UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-00248
---------------------------------------------
THE ADAMS EXPRESS COMPANY
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(Exact name of registrant as specified in charter)
7 Saint Paul Street, Suite 1140, Baltimore, Maryland 21202
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(Address of principal executive offices) (Zip code)
Lawrence L. Hooper, Jr.
The Adams Express Company
7 Saint Paul Street
Suite 1140
Baltimore, Maryland 21202
Registrant's telephone number, including area code: 410-752-5900
Date of fiscal year end: December 31, 2005
Date of reporting period: December 31, 2005
Item 1. Reports to Stockholders.
2005 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 (12/31/05)
NYSE Symbol.............. ADX
Market Price.......... $12.55
52-Week Range $12.50 - $13.35
Discount............... 14.7%
Shares Outstanding 86,099,607
Summary Financial Information
Year Ended December 31
2005 2004
------------------------------------------------------------------------------
Net asset value per share $ 14.71 $ 15.04
Total net assets 1,266,728,652 1,295,548,900
Unrealized appreciation 316,477,367 343,670,412
Net investment income 18,288,551 19,008,405
Total realized gain 53,817,950 54,713,903
Total return (based on market value) 2.2% 13.2%
Total return (based on net asset value) 4.5% 12.1%
Expense ratio 0.45% 0.43%
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2005 Dividends and Distributions
Amount
Paid (per share) Type
-----------------------------------------------------
March 1, 2005 $0.01 Short-term capital gain
March 1, 2005 0.04 Investment income
June 1, 2005 0.05 Investment income
September 1, 2005 0.05 Investment income
December 27, 2005 0.55 Long-term capital gain
December 27, 2005 0.08 Short-term capital gain
December 27, 2005 0.08 Investment income
-----------------------------------------------------
$0.86
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2006 Annual Meeting of Stockholders
Location: Gaylord Palms Hotel Resort & Convention Center, Orlando, Florida
Date: March 28, 2006
Time: 9:30 a.m.
PORTFOLIO REVIEW
--------------------------------------------------------------------------------
Ten Largest Portfolio Holdings (12/31/05)
Market Value % of Net Assets
------------ ---------------
Petroleum & Resources Corporation* $ 64,227,111 5.1
General Electric Co. 52,143,885 4.1
American International Group, Inc. 34,115,000 2.7
Microsoft Corp. 30,857,000 2.4
Pfizer Inc. 26,118,400 2.1
PepsiCo, Inc. 25,995,200 2.0
Bank of America Corp. 25,382,500 2.0
Aqua America, Inc. 23,552,611 1.9
AMBAC Financial Group, Inc. 22,732,700 1.8
Target Corp. 22,537,700 1.8
------------ ----
Total $327,662,107 25.9%
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*Non-controlled affiliate
Sector Weightings (12/31/05)
[CHART]
Health Information Telecom Cash &
Consumer Energy Financial Care Industrials Technology Materials Services Utilities Equivalent
-------- ------ --------- ------ ----------- ----------- --------- -------- --------- ----------
17.5% 11.0% 15.7% 13.2% 13.1% 13.0% 5.2% 3.9% 5.8% 1.2%
1
THE ADAMS EXPRESS COMPANY
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Calendar Market Cumulative Cumulative Total Total net
Years Value market value market value market asset
of of capital of income value value
original gains dividends
shares distributions taken in
taken in shares
shares
--------------------------------------------------------------
1991 $12,819 $ 805 $ 373 $13,997 $14,884
1992 13,493 1,736 731 15,960 16,343
1993 12,060 2,485 970 15,515 17,169
1994 10,542 3,140 1,246 14,928 17,182
1995 12,478 4,832 1,987 19,297 22,286
1996 13,325 6,450 2,675 22,450 26,939
1997 16,319 9,669 3,876 29,864 35,207
1998 17,963 12,773 4,853 35,589 43,488
1999 22,644 19,049 6,727 48,420 58,103
2000 21,252 21,262 6,710 49,224 55,600
2001 14,391 17,641 5,054 37,086 41,858
2002 10,697 14,569 4,172 29,438 33,754
2003 12,559 18,889 5,385 36,833 42,620
2004 13,277 21,908 6,484 41,669 47,767
2005 12,701 22,979 6,877 42,557 49,882
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 1991-2005. 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]
Cumulative Cumulative
Market Market Value Market Value
Value of of Shares from of Shares Total Net Asset
Original Capital Gains from Income Market Value of
Investment Distributions Dividends Value Total Shares
---------- -------------- ------------ ------- ------------
$10,000 $13,997 $11,348
1991 12,819 $ 805 $ 373 13,997 14,884
1992 13,493 1,736 731 15,960 16,343
1993 12,060 2,485 970 15,515 17,169
1994 10,542 3,140 1,246 14,928 17,182
1995 12,478 4,832 1,987 19,297 22,286
1996 13,325 6,450 2,675 22,450 26,939
1997 16,319 9,669 3,876 29,864 35,207
1998 17,953 12,773 4,853 35,589 43,488
1999 22,644 19,049 6,727 48,420 58,103
2000 21,252 21,262 6,710 49,224 55,600
2001 14,391 17,641 5,054 37,086 41,858
2002 10,697 14,569 4,172 29,438 33,754
2003 12,559 18,889 5,385 36,833 42,620
2004 13,277 21,908 6,484 41,669 47,767
2005 12,701 22,979 6,877 42,557 49,882
2
LETTER TO STOCKHOLDERS
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The Year in Review
We are pleased to report that the Fund's total return on net assets for the
year was 4.5%, slightly below that of the S&P 500 Index at 4.9%, but
significantly above the Dow Jones Industrial Average's return of 1.7%. Our
broadly-diversified portfolio of stocks benefited from our emphasis on
dividend-paying issues but was affected somewhat by our focus on
large-capitalization, relatively low-risk stocks.
Through the first ten months of the year, the Fund outperformed the S&P 500,
returning 1.5% compared to the Index's 1.1% return. The Fund's performance in
December also beat that of the Index for the month. During the month of
November, however, the situation was different, as the Index, led by the
smallest capitalization companies and those with the highest volatility,
outperformed the Fund by 1.8%. This difference in November caused the Index to
beat the Fund by 0.4% for the full year.
