CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-00248 - -------------------------------------------------------------------------
THE ADAMS EXPRESS COMPANY ------------------------------------------------------------------------- (Exact name of registrant as specified in charter)
7 Saint Paul Street, Suite 1140, Baltimore, Maryland 21202 ------------------------------------------------------------------------- (Address of principal executive offices)
Lawrence L. Hooper, Jr. The Adams Express Company 7 Saint Paul Street, Suite 1140 Baltimore, Maryland 21202 ------------------------------------------------------------------------- (Name and address of agent for service)
Registrant's telephone number, including area code: (410) 752-5900 Date of fiscal year end: December 31 Date of reporting period: December 31, 2009
The remarkable recovery of the stock market in 2009 from the prior year’s decline was historic in its magnitude. The Adams Express Company (the “Fund”) participated fully in this recovery, once again outperforming its benchmarks. The total return on net assets of the Fund last year, after reinvesting dividends and capital gains, was 30.6%, compared to the 26.5% return of the Standard & Poor’s 500 Composite Index (“S&P 500” or “Index”) and the 27.1% return of the Lipper Large-Cap Core Mutual Fund Average. The return on market value of the Fund was even higher at 32.1%. In addition, we outperformed our benchmarks on a three and five year basis and kept pace over the ten year period.
During the year, the Fund’s cash and short-term investments were reduced significantly as we took opportunities to increase our equity positions. Five of the portfolio’s sectors outperformed their counterparts in the S&P 500. We elected to invest the Fund more heavily than the Index (overweight) in three of them: consumer staples, energy, and industrials. We weighted the Fund approximately equally with the S&P 500 in health care and were underweight in financials, both of which also outperformed their sector counterparts in the Index. In the consumer discretionary, technology, materials and telecommunications sectors, the Fund was underweight and underperformed the Index sectors. Despite being underweight in technology, the 49% return in this sector, the largest in the portfolio, was a major contributor to the absolute performance of the Fund. Our utility holdings underperformed the Index sector and were of equal weight in the portfolio. (All comparisons are based on time-weighted average daily compound returns, which is the accepted industry standard.) We have successfully maintained the low risk profile of the portfolio while providing our shareholders with superior relative returns. The portfolio performed particularly well in 2009 despite the appetite of investors for higher risk names once the market had turned around at the end of the first quarter. Judging from the cash flows of domestic equity mutual funds, there was a dearth of individual investors participating in the ensuing rally, so most of the activity was driven by institutional investors.
The 2009 Economy
The passage of a substantial government stimulus plan and support of the financial industry helped bring the market decline to a halt in March of 2009 as investors viewed the efforts as having a strong likelihood of success. The domestic economy continued its decline until the third quarter, when activity began to pick up in a number of industries. Unemployment appeared to level off around the 10% mark in that quarter, but has yet to decline, as companies have held costs down by improving efficiency. Strong growth in the final quarter of the year was largely the result of an improved U.S. trade balance and a restocking of domestic inventories.
With most companies conserving cash and some forced to cut their dividends, investment income declined for the year. Short-term investments yielded very little, as the liquidity pumped into the economy stayed mainly at the banks and interest rates were extremely low. The strong performance of the portfolio, however, enabled the Fund to realize good capital gains as well as turn the $112 million unrealized capital loss of year-end 2008 into a $95 million unrealized gain at the end of 2009.
Investment Results
At the end of 2009, our net assets were $1,045,027,339 or $11.95 per share on 87,415,193 shares outstanding. This compares with $840,012,143 or $9.61 per share on 87,406,443 shares outstanding a year earlier. Net investment income for 2009 was $11,599,277 compared to $21,085,039 for 2008. These earnings are equal to $0.13 and $0.25 per share, respectively, on the average number of shares outstanding throughout each year. Our expense ratio (expenses to average net assets) for 2009 was 0.90% (0.76% exclusive of non-recurring expenses) due largely to a lower level of average net assets in 2009. Net realized gains amounted to $19,008,941 during the year, while the unrealized appreciation on investments increased from $(111,981,824) at December 31, 2008 to $94,707,984 at year-end.
Dividends and Distributions
The total dividends and distributions paid in 2009 were $0.45 per share compared to $0.64 in 2008. The table on page 20 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 2009, the annual rate of distribution was 5.16% compared to 5.61% in 2008. As announced on November 12, 2009, a year-end distribution consisting of investment income of $0.02 per share and capital gains of $0.28 per share was made on December 28, 2009, both realized and taxable in 2009. On January 14, 2010, an additional distribution of $0.05 per share was declared to shareholders of record on February 12, 2010, payable March 1, 2010, representing the balance of undistributed net investment income and capital gains earned during 2009 and an initial distribution from 2010 net investment income, all taxable to shareholders in 2010.
Douglas G. Ober,
Chairman, President and Chief
Executive Officer
2
Outlook for 2010
The global economy appears to be picking up steam. Emerging from recession, the U.S. economy should outpace most developed nations and post gross domestic product expansion of between 2% and 3% in 2010. The U.S. economy is still expected to lag the growth in the major developing economies, however. Brazil, India and China will remain areas of strong growth this year. Excess capacity and high unemployment in the U.S. should keep inflation low but bears watching. Modest growth may start to reverse the upward trend in the unemployment rate toward the middle or latter part of the year, as the jobs market is already showing signs of stability. The Federal Reserve is likely to begin pushing short-term interest rates up late in the year to avoid any acceleration in inflation.
But there are still clouds on the horizon. Consumers remain cautious. The markets for homes and autos have improved, but the strength of the recovery is cloaked by the various stimulus programs that have been put in place. Retail spending has improved, but the leverage-induced spending habits of the past remain fresh in consumers’ minds and the level of unemployment will continue to hamper spending.
The financial system was in complete disarray a year ago, but is now in the process of recovery. Banks are bolstering their balance sheets and slowly starting to lend. Capital markets have been more active and the financial support from the government is being repaid. All these steps are necessary to move toward the healing of the overall economy.
