.
Dividends and Distributions
The total dividends and distributions paid in 2007 were $1.03 per share
compared to $0.90 in 2006. The table on page 19 shows the history of our
dividends and distributions over the past fifteen years, including the annual
rate of distribution as a percentage of the average daily market price of the
Company's Common Stock. In 2007, the annual rate of distribution was 7.15%
compared to 6.80% in 2006. As announced on November 8, 2007, a year-end
distribution consisting of investment income of $0.18 per share and capital
gains of $0.70 per share was made on December 27, 2007, both realized and
taxable in 2007. On January 10, 2008, an additional distribution of $0.05 per
[PHOTO]
Douglas G. Ober,
Chairman and Chief
Executive Officer
3
LETTER TO STOCKHOLDERS
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share was declared to shareholders of record on February 14, 2008, payable
March 1, 2008, representing the balance of undistributed net investment income
and capital gains earned during 2007 and an initial distribution from 2008 net
investment income, all taxable to shareholders in 2008.
Outlook for 2008
The long-anticipated slowing in U.S. economic growth appears to have begun as a
result of the turmoil in the housing and credit markets, combined with higher
energy and food costs. Real gross domestic product (GDP) growth swung from 2.1%
in the final quarter of 2006 to 0.6% in the first quarter of 2007 to 4.9% in
the third quarter and is likely to show 0.6% growth or less for the fourth
quarter. A recession, defined as two consecutive quarters of negative growth in
GDP, is certainly a possibility in 2008, though if one occurred, we would not
expect it to be long or deep. The Federal Reserve reduced interest rates and is
expected to continue to do so, while keeping a close eye on inflation. The
level of so-called "core" inflation, excluding food and energy, has been within
the range with which the Fed is comfortable. At some point, however, overall
inflation and its impact on consumers must be considered.
One of the other effects of lower interest rates is generally a weaker dollar
relative to other currencies. The dollar has been declining for some time now
and is expected to continue while interest rates are being brought down. This
should result in improved exports as U.S. goods become more competitive
overseas. While the economies of our trading partners are likely to weaken
somewhat in response to a slower economy here, they are still expected to
experience better growth than the U.S. The combination of lower interest rates,
a weaker dollar, and stronger economies overseas should result in a fairly
rapid recovery from the expected period of little or no growth. The recovery
could be derailed, however, by the development of a full-fledged banking crisis
out of the current "subprime" and collateralized debt problem.
If the economy recovers late in 2008, the stock market should follow suit.
Analysts are now beginning to lower earnings estimates for many companies and
their stock prices are already reacting strongly. Investor concern about
financial conditions is resulting in knee-jerk reactions to bad news. While
this can present some interesting opportunities, we believe there will be
equally attractive ones when there is less question as to the severity of the
decline. Our current portfolio is broadly diversified across industries with an
emphasis on companies with large exposures to economies worldwide. We have also
added several foreign companies to the portfolio to take further advantage of
economic strength overseas. With declining domestic growth in the near term,
the Fund is invested primarily in large, financially-strong companies with
leading market shares in their industries. As the recovery takes shape, we
expect to add companies with smaller capitalizations which are more highly
leveraged to economic growth, while maintaining the low risk profile of the
portfolio as a whole.
Share Repurchase Program
On December 13, 2007, the Board of Directors authorized the repurchase by
management of up to 5% of the outstanding shares of the Company over the
ensuing year. The repurchase program is subject to the same restriction as in
the past, namely that shares can be repurchased when the discount of the market
price of the shares from the net asset value is 10% or greater.
From the beginning of 2008 through January 25, 2008, a total of 129,376 shares
have been repurchased at a total cost of $1,633,325 and a weighted average
discount from net asset value of 13.2%.
4
LETTER TO STOCKHOLDERS
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We are pleased to announce that Mr. Kenneth J. Dale was appointed to the Board
of Directors of the Company, effective January 10, 2008. Mr. Dale is Senior
Vice President and Chief Financial Officer of The Associated Press. Prior to
joining the AP he was an investment banker for J. P. Morgan & Company, Inc.,
advising clients on capital structure, equity offerings, debt issuances, and
mergers and acquisitions activity. His extensive investment background combined
with his global perspective make him a valuable addition to the Board of
Directors.
-----------------
This Annual Report, along with the proxy statement for the Annual Meeting of
Stockholders to be held in Baltimore on March 13, 2008, are expected to be
mailed on or about February 19, 2008.
By order of the Board of Directors,
/s/ Douglas G. Ober /s/ Joseph M. Truta
Douglas G. Ober, Joseph M. Truta,
Chairman and Chief President
Executive Officer
January 30, 2008
5
STATEMENT OF ASSETS AND LIABILITIES
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December 31, 2007
Assets
Investments* at value:
Common stocks and convertible securities
(cost $839,581,870) $1,200,243,088
Non-controlled affiliate, Petroleum & Resources Corporation
(cost $34,735,404) 84,540,683
Short-term investments (cost $91,540,289) 91,540,289
Securities lending collateral (cost $37,702,913) 37,702,913 $1,414,026,973
------------------------------------------------------------------------------------------------
Cash 377,065
Dividends receivable 1,409,993
Prepaid pension cost 3,012,286
Prepaid expenses and other assets 2,423,057
---------------------------------------------------------------------------------------------------------------
Total Assets 1,421,249,374
---------------------------------------------------------------------------------------------------------------
Liabilities
Investment securities purchased 558,138
Open written option contracts at value (proceeds $392,318) 403,845
Obligations to return securities lending collateral 37,702,913
Accrued expenses and other liabilities 4,104,951
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Total Liabilities 42,769,847
---------------------------------------------------------------------------------------------------------------
Net Assets $1,378,479,527
---------------------------------------------------------------------------------------------------------------
Net Assets
Common Stock at par value $0.001 per share, authorized 150,000,000 shares;
issued and outstanding 87,668,847 shares (includes 76,164 restricted
shares, 6,000 restricted stock units, and 5,307 deferred stock units) (Note 6) $ 87,669
Additional capital surplus 965,797,273
Accumulated other comprehensive income (Note 5) (1,980,163)
Undistributed net investment income 3,033,710
Undistributed net realized gain on investments 1,086,068
Unrealized appreciation on investments 410,454,970
---------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $1,378,479,527
---------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share of Common Stock $15.72
---------------------------------------------------------------------------------------------------------------
*See schedule of investments on pages 14 through 16.
The accompanying notes are an integral part of the financial statements.
6
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
Year Ended December 31, 2007
Investment Income
Income:
Dividends:
From unaffiliated issuers $26,953,331
From non-controlled affiliate 1,158,990
Interest and other income 4,013,456
-------------------------------------------------------------------------------
Total income 32,125,777
-------------------------------------------------------------------------------
Expenses:
Investment research 2,768,507
Administration and operations 1,585,714
Directors' fees 320,778
Reports and stockholder communications 324,841
Transfer agent, registrar and custodian expenses 310,662
Auditing and accounting services 170,826
Legal services 52,553
Occupancy and other office expenses 345,059
Travel, telephone and postage 89,104
Other 272,934
-------------------------------------------------------------------------------
Total expenses 6,240,978
-------------------------------------------------------------------------------
Net Investment Income 25,884,799
-------------------------------------------------------------------------------
Other Comprehensive Income (Note 5) (156,058)
-------------------------------------------------------------------------------
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 52,160,370
Net realized gain distributed by regulated investment company
(non-controlled affiliate) 8,266,006
Change in unrealized appreciation on investments (8,301,286)
-------------------------------------------------------------------------------
Net Gain on Investments 52,125,090
-------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $77,853,831
-------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
7
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Year Ended
------------------------------
Dec. 31, 2007 Dec. 31, 2006
--------------------------------------------------------------------------------------------------
From Operations:
Net investment income $ 25,884,799 $ 19,691,488
Net realized gain on investments 60,426,376 56,553,881
Change in unrealized appreciation on investments (8,301,286) 102,278,889
Change in accumulated other comprehensive income (Note 5) (156,058) (1,824,105)
--------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 77,853,831 176,700,153
--------------------------------------------------------------------------------------------------
Distributions to Stockholders From:
Net investment income (27,409,018) (19,554,259)
Net realized gain from investment transactions (60,607,292) (56,771,240)
--------------------------------------------------------------------------------------------------
Decrease in net assets from distributions (88,016,310) (76,325,499)
--------------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of shares issued in payment of distributions 33,223,573 31,661,698
Cost of shares purchased (Note 4) (22,516,525) (21,770,315)
Deferred compensation (Notes 4, 6) 516,648 423,621
--------------------------------------------------------------------------------------------------
Change in net assets from capital share transactions 11,223,696 10,315,004
--------------------------------------------------------------------------------------------------
Total Increase in Net Assets 1,061,217 110,689,658
Net Assets:
Beginning of year 1,377,418,310 1,266,728,652
--------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $3,033,710 and $4,632,588, respectively) $1,378,479,527 $1,377,418,310
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
8
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 is an
internally-managed fund whose investment objectives are preservation of
capital, the attainment of reasonable income from investments, and an
opportunity for capital appreciation.