The U.S. equity market moved very little during the year as a whole, though
some sectors did significantly better than others. Energy prices were a focus
of attention for much of the year, as were the actions by the Federal Reserve
in increasing short-term interest rates. Investors believed that both would
potentially slow domestic economic activity and perhaps cause a recession. The
hurricanes that came ashore on the Gulf Coast and Florida not only caused
energy prices to jump, but also dramatically slowed economic activity in those
areas. Earnings estimates for many companies were reduced to reflect slower
growth, causing valuations to shrink or expand only modestly. As a result,
there was little inclination to bid up stocks in the U.S. Many money managers
sought investments outside the United States in areas where growth was more
likely to accelerate. Others, such as ourselves, focused on companies in
sectors that would not be as severely impacted by slower growth and companies
with large overseas operations. Examples of these include our investments in
Bunge, a leading global agriproducts processor, as well as the more widely
known Avon Products and Del Monte Foods. With businesses generating strong cash
flows and industrial capacity utilization averaging about 80%, we also
anticipated improvement in the industrial sector, investing in Automatic Data
Processing and Cintas, the latter company a beneficiary of North American jobs
growth reflecting its leading position in uniforms. As with all of our
investments, these were made for the long term, and are expected to perform
well over a time frame of several years.
Our large investments, relative to the S&P 500, in utilities, telecommunication
services, and energy stocks, and our relatively small exposure to consumer
discretionary stocks were positive contributors to our performance in 2005. Our
holdings in consumer staples and health care stocks did well during the year,
while the materials and industrial sectors lagged. Our financial and technology
stocks, though underweighted compared to the Index, were negative contributors
and were largely responsible for the difference between the Fund's performance
and that of the S&P 500. There were significant changes in our holdings within
both of these sectors which should improve their relative performance in the
future.
Investment Results
At the end of 2005 our net assets were $1,266,728,652 or $14.71 per share on
86,099,607 shares outstanding. This compares with $1,295,548,900 or $15.04 per
share on 86,135,292 shares outstanding a year earlier.
Net investment income for 2005 was $18,288,551 compared to $19,008,405 for
2004. These earnings are equal to $0.22 and $0.23 per share, respectively, on
the average number of shares outstanding throughout each year. The
extraordinary dividend that Microsoft paid in 2004, which added $2,400,000 or
$0.03 to our earnings that year, was not repeated in 2005. Our 0.45% expense
ratio (expenses to average net assets) in 2005 was once again very low compared
to the fund industry in general.
Net realized gains amounted to $53,817,950 during the year, while the
unrealized appreciation on investments decreased from $343,670,412 at
December 31, 2004 to $316,477,367 at year end.
Dividends and Distributions
The total dividends and distributions paid in 2005 were $0.86 per share
compared to $0.90 in 2004. As announced on November 10, 2005, a year-end
distribution consisting of investment income of $0.08 and capital gains of
$0.63 was made on December 27, 2005, both realized and taxable in 2005. On
January 12, 2006, an additional distribution of $0.05 per share was declared
payable March 1, 2006, representing the balance of undistributed net investment
income and capital gains earned during 2005 and an initial distribution from
2006 net investment income, all taxable to shareholders in 2006.
3
LETTER TO STOCKHOLDERS (CONTINUED)
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Outlook for 2006
Many of the factors that impacted economic growth in 2005 remain strong
influences on potential growth in 2006. Principal among these are rising
interest rates and high energy prices. The Federal Reserve increased short-term
rates eight times in 2005 after five increases in 2004. The rate changes have
so far had little impact on longer-term rates, resulting in a recent inversion
of the yield curve in which the rate on ten-year Treasury bonds is lower than
the rate on two-year notes. In the past, such an inversion has been a harbinger
of slower growth, if not recession. Nonetheless, the Fed is expected to raise
rates two to four more times in 2006 in order to avoid significant price
inflation. Expectations of the Fed action are wide-ranging due to the
retirement of Chairman Greenspan and the accession of Mr. Bernanke to that
position. Once Mr. Bernanke takes over, it is anticipated that the direction of
the Fed will become clearer.
Energy prices in this country have risen dramatically over the past two years
due to increasing worldwide demand, principally in the Far East and the U.S.,
and very limited increases in supplies of both oil and natural gas. Further,
the damage caused by hurricanes in 2005 to U.S. oil and gas production and
processing facilities was extensive. After rising 33% in 2004, crude oil prices
rose another 36% in 2005 to close the year at $61.04 per barrel. While energy
in the form of oil and gas constitutes a much smaller part of the economy now
than in the past, the impact on industrial production and transportation costs
is still sizeable. Of as much concern is the effect on consumers, who comprise
two-thirds of the economy. Gasoline prices peaked above $3 per gallon and
remain well above 2004 prices, while natural gas, used for heating in much of
the Northeast and Midwest, closed 93% higher in 2005 than at year-end 2004.
Winter weather has been mild to date and natural gas prices have fallen, but
consumers will experience heating costs some 40% above last winter on top of
the higher gasoline costs. The consequence is that spending on goods and
services is being redirected to energy. This, combined with slow growth in
wages, has resulted in a decline in consumer spending that is likely to
continue in 2006 and act as a damper on economic growth.
As mentioned previously, manufacturing capacity in this country is being
utilized at about an 80% level, normally a point at which companies begin to
add capacity in order to avoid backlogs and bottlenecks. Through 2004 and most
of 2005, spending on machinery and equipment grew at a solid, though
unexceptional, pace while companies accumulated cash and/or repurchased shares.
With an anticipated slowdown in U.S. consumer spending and a surprisingly
strong dollar inhibiting exports, the pace of industrial expansion is more
likely to slow than accelerate. The one factor that may impact this projection
is the ongoing effort to rebuild the areas along the Gulf Coast that were hard
hit by the hurricanes. Substantial government funding and private investment
are being directed at this project. With the exception of the energy industry,
however, there is not a large industrial base in the area to be rebuilt; so
most funds will be directed at infrastructure and residential construction,
benefiting a relatively narrow segment of the economy.