Companies are also starting to show signs of a recovery. The benefits of significant cost cutting and some early hints of revenue growth should combine to produce healthy earnings growth early in 2010. The combination of low interest rates, a financial system that is willing to lend, and an extended period of underinvestment should lead to a recovery in capital spending globally. Additionally, the majority of stimulus dollars have yet to be spent and stand to benefit many areas related to infrastructure, alternative energy and transportation.
In an environment of recovery, equity markets are positioned to have a solid year. A return of investors’ confidence, improving expectations, and the potential reinvestment of cash that has been on the sidelines, should push markets higher. Additionally, corporate balance sheets are now adequately capitalized to promote higher dividends, share repurchases and greater financial flexibility. Mergers and acquisitions are again in the headlines and should continue. Following a sharp rebound for equities, higher quality, market-leading companies should attract investors’ attention. Our current portfolio is weighted toward large, financially-sound companies and should perform well through a gradual recovery.
We have taken advantage of the market turbulence of the past two years. We have made investments at attractive valuations in companies we view as having solid long-term opportunities. The portfolio should benefit from both a recovery of the U.S. economy and from continued growth in international markets. While the majority of our holdings are headquartered in the U.S., we have expanded our exposure to international economies in recent years, as approximately 50% of the combined revenues of our portfolio holdings are generated outside the U.S.
Though we believe that an economic recovery is underway, the path will not likely be a straight line, as many hurdles stand in the way. Indeed, we expect that, after a relatively strong first half of the year, growth may slow in the second half as stimulus spending tapers off and the Federal Reserve looks to contain any inflationary tendencies. We do expect that corporate and consumer spending will pick up, but likely not quickly enough to keep the economy growing at the same rate as in the first half. The consequent ups and downs in the markets provide opportunities and we are constantly on the lookout for ways to enhance the value of the portfolio.
Share Repurchase Program
On December 10, 2009, 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 and market conditions and portfolio management considerations otherwise warrant. From the beginning of 2010 through January 22, 2010, a total of 28,300 shares have been repurchased at a total cost of $287,752 and a discount from net asset value of 15.8%.
By order of the Board of Directors,
Douglas G. Ober,
Chairman, President and Chief Executive Officer
January 29, 2010
3
STATEMENTOF ASSETSAND LIABILITIES
December 31, 2009
Assets
Investments* at value:
Common stocks and convertible securities (cost $867,640,063)
Open written option contracts at value (proceeds $201,710)
62,390
Obligations to return securities lending collateral
58,449,275
Accrued pension liabilities
2,829,400
Accrued expenses and other liabilities
1,285,722
Total Liabilities
62,626,787
Net Assets
$
1,045,027,339
Net Assets
Common Stock at par value $0.001 per share, authorized 150,000,000 shares; issued and outstanding 87,415,193 shares (includes 92,565 restricted shares, 15,000 nonvested or deferred restricted stock units, and 10,671 deferred stock units) (note 6)
$
87,415
Additional capital surplus
956,751,766
Accumulated other comprehensive income (note 5)
(2,207,127
)
Undistributed net investment income
307,611
Undistributed net realized gain on investments
(4,620,310
)
Unrealized appreciation on investments
94,707,984
Net Assets Applicable to Common Stock
$
1,045,027,339
Net Asset Value Per Share of Common Stock
$11.95
*See schedule of investments on pages 14 through 16.
The accompanying notes are an integral part of the financial statements.
4
STATEMENTOF OPERATIONS
Year Ended December 31, 2009
Investment Income
Income:
Dividends:
From unaffiliated issuers
$
17,659,632
From non-controlled affiliate
1,115,254
Interest and other income
836,674
Total income
19,611,560
Expenses:
Investment research
3,683,826
Administration and operations
2,266,497
Directors’ fees
359,521
Transfer agent, registrar, and custodian
321,145
Reports and stockholder communications
295,753
Investment data services
246,594
Travel, training, and other office expenses
235,638
Occupancy
174,690
Auditing and accounting services
134,198
Insurance
115,267
Legal services
16,022
Other
163,132
Total expenses
8,012,283
Net Investment Income
11,599,277
Change in Accumulated Other Comprehensive Income (note 5)
3,828,668
Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions
15,695,548
Net realized gain distributed by regulated investment company (non-controlled affiliate)
1,946,229
Net realized gain on written option contracts
1,367,164
Change in unrealized appreciation on investments
206,636,605
Change in unrealized appreciation on written option contracts
53,203
Net Gain on Investments
225,698,749
Change in Net Assets Resulting from Operations
$
241,126,694
The accompanying notes are an integral part of the financial statements.
5
STATEMENTSOF CHANGESIN NET ASSETS
For the Year Ended
Dec. 31, 2009
Dec. 31, 2008
From Operations:
Net investment income
$
11,599,277
$
21,085,039
Net realized gain on investments
19,008,941
32,965,241
Change in unrealized appreciation on investments
206,689,808
(522,436,794
)
Change in accumulated other comprehensive income (note 5)
3,828,668
(4,055,632
)
Change in net assets resulting from operations
241,126,694
(472,442,146
)
Distributions to Stockholders From:
Net investment income
(12,986,945
)
(22,378,500
)
Net realized gain from investment transactions
(25,863,942
)
(32,528,278
)
Decrease in net assets from distributions
(38,850,887
)
(54,906,778
)
From Capital Share Transactions:
Value of shares issued in payment of distributions (note 4)
13,254,222
17,225,925
Cost of shares purchased (note 4)
(10,811,722
)
(28,955,931
)
Deferred compensation (notes 4, 6)
296,889
611,546
Change in net assets from capital share transactions
2,739,389
(11,118,460
)
Total Change in Net Assets
205,015,196
(538,467,384
)
Net Assets:
Beginning of year
840,012,143
1,378,479,527
End of year (including undistributed net investment income of $307,611 and $1,754,228, respectively)
$
1,045,027,339
$
840,012,143
The accompanying notes are an integral part of the financial statements.