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 December 31, 2007 was $1,003,073,225, and net unrealized
appreciation aggregated $410,953,748, of which the related gross unrealized
appreciation and depreciation were $495,432,734 and $84,478,986, respectively.
As of December 31, 2007, the tax basis of distributable earnings was $1,962,008
of undistributed ordinary income and $436,837 of undistributed long-term
capital gain.
Distributions paid by the Company during the year ended December 31, 2007 were
classified as ordinary income of $34,249,231, and long-term capital gain of
$53,767,079. In comparison, distributions paid by the Company during the year
ended December 31, 2006 were classified as ordinary income of $22,964,152, and
long-term capital gain of $53,361,347. The distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Accordingly, periodic reclassifications are made within
the Company's capital accounts to reflect income and gains available for
distribution under income tax regulations. Any income tax-related interest or
penalties would be classified as income tax expense.
Effective June 29, 2007, the Company adopted Financial Accounting Standards
Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes, a clarification of FASB Statement No. 109, Accounting for Income
Taxes. FIN 48 establishes financial reporting rules regarding recognition and
measurement of tax positions taken or expected to be taken on a tax return. The
adoption of FIN 48 had no impact on the Company's net assets or results of
operations.
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 year ended December 31, 2007 were $141,227,739 and
$222,574,654, 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 December 31, 2007 can be
found on page 17.
Transactions in written covered call and collateralized put options during the
year ended December 31, 2007 were as follows:
Covered Calls Collateralized Puts
------------------- -------------------
Contracts Premiums Contracts Premiums
--------- --------- --------- ---------
Options outstanding,
December 31, 2006 3,745 $ 497,618 2,103 $ 220,313
Options written 6,547 790,853 7,535 867,718
Options terminated in
closing purchase
transactions (1,630) (207,295) (750) (120,248)
Options expired (4,735) (565,660) (5,453) (596,738)
Options exercised (2,170) (317,728) (1,709) (176,515)
---------------------------------------------------------------
Options outstanding,
December 31, 2007 1,757 197,788 1,726 194,530
---------------------------------------------------------------
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
4. Capital Stock
The Company has 10,000,000 authorized and unissued preferred shares, $0.001 par
value.
On December 27, 2006, the Company issued 2,301,959 shares of its Common Stock
at a price of $13.75 per share (the average market price on December 12, 2006)
to stockholders of record November 21, 2006 who elected to take stock in
payment of the distribution from 2006 capital gain and investment income. In
addition, 722 shares were issued at a weighted average price of $13.43 per
share as dividend equivalents to holders of deferred stock units and restricted
stock units under the 2005 Equity Incentive Compensation Plan.
On December 27, 2007, the Company issued 2,381,872 shares of its Common Stock
at a price of $13.945 per share (the average market price on December 10, 2007)
to stockholders of record November 21, 2007 who elected to take stock in
payment of the distribution from 2007 capital gain and investment income. In
addition, 597 shares were issued at a weighted average price of $14.00 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 2007 and 2006 were as follows:
Shares Amount
---------------------- --------------------------
2007 2006 2007 2006
---------- ---------- ------------ ------------
Shares issued in
payment of
distributions 2,382,469 2,302,681 $ 33,223,573 $ 31,661,698
Shares purchased (at a
weighted average
discount from net
asset value of 13.2%
and 13.9%,
respectively) (1,585,773) (1,623,542) (22,516,525) (21,770,315)
Net activity under the
2005 Equity Incentive
Compensation Plan 33,928 59,477 516,648 423,621
--------------------------------------------------------------------------
Net change 830,624 738,616 $ 11,223,696 $ 10,315,004
--------------------------------------------------------------------------
5. Retirement Plans
The Company's non-contributory qualified defined benefit pension plan
("qualified plan") covers all employees with at least one year of service. In
addition, the Company has a non-contributory 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 funded status of the plans is recognized as an asset (overfunded plan) or a
liability (underfunded plan) in the Statement of Assets and Liabilities.
Changes in the prior service costs and accumulated actuarial gains and losses
are recognized as accumulated other comprehensive income, a component of net
assets, in the year in which the changes occur.
The Company uses a December 31 measurement date for its plans.
2007 2006
----------- -----------
Change in benefit obligation
Benefit obligation at beginning of year $ 9,850,091 $ 8,951,798
Service cost 487,315 460,969
Interest cost 568,495 518,015
Actuarial (gain)/loss (124,121) 70,276
Benefits paid (150,967) (150,967)
------------------------------------------------------------------------
Benefit obligation at end of year $10,630,813 $ 9,850,091
------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $10,834,484 $10,063,296
Actual return on plan assets 319,574 922,155
Employer contribution -- --
Benefits paid (150,967) (150,967)
------------------------------------------------------------------------
Fair value of plan assets at end of year $11,003,091 10,834,484
------------------------------------------------------------------------
Funded status $ 372,278 $ 984,393
------------------------------------------------------------------------
Items not yet recognized as a component of net periodic pension cost:
2007 2006
---------- ----------
Prior service cost $ 241,768 $ 336,276
Net (gain)/loss 1,738,395 1,487,829
----------------------------------------------------------------
Total recognized as a charge to net assets $1,980,163 $1,824,105
----------------------------------------------------------------
The accumulated benefit obligation for all defined benefit pension plans was
$9,086,788 and $8,137,314 at December 31, 2007 and 2006, respectively.
2007 2006
--------- ---------
Components of net periodic pension cost
Service cost $ 487,315 $ 460,969
Interest cost 568,495 518,015
Expected return on plan assets (855,553) (794,036)
Amortization of prior service cost 94,508 119,776
Amortization of net loss 162,625 180,764
-------------------------------------------------------------
Net periodic pension cost $ 457,390 $ 485,488
-------------------------------------------------------------
In 2008, the Company estimates that $95,860 of prior service cost and $185,439
of net losses, for a total of $281,299, will be amortized from accumulated
other comprehensive income into net periodic pension cost.
10
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Assumptions used to determine benefit obligations are:
2007 2006
----- -----
Discount rate 6.00% 5.75%
Rate of compensation increase 7.00% 7.00%
The assumptions used to determine net periodic pension cost are:
2007 2006
----- -----
Discount rate 5.75% 5.75%
Expected long-term return on plan assets 8.00% 8.00%
Rate of compensation increase 7.00% 7.00%
The assumption for the expected long-term return on plan assets is based on the
actual long-term historical returns realized by the plan assets, weighted
according to the current asset mix.
The asset allocations at December 31, 2007 and 2006, by asset category, are as
follows:
2007 2006
---- ----
Asset Category
Equity Securities & Equity Mutual Funds 43% 68%
Fixed Income Mutual Funds 57% 27%
Cash -- 5%
Equity Mutual Funds include Common Stock of the Company in the amount of
$778,577 (7% of total plan assets) and $718,924 (6% of total plan assets) at
December 31, 2007 and 2006, respectively.
The primary objective of the Company's pension plan is to provide capital
appreciation, current income, and preservation of capital through a diversified
portfolio of stocks and fixed income securities.
The Company's policy is to contribute annually to the plans those amounts that
can be deducted for federal income tax purposes, plus additional amounts as the
Company deems appropriate in order to provide assets sufficient to meet
benefits to be paid to plan participants. The Company anticipates making no
contribution to the plans in 2008.
The following benefit payments, which reflect expected future service, are
expected to be paid:
Pension Benefits
----------------
2008 $ 596,548
2009 585,762
2010 653,661
2011 637,801
2012 620,836
Years 2013-2017 3,644,319
The Company also sponsors a defined contribution plan that covers substantially
all employees. The Company expensed contributions to this plan of $187,345 and
$182,985 for the years ended December 31, 2007 and December 31, 2006,
respectively. The Company does not provide postretirement medical benefits.