With the unexciting economic outlook discussed, the likelihood of another year
of single-digit returns in the stock market appears strong. S&P 500 earnings
growth has been decelerating, albeit from a high level, for over two years and
earnings are expected to grow by only 7% in 2006. Massive share repurchases
will result in higher earnings per share growth, perhaps as much as 2%, but
should not influence valuations. The principal argument for better returns
hangs on the decline in valuations that has already occurred. In generating
large amounts of cash and not reinvesting in the business, companies have
improved the condition of their balance sheets but have not invested in a means
of growth. Since cash generates modest returns for shareholders, it does not
add much to the valuation of a company. Should managements decide to spend
money on capacity additions or acquisitions, there would be reason to expect
that valuations should rise.
We believe that the energy, utility, and industrial segments of the economy
will selectively invest in operations, and that continued consolidation (by
acquisition) in the financial arena is likely. With overweight positions in the
first three and holdings in major banks as well as smaller regional ones, the
portfolio is poised to do well in 2006. Our emphasis on large-capitalization
companies with broad geographic exposure, solid long-term growth prospects, and
attractive dividends should also inure to the benefit of shareholders this year.
4
LETTER TO STOCKHOLDERS (CONTINUED)
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Share Repurchase Program
On December 8, 2005, the Board of Directors authorized the repurchase by
management of an additional 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 2006 through January 25, 2006, a total of 195,800 shares
have been repurchased at a total cost of $2,528,171 and a weighted average
discount from net asset value of 14.3%.
----------
Director Changes
There have been a number of changes in the composition of the Board of
Directors in the past year, some of which were noted in our quarterly reports.
Mr. W. David MacCallan, Chairman of the Company for twenty years before
retiring in 1991, passed away in August. Mr. Landon Peters passed away earlier
in the year and Mr. W. Perry Neff retired. Both had been directors for many
years and their advice and guidance are missed. In October, Dr. Susan Schwab
was nominated to be Deputy U.S. Trade Representative and confirmed in November,
necessitating her resignation from the Board. Though a director for only five
years, Dr. Schwab brought a fresh perspective and broad international
experience to the Board that will be difficult to replace. To address these
departures, the Board of Directors elected two new directors, Dr. Roger W. Gale
and Dr. Craig R. Smith, who joined the Board effective December 1, 2005. Each
has broad experience in corporate governance. In addition, Dr. Gale brings to
the Board specific knowledge of the energy and utility industries, and
Dr. Smith brings specific knowledge of the pharmaceutical and biotech
industries. We welcome them and look forward to their participation in the
Board's activities.
----------
The proxy statement for the Annual Meeting of Stockholders to be held in
Orlando, Florida on March 28, 2006, is expected to be mailed on or about
February 17, 2006.
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 26, 2006
5
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
December 31, 2005
Assets
Investments* at value:
Common stocks and convertible securities
(cost $901,760,470) $1,181,835,303
Non-controlled affiliate, Petroleum & Resources Corporation
(cost $27,963,162) 64,227,111
Short-term investments (cost $15,867,999) 15,867,999
Securities lending collateral (cost $52,716,334) 52,716,334 $1,314,646,747
---------------------------------------------------------------------------------------------
Cash 328,525
Dividends receivable 1,515,618
Prepaid pension cost 5,453,911
Prepaid expenses and other assets 1,753,809
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Total Assets 1,323,698,610
------------------------------------------------------------------------------------------------------------
Liabilities
Investment securities purchased 4,200
Open written option contracts at value (proceeds $561,935) 423,350
Obligations to return securities lending collateral 52,716,334
Accrued expenses and other liabilities 3,826,074
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Total Liabilities 56,969,958
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Net Assets $1,266,728,652
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Net Assets
Common Stock at par value $1.00 per share, authorized 150,000,000 shares;
issued and outstanding 86,099,607 shares (includes 13,941 restricted shares
and restricted stock units for 7,500 shares) (Note 6) $ 86,099,607
Additional capital surplus 858,172,052
Unearned compensation -- restricted stock awards (Note 6) (177,421)
Undistributed net investment income 4,672,704
Undistributed net realized gain on investments 1,484,343
Unrealized appreciation on investments 316,477,367
------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Stock $1,266,728,652
------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share of Common Stock $14.71
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*See schedule of investments on pages 14 through 16.
The accompanying notes are an integral part of the financial statements.
6
Investment Income
Income:
Dividends:
From unaffiliated issuers $ 21,459,106
From non-controlled affiliate 1,429,917
Interest and other income 1,077,929
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Total income 23,966,952
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Expenses:
Investment research 2,542,262
Administration and operations 1,233,079
Directors' fees 297,094
Reports and stockholder communications 360,702
Transfer agent, registrar and custodian expenses 382,382
Auditing and accounting services 117,332
Legal services 140,303
Occupancy and other office expenses 336,488
Travel, telephone and postage 93,575
Other 175,184
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Total expenses 5,678,401
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Net Investment Income 18,288,551
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Realized Gain and Change in Unrealized Appreciation on Investments
Net realized gain on security transactions 51,712,794
Net realized gain distributed by regulated investment company
(non-controlled affiliate) 2,105,156
Change in unrealized appreciation on investments (27,193,045)
--------------------------------------------------------------------------------
Net Gain on Investments 26,624,905
--------------------------------------------------------------------------------
Change in Net Assets Resulting from Operations $ 44,913,456
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
7
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
For the Year Ended
------------------------------
Dec. 31, 2005 Dec. 31, 2004
--------------------------------------------------------------------------------------------------
From Operations:
Net investment income $ 18,288,551 $ 19,008,405
Net realized gain on investments 53,817,950 54,713,903
Change in unrealized appreciation on investments (27,193,045) 61,557,921
--------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 44,913,456 135,280,229
--------------------------------------------------------------------------------------------------
Distributions to Stockholders From:
Net investment income (18,634,893) (20,157,724)
Net realized gain from investment transactions (53,672,531) (55,099,990)
--------------------------------------------------------------------------------------------------
Decrease in net assets from distributions (72,307,424) (75,257,714)
--------------------------------------------------------------------------------------------------
From Capital Share Transactions:
Value of shares issued in payment of distributions 30,523,934 35,690,590
Cost of shares purchased (note 4) (32,052,187) (19,026,661)
Deferred compensation (notes 4, 6) 101,973 --
--------------------------------------------------------------------------------------------------
Change in net assets from capital share transactions (1,426,280) 16,663,929
--------------------------------------------------------------------------------------------------
Total Change in Net Assets (28,820,248) 76,686,444
Net Assets:
Beginning of year 1,295,548,900 1,218,862,456
--------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $4,672,704 and $5,038,545, respectively) $1,266,728,652 $1,295,548,900
--------------------------------------------------------------------------------------------------
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's
investment objectives as well as the nature and risk of its investment
transactions are set forth in the Company's registration statement.