6
NOTES TO FINANCIAL STATEMENTS
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.
The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by Company management and the evaluation of subsequent events through February 12, 2010, the issuance date of the financial statements. Management believes that estimates and security valuations are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in the financial statements may differ from the value the Company ultimately realizes upon sale of the securities.
Affiliated Companies — Investments in companies 5% or more of whose outstanding voting securities are held by the Company are defined as “Affiliated Companies” in Section 2(a)(3) of the Investment Company Act of 1940.
Security Transactions and Investment Income — Investment transactions are accounted for on the trade date. Gain or loss on sales of securities and options is determined on the basis of identified cost. Dividend income and distributions to stockholders are recognized on the ex-dividend date, and interest income is recognized on the accrual basis.
Security Valuation — The Company’s investments are reported at fair value as defined under accounting principles generally accepted in the United States of America. 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 and money market funds) are valued at amortized cost, which approximates fair value. Purchased and written options are valued at the last quoted bid and asked price, respectively. Money market funds are valued at net asset value on the day of valuation.
Various inputs are used to determine the fair value of the Company’s investments. These inputs are summarized in the following three levels:
•
Level 1 — fair value is determined based on market data obtained from independent sources; for example, quoted prices in active markets for identical investments,
•
Level 2 — fair value is determined using other assumptions obtained from independent sources; for example, quoted prices for similar investments,
•
Level 3 — fair value is determined using the Company’s own assumptions, developed based on the best information available in the circumstances.
The Company’s investments at December 31, 2009 were classified as follows:
Common stocks and convertible securities
Mutual funds
Written options
Level 1
$
996,944,131
$
106,025,857
$
(62,390
)
Level 2
—
—
—
Level 3
—
—
—
Total
$
996,944,131
$
106,025,857
$
(62,390
)
2. Federal Income Taxes
No federal income tax provision is required since the Company’s policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its taxable income to its stockholders. Additionally, management has analyzed and concluded that tax positions included in federal income tax returns from the previous three years that remain subject to examination do not require any provision. Any income tax-related interest or penalties would be recognized as income tax expense. As of December 31, 2009, the identified cost of securities for federal income tax purposes was $1,015,160,030, and net unrealized appreciation aggregated $87,809,958, consisting of gross unrealized appreciation of $217,726,603 and gross unrealized depreciation of $(129,916,645).
Distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Such differences are primarily related to the Company’s retirement plans, equity-based compensation, and loss deferrals
7
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
for wash sales. Differences that are permanent, while not material for the year ended December 31, 2009, are reclassified in the capital accounts of the Company’s financial statements and have no impact on net assets. For tax purposes, distributions paid by the Company during the years ended December 31, 2009 and December 31, 2008, were classified as ordinary income of $17,275,467 and $23,253,237, respectively, and as long-term capital gain of $21,537,598 and $31,653,541, respectively. The tax basis of distributable earnings at December 31, 2009 was $2,254,247 of undistributed ordinary income and $709,304 of undistributed long-term capital gain.
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, 2009 were $159,394,915 and $125,470,807, respectively.
The Company is subject to changes in the value of equity securities held (“equity price risk”) in the normal course of pursuing its investment objectives. The Company may purchase and write option contracts to increase or decrease its equity price risk exposure or may write option contracts to generate additional income. Option contracts generally entail risks associated with counterparty credit, illiquidity, and unfavorable equity price movements. The Company has mitigated counterparty credit and illiquidity risks by trading its options through an exchange. The risk of unfavorable equity price movements is limited for purchased options to the premium paid and for written options by writing only covered call or collateralized put option contracts, which require the Company to segregate certain securities or cash at its custodian when the option is written. A schedule of outstanding option contracts as of December 31, 2009 can be found on page 17.
When the Company writes (purchases) an option, an amount equal to the premium received (paid) by the Company is recorded as a liability (asset) and is subsequently marked to market daily in the Statement of Assets and Liabilities, with any related change recorded as an unrealized gain or loss in the Statement of Operations. Premiums received (paid) from unexercised options are treated as realized gains (losses) on the expiration date. Upon the exercise of written put (purchased call) option contracts, premiums received (paid) are deducted from (added to) the cost basis of the underlying securities purchased. Upon the exercise of written call (purchased put) option contracts, premiums received (paid) are added to (deducted from) the proceeds from the sale of underlying securities in determining whether there is a realized gain or loss.
Transactions in written covered call and collateralized put options during the year ended December 31, 2009 were as follows:
Covered Calls
Collateralized Puts
Contracts
Premiums
Contracts
Premiums
Options outstanding, December 31, 2008
200
$
22,650
732
$
94,717
Options written
4,096
527,721
11,266
1,237,756
Options terminated in closing purchase transactions
(100
)
(13,225
)
(350
)
(49,125
)
Options expired
(2,546
)
(273,445
)
(10,050
)
(1,060,619
)
Options exercised
(1,004
)
(170,871
)
(1,050
)
(113,849
)
Options outstanding, December 31, 2009
646
$
92,830
548
$
108,880
4. Capital Stock
The Company has 10,000,000 authorized and unissued preferred shares, $0.001 par value.
On December 28, 2009, the Company issued 1,346,031 shares of its Common Stock at a price of $9.84 per share (the average market price on December 9, 2009) to stockholders of record November 20, 2009 who elected to take stock in payment of the distribution from 2009 capital gain and investment income. During 2009, 1,126 shares were issued at a weighted average price of $8.22 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, 2008, the Company issued 2,149,685 shares of its Common Stock at a price of $8.01 per share (the average market price on December 8, 2008) to stockholders of record November 21, 2008 who elected to take stock in payment of the distribution from 2008 capital gain and investment income. During 2008, 898 shares were issued at a weighted average price of $10.31 per share as dividend equivalents to holders of deferred stock units and restricted stock units under the 2005 Equity Incentive Compensation Plan.