6. Equity-Based Compensation
Although the Stock Option Plan of 1985 ("1985 Plan") has been discontinued and
no further grants will be made under this plan, unexercised grants of stock
options and stock appreciation rights granted in 2004 and prior years remain
outstanding. The exercise price of the unexercised options and related stock
appreciation rights is the fair market value on date of grant, reduced by the
per share amount of capital gains paid by the Company during subsequent years.
All options and related stock appreciation rights terminate 10 years from date
of grant, if not exercised.
A summary of option activity under the 1985 Plan as of December 31, 2007, and
changes during the period then ended, is presented below:
Weighted- Weighted-
Average Average
Exercise Remaining
Options Price Life (Years)
------- --------- ------------
Outstanding at December 31, 2006 201,990 $11.81 4.79
Exercised (55,186) 10.38
Forfeited -- --
----------------------------------------------------------------
Outstanding at December 31, 2007 146,804 $11.63 3.47
----------------------------------------------------------------
Exercisable at December 31, 2007 80,282 $12.16 2.75
----------------------------------------------------------------
The options outstanding as of December 31, 2007 are set forth below:
Weighted Weighted
Average Average
Options Exercise Remaining
Exercise price Outstanding Price Life (Years)
-------------- ----------- -------- ------------
$7.00-$9.24 21,768 $ 7.67 4.19
$9.25-$11.49 73,888 10.07 3.87
$11.50-$13.74 -- -- --
$13.75-$16.00 51,148 15.58 2.59
------------------------------------------------------------------
Outstanding at December 31, 2007 146,804 $11.63 3.47
------------------------------------------------------------------
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 year ended December 31, 2007 was $129,680.
The 2005 Equity Incentive Compensation Plan ("2005 Plan"), adopted at the 2005
Annual Meeting, 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 shares earned contingent on
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
achieving certain performance targets. If performance targets are not achieved,
all or a portion of the performance-based restricted shares are forfeited and
become available for future grants. Nonperformance-based restricted stock
awards vest ratably over a three year period and nonperformance-based
restricted stock units (granted to non-employee directors) vest over a one year
period. It is the current intention that employee grants will be
performance-based. The 2005 Plan provides for accelerated vesting in the event
of death or retirement. Non-employee directors also may elect to defer a
portion of their cash compensation, with such deferred amount to be paid by
delivery of deferred stock units. Outstanding awards are granted at fair market
value on grant date. The number of shares of Common Stock which remains
available for future grants under the 2005 Plan at December 31, 2007 is
3,298,845 shares.
A summary of the status of the Company's awards granted under the 2005 Plan as
of December 31, 2007, and changes during the period then ended, is presented
below:
Weighted Average
Grant-Date Fair
Awards Shares/Units Value
------ ------------ ----------------
Balance at December 31, 2006 70,493 $12.92
Granted:
Restricted stock 32,720 13.73
Restricted stock units 6,000 14.07
Deferred stock units 2,158 14.37
Vested (13,197) 12.99
Forfeited (10,703) 13.24
------------------------------------------------------------
Balance at December 31, 2007
(includes 72,048 performance-
based awards and 15,423
nonperformance-based awards) 87,471 $ 13.29
------------------------------------------------------------
Compensation costs resulting from awards granted under the 2005 Plan are based
on the fair value of the award on grant date (determined by the average of the
high and low price on grant date) and recognized on a straight-line basis over
the requisite service period. For those awards with performance conditions,
compensation costs are based on the most probable outcome and, if such goals
are not met, compensation cost is not recognized and any previously recognized
compensation cost is reversed. The total compensation costs for restricted
stock granted to employees for the year ended December 31, 2007 were $346,937.
The total compensation costs for restricted stock units granted to non-employee
directors for the year ended December 31, 2007 were $86,528. As of December 31,
2007, there were total unrecognized compensation costs of $486,346, a component
of additional capital surplus, related to nonvested equity-based compensation
arrangements granted under the 2005 Plan. Those costs are expected to be
recognized over a weighted average period of 1.48 years. The total fair value
of shares vested during the years ended December 31, 2007 and 2006 was $187,396
and $168,230, respectively.
7. Officer and Director Compensation
The aggregate remuneration paid during the year ended December 31, 2007 to
officers and directors amounted to $2,959,345, of which $278,541 was paid to
directors who were not officers. These amounts represent the taxable income to
the Company's officers and directors and therefore differ from the amounts
reported in the accompanying Statement of Operations that are recorded and
expensed in accordance with generally accepted accounting principles.
8. Portfolio Securities Loaned
The Company makes loans of securities to brokers, secured by cash, 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. At December 31, 2007, the Company had securities on loan of
$36,873,580, and held collateral of $37,702,913, 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.
9. New Accounting Pronouncements
In September 2006, the FASB released Statement of Financial Accounting Standard
No. 157, Fair Value Measurement ("FAS 157"), which provides enhanced guidance
for using fair value to measure assets and liabilities. The standard requires
companies to provide expanded information about the assets and liabilities
measured at fair value and the potential effect of these fair valuations on an
entity's financial performance. The standard does not expand the use of fair
value in any new circumstances, but provides clarification on acceptable fair
valuation methods and applications. Adoption of FAS 157 is required for fiscal
years beginning after November 15, 2007. Application of the standard is not
expected to materially impact the Company's financial statements.
12
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Year Ended December 31
------------------------------------------------------
2007 2006 2005 2004 2003
-------------------------------------------------------------------------------------------------------
Per Share Operating Performance
Net asset value, beginning of year $15.86 $14.71 $15.04 $14.36 $12.12
-------------------------------------------------------------------------------------------------------
Net investment income 0.30* 0.23 0.22 0.23** 0.19
Net realized gains and increase (decrease)
in unrealized appreciation 0.61 1.86 0.32 1.39 2.85
Change in accumulated
other comprehensive income 0.00 (0.02) -- -- --
-------------------------------------------------------------------------------------------------------
Total from investment operations 0.91 2.07 0.54 1.62 3.04
-------------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment income (0.32) (0.23) (0.22) (0.24) (0.17)
Distributions from net realized gains (0.71) (0.67) (0.64) (0.66) (0.61)
-------------------------------------------------------------------------------------------------------
Total distributions (1.03) (0.90) (0.86) (0.90) (0.78)
-------------------------------------------------------------------------------------------------------
Capital share repurchases 0.04 0.04 0.05 0.02 0.04
Reinvestment of distributions (0.06) (0.06) (0.06) (0.06) (0.06)
-------------------------------------------------------------------------------------------------------
Total capital share transactions (0.02) (0.02) (0.01) (0.04) (0.02)
-------------------------------------------------------------------------------------------------------
Net asset value, end of year $15.72 $15.86 $14.71 $15.04 $14.36
-------------------------------------------------------------------------------------------------------
Per share market price, end of year $14.12 $13.87 $12.55 $13.12 $12.41
-------------------------------------------------------------------------------------------------------
Total Investment Return
Based on market price 9.4% 17.9% 2.2% 13.2% 25.2%
Based on net asset value 6.5% 15.0% 4.5% 12.1% 26.3%
Ratios/Supplemental Data
Net assets, end of year (in 000's) $1,378,480 $1,377,418 $1,266,729 $1,295,549 $1,218,862
Ratio of expenses to average net assets 0.44% 0.50% 0.45% 0.43% 0.47%
Ratio of net investment income to
average net assets 1.82% 1.50% 1.44% 1.54% 1.45%
Portfolio turnover 10.46% 10.87% 12.96% 13.43% 12.74%
Number of shares outstanding at
end of year (in 000's) 87,669 86,838 86,100 86,135 84,886
-------------------------------------------------------------------------------------------------------
* In April 2007 the Company received $5,100,000 in a special cash dividend
from Dean Foods Co., of which $2,295,000, or $0.03 per share, is considered a
taxable dividend.
** In 2004 the Company received $2,400,000, or $0.03 per share, in an
extraordinary dividend from Microsoft Corp.