Security Valuation -- Investments in securities traded on a national security
exchange are valued at the last reported sale price on the day of valuation.
Over-the-counter and listed securities for which a sale price is not available
are valued at the last quoted bid price. Short-term investments (excluding
purchased options) are valued at amortized cost. Purchased and written options
are valued at the last quoted asked price.
Affiliated Companies -- Investments in companies 5% or more of whose
outstanding voting securities are held by the Company are defined as
"Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of 1940.
Security Transactions and Investment Income -- Investment transactions are
accounted for on the trade date. Gain or loss on sales of securities and
options is determined on the basis of identified cost. Dividend income and
distributions to shareholders are recognized on the ex-dividend date, and
interest income is recognized on the accrual basis.
2. Federal Income Taxes
The Company's policy is to distribute all of its taxable income to its
shareholders in compliance with the requirements of the Internal Revenue Code
applicable to regulated investment companies. Therefore, no federal income tax
provision is required. For federal income tax purposes, the identified cost of
securities at December 31, 2005 was $997,820,714, and net unrealized
appreciation aggregated $316,826,033, of which the related gross unrealized
appreciation and depreciation were $427,836,385 and $111,010,352, respectively.
As of December 31, 2005, the tax basis of distributable earnings was $2,762,118
of undistributed ordinary income and $54,856 of undistributed long-term capital
gain.
Distributions paid by the Company during the year ended December 31, 2005 were
classified as ordinary income of $26,198,384, and long-term capital gain of
$46,109,040. In comparison, distributions paid by the Company during the year
ended December 31, 2004 were classified as ordinary income of $22,205,063, and
long-term capital gain of $53,052,651. 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.
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, 2005 were $160,621,657 and
$194,270,442, 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, 2005 can be
found on page 17.
Transactions in written covered call and collateralized put options during the
year ended December 31, 2005 were as follows:
Covered Calls Collateralized Puts
-------------------- --------------------
Contracts Premiums Contracts Premiums
--------- ---------- --------- ----------
Options outstanding,
December 31, 2004 3,600 $ 386,349 2,655 $ 268,082
Options written 10,175 1,097,880 8,830 1,067,897
Options terminated in
closing purchase
transactions (1,511) (173,528) (1,425) (201,221)
Options expired (6,614) (679,646) (6,395) (675,722)
Options exercised (3,330) (386,761) (1,200) (141,395)
-----------------------------------------------------------------
Options outstanding,
December 31, 2005 2,320 $ 244,294 2,465 $ 317,641
-----------------------------------------------------------------
4. Capital Stock
The Company has 10,000,000 authorized and unissued preferred shares without par
value.
On December 27, 2004, the Company issued 2,745,430 shares of its Common Stock
at a price of $13.00 per share (the average market price on December 13, 2004)
to stockholders of record November 23, 2004 who elected to take stock in
payment of the distribution from 2004 capital gain and investment income.
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
On December 27, 2005, the Company issued 2,400,624 shares of its Common Stock
at a price of $12.715 per share (the average market price on December 12, 2005)
to stockholders of record November 22, 2005 who elected to take stock in
payment of the distribution from 2005 capital gain and investment income.
The Company may purchase shares of its Common Stock from time to time at such
prices and amounts as the Board of Directors may deem advisable. Transactions
in Common Stock for 2005 and 2004 were as follows:
Shares Amount
---------------------- --------------------------
2005 2004 2005 2004
---------- ---------- ------------ ------------
Shares issued in
payment of
distributions 2,400,624 2,745,430 $ 30,523,934 $ 35,690,590
Shares purchased (at a
weighted average
discount from net
asset value of 12.6%
and 13.0%,
respectively) (2,458,500) (1,496,550) (32,052,187) (19,026,661)
Restricted shares/units
granted under the
equity incentive
compensation plan 22,191 -- 101,973 --
---------------------------------------------------------------------------
Net change (35,685) 1,248,880 $ (1,426,280) $ 16,663,929
---------------------------------------------------------------------------
5. Retirement Plans
The Company provides retirement benefits for its employees under a
non-contributory qualified defined benefit pension plan and a non-contributory
nonqualified defined benefit pension plan. The benefits are based on years of
service and compensation during the last five years of employment.
The Company uses a December 31 measurement date for its plans.
2005 2004
----------- ----------
Change in benefit obligation
Benefit obligation at beginning of year $ 8,349,320 $7,343,955
Service cost 359,998 307,074
Interest cost 504,330 451,715
Actuarial loss (42,715) 508,456
Benefits paid (219,135) (261,880)
-----------------------------------------------------------------------
Benefit obligation at end of year $ 8,951,798 $8,349,320
-----------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ 9,976,905 $9,442,594
Actual return on plan assets 292,963 777,347
Employer contribution 12,563 18,844
Benefits paid (219,135) (261,880)
-----------------------------------------------------------------------
Fair value of plan assets at end of year $10,063,296 $9,976,905
-----------------------------------------------------------------------
Funded status $ 1,111,498 $1,627,585
Unrecognized net loss 1,727,768 1,542,040
Unrecognized prior service cost 456,052 503,135
-----------------------------------------------------------------------
Net amount recognized $ 3,295,318 $3,672,760
-----------------------------------------------------------------------
Amounts recognized in the statement of assets and
liabilities consist of:
2005 2004
----------- -----------
Prepaid pension cost $ 5,453,911 $ 5,642,052
Accrued pension cost (2,158,593) (1,969,292)
-------------------------------------------------
Net amount recognized $ 3,295,318 $ 3,672,760
-------------------------------------------------
The accumulated benefit obligation for all defined benefit pension plans was
$6,947,921 and $6,710,981 at December 31, 2005 and 2004, respectively.