8
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 2009 and 2008 were as follows:
Shares
Amount
2009
2008
2009
2008
Shares issued in payment of distributions
1,347,157
2,150,583
$
13,254,222
$
17,225,925
Shares purchased (at a weighted average discount from net asset value of 15.6% and 14.8%, respectively)
(1,369,749
)
(2,457,547
)
(10,811,722
)
(28,955,931
)
Net activity under the 2005 Equity Incentive Compensation Plan
31,342
44,560
296,889
611,546
Net change
8,750
(262,404
)
$
2,739,389
$
(11,118,460
)
5. Retirement Plans
The Company’s non-contributory qualified defined benefit pension 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. Both plans were frozen as of October 1, 2009. Benefits are based on length of service and compensation during the last five years of employment through September 30, 2009, with no additional benefits being accrued beyond that date.
The funded status of the plans is recognized as an asset (overfunded plan) or a liability (underfunded plan) in the Statement of Assets and Liabilities. Changes in the prior service costs and accumulated actuarial gains and losses are recognized as accumulated other comprehensive income, a component of net assets, in the year in which the changes occur and are subsequently amortized into net periodic pension cost.
The Company’s policy is to contribute annually to the plans those amounts that can be deducted for federal income tax purposes, plus additional amounts as the Company deems appropriate in order to provide assets sufficient to meet benefits to be paid to plan participants. The Company made contributions of $476,547 to the plans in 2009 and anticipates making contributions of approximately $500,000 in 2010.
The Company uses a December 31 measurement date for its plans. Details in aggregate for both plans were as follows:
2009
2008
Change in benefit obligation
Benefit obligation at beginning of year
$
12,152,014
$
10,630,813
Service cost
221,890
345,420
Interest cost
539,345
459,209
Actuarial loss
267,255
784,450
Plan changes
—
89,030
Benefits paid
(201,855
)
(156,908
)
Effect of settlement
(2,701,978
)
—
Effect of curtailment
(1,451,984
)
—
Benefit obligation at end of year
$
8,824,687
$
12,152,014
Change in plan assets
Fair value of plan assets at beginning of year
$
8,122,563
$
11,003,091
Actual return on plan assets
1,424,685
(2,723,620
)
Employer contributions
476,547
—
Benefits paid
(201,855
)
(156,908
)
Settlement
(2,701,978
)
—
Fair value of plan assets at end of year
$
7,119,962
$
8,122,563
Funded status
$
(1,704,725
)
$
(4,029,451
)
The accumulated benefit obligation for all defined benefit pension plans was $8,824,687 and $10,812,861 at December 31, 2009 and 2008, respectively.
The primary investment objectives of the Company’s pension plan assets are to provide capital appreciation, income, and preservation of capital. The plans’ objectives are achieved through a diversified portfolio including common stock of the Company and pooled separate accounts (“PSA”). PSAs are made up of a wide variety of underlying investments in equity and fixed income securities. The Company’s targeted asset allocation is to maintain approximately 60% of plan assets invested in fixed income securities and approximately 40% of plan assets invested in equity securities. The investment in the Company’s common stock represented 8.8% of plan assets at December 31, 2009.
The net asset value of a PSA is based on the fair value of its underlying investments. The fair value of the plan assets is determined using various inputs, summarized into the three levels described in footnote 1. The plan assets at December 31, 2009 were classified as follows:
Equity PSAs
Fixed Income PSAs
Regulated Investment Companies
Level 1
$
—
$
—
$
627,047
Level 2
2,671,154
3,821,761
—
Level 3
—
—
—
Total
$
2,671,154
$
3,821,761
$
627,047
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Items recognized in accumulated other comprehensive income were:
2009
2008
Prior service cost
$
—
$
(234,938
)
Net loss
(2,207,127
)
(5,800,857
)
Accumulated other comprehensive income
$
(2,207,127
)
$
(6,035,795
)
Items impacting the Company’s earnings were:
2009
2008
Components of net periodic pension cost
Service cost
$
221,890
$
345,420
Interest cost
539,345
459,209
Expected return on plan assets
(456,596
)
(691,794
)
Prior service cost component
78,424
95,860
Net loss component
390,050
137,401
Effect of settlement (non-recurring)
1,299,139
—
Effect of curtailment (non-recurring)
(91,763
)
—
Net periodic pension cost
$
1,980,489
$
346,096
2009
2008
Changes recognized in accumulated other comprehensive income
Net gain/(loss)
$
700,834
$
(4,199,863
)
Prior service cost
—
(89,030
)
Amortization of net loss
390,050
137,401
Amortization of prior service cost
78,424
95,860
Effect of settlement (non-recurring)
1,299,139
—
Effect of curtailment (non-recurring)
1,360,221
—
Change in accumulated other comprehensive income
$
3,828,668
$
(4,055,632
)
In 2010, the Company estimates that $209,845 of net losses will be amortized from accumulated other comprehensive income into net periodic pension cost.
Assumptions used to determine benefit obligations were:
2009
2008
Discount rate
5.91%
6.32%
Rate of compensation increase
7.00%
7.00%
The assumptions used to determine net periodic pension cost were:
2009
2008
Discount rate
6.25%
6.00%
Expected long-term return on plan assets
7.25%
7.25%
Rate of compensation increase
7.00%
7.00%
The assumption used to determine expected long-term return on plan assets was based on historical and future expected returns of multiple asset classes in order to develop a risk-free real rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk-free real rate of return, and the associated risk premium. A weighted average rate was developed based on those overall rates and the target asset allocation of the plan.