13
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
December 31, 2007
Shares Value (A)
------------------------------------------------------------------
Stocks and Convertible Securities -- 93.2%
Consumer -- 17.4%
Consumer Discretionary -- 4.9%
Comcast Corp. (B)...................... 525,000 $ 9,586,500
Gannett Co., Inc....................... 112,500 4,387,500
Harley-Davidson, Inc................... 130,000 6,072,300
Lowe's Companies, Inc.................. 600,000 13,572,000
Newell Rubbermaid Inc.................. 400,000 10,352,000
Ryland Group Inc. (C).................. 343,500 9,463,425
Target Corp............................ 290,000 14,500,000
------------
67,933,725
------------
Consumer Staples -- 12.5%
Avon Products, Inc..................... 402,400 15,906,872
BJ's Wholesale Club, Inc. (B)(C)....... 400,000 13,532,000
Bunge Ltd.............................. 100,000 11,641,000
Coca-Cola Co........................... 200,000 12,274,000
CVS/Caremark Corp...................... 208,750 8,297,813
Dean Foods Co.......................... 340,000 8,792,400
Del Monte Foods Co..................... 1,300,000 12,298,000
PepsiCo, Inc........................... 400,000 30,360,000
Procter & Gamble Co.................... 340,000 24,962,800
Safeway, Inc........................... 390,000 13,341,900
Unilever plc ADR....................... 550,000 20,581,000
------------
171,987,785
------------
Energy -- 14.2%
ConocoPhillips......................... 295,000 26,048,500
ENSCO International, Inc............... 209,150 12,469,523
Exxon Mobil Corp....................... 215,000 20,143,350
Marathon Oil Co........................ 240,000 14,606,400
Petroleum & Resources Corporation (D).. 2,186,774 84,540,683
Schlumberger Ltd....................... 380,000 37,380,600
------------
195,189,056
------------
Financial -- 14.1%
Banking -- 12.0%
Bank of America Corp................... 730,000 30,119,800
Bank of New York Mellon Corp........... 403,775 19,688,068
Fifth Third Bancorp.................... 280,000 7,036,400
Morgan Stanley......................... 190,000 10,090,900
PNC Financial Services Group Inc....... 200,000 13,130,000
Prosperity Bancshares, Inc............. 200,000 5,878,000
State Street Corp...................... 323,895 26,300,274
Wachovia Corp.......................... 545,000 20,726,350
Wells Fargo & Co....................... 650,000 19,623,500
Wilmington Trust Corp.................. 363,000 12,777,600
------------
165,370,892
------------
Insurance -- 2.1%
American International Group, Inc...... 500,000 29,150,000
------------
14
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
December 31, 2007
Shares Value (A)
--------------------------------------------------------------------
Health Care -- 10.7%
Abbott Laboratories...................... 320,000 $ 17,968,000
Bristol-Myers Squibb Co.................. 345,000 9,149,400
Genentech, Inc. (B)...................... 220,000 14,755,400
Johnson & Johnson........................ 255,000 17,008,500
Medtronic, Inc........................... 310,000 15,583,700
Pfizer Inc............................... 1,120,000 25,457,600
Senomyx, Inc. (B)(C)..................... 984,400 7,373,155
Teva Pharmaceutical Industries Ltd. ADR.. 370,000 17,197,600
Wyeth Co................................. 325,000 14,361,750
Zimmer Holdings, Inc. (B)................ 132,400 8,758,260
------------
147,613,365
------------
Industrials -- 14.9%
Cintas Corp.............................. 300,000 10,086,000
Curtiss-Wright Corp...................... 360,000 18,072,000
Emerson Electric Co...................... 400,000 22,664,000
General Electric Co...................... 1,388,000 51,453,160
Illinois Tool Works Inc. (C)............. 250,000 13,385,000
Masco Corp. (C).......................... 450,000 9,724,500
Oshkosh Truck Corp....................... 280,000 13,232,800
Spirit AeroSystems Holdings, Inc. (B).... 425,000 14,662,500
Tata Motors Ltd. ADR..................... 285,000 5,375,100
3M Co.................................... 160,000 13,491,200
United Parcel Services, Inc.............. 155,000 10,961,600
United Technologies Corp................. 300,000 22,962,000
------------
206,069,860
------------
Information Technology -- 11.4%
Communication Equipment -- 0.9%
Corning Inc.............................. 500,000 11,995,000
------------
Computer Related -- 8.5%
Automatic Data Processing Inc............ 300,000 13,359,000
Cisco Systems, Inc. (B).................. 850,000 23,009,500
Dell Inc. (B)............................ 585,000 14,338,350
Microsoft Corp........................... 1,180,000 42,008,000
Oracle Corp. (B)......................... 1,100,000 24,838,000
------------
117,552,850
------------
Electronics -- 2.0%
Broadcom Corp. (B)....................... 400,000 10,456,000
Intel Corp............................... 640,000 17,062,400
------------
27,518,400
------------
Materials -- 5.2%
Air Products and Chemicals, Inc.......... 230,000 22,684,900
du Pont (E.I.) de Nemours and Co......... 360,000 15,872,400
Lubrizol Corp............................ 220,000 11,915,200
Rohm & Haas Co........................... 390,000 20,697,300
------------
71,169,800
------------
15
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
December 31, 2007
Prin. Amt.
or Shares Value (A)
-------------------------------------------------------------------------------------------------
Telecom Services -- 1.5%
AT&T Corp........................................................ 400,000 $ 16,624,000
Windstream Corp.................................................. 310,178 4,038,518
--------------
20,662,518
--------------
Utilities -- 3.8%
Aqua America, Inc. (C)........................................... 499,000 10,578,800
Duke Energy Corp................................................. 611,560 12,335,165
MDU Resources Group, Inc......................................... 562,500 15,530,625
Northeast Utilities.............................................. 199,000 6,230,690
Spectra Energy Corp.............................................. 305,780 7,895,240
--------------
52,570,520
--------------
Total Stocks and Convertible Securities
(Cost $874,317,274) (E)............................................ 1,284,783,771
--------------
Short-Term Investments -- 6.6%
U.S. Government Obligations -- 1.4%
U.S. Treasury Bills, 3.40%, due 2/14/08.......................... $20,000,000 19,916,889
--------------
Time Deposit -- 0.0%
Wells Fargo Bank, 2.53%, due 1/2/08.............................. 255,748
--------------
Commercial Paper -- 5.2%
American Express Credit Corp., 4.10-4.28%, due 1/3/08-1/22/08.... $14,700,000 14,666,022
American General Finance, Inc., 4.65%, due 1/8/08................ $ 2,000,000 1,998,192
Chevron Funding Co., 4.22%, due 1/10/08.......................... $ 1,500,000 1,498,417
Coca-Cola Enterprises, 4.33%, due 1/15/08........................ $ 8,000,000 7,986,528
General Electric Capital Corp., 4.24-4.25%, due 1/24/08-1/29/08.. $ 9,000,000 8,971,563
Nestle Capital Co., 4.22%, due 1/17/08........................... $10,600,000 10,580,119
Prudential Funding, LLC, 4.15%, due 1/10/08...................... $ 6,000,000 5,993,775
Toyota Motor Credit Corp., 4.18-4.29%, due 1/3/08-1/22/08........ $10,000,000 9,991,100
United Parcel Service of America, Inc., 4.19%, due 1/17/08....... $ 9,700,000 9,681,936
--------------
Total Commercial Paper......................................... 71,367,652
--------------
Total Short-Term Investments
(Cost $91,540,289)................................................. 91,540,289
--------------
Total Securities Lending Collateral -- 2.7%
(Cost $37,702,913)
Brown Brothers Investment Trust, 5.19%, due 1/2/08............... 37,702,913
--------------
Total Investments -- 102.5%
(Cost $1,003,560,476).............................................. 1,414,026,973
Cash, receivables, prepaid expenses and other assets, less
liabilities -- (2.5)%.......................................... (35,547,446)
--------------
Net Assets -- 100.0%................................................. $1,378,479,527
--------------------------------------------------------------------------------
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) All or a portion of these securities are on loan. See Note 8 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) The aggregate market value of stocks held in escrow at December 31, 2007
covering open call option contracts written was $10,060,247. In addition,
the required aggregate market value of securities segregated by the
custodian to collateralize open put option contracts written was $8,257,500.