2005 2004
--------- ---------
Components of net periodic pension cost
Service cost $ 359,998 $ 307,074
Interest cost 504,330 451,715
Actual return on plan assets (292,963) (777,347)
Amortization of prior service cost 126,553 127,977
Amortization of net loss 188,462 113,201
Deferred asset gain (504,070) 30,506
-------------------------------------------------------------
Net periodic pension cost $ 382,310 $ 253,126
-------------------------------------------------------------
Assumptions used to determine benefit obligations and costs are:
2005 2004
----- -----
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, 2005 and 2004, by asset category, are as
follows:
2005 2004
---- ----
Asset Category
Equity Securities & Equity Mutual Funds 70% 71%
Fixed Income Mutual Funds 28% 25%
Cash 2% 4%
Equity securities include The Adams Express Company Common Stock in the amount
of $616,864 (6% of total plan assets) and $610,779 (6% of total plan assets) at
December 31, 2005 and 2004, respectively.
The primary objective of the Company's pension plan is to provide capital
appreciation, current income, and preservation of capital through a portfolio
of stocks and fixed income securities. The equity portion of the portfolio may
range from 50% to 75% of total portfolio assets. The fixed income portion of
the portfolio may range from 25% to 50% of total portfolio assets and cash may
range from 0% to 25% of total portfolio assets. Subject to these allocation
ranges, the portfolio may be invested in any of the following securities:
common stocks, preferred stocks, American Depository Receipts, foreign
securities, mutual funds, convertible securities, municipal bonds, corporate
bonds, U.S. government securities, and U.S. government agency securities.
10
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 2006.
The following benefit payments, which reflect expected future service, are
expected to be paid:
- Pension Benefits
----------------
2006 $ 303,636
2007 295,634
2008 556,056
2009 543,695
2010 614,579
Years 2011-2015 3,122,127
The Company also sponsors a defined contribution plan that covers substantially
all employees. The Company expensed contributions of $181,236 and $147,811 for
the years ended December 31, 2005 and December 31, 2004, respectively. The
Company does not provide postretirement medical benefits.
6. Stock-Based Compensation
The Stock Option Plan adopted in 1985 ("1985 Plan") permits the issuance of
stock options and stock appreciation rights for the purchase of up to 2,610,146
shares of the Company's Common Stock at the fair market value on the date of
grant. The exercise price of the options and related stock appreciation rights
is reduced by the per share amount of capital gains paid by the Company during
subsequent years. Options are exercisable beginning not less than one year
after the date of grant and stock appreciation rights are exercisable beginning
not less than two years after the date of grant. The stock appreciation rights
allow the holders to surrender their rights to exercise their options and
receive cash or shares in an amount equal to the difference between the option
exercise price and the fair market value of the Common Stock at the date of
surrender. All options terminate 10 years from the date of grant if not
exercised. With the adoption of the 2005 Equity Incentive Compensation Plan at
the 2005 Annual Meeting, no further grants will be made under the 1985 Plan,
although unexercised awards granted in 2004 and prior years remain outstanding.
A summary of option activity under the 1985 Plan as of December 31, 2005, and
changes during the period then ended, is presented below:
Weighted- Weighted-
Average Average
Exercise Remaining
Options Price Life (Years)
------- --------- ------------
Outstanding at January 1, 2005 283,297 $11.76
Exercised (28,531) --
Forfeited -- --
----------------------------------------------------------------
Outstanding at December 31, 2005 254,766 $11.71 5.71
----------------------------------------------------------------
Exercisable at December 31, 2005 152,357 $11.74 5.73
----------------------------------------------------------------
The options outstanding as of December 31, 2005 are set forth below:
Weighted Weighted
Average Average
Options Exercise Remaining
Exercise price Outstanding Price Life (Years)
-------------- ----------- -------- ------------
$4.00-$7.49 7,642 $ 4.10 1.00
$7.50-$10.99 92,192 9.62 5.22
$11.00-$14.49 103,784 11.53 7.04
$14.50-$17.99 51,148 16.96 4.59
------------------------------------------------------------------
Outstanding at December 31, 2005 254,766 $11.71 5.71
------------------------------------------------------------------
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, 2005 was $78,689.
The 2005 Equity Incentive Compensation Plan ("2005 Plan") permits the grant of
stock options, restricted stock awards and other stock incentives to key
employees and all non-employee directors. The 2005 Plan provides for the
issuance of up to 3,413,131 shares of the Company's Common Stock. Restricted
stock was granted to key employees on April 27, 2005 at fair market value on
that date, vesting over a three year period. Restricted stock units were
granted to non-employee directors on April 27, 2005 and to new directors on
December 1, 2005 at fair market value on grant date and vest over a one year
period from the date of grant. The total fair value of units that vested in
2005 was $9,889 due to the death of a director, which thereby accelerated the
vesting schedule. The number of shares of Common Stock which remain available
for
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
future grants under the 2005 Plan at December 31, 2005 is 3,390,940 shares. The
Company pays dividends and dividend equivalents on outstanding awards, which
are charged to net assets when paid. Dividends and dividend equivalents paid on
restricted awards that are later forfeited are reclassified to compensation
expense.
A summary of the status of the Company's awards granted under the 2005 Plan as
of December 31, 2005, and changes during the period then ended, is presented
below:
Weighted Average
Grant-Date Fair
Awards Shares/Units Value
------ ------------ ----------------
Balance at January 1, 2005 -- --
Granted:
Restricted stock 13,941 $12.56
Restricted stock units 8,250 12.58
Vested (750) 12.56
Forfeited -- --
----------------------------------------------------------
Balance at December 31, 2005 21,441 $12.57
----------------------------------------------------------
Compensation costs resulting from restricted stock and restricted stock units
granted under the 2005 Plan are recognized over the requisite service period
based on the fair value of the awards on grant date. Any unearned compensation
is subsequently expensed as services are rendered. The fair value of restricted
stock is based on the average of the high and low market price on the date an
award is granted. The total compensation costs for restricted stock granted to
employees for the year ended December 31, 2005 were $39,129. The total
compensation costs for restricted stock units granted to non-employee directors
under the 2005 Plan for the year ended December 31, 2005 were $62,844. As of
December 31, 2005, there were total unrecognized compensation costs of $177,421
related to nonvested share-based compensation arrangements granted under the
2005 Plan. Those costs are expected to be recognized over a weighted average
period of 1.9 years.