The following benefit payments are eligible to be paid in the years indicated:
Pension Benefits
2010
$
3,880,000
2011
263,000
2012
243,300
2013
233,900
2014
757,400
Years 2015-2019
2,142,000
The Company also sponsors qualified and nonqualified defined contribution plans. The Company expensed contributions to the plans in the amount of $213,375 for the year ended December 31, 2009. 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, 2009, and changes during the year then ended, is presented below:
Options
Weighted- Average Exercise Price
Weighted- Average Remaining Life (Years)
Outstanding at December 31, 2008
122,396
$
11.05
2.80
Exercised
(26,139
)
7.99
—
Expired
(36,059)
12.20
—
Outstanding at December 31, 2009
60,198
$
11.37
1.79
Exercisable at December 31, 2009
43,965
$
10.88
2.02
10
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The options outstanding as of December 31, 2009 are set forth below:
Exercise price
Options Outstanding
Weighted Average Exercise Price
Weighted Average Remaining Life (Years)
$9.00-$10.74
39,744
$
9.55
2.40
$10.75-$12.49
—
—
—
$12.50-$14.24
—
—
—
$14.25-$16.00
20,454
14.90
0.60
Outstanding at December 31, 2009
60,198
$
11.37
1.79
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, 2009 was $24,741.
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 achieving certain performance targets. If performance targets are not achieved, all or a portion of the performance-based restricted shares are forfeited and become available for future grants. Nonperformance-based restricted stock awards vest ratably over a three year period and nonperformance-based restricted stock units (granted to non-employee directors) vest over a one year period. Payment of awards may be deferred, if elected. It is the current intention that employee grants will be performance-based. The 2005 Plan provides for accelerated vesting in the event of death or retirement. Non-employee directors also may elect to defer a portion of their cash compensation, with such deferred amount to be paid by delivery of deferred stock units. Outstanding awards 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, 2009 is 3,224,102 shares.
A summary of the status of the Company’s awards granted under the 2005 Plan as of December 31, 2009, and changes during the year then ended, is presented below:
Awards
Shares/Units
Weighted Average Grant-Date Fair Value
Balance at December 31, 2008
129,694
$
13.15
Granted:
Restricted stock
48,595
8.21
Restricted stock units
6,750
7.26
Deferred stock units
2,404
8.53
Vested & issued
(59,730
)
12.59
Forfeited
(9,477)
11.80
Balance at December 31, 2009 (includes 89,517 performance-based awards and 28,719 nonperformance-based awards)
118,236
$
11.08
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, 2009 were $358,711. The total compensation costs for restricted stock units granted to non-employee directors for the year ended December 31, 2009 were $54,771. As of December 31, 2009, there were total unrecognized compensation costs of $374,129, 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 1.62 years. The total fair value of shares and units vested during the year ended December 31, 2009 was $481,078.
7. Officer and Director Compensation
The aggregate remuneration paid during the year ended December 31, 2009 to officers and directors amounted to $2,688,652, of which $331,515 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.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Portfolio Securities Loaned
The Company makes loans of securities to approved brokers to earn additional income. It receives as collateral cash deposits, U.S. Government securities, or bank letters of credit valued at 102% of the value of the securities on loan. The market value of the loaned securities is calculated based upon the most recent closing prices and any additional required collateral is delivered to the Company on the next business day. Cash deposits are placed in a registered money market fund. The Company accounts for securities lending transactions as secured financing and receives compensation in the form of fees or retains a portion of interest on the investment of any cash received as collateral. The Company also continues to receive interest or dividends on the securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan will be for the account of the Company. At December 31, 2009, the Company had securities on loan of $56,706,617 and held cash collateral of $58,449,275. The Company is indemnified by the Custodian, serving as lending agent, for loss of loaned securities and has the right under the lending agreement to recover the securities from the borrower on demand.
9. Operating Lease Commitment
The Company leases office space and equipment under operating lease agreements expiring at various dates through the year 2016. Petroleum & Resources Corporation, the Company’s non-controlled affiliate, shares in the rental payments, based on a predetermined cost sharing methodology. The Company recognized rental expense of $142,849 in 2009, and its estimated portion of the minimum rental commitments are as follows:
2010
$
145,642
2011
146,231
2012
144,787
2013
144,847
2014
144,963
2015 and 2016
222,525
Total
$
948,995
12
FINANCIAL HIGHLIGHTS
Year Ended December 31
2009
2008
2007
2006
2005
Per Share Operating Performance
Net asset value, beginning of year
$9.61
$15.72
$15.86
$14.71
$15.04
Net investment income
0.13
0.25
0.30*
0.23
0.22
Net realized gains and increase (decrease) in unrealized appreciation
2.64
(5.68)
0.61
1.86
0.32
Change in accumulated other comprehensive income
0.04
(0.05)
0.00
(0.02)
—
Total from investment operations
2.81
(5.48)
0.91
2.07
0.54
Less distributions
Dividends from net investment income
(0.15)
(0.26)
(0.32)
(0.23)
(0.22)
Distributions from net realized gains
(0.30)
(0.38)
(0.71)
(0.67)
(0.64)
Total distributions
(0.45)
(0.64)
(1.03)
(0.90)
(0.86)
Capital share repurchases
0.02
0.05
0.04
0.04
0.05
Reinvestment of distributions
(0.04)
(0.04)
(0.06)
(0.06)
(0.06)
Total capital share transactions
(0.02)
0.01
(0.02)
(0.02)
(0.01)
Net asset value, end of year
$11.95
$9.61
$15.72
$15.86
$14.71
Market price, end of year
$10.10
$8.03
$14.12
$13.87
$12.55
Total Investment Return
Based on market price
32.1%
(38.9)%
9.4%
17.9%
2.2%
Based on net asset value
30.6%
(34.4)%
6.5%
15.0%
4.5%
Ratios/Supplemental Data
Net assets, end of year (in 000’s)
$1,045,027
$840,012
$
1,378,480
$
1,377,418
$
1,266,729
Ratio of expenses to average net assets
0.90%
†
0.48%
0.44%
0.50%
0.45%
Ratio of net investment income to average net assets
1.30%
†
1.82%
1.82%
1.50%
1.44%
Portfolio turnover
15.05%
18.09%
10.46%
10.87%
12.96%
Number of shares outstanding at end of year (in 000’s)
87,415
87,406
87,669
86,838
86,100
*
In 2007, the Company received $5,100,000, or $0.06 per share, in a special cash dividend from Dean Foods Co., of which $2,295,000, or $0.03 per share, was considered a taxable dividend.