16
SCHEDULE OF OUTSTANDING OPTION CONTRACTS
--------------------------------------------------------------------------------
December 31, 2007
Contracts Contract
(100 shares Strike Expiration Appreciation/
each) Security Price Date (Depreciation)
-------------------------------------------------------------------------------
COVERED CALLS
200 Air Products and Chemicals, Inc... $ 110 Jan 08 $ 14,399
250 Broadcom Corp..................... 45 Jan 08 23,000
100 ConocoPhillips.................... 100 Jan 08 13,361
150 Curtiss-Wright Corp............... 65 Mar 08 7,800
200 Lubrizol Corp..................... 75 Mar 08 18,612
100 Marathon Oil Co................... 70 Jan 08 10,199
250 Medtronic, Inc.................... 55 Jan 08 24,250
200 Rohm & Haas Co.................... 60 Apr 08 5,400
57 Safeway Inc....................... 40 Mar 08 2,633
150 Target Corp....................... 80 Jan 08 14,749
100 3M Corp........................... 100 Jan 08 14,700
----- ---------
1,757 149,103
----- ---------
COLLATERALIZED PUTS
150 American International Group, Inc. 45 Jan 08 13,849
200 Exxon Mobil Corp.................. 65 Jan 08 19,400
100 Morgan Stanley.................... 55 Jan 08 (21,801)
150 Oshkosh Truck Corp................ 45 Jan 08 4,800
100 Oshkosh Truck Corp................ 35 Apr 08 4,844
100 Oshkosh Truck Corp................ 40 Apr 08 8,700
100 State Street Corp................. 50 Jan 08 9,249
200 Target Corp....................... 40 Apr 08 (12,226)
250 Wachovia Corp..................... 45 Jan 08 (149,899)
150 Wells Fargo & Co.................. 27.50 Jan 08 7,049
150 Zimmer Holdings, Inc.............. 60 Jan 08 13,900
76 Zimmer Holdings, Inc.............. 75 Jan 08 (58,495)
----- ---------
1,726 (160,630)
----- ---------
$ (11,527)
--------------------------------------------------------------------------------
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 (the
"Company") at December 31, 2007, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in
the period then ended, 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 auditing standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. 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 December 31, 2007 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 13, 2008
17
CHANGES IN PORTFOLIO SECURITIES
--------------------------------------------------------------------------------
During the Three Months Ended December 31, 2007
(unaudited)
Shares
----------------------------------
Held
Additions Reductions Dec. 31, 2007
--------------------------------------------------------------------------
Bank of America Corp................... 20,000 730,000
Harley-Davidson, Inc................... 10,000 130,000
Lowe's Companies, Inc.................. 25,000 600,000
Lubrizol Corp.......................... 20,000 220,000
Morgan Stanley......................... 10,000 190,000
Northeast Utilities.................... 19,000 199,000
Oshkosh Truck Corp..................... 10,000 280,000
Senomyx, Inc........................... 424,400 984,400
Spirit AeroSystems Holdings, Inc....... 25,000 425,000
Tata Motors Ltd. ADR................... 285,000 285,000
Wachovia Corp.......................... 25,000 545,000
Zimmer Holdings, Inc................... 7,400 132,400
Advanced Medical Optics, Inc........... 325,000 --
Alltel Corp............................ 40,000 --
AMBAC Financial Group, Inc............. 200,000 --
Avon Products, Inc..................... 16,000 402,400
BankAtlantic Bancorp, Inc.............. 880,000 --
BEA Systems, Inc....................... 800,000 --
BJ's Wholesale Club, Inc............... 15,000 400,000
Bunge Ltd.............................. 33,000 100,000
ConocoPhillips......................... 50,000 295,000
General Electric Co.................... 33,000 1,388,000
Intel Corp............................. 160,000 640,000
Murphy Oil Corp........................ 38,500 --
Rohm & Haas Co......................... 10,000 390,000
Teva Pharmaceutical Industries Ltd. ADR 15,000 370,000
-----------------
This report, including the financial statements herein, is transmitted to the
stockholders of The Adams Express Company for their information. It is not a
prospectus, circular or representation intended for use in the purchase or
sale of shares of the Company or of any securities mentioned in the report.
The rates of return will vary and the principal value of an investment will
fluctuate. Shares, if sold, may be worth more or less than their original
cost. Past performance is not indicative of future investment results.
18
HISTORICAL FINANCIAL STATISTICS
--------------------------------------------------------------------------------
(unaudited)
Dividends Distributions Total
From From Net Dividends
Net Asset Market Investment Realized and Annual
Value Of Shares Value Value Income Gains Distributions Rate of
Dec. 31 Net Assets Outstanding* Per Share* Per Share* Per Share* Per Share* Per Share* Distribution**
---------------------------------------------------------------------------------------------------------------
1993 $ 840,610,252 63,746,495 $13.19 $11.92 $.30 $ .79 $1.09 8.17%
1994 798,297,600 66,584,985 11.99 10.42 .33 .73 1.06 9.27
1995 986,230,914 69,248,276 14.24 12.33 .35 .76 1.11 9.53
1996 1,138,760,396 72,054,792 15.80 13.17 .35 .80 1.15 8.95
1997 1,424,170,425 74,923,859 19.01 16.13 .29 1.01 1.30 8.65
1998 1,688,080,336 77,814,977 21.69 17.75 .30 1.10 1.40 8.17
1999 2,170,801,875 80,842,241 26.85 22.38 .26 1.37 1.63 8.53
2000 1,951,562,978 82,292,262 23.72 21.00 .22 1.63 1.85 7.76
2001 1,368,366,316 85,233,262 16.05 14.22 .26 1.39 1.65 9.44
2002 1,024,810,092 84,536,250 12.12 10.57 .19 .57 .76 6.14
2003 1,218,862,456 84,886,412 14.36 12.41 .17 .61 .78 6.80
2004 1,295,548,900 86,135,292 15.04 13.12 .24 .66 .90 7.05
2005 1,266,728,652 86,099,607 14.71 12.55 .22 .64 .86 6.65
2006 1,377,418,310 86,838,223 15.86 13.87 .23 .67 .90 6.80
2007 1,378,479,527 87,668,847 15.72 14.12 .32 .71 1.03 7.15
--------
* Adjusted to reflect the 3-for-2 stock split effected in October 2000.
** The annual rate of distribution is the total dividends and capital gain
distributions during the year divided by the average daily market price of
the Company's Common Stock.
-------------------------
Common Stock
Listed on the New York Stock 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.
19
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 also files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission for the first and third quarters of each fiscal year on Form N-Q.
The Company's Forms N-Q are available on the Commission's website at
www.sec.gov. The Company's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room, and information on the operation of the
Public Reference Room may be obtained by calling 1-800-SEC-0330. The Company
also posts its Forms N-Q on its website at: www.adamsexpress.com, under the
heading "Financial Reports".
Annual Certification
The Company's CEO has submitted to the New York Stock Exchange the annual CEO
certification as required by Section 303A.12(a) of the NYSE Listed Company
Manual.
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, 2007 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 www.sec.gov.
Forward-Looking Statements
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
Company's actual results are the performance of the portfolio of stocks held by
the Company, the conditions in the U.S. and international financial markets,
the price at which shares of the Company will trade in the public markets, and
other factors discussed in the Company's periodic filings with the Securities
and Exchange Commission.
Privacy Policy
In order to conduct its business, the Company, through its transfer agent,
currently American Stock Transfer & Trust Company, collects and maintains
certain nonpublic personal information about our stockholders of record with
respect to their transactions in shares of our securities. This information
includes the stockholder's address, tax identification or Social Security
number, share balances, and dividend elections. We do not collect or maintain
personal information about stockholders whose shares of our securities are held
in "street name" by a financial institution such as a bank or broker.
We do not disclose any nonpublic personal information about you, our other
stockholders or our former stockholders to third parties unless necessary to
process a transaction, service an account or as otherwise permitted by law.
To protect your personal information internally, we restrict access to
nonpublic personal information about our stockholders to those employees who
need to know that information to provide services to our stockholders. We also
maintain certain other safeguards to protect your nonpublic personal
information.
20
STOCKHOLDER INFORMATION AND SERVICES
--------------------------------------------------------------------------------
WE ARE OFTEN ASKED --
How do I invest in Adams Express?
Adams Express Common Stock is listed on the New York Stock Exchange. The
stock's ticker symbol is "ADX" and may be bought and sold through registered
investment security dealers. Your broker will be able to assist you in this
regard. In addition, stock may be purchased through our transfer agent,
American Stock Transfer & Trust Company's INVESTORS CHOICE Plan (see page 22).