7. Expenses
The aggregate remuneration paid or accrued during the year ended December 31,
2005 to officers and directors amounted to $2,546,465, of which $297,094 was
paid as fees to directors who were not officers.
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, 2005, the Company had securities on loan of
$51,293,357, and held collateral of $52,716,334, 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.
12
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Year Ended December 31
------------------------------------------------------
2005 2004 2003 2002 2001
-------------------------------------------------------------------------------------------------------
Per Share Operating Performance
Net asset value, beginning of year $15.04 $14.36 $12.12 $16.05 $23.72
-------------------------------------------------------------------------------------------------------
Net investment income 0.22 0.23* 0.19 0.20 0.26
Net realized gains and increase (decrease)
in unrealized appreciation 0.32 1.39 2.85 (3.38) (6.21)
-------------------------------------------------------------------------------------------------------
Total from investment operations 0.54 1.62 3.04 (3.18) (5.95)
-------------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment income (0.22) (0.24) (0.17) (0.19) (0.26)
Distributions from net realized gains (0.64) (0.66) (0.61) (0.57) (1.39)
-------------------------------------------------------------------------------------------------------
Total distributions (0.86) (0.90) (0.78) (0.76) (1.65)
-------------------------------------------------------------------------------------------------------
Capital share repurchases 0.05 0.02 0.04 0.05 0.04
Reinvestment of distributions (0.06) (0.06) (0.06) (0.04) (0.11)
-------------------------------------------------------------------------------------------------------
Total capital share transactions (0.01) (0.04) (0.02) 0.01 (0.07)
-------------------------------------------------------------------------------------------------------
Net asset value, end of year $14.71 $15.04 $14.36 $12.12 $16.05
-------------------------------------------------------------------------------------------------------
Per share market price, end of year $12.55 $13.12 $12.41 $10.57 $14.22
-------------------------------------------------------------------------------------------------------
Total Investment Return
Based on market price 2.2% 13.2% 25.2% (20.6)% (24.7)%
Based on net asset value 4.5% 12.1% 26.3% (19.4)% (24.7)%
Ratios/Supplemental Data
Net assets, end of year (in 000's) $1,266,729 $1,295,549 $1,218,862 $1,024,810 $1,368,366
Ratio of expenses to average net assets 0.45% 0.43% 0.47% 0.34% 0.19%
Ratio of net investment income to
average net assets 1.44% 1.54% 1.45% 1.42% 1.33%
Portfolio turnover 12.96% 13.43% 12.74% 17.93% 19.15%
Number of shares outstanding at
end of year (in 000's) 86,100 86,135 84,886 84,536 85,233
-------------------------------------------------------------------------------------------------------
*In 2004 the Fund received $2,400,000, or $0.03 per share, in an extraordinary
dividend from Microsoft Corp.
13
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
December 31, 2005
Shares Value (A)
-------------------------------------------------------------------
Stocks and Convertible Securities -- 98.4%
Consumer -- 17.5%
Consumer Discretionary -- 7.1%
BJ's Wholesale Club, Inc. (B)........... 500,000 $ 14,780,000
Clear Channel Communications, Inc....... 350,000 11,007,500
Comcast Corp............................ 352,500 9,150,900
Gannett Co., Inc........................ 112,500 6,814,125
Newell Rubbermaid Inc. (C).............. 515,000 12,246,700
Outback Steakhouse, Inc................. 315,000 13,107,150
Target Corp............................. 410,000 22,537,700
------------
89,644,075
------------
Consumer Staples -- 10.4%
Avon Products, Inc...................... 420,000 11,991,000
Bunge Ltd............................... 235,000 13,303,350
Coca-Cola Co............................ 200,000 8,062,000
Dean Foods Co. (B)...................... 450,000 16,947,000
Del Monte Foods Co. (B)................. 1,115,000 11,629,450
PepsiCo, Inc............................ 440,000 25,995,200
Procter & Gamble Co..................... 340,000 19,679,200
Safeway Inc............................. 423,000 10,008,180
Unilever plc ADR........................ 345,000 13,841,400
------------
131,456,780
------------
Energy -- 11.0%
BP plc ADR.............................. 270,000 17,339,400
ConocoPhillips.......................... 345,000 20,072,100
Exxon Mobil Corp........................ 130,000 7,302,100
Murphy Oil Corp......................... 209,600 11,316,304
Petroleum & Resources Corporation (D)... 1,985,996 64,227,111
Schlumberger Ltd........................ 190,000 18,458,500
------------
138,715,515
------------
Financial -- 15.7%
Banking -- 11.2%
Bank of America Corp.................... 550,000 25,382,500
Bankatlantic Bancorp.................... 430,000 6,020,000
Compass Bancshares Inc.................. 300,000 14,487,000
Fifth Third Bancorp (C)................. 280,000 10,561,600
Investors Financial Services Corp. (C).. 382,500 14,087,475
North Fork Bancorporation, Inc.......... 525,000 14,364,000
Wachovia Corp........................... 370,000 19,558,200
Wells Fargo & Co........................ 325,000 20,419,750
Wilmington Trust Corp................... 420,000 16,342,200
------------
141,222,725
------------
Insurance -- 4.5%
AMBAC Financial Group, Inc.............. 295,000 22,732,700
American International Group, Inc....... 500,000 34,115,000
------------
56,847,700
------------
14
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
December 31, 2005
Shares Value (A)
---------------------------------------------------------------------