†
For 2009, the ratios of expenses and net investment income to average net assets were 0.76% and 1.44%, respectively, after adjusting for non-recurring pension expenses as described in footnote 5.
13
SCHEDULEOF INVESTMENTS
December 31, 2009
Shares
Value (A)
Common Stocks and Convertible Securities — 95.4%
Consumer — 21.4%
Consumer Discretionary — 7.0%
Lowe’s Companies, Inc.
600,000
$
14,034,000
McDonald’s Corp.
250,000
15,610,000
Newell Rubbermaid Inc. (B)
400,000
6,004,000
Ryland Group Inc. (B)
343,500
6,766,950
Target Corp.
320,000
15,478,400
Walt Disney Co.
480,000
15,480,000
73,373,350
Consumer Staples — 14.4%
Avon Products, Inc.
324,600
10,224,900
Bunge Ltd. (B)
160,000
10,212,800
Coca-Cola Co.
250,000
14,250,000
CVS/Caremark Corp.
285,000
9,179,850
Dean Foods Co. (C)
425,000
7,667,000
Del Monte Foods Co.
1,000,000
11,340,000
Hansen Natural Corp. (C)
260,000
9,984,000
Mead Johnson Nutrition Co.
117,383
5,129,649
PepsiCo, Inc. (G)
360,000
21,888,000
Procter & Gamble Co.
315,000
19,098,450
Safeway, Inc.
390,000
8,303,100
Unilever plc ADR
721,300
23,009,470
150,287,219
Energy — 12.2%
Chevron Corp.
200,000
15,398,000
ConocoPhillips
100,000
5,107,000
CONSOL Energy Inc. (F)
200,000
9,960,000
Exxon Mobil Corp. (G)
215,000
14,660,850
Halliburton Co.
300,000
9,027,000
Petroleum & Resources Corporation (D)
2,186,774
51,914,015
Spectra Energy Corp.
405,780
8,322,548
Transocean Inc. (C)
160,000
13,248,000
127,637,413
Financial — 12.7%
Banking — 11.2%
Bank of America Corp.
1,135,000
17,093,100
Bank of America Corp. Common Equivalent Securities
50,000
746,000
Bank of New York Mellon Corp.
403,775
11,293,587
Capital One Financial Corp. (B)
210,000
8,051,400
JPMorgan Chase & Co.
450,000
18,751,500
Morgan Stanley Co.
300,000
8,880,000
PNC Financial Services Group Inc. (B)
270,000
14,253,300
State Street Corp. (B)
230,000
10,014,200
Visa Inc. (B)
190,000
16,617,400
Wells Fargo & Co.
425,000
11,470,750
117,171,237
Insurance — 1.5%
Prudential Financial Inc.
310,000
15,425,600
14
SCHEDULEOF INVESTMENTS (CONTINUED)
December 31, 2009
Shares
Value (A)
Health Care — 12.3%
Abbott Laboratories
320,000
$
17,276,800
Bristol-Myers Squibb Co. (B)
159,061
4,016,290
Gilead Sciences Inc. (C)
200,000
8,656,000
Hospira Inc. (C)
225,000
11,475,000
Johnson & Johnson
255,000
16,424,550
Medtronic, Inc.
350,000
15,393,000
Pfizer Inc.
1,015,125
18,465,124
Senomyx, Inc. (C)
1,284,400
4,842,188
Teva Pharmaceutical Industries Ltd. ADR
330,000
18,539,400
UnitedHealth Group Inc. (C)
140,000
4,267,200
Zimmer Holdings, Inc. (C)
150,000
8,866,500
128,222,052
Industrials — 14.2%
Cintas Corp.
300,000
7,815,000
Curtiss-Wright Corp.
360,000
11,275,200
Emerson Electric Co.
300,000
12,780,000
General Electric Co.
1,488,000
22,513,440
Harsco Corp.
310,000
9,991,300
Illinois Tool Works Inc.
250,000
11,997,500
Masco Corp.
450,000
6,214,500
Oshkosh Corp. (F)
380,000
14,071,400
Spirit AeroSystems Holdings, Inc. (B) (C)
720,000
14,299,200
Tata Motors Ltd. ADR
1,000,000
16,860,000
United Technologies Corp.
300,000
20,823,000
148,640,540
Information Technology — 16.2%
Computer Related — 12.3%
Apple Inc. (C)
75,000
15,814,500
Automatic Data Processing Inc.
300,000
12,846,000
Cisco Systems, Inc. (C)
850,000
20,349,000
Dell Inc. (C)
285,000
4,092,600
Google Inc. (C)
20,000
12,399,600
Microsoft Corp.
1,180,000
35,978,200
Oracle Corp.
1,100,000
26,994,000
128,473,900
Electronics — 3.9%
Broadcom Corp. (C)
400,000
12,580,000
Intel Corp.
840,000
17,136,000
QUALCOMM Inc.
250,000
11,565,000
41,281,000
Materials — 1.5%
Cliffs Natural Resources Inc.
26,400
1,216,776
Freeport-McMoRan Copper & Gold Inc.
110,000
8,831,900
Potash Corporation of Saskatchewan Inc. (F)
54,000
5,859,000
15,907,676
15
SCHEDULEOF INVESTMENTS (CONTINUED)
December 31, 2009
Shares
Value (A)
Telecom Services — 1.1%
AT&T Corp.
400,000
$
11,212,000
Utilities — 3.8%
MDU Resources Group, Inc.
562,500
13,275,000
Northeast Utilities
350,000
9,026,500
Northwest Natural Gas Co.
200,000
9,008,000
WGL Holdings, Inc.