Where do I get information on the stock's price, trading and/or net asset value?
The daily net asset value (NAV) per share and closing market price may be
obtained from our website at www.adamsexpress.com. The daily NAV is also
available on the NASDAQ Mutual Fund Quotation System under the symbol XADEX.
The week-ending NAV is published on Saturdays in various newspapers.
Adams Express daily trading is shown in the stock tables of many daily
newspapers, often with the abbreviated form "AdaEx." Local newspapers
determine, usually by volume of traded shares, which securities to list. If
your paper does not carry our listing, please telephone the Company at (800)
638-2479 or visit our website.
How do I replace a lost certificate(s) or how do I correct a spelling error on
my certificate?
Your Adams Express stock certificates are valuable documents and should be kept
in a safe place. For tax purposes, keep a record of each certificate, including
the cost or market value of the shares it covers at the time acquired. If a
certificate is lost, destroyed or stolen, notify the transfer agent immediately
so a "stop transfer" order can be placed on the records to prevent an
unauthorized transfer of your certificate. The necessary forms and requirements
to permit the issuance of a replacement certificate will then be sent to you. A
certificate can be replaced only after the receipt of an affidavit regarding
the loss accompanied by an open surety bond, for which a small premium is paid
by the stockholder.
In the event a certificate is issued with the holder's name incorrectly
spelled, a correction can only be made if the certificate is returned to the
transfer agent with instructions for correcting the error. Transferring shares
to another name also requires that the certificate be forwarded to the transfer
agent with the appropriate assignment forms completed and the signature of the
registered owner Medallion guaranteed by a bank or member firm of The New York
Stock Exchange, Inc.
Is direct deposit of my dividend checks available?
Yes, our transfer agent offers direct deposit of your interim dividend and
year-end distribution checks. You can request direct deposit with American
Stock Transfer either on-line or by calling them at the phone number provided
on page 22.
Who do I notify of a change of address?
The transfer agent.
We go to Florida (Arizona) every winter. How do we get our mail from Adams
Express?
The transfer agent can program a seasonal address into its system; simply send
the temporary address and the dates you plan to be there to the transfer agent.
I want to give shares to my children, grandchildren, etc. as a gift. How do I
go about it?
Giving shares of Adams Express is simple and is handled through our transfer
agent. The stock transfer rules are clear and precise for most forms of
transfer. They will vary slightly depending on each transfer, so write to the
transfer agent stating the exact intent of your gift plans and the transfer
agent will send you the instructions and forms necessary to effect your
transfer.
How do I transfer shares held at American Stock Transfer (AST)?
There are many circumstances that require the transfer of shares to new
registrations, e.g., marriage, death, a child reaching the age of maturity, or
giving shares as a gift. Each situation requires different forms of
documentation to support the transfer. You may obtain transfer instructions and
download the necessary forms from our transfer agent's website:
www.amstock.com. Click on Shareholder Services, then General Shareholder
Information and Transfer Instructions.
21
STOCKHOLDER INFORMATION AND SERVICES (CONTINUED)
--------------------------------------------------------------------------------
DIVIDEND PAYMENT SCHEDULE
The Company presently pays dividends four times a year, as follows: (a) three
interim distributions on or about March 1, June 1, and September 1, and (b) a
"year-end" distribution, payable in late December, consisting of the estimated
balance of the net investment income for the year and the net realized capital
gain earned through October 31. 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
(waived if sold) $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 Stockholders
For stockholders 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 Stockholder 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.
22
BOARD OF DIRECTORS
--------------------------------------------------------------------------------
Number of
portfolios
in fund
Position Term Length complex
Personal held with of of time Principal Occupations overseen Other
Information the fund office served during the last 5 years by director directorships
---------------------------------------------------------------------------------------------------------------------------
Independent Directors
Enrique R. Arzac, Ph.D. Director One Since Professor of Finance and Two Director of Petroleum &
7 St. Paul Street, Year 1983 Economics, formerly, Vice Dean Resources Corporation and
Suite 1140 of Academic Affairs of the Credit Suisse Asset
Baltimore, MD 21202 Graduate School of Business, Management Funds
Age 66 Columbia University. (28 funds) (investment
companies), and Epoch
Holdings Corporation (asset
management).
---------------------------------------------------------------------------------------------------------------------------
Phyllis O. Bonanno Director One Since President & CEO of International Two Director of Petroleum &
7 St. Paul Street, Year 2003 Trade Solutions, Inc. Resources Corporation
Suite 1140 (consultants). Formerly, (investment company), Borg-
Baltimore, MD 21202 President of Columbia College, Warner Inc. (industrial),
Age 64 Columbia, South Carolina, and Mohawk Industries, Inc.
Vice President of Warnaco Inc. (carpets and flooring).
(apparel).
---------------------------------------------------------------------------------------------------------------------------
Daniel E. Emerson Director One Since Retired Executive Vice Two Director of Petroleum &
7 St. Paul Street, Year 1982 President of NYNEX Corp. Resources Corporation
Suite 1140 (communications), retired (investment company).
Baltimore, MD 21202 Chairman of the Board of both
Age 83 NYNEX Information Resources
Co. and NYNEX Mobile
Communications Co. Previously
Executive Vice President and
Director of New York Telephone
Company.
---------------------------------------------------------------------------------------------------------------------------
Frederic A. Escherich Director One Since Private Investor. Formerly, Two Director of Petroleum &
7 St. Paul Street, Year 2006 Managing Director and head of Resources Corporation
Suite 1140 Mergers and Acquisitions (investment company).
Baltimore, MD 21202 Research and the Financial
Age 55 Advisory Department with
J.P. Morgan.
---------------------------------------------------------------------------------------------------------------------------
Roger W. Gale, Ph.D. Director One Since President & CEO of GF Energy, Two Director of Petroleum &
7 St. Paul Street, Year 2005 LLC (consultants to electric Resources Corporation
Suite 1140 power companies). Formerly, (investment company), Ormat
Baltimore, MD 21202 member of management group, Technologies, Inc.
Age 61 PA Consulting Group (energy (geothermal and renewable
consultants). energy), and U.S. Energy
Association.
---------------------------------------------------------------------------------------------------------------------------
Thomas H. Lenagh Director One Since Financial Advisor. Formerly, Two Director of Petroleum &
7 St. Paul Street, Year 1968 Chairman of the Board and CEO Resources Corporation,
Suite 1140 of Greiner Engineering Inc. Cornerstone Funds, Inc. (3
Baltimore, MD 21202 (formerly Systems Planning funds) (investment
Age 89 Corp.) (consultants). Formerly, companies), and Photonics
Treasurer and Chief Investment Product Group (crystals).
Officer of the Ford Foundation
(charitable foundation).
---------------------------------------------------------------------------------------------------------------------------
Kathleen T. McGahran, Director One Since Principal & Director of Pelham Two Director of Petroleum &
Ph.D., J.D., C.P.A. Year 2003 Associates, Inc. (executive Resources Corporation
7 St. Paul Street, education), Adjunct Associate (investment company).
Suite 1140 Professor, Columbia Executive
Baltimore, MD 21202 Education, Graduate School of
Age 57 Business, Columbia University.
Formerly, Associate Dean and
Director of Executive Education,
and Associate Professor,
Columbia University.
---------------------------------------------------------------------------------------------------------------------------
23
BOARD OF DIRECTORS (CONTINUED)
--------------------------------------------------------------------------------
Number of
portfolios
in fund
Position Term Length complex
Personal held with of of time Principal Occupations overseen Other
Information the fund office served during the last 5 years by director directorships
----------------------------------------------------------------------------------------------------------------------------
Independent Directors (continued)
Craig R. Smith, M.D. Director One Since President, Williston Consulting Two Director of Petroleum &
7 St. Paul Street, Year 2005 LLC (consultants to Resources Corporation
Suite 1140 pharmaceutical and (investment company),
Baltimore, MD 21202 biotechnology industries), and LaJolla Pharmaceutical
Age 61 Chief Operating Officer and Company, and Depomed, Inc.
Director of Algenol Biofuels Inc. (specialty pharmaceuticals).
(ethanol manufacturing).
Formerly, Chairman, President &
CEO of Guilford
Pharmaceuticals
(pharmaceuticals &
biotechnology).