Health Care -- 13.2%
Abbott Laboratories....................... 350,000 $ 13,800,500
Advanced Medical Optics, Inc.............. 235,000 9,823,000
Bristol-Myers Squibb Co................... 345,000 7,928,100
Genentech, Inc. (B)....................... 220,000 20,350,000
HCA Inc................................... 250,000 12,625,000
Johnson & Johnson......................... 255,000 15,325,500
Laboratory Corp. of America Holdings (B).. 225,000 12,116,250
MedImmune, Inc. (B)....................... 225,000 7,879,500
Medtronic, Inc............................ 310,000 17,846,700
Pfizer Inc................................ 1,120,000 26,118,400
Wyeth Co.................................. 325,000 14,972,750
Zimmer Holdings, Inc. (B)................. 125,000 8,430,000
------------
167,215,700
------------
Industrials -- 13.1%
Cintas Corp............................... 300,000 12,354,000
Curtiss-Wright Corp....................... 230,000 12,558,000
Donnelley (R.R.) & Sons Co................ 260,000 8,894,600
Emerson Electric Co....................... 200,000 14,940,000
General Electric Co....................... 1,487,700 52,143,885
Illinois Tool Works Inc................... 125,000 10,998,750
Masco Corp................................ 450,000 13,585,500
3M Co..................................... 160,000 12,400,000
United Parcel Service, Inc................ 155,000 11,648,250
United Technologies Corp.................. 300,000 16,773,000
------------
166,295,985
------------
Information Technology -- 13.0%
Communication Equipment -- 2.0%
Avaya Inc. (B)............................ 600,000 6,402,000
Corning Inc. (B).......................... 600,000 11,796,000
Lucent Technologies Inc. (B).............. 2,900,000 7,714,000
------------
25,912,000
------------
Computer Related -- 8.9%
Automatic Data Processing Inc............. 300,000 13,767,000
BEA Systems, Inc. (B)..................... 800,000 7,520,000
Cisco Systems, Inc. (B)................... 1,200,000 20,544,000
Dell Inc. (B)............................. 400,000 11,996,000
DiamondCluster International, Inc. (B).... 340,000 2,699,600
Microsoft Corp............................ 1,180,000 30,857,000
Oracle Corp. (B).......................... 880,000 10,744,800
Sapient Corp.............................. 1,150,000 6,543,500
Siebel Systems, Inc. (B).................. 800,000 8,464,000
------------
113,135,900
------------
Electronics -- 2.1%
Cree, Inc. (B) (C)........................ 500,000 12,620,000
Intel Corp................................ 310,000 7,737,600
Solectron Corp. (B)....................... 1,850,000 6,771,000
------------
27,128,600
------------
15
SCHEDULE OF INVESTMENTS (CONTINUED)
--------------------------------------------------------------------------------
December 31, 2005
Prin. Amt.
or Shares Value (A)
--------------------------------------------------------------------------------------------
Materials -- 5.2%
Air Products and Chemicals, Inc............................. 250,000 $ 14,797,500
duPont (E.I.) de Nemours and Co............................. 360,000 15,300,000
Martin Marietta Materials, Inc.............................. 100,000 7,672,000
Rohm & Haas Co.............................................. 400,000 19,368,000
Smurfit-Stone Container Corp. (B)........................... 650,000 9,210,500
--------------
66,348,000
--------------
Telecom Services -- 3.9%
Alltel Corp................................................. 300,000 18,930,000
AT&T Corp................................................... 595,000 14,571,550
BellSouth Corp.............................................. 200,000 5,420,000
Vodafone Group plc ADS...................................... 492,613 10,576,401
--------------
49,497,951
--------------
Utilities -- 5.8%
Aqua America, Inc........................................... 862,733 23,552,611
Black Hills Corp............................................ 245,000 8,479,450
Duke Energy Corp. (C)....................................... 611,560 16,787,322
Keyspan Corp................................................ 140,000 4,996,600
MDU Resources Group, Inc.................................... 575,000 18,825,500
--------------
72,641,483
--------------
Total Stocks and Convertible Securities
(Cost $929,723,632) (E)....................................... 1,246,062,414
--------------
Short-Term Investments -- 1.2%
U.S. Government Obligations -- 0.9%
U.S. Treasury Bills, 3.91%, due 2/16/06..................... $12,000,000 11,940,047
--------------
Time Deposit -- 0.0%
JP Morgan Grand Cayman, 3.30%, due 1/3/06................... 429,609
--------------
Commercial Paper -- 0.3%
General Electric Capital Corp., 4.26%, due 1/5/06........... $ 3,500,000 3,498,343
--------------
Total Short-Term Investments
(Cost $15,867,999)............................................ 15,867,999
--------------
Securities Lending Collateral -- 4.2%
Brown Brothers Investment Trust, 4.23%, due 1/3/06.......... 52,716,334
--------------
Total Securities Lending Collateral
(Cost $52,716,334)............................................ 52,716,334
--------------
Total Investments -- 103.8%
(Cost $998,307,965)........................................... 1,314,646,747
Cash, receivables, prepaid expenses and other assets, less
liabilities -- (3.8)%..................................... (47,918,095)
--------------
Net Assets -- 100.0%............................................ $1,266,728,652
--------------------------------------------------------------------------------
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, 2005
covering open call option contracts written was $14,586,290. In addition,
the required aggregate market value of securities segregated by the
custodian to collateralize open put option contracts written was
$11,152,500.