238,600
8,002,644
39,312,144
Total Common Stocks and Convertible Securities (Cost $902,375,467)
996,944,131
Short-Term Investments — 4.5%
Money Market Funds — 4.5%
Fidelity Institutional Money Market – Government Portfolio, 0.02% (E)
5,900,153
5,900,153
Fidelity Institutional Money Market – Treasury Only Portfolio, 0.01% (E)
Cash, receivables, prepaid expenses and other assets, less liabilities — (5.5)%
(57,942,649
)
Net Assets — 100.0%
$
1,045,027,339
Notes:
(A)
See note 1 to financial statements. Securities are listed on the New York Stock Exchange or the NASDAQ.
(B)
A portion of shares held are on loan. See note 8 to financial statements.
(C)
Presently non-dividend paying.
(D)
Non-controlled affiliate, a closed-end sector fund, registered as an investment company under the Investment Company Act of 1940.
(E)
Rate presented is as of period-end and represents the annualized yield earned over the previous seven days.
(F)
All or a portion of this security is pledged to cover open written call option contracts. Aggregate market value of such pledged securities is $3,933,998.
(G)
All or a portion of this security is pledged to collateralize open written put option contracts with an aggregate value to deliver upon exercise of $3,133,200.
16
SCHEDULEOF OUTSTANDING WRITTEN OPTION CONTRACTS
December 31, 2009
Contracts (100 shares each)
Security
Strike Price
Contract Expiration Date
Value
COVERED CALLS
200
CONSOL Energy Inc.
$ 55
Jan 10
$
(5,000
)
100
Oshkosh Corp.
45
Jan 10
(1,000
)
166
Oshkosh Corp.
55
Apr 10
(5,810
)
120
Potash Corporation of Saskatchewan Inc.
140
Jan 10
(1,200
)
60
Potash Corporation of Saskatchewan Inc.
150
Mar 10
(3,180
)
646
(16,190
)
COLLATERALIZED PUTS
88
Cliffs Natural Resources Inc.
39
Jan 10
(1,760
)
100
Freeport-McMoRan Copper & Gold lnc.
65
Jan 10
(1,100
)
100
Freeport-McMoRan Copper & Gold lnc.
70
Feb 10
(14,400
)
100
Freeport-McMoRan Copper & Gold lnc.
75
Feb 10
(27,200
)
100
Oshkosh Corp.
30
Jan 10
(1,500
)
60
Potash Corporation of Saskatchewan Inc.
65
Jan 10
(240
)
548
(46,200
)
$
(62,390
)
REPORTOF 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, 2009, 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, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 12, 2010
17
CHANGESIN PORTFOLIO SECURITIES
During the Three Months Ended December 31, 2009
(unaudited)
Shares
Additions
Reductions
Held Dec. 31, 2009
Bank of America Corp.
40,000
1,135,000
Bank of America Corp. Common Equivalent Securities
50,000
50,000
Chevron Corp.
50,000
200,000
Cliffs Natural Resources Inc.
26,400
26,400
Freeport-McMoRan Copper & Gold Inc.
110,000
110,000
JPMorgan Chase & Co.
25,000
450,000
Mead Johnson Nutrition Co.
117,383
(1)
117,383
Morgan Stanley
300,000
300,000
Oshkosh Corp.
30,000
380,000
Pfizer Inc.
320,125
(2)
300,000
1,015,125
Potash Corporation of Saskatchewan Inc.
54,000
54,000
QUALCOMM Inc.
10,000
250,000
Senomyx, Inc.
283,372
1,284,400
Spectra Energy Corp.
100,000
405,780
UnitedHealth Group Inc.
40,000
140,000
Avon Products, Inc.
10,400
324,600
Bristol-Myers Squibb Co.
185,939
(1)
159,061
Capital One Financial Corp.
105,000
210,000
Coca-Cola Co.
10,000
250,000
ConocoPhillips
50,000
100,000
Corning Inc.
350,000
—
Dell Inc.
300,000
285,000
du Pont (E.I.) de Nemours and Co.
460,000
—
Hospira Inc.
60,000
225,000
Unilever plc ADR
78,700
721,300
Wyeth Co.
325,000
(2)
—
(1)
Received .6313 share in exchange for each share of Bristol-Myers Squibb Co. tendered.
(2)
Received .985 share and $33.00 for each share of Wyeth Co. tendered.
18
THE ADAMS EXPRESS COMPANY
(unaudited)
Calendar year- end
Market value of original shares
Cumulative market value of capital gains distributions taken in shares
Cumulative market value of income dividends taken in shares
Total market value
Total net asset value
1995
$
11,777
$
745
$
348
$
12,870
$
14,864
1996
12,576
1,656
741
14,973
17,968
1997
15,402
3,203
1,311
19,916
23,479
1998
16,954
4,955
1,831
23,740
29,010
1999
21,372
8,212
2,707
32,291
38,748
2000
20,059
9,966
2,814
32,839
37,092
2001
13,583
8,911
2,242
24,736
27,918
2002
10,096
7,590
1,943
19,629
22,507
2003
11,854
10,097
2,611
24,562
28,421
2004
12,532
11,967
3,286
27,785
31,851
2005
11,987
12,799
3,591
28,377
33,261
2006
13,248
15,645
4,550
33,443
38,242
2007
13,487
17,678
5,398
36,563
40,705
2008
7,670
11,031
3,623
22,324
26,717
2009
9,647
14,815
5,009
29,472
34,870
Illustration of an assumed
15 year investment of $10,000
Investment income dividends and capital gains distributions are taken in additional shares. This chart covers the years 1995–2009. 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.
19
HISTORICAL FINANCIAL STATISTICS
(unaudited)
Dec. 31
Value Of Net Assets
Shares Outstanding*
Net Asset Value Per Share*
Market Value Per Share*
Dividends From Investment Income Per Share*
Distributions From Net Realized Gains Per Share*
Total Dividends and Distributions Per Share*
Annual Rate of Distribution**
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
2008
840,012,143
87,406,443
9.61
8.03
.26
.38
.64
5.61
2009
1,045,027,339
87,415,193
11.95
10.10
.15
.30
.45
5.16
*
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.
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.
20
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 headings “Investment Information���, “Financial Reports” and then “SEC Filings”.