----------------------------------------------------------------------------------------------------------------------------
Interested Director
Douglas G. Ober Director, One Director Chairman & CEO of the Two Director of Petroleum &
7 St. Paul Street, Chairman Year Since Company and Petroleum & Resources Corporation
Suite 1140 and 1989; Resources Corporation. (investment company).
Baltimore, MD 21202 CEO Chairman
Age 61 of the
Board
Since
1991
----------------------------------------------------------------------------------------------------------------------------
24
THE ADAMS EXPRESS COMPANY
--------------------------------------------------------------------------------
Board Of Directors
Enrique R. Arzac/1,4,5 / Thomas H. Lenagh/2,3/
Phyllis O. Bonanno/1,4,5/ Kathleen T. McGahran/2,4/
Daniel E. Emerson/1,3,5 / Douglas G. Ober/1/
Frederic A. Escherich/2,3/ Craig R. Smith/2,4/
Roger W. Gale/1,3,5/
--------
/1. /Member of Executive Committee
/2./ Member of Audit Committee
/3./ Member of Compensation Committee
/4./ Member of Retirement Benefits Committee
/5./ Member of Nominating and Governance Committee
Officers
Douglas G. Ober 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
David R. Schiminger Vice President -- Research
D. Cotton Swindell Vice President -- Research
David D. Weaver Vice President -- Research
Christine M. Sloan Assistant Treasurer
Geraldine H. Pare Assistant Secretary
Graphic
THE ADAMS EXPRESS COMPANY
SEVEN ST.PAUL STREET
SUITE 1140
BALTIMORE, MD 21202
(410)752-5900 OR (800)638-2479
www.adamsexpress.com
Item 2. Code of Ethics.
On June 12, 2003, the Board of Directors adopted a code of
ethics that applies to Registrant's principal executive
officer and principal financial officer. The code of ethics
is available on Registrant's website at:
www.adamsexpress.com. Since the code of ethics was adopted
there have been no amendments to it nor have any waivers
from any of its provisions been granted.
Item 3. Audit Committee Financial Expert.
The board of directors has determined that at least one of
the members of Registrant's audit committee meets the
definition of audit committee financial expert as that term
is defined by the Securities and Exchange Commission. The
director on the Registrant's audit committee whom the board
of directors has determined meets such definition is
Kathleen T. McGahran, who is independent pursuant to
paragraph (a)(2) of this Item.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees for professional
services rendered by its independent auditors,
PricewaterhouseCoopers LLP, for the audits of the Company's
annual and semi-annual financial statements for 2007 and
2006 were $76,630 and $77,405 respectively.
(b) Audit Related Fees. There were no audit-related
fees in 2007 and 2006.
(c) Tax Fees. The aggregate fees to Registrant for
professional services rendered by PricewaterhouseCoopers LLP
for the review of Registrant's excise tax calculations and
preparations of federal, state and excise tax returns for
2007 and 2006 were $12,070 and $11,278, respectively.
(d) All Other Fees. The aggregate fees to Registrant
by PricewaterhouseCoopers LLP other than for the services
referenced above for 2007 and 2006 were $5,766 and $10,044,
respectively, which related to the review of the Company's
procedures for calculating the amounts to be paid or granted
to the Company's officers in accordance with the Company's
cash incentive plan and the 2005 Equity Incentive
Compensation Plan, review of the Company's calculations
related to those plans, and preparation of a report to the
Company's Compensation Committee.
(e) (1) Audit Committee Pre-Approval Policy. As of
2007, all services to be performed for Registrant by
PricewaterhouseCoopers LLP must be pre-approved by the audit
committee. All services performed in 2007 were pre-approved
by the committee.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate fees by PricewaterhouseCoopers LLP
for non-audit professional services rendered to Registrant
for 2007 and 2006 were $17,836 and $21,322, respectively.
(h) The Registrant's audit committee has considered
the provision by PricewaterhouseCoopers LLP of the non-audit
services described above and found that they are compatible
with maintaining PricewaterhouseCoopers LLP's independence.
Item 5. Audit Committee of Listed Registrants.
(a) The Registrant has a standing audit committee
established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934. The members of the audit
committee are: Kathleen T. McGahran, Chair, Daniel E.
Emerson, Frederic A. Escherich, and Craig R. Smith.
(B) Not applicable.
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.
PROXY VOTING GUIDELINES
The Adams Express Company (Adams) follows long-standing
general guidelines for the voting of portfolio company
proxies and takes very seriously its responsibility to vote
all such proxies. The portfolio company proxies are
evaluated by our research staff and voted by our portfolio
management team, and we annually provide the Board of
Directors with a report on how proxies were voted during the
previous year. We do not use an outside service to assist us
in voting our proxies.
As an internally-managed investment company, Adams uses its
own staff of research analysts and portfolio managers. In
making the decision to invest in a company for the
portfolio, among the factors the research team analyses is
the integrity and competency of the company's management. We
must be satisfied that the companies we invest in are run by
managers with integrity. Therefore, having evaluated this
aspect of our portfolio companies' managements, we give
significant weight to the recommendations of the company's
management in voting on proxy issues.
We vote proxies on a case-by-case basis according to what we
deem to be the best long-term interests of our shareholders.
The key over-riding principle in any proxy vote is that
stockholders be treated fairly and equitably by the
portfolio company's management. In general, on the election
of directors and on routine issues that we do not believe
present the possibility of an adverse impact upon our
investment, after reviewing whether applicable corporate
governance requirements as to board and committee
composition have been met, we will vote in accordance with
the recommendations of the company's management. When we
believe that the management's recommendation is not in the
best interests of our stockholders, we will vote against
that recommendation.
Our general guidelines for when we will vote contrary to the
recommendation of the portfolio company management's
recommendation are:
Stock Options
Our general guideline is to vote against stock option plans
that we believe are unduly dilutive of our stock holdings in
the company. We use a general guideline that we will vote
against any stock option plan that results in dilution in
shares outstanding exceeding 4%. Most stock option plans are
established to motivate and retain key employees and to
reward them for their achievement. An analysis of a stock
option plan can not be made in a vacuum but must be made in
the context of the company's overall compensation scheme. In
voting on stock option plans, we give consideration to
whether the stock option plan is broad-based in the number
of employees who are eligible to receive grants under the
plan. We generally vote against plans that permit re-pricing
of grants or the issuance of options with exercise prices
below the grant date value of the company's stock.
Corporate Control/Governance Issues
Unless we conclude that the proposal is favorable to our
interests as a long-term shareholder in the company, we have
a long-standing policy of voting against proposals to create
a staggered board of directors. In conformance with that
policy, we will generally vote in favor of shareholder
proposals to eliminate the staggered election of directors.
Unless we conclude that the proposal is favorable to our
interests as a long-term shareholder in the company, our
general policy is to vote against amendments to a company's
charter that can be characterized as blatant anti-takeover
provisions.
With respect to so-called golden parachutes and other
severance packages, it is our general policy to vote against
proposals relating to future employment contracts that
provide that compensation will be paid to any director,
officer or employee that is contingent upon a merger or
acquisition of the company.
We generally vote for proposals to require that the majority
of a board of directors consist of independent directors and
vote against proposals to establish a retirement plan for
non-employee directors.
We have found that most stockholder proposals relating to
social issues focus on very narrow issues that either fall
within the authority of the company's management, under the
oversight of its board of directors, to manage the day-to-
day operations of the company or concern matters that are
more appropriate for global solutions rather than company-
specific ones. We consider these proposals on a case-by-case
basis but usually are persuaded management's position is
reasonable and vote in accordance with management's
recommendation on these types of proposals.
Item 8. Portfolio Managers of Closed-End Management
Investment Companies.
(a) (1) Douglas G. Ober, Chairman and Chief Executive
Officer, and Joseph M. Truta, President, comprise the 2
person portfolio management team for the Registrant. Mr.
Ober and Mr. Truta have served as portfolio managers
for the Registrant since 1991. This information is as
of February 19, 2008. Mr. Ober is the lead member of
the portfolio management team. Mr. Ober and Mr. Truta
receive investment recommendations from a team of
research analysts and make decisions jointly about any
equity transactions in the portfolio. Concurrence of
both portfolio managers is required for an investment
recommendation to be approved.
(2) Mr. Ober and Mr. Truta also comprised in 2007 the
portfolio management team for Registrant's non-
controlled affiliate, Petroleum & Resources Corporation
(Petroleum), a registered investment company with total
net assets of $978,919,829 as of December 31, 2007.
Robert E. Sullivan was added to Petroleum's portfolio
management team effective January 1, 2008. Mr. Ober is
Chairman, Chief Executive Officer and President of
Petroleum, Mr. Truta is Executive Vice President, and,
effective January 1, 2008, Mr. Sullivan is Executive
Vice President. This information is as of February 19,
2008. The Petroleum fund is a non-diversified fund
focusing on the energy and natural resources sectors
and Adams is a diversified fund with a different focus,
and there are few material conflicts of interest that
may arise in connection with the portfolio managers'
management of both funds. The funds do not buy or sell
securities or other portfolio holdings to or from the
other, and procedures and policies are in place
covering the sharing of expenses and the allocation of
investment opportunities, including bunched orders and
investments in initial public offerings, between the
funds.
(3) The portfolio managers are compensated through a
three-component plan, consisting of salary, annual cash
incentive compensation, and equity incentive
compensation. The value of each component in any year
is determined by the Compensation Committee, comprised
solely of independent director members of the Board of
Directors. Salaries are determined by using
appropriate industry surveys and information about the
local market as well as general inflation statistics.
Cash incentive compensation is based on a combination
of absolute and relative fund performance over one and
three year periods as well as individual success at
meeting goals and objectives set by the Board of
Directors at the beginning of each year. Target
incentives are set based on 80% of salary for the Chief
Executive Officer and 60% of salary for the President.
Two-thirds of each individual's annual cash incentive
is based on fund performance and one third on
individual success. The portion based on performance
is determined using a scale in which the target can be
earned by absolute fund pre- tax performance of 10%.
The scale ranges from zero to 125% of target. The
result is then modified by an average of the one and
three year performance relative to the S&P 500, whereby
each one percent outperformance or underperformance by
the fund adds or deducts 5% from the percentage of
target earned based on the scale. The maximum
percentage of target which may be earned is 200% and
the minimum is zero. Equity incentive compensation,
based on a plan approved by shareholders in 2005, can
take several forms. Following approval of the plan,
grants of restricted stock were made to the portfolio
managers in April 2005, with vesting in equal
proportions over a three year period. The size of the
grants was determined by the Compensation Committee
with the assistance of an outside compensation
consultant. Grants of restricted stock were also made
on January 11, 2007, and January 12, 2006, each of
which will vest at the end of three years thereafter,
but only upon the achievement of specified performance
criteria. For the 2007 grants, the target number of
restricted shares will vest on January 11, 2010, if, on
January 1, 2010, the Company's total three year net
asset value ("NAV") return meets or exceeds the three
year total NAV return of a hypothetical portfolio
comprised of a 50/50 blend of the S&P 500 Index and the
Lipper Large Cap Core Mutual Fund Average
("Hypothetical Portfolio"), with a lesser percentage or
no shares being earned if the Company's total NAV
return trails that of the Hypothetical Portfolio,
depending on the level of underperformance on that
date. In addition, if, on January 1, 2010, the
Company's three year total NAV return exceeds that of
the Hypothetical Portfolio, an additional number of
shares will be earned and vest, depending on the level
of outperformance. For the 2006 grants, the target
number of restricted shares will vest at the end of
three years, with certain percentages of shares being
deemed to have been earned based on achieving
performance goals over specified intervening time
periods. The first-one sixth of the target number of
shares were earned on January 1, 2007, because the
Company's one year total NAV return exceeded that of
the Hypothetical Portfolio on that date. The next one-
third of the target number of shares were earned on
January 1, 2008, because the Company's two year total
NAV return exceeded that of the Hypothetical Portfolio
on that date. The remaining 50% of the target number
of shares will be deemed to have been earned if, on
January 1, 2009, the Company's three year total NAV
return meets or exceeds that of the Hypothetical
Portfolio, with a lesser percentage or no shares being
earned if the Company's total NAV return trails that of
the Hypothetical Portfolio, depending on the level of
underperformance. In addition, as with the 2007
grants, additional shares will be earned and vest if
the Company's three year total NAV return exceeds that
of the Hypothetical Portfolio, depending on the level
of outperformance on that date. Dividends and capital
gains paid on the Company's shares of Common Stock
("dividends") will be paid on all of the target number
of shares of restricted stock, when such dividends are
paid on the Common Stock, except that no dividends or
capital gains will be paid on any shares that are
forfeited due to the failure to achieve the performance
criteria described above. The basis for the portfolio
managers' cash incentive and equity incentive
compensation determinations for Petroleum is the same
as for Adams, except that the portion of the cash
incentive based upon fund performance uses the Dow
Jones Oil and Gas Index and the S&P 500 Index as the
benchmarks in a 80/20 ratio, over a one and three year
period, and the benchmarks used to measure fund
performance for equity incentive compensation is a
hypothetical portfolio comprised of a 80/20 blend of
the Dow Jones Oil and Gas Index and the S&P 500 Index.
All of the above information is as of December 31,
2007, except as noted.
(4) Using a valuation date of December 31, 2007, Mr.
Ober beneficially owns equity securities in Registrant
of over $1,000,000. Mr. Truta beneficially owns equity
securities in Registrant of over $1,000,000.
Item 9: 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. 2007 158,900 $ 13.83 158,900 3,927,692
Feb. 2007 236,055 $ 14.03 236,055 3,691,637
Mar. 2007 409,219 $ 13.82 409,219 3,282,418
Apr. 2007 117,050 $ 14.17 117,050 3,165,368
May 2007 0 $ 0 0 3,165,368
June 2007 67,900 $ 15.01 67,900 3,097,468
Jul. 2007 98,557 $ 14.96 98,557 2,998,911
Aug. 2007 175,850 $ 14.35 175,850 2,823,061
Sep. 2007 128,400 $ 14.74 128,400 2,694,661
Oct. 2007 111,742 $ 14.93 111,742 2,582,919
Nov. 2007 0 $ 0 0 2,582,919
Dec. 2007 82,100 $ 13.56 82,100 4,186,336
-------- --------- --------- --------- ---------
Total 1,585,773(1) $ 14.20 1,585,773(2) 4,186,336(2)
(1) There were no shares purchased other than through a
publicly announced plan or program.
(2.a) The Plan was reapproved on December 13, 2007.
(2.b) The share amount approved in 2007 was 5% of
outstanding shares, or approximately 4,268,436 shares.
(2.c) Unless reapproved, the Plan will expire on or about
December 11, 2008.
(2.d) None.
(2.e) None.
Item 10. Submission of Matters to a Vote of Security Holders.
There were no material changes to the procedures by which
shareholders may recommend nominees to the Registrant's
board of directors made or implemented after the Registrant
last provided disclosure in response to the requirements of
Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or
this Item.
Item 11. Controls and Procedures.
Conclusions of principal officers concerning controls and
procedures.
(a) As of February 28, 2008, an evaluation was performed
under the supervision and with the participation of the
officers of Registrant, including the principal executive
officer (PEO) and principal financial officer (PFO), of the
effectiveness of Registrant's disclosure controls and
procedures. Based on that evaluation, the Registrant's
officers, including the PEO and PFO, concluded that, as of
February 28, 2008, the Registrant's disclosure controls and
procedures were reasonably designed so as to ensure that
material information relating to the Registrant is made
known to the PEO and PFO.
(b) There have been no significant changes in the
Registrant's internal control over financial reporting (as
defined in Rule 30a-3(d) under the Investment Company Act of
1940 (17 CFR 270.30a-3(d)) that occurred during the
Registrant's last fiscal half-year that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
Item 12. Exhibits attached hereto. (Attach certifications as
exhibits)
(1) Not applicable. See Registrant's response to Item 2,
above.
(2) Separate certifications by the Registrant's principal
executive officer and principal financial officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 and
required by Rule 30a-2 under the Investment Company Act of
1940, are attached.
Signatures:
Pursuant to the requirements of the Securities Exchange Act
of 1934 and the Investment Company Act of 1940, the
Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE ADAMS EXPRESS COMPANY
BY: /s/ Douglas G. Ober
-----------------------
Douglas G. Ober
Chief Executive Officer
(Principal Executive Officer)
Date: February 28, 2008
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: February 28, 2008
BY: /s/ Maureen A. Jones
-----------------------
Maureen A. Jones
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: February 28, 2008