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, 2009 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 “About Adams Express” and “Corporate Information” headings 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.
21
BOARDOF DIRECTORS
Personal Information
Position
held with
the fund
Term
of
office
Length
of time
served
Principal Occupations
Number of portfolios in fund complex overseen by director
Other directorships
Independent Directors
Enrique R. Arzac, Ph.D. 7 St. Paul Street, Suite 1140 Baltimore, MD 21202 Age 68
Director
One Year
Since 1983
Professor of Finance and Economics, formerly, Vice Dean of Academic Affairs of the Graduate School of Business, Columbia University.
Retired President & CEO of International Trade Solutions, Inc. (consultants). Formerly, President of Columbia College, Columbia, South Carolina, and Vice President of Warnaco Inc. (apparel).
Two
Director of Petroleum & Resources Corporation (investment company), Borg-Warner Inc. (industrial), Mohawk Industries, Inc. (carpets and flooring).
Kenneth J. Dale
7 St. Paul Street,
Suite 1140 Baltimore, MD 21202
Age 53
Director
One Year
Since 2008
Senior Vice President and Chief Financial Officer of The Associated Press.
Two
Director of Petroleum & Resources Corporation (investment company)
Daniel E. Emerson
7 St. Paul Street,
Suite 1140 Baltimore, MD 21202
Age 85
Director
One Year
Since 1982
Retired Executive Vice President of NYNEX Corp. (communications), retired Chairman of the Board of both NYNEX Information Resources Co. and NYNEX Mobile Communications Co. Previously Executive Vice President and Director of New York Telephone Company.
Two
Director of Petroleum & Resources Corporation (investment company).
Frederic A. Escherich
7 St. Paul Street,
Suite 1140
Baltimore, MD 21202
Age 57
Director
One Year
Since 2006
Private Investor. Formerly, Managing Director and head of Mergers and Acquisitions Research and the Financial Advisory Department with JPMorgan.
Two
Director of Petroleum & Resources Corporation (investment company).
Roger W. Gale, Ph.D.
7 St. Paul Street,
Suite 1140
Baltimore, MD 21202
Age 63
Director
One Year
Since 2005
President & CEO of GF Energy, LLC (consultants to electric power companies). Formerly, member of management group, PA Consulting Group (energy consultants).
Two
Director of Petroleum & Resources Corporation (investment company), Ormat Technologies, Inc. (geothermal and renewable energy), and U.S. Energy Association.
Thomas H. Lenagh 7 St. Paul Street, Suite 1140 Baltimore, MD 21202 Age 91
Director
One Year
Since 1968
Financial Advisor. Formerly, Chairman of the Board and CEO of Greiner Engineering Inc. (formerly Systems Planning Corp.) (consultants). Formerly, Treasurer and Chief Investment Officer of the Ford Foundation (charitable foundation).
Two
Director of Petroleum & Resources Corporation (investment company), Cornerstone Funds, Inc. (3 funds) (investment companies), and Photonics Product Group, Inc. (crystals).
22
BOARDOF DIRECTORS (CONTINUED)
Personal Information
Position
held with
the fund
Term
of
office
Length
of time
served
Principal Occupations
Number of portfolios in fund complex overseen by director
Other directorships
Independent Directors (continued)
Kathleen T. McGahran,
Ph.D., J.D., C.P.A.
7 St. Paul Street,
Suite 1140
Baltimore, MD 21202
Age 59
Director
One Year
Since 2003
President & CEO of Pelham Associates, Inc. (executive education), and Adjunct Associate Professor, Tuck School of Business, Dartmouth College. Formerly, Associate Dean and Director of Executive Education and Associate Professor, Columbia University.
Two
Director of Petroleum & Resources Corporation (investment company).
Craig R. Smith, M.D.
7 St. Paul Street,
Suite 1140
Baltimore, MD 21202
Age 63
Director
One Year
Since 2005
President, Williston Consulting LLC (consultants to pharmaceutical and biotechnology industries), and Chief Operating Officer and Director of Algenol Biofuels Inc. (ethanol manufacturing). Formerly, Chairman, President & CEO of Guilford Pharmaceuticals (pharmaceuticals & biotechnology).
Two
Director of Petroleum & Resources Corporation (investment company), LaJolla Pharmaceutical Company, and Depomed, Inc. (specialty pharmaceuticals).
Interested Director
Douglas G. Ober
7 St. Paul Street,
Suite 1140
Baltimore, MD 21202
Age 63
Director, Chairman, President and CEO
One Year
Director Since 1989; Chairman of the Board Since 1991
Chairman, President and CEO of the Company and of Petroleum & Resources Corporation.
Two
Director of Petroleum & Resources Corporation (investment company).
23
STOCKHOLDER INFORMATIONAND SERVICES
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.
24
THE ADAMS EXPRESS COMPANY
Board Of Directors
Enrique R. Arzac 2,4
Phyllis O. Bonanno 2,4
Kenneth J. Dale 3,4
Daniel E. Emerson 1,3,5
Frederic A. Escherich 2,3
Roger W. Gale 1,4,5
Thomas H. Lenagh 2,3
Kathleen T. McGahran 1,3,5
Douglas G. Ober 1
Craig R. Smith 1,4,5
1. Member of Executive Committee
2. Member of Audit Committee
3. Member of Compensation Committee
4. Member of Retirement Benefits Committee
5. Member of Nominating and Governance Committee
Officers
Douglas G. Ober
Chairman, President and Chief Executive Officer
David D. Weaver
Executive Vice President
Lawrence L. Hooper, Jr.
Vice President, General Counsel and Secretary
David R. Schiminger
Vice President — Research
D. Cotton Swindell
Vice President — Research
Brian S. Hook
Treasurer
Christine M. Sloan
Assistant Treasurer
Geraldine H. Paré
Assistant Secretary
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 LLP
Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP
Transfer Agent & Registrar: American Stock Transfer & Trust Co.
Custodian of Securities: Brown Brothers Harriman & Co.
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