16
SCHEDULE OF OUTSTANDING OPTION CONTRACTS
--------------------------------------------------------------------------------
December 31, 2005
Contracts Contract
(100 shares Strike Expiration Appreciation/
each) Security Price Date (Depreciation)
--------------------------------------------------------------------------------
COVERED CALLS
100 AMBAC Financial Group, Inc........ $ 80 Jan 06 $ 9,699
100 AMBAC Financial Group, Inc........ 80 Feb 06 (301)
100 American International Group, Inc. 70 Feb 06 (800)
250 Aqua America, Inc................. 30 Jun 06 (5,486)
150 ConocoPhillips.................... 65 Feb 06 5,549
150 ConocoPhillips.................... 75 May 06 8,549
150 Dean Foods Co..................... 40 Mar 06 299
100 Emerson Electric Co............... 85 Jun 06 3,700
100 Genentech, Inc.................... 105 Feb 06 3,200
100 HCA Inc........................... 55 Feb 06 6,200
100 Illinois Tool Works, Inc.......... 90 Jan 06 5,200
100 Illinois Tool Works, Inc.......... 100 Jun 06 2,200
170 Martin Marietta Materials, Inc.... 75 Jan 06 (37,911)
100 Schlumberger Ltd.................. 100 Jan 06 (1,801)
100 Target Corp....................... 60 Jan 06 9,200
250 Target Corp....................... 65 Apr 06 14,248
100 United Technologies Corp.......... 55 Jan 06 (5,800)
100 Zimmer Holdings, Inc.............. 95 Jan 06 9,700
----- --------
2,320 25,645
----- --------
COLLATERALIZED PUTS
250 Advanced Medical Optics, Inc...... 40 Jan 06 20,498
20 Advanced Medical Optics, Inc...... 35 Apr 06 840
200 Advanced Medical Optics, Inc...... 40 Apr 06 (6,601)
170 Advanced Medical Optics, Inc...... 35 Jul 06 (12,061)
250 Avon Products, Inc................ 25 Jan 06 24,004
250 Bank of America Corp.............. 42.50 Jan 06 29,874
125 Comcast Corp...................... 30 Jan 06 (40,376)
100 Exxon Mobil Corp.................. 55 Jan 06 11,199
100 Martin Marietta Materials, Inc.... 65 Jan 06 11,449
150 Martin Marietta Materials, Inc.... 65 Apr 06 17,918
250 Outback Steakhouse, Inc........... 40 Feb 06 2,999
100 Target Corp....................... 47.50 Apr 06 5,199
100 3M Co............................. 65 Jan 06 8,700
150 Zimmer Holdings, Inc.............. 55 Jan 06 13,799
250 Zimmer Holdings, Inc.............. 60 Jan 06 25,499
----- --------
2,465 112,940
----- --------
$138,585
========
17
CHANGES IN PORTFOLIO SECURITIES
--------------------------------------------------------------------------------
During the Three Months Ended December 31, 2005
(unaudited)
Shares
--------------------------------------
Held
Additions Reductions Dec. 31, 2005
--------- ---------- -------------
Advanced Medical Optics, Inc........ 235,000 235,000
Aqua America, Inc................... 233,333/(1)/ 270,600 862,733
Avon Products, Inc.................. 420,000 420,000
Bankatlantic Bancorp................ 130,000 430,000
Bunge Ltd........................... 30,000 235,000
Comcast Corp........................ 2,500 352,500
Curtiss-Wright Corp................. 34,500 230,000
Fifth Third Bancorp................. 10,000 280,000
Gannett Co., Inc.................... 15,000 112,500
Investors Financial Services Corp... 2,500 382,500
Masco Corp.......................... 450,000 450,000
Microsoft Corp...................... 40,000 1,180,000
North Fork Bancorporation, Inc...... 75,000 525,000
Outback Steakhouse, Inc............. 15,000 315,000
CCE Spinco, Inc..................... 43,750/(2)/ 43,750 --
ConocoPhillips...................... 35,000 345,000
Corning Inc......................... 15,000 600,000
Dean Foods Co....................... 50,000 450,000
DiamondCluster International, Inc... 157,500 340,000
Genentech, Inc...................... 20,000 220,000
HCA Inc............................. 60,000 250,000
Laboratory Corp. of America Holdings 10,000 225,000
Martin Marietta Materials, Inc...... 20,000 100,000
Provident Bankshares Corp........... 110,000 --
Symantec Corp....................... 400,000 --
Wells Fargo & Co.................... 75,000 325,000
--------
(1) By stock split.
(2) Received one share for every eight shares of Clear Channel Communications,
Inc. held.
-------------------------
Common Stock
Listed on the New York Stock Exchange
and the Pacific Exchange
The Adams Express Company
Seven St. Paul Street, Suite 1140, Baltimore, MD 21202
(410) 752-5900 or (800) 638-2479
Website: www.adamsexpress.com
E-mail: contact@adamsexpress.com
Counsel: Chadbourne & Parke L.L.P.
Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP
Transfer Agent & Registrar: American Stock Transfer & Trust Co.
Custodian of Securities: Brown Brothers Harriman & Co.
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
To the Board of Directors and Stockholders of The Adams Express Company:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Adams Express Company
(hereafter referred to as the "Company") at December 31, 2005, 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, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 13, 2006
-------------------------
HISTORICAL FINANCIAL STATISTICS
--------------------------------------------------------------------------------
Dividends Distributions
From Net From Net
Net Asset Investment Realized
Value Of Shares Value Income Gains
Dec. 31 Net Assets Outstanding* Per Share* Per Share* Per Share*
-----------------------------------------------------------------------
1991 $ 661,895,779 49,121,246 $13.47 $.36 $ .73
1992 696,924,779 51,039,938 13.65 .31 .77
1993 840,610,252 63,746,498 13.19 .30 .79
1994 798,297,600 66,584,985 11.99 .33 .73
1995 986,230,914 69,248,276 14.24 .35 .76
1996 1,138,760,396 72,054,792 15.80 .35 .80
1997 1,424,170,425 74,923,859 19.01 .29 1.01
1998 1,688,080,336 77,814,977 21.69 .30 1.10
1999 2,170,801,875 80,842,241 26.85 .26 1.37
2000 1,951,562,978 82,292,262 23.72 .22 1.63
2001 1,368,366,316 85,233,262 16.05 .26 1.39
2002 1,024,810,092 84,536,250 12.12 .19 .57
2003 1,218,862,456 84,886,412 14.36 .17 .61
2004 1,295,548,900 86,135,292 15.04 .24 .66
2005 1,266,728,652 86,099,607 14.71 .22 .64
--------
* Adjusted to reflect the 3-for-2 stock split effected in October 2000.
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, 2005 are available (i)
without charge, upon request, by calling the Company's toll free number at
(800) 638-2479; (ii) on the Company's website by clicking on "Corporate
Information" heading on the website; and (iii) on the Securities and Exchange
Commission's website at 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 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.
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
SHAREHOLDER 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 and the
Pacific 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 and on
Mondays in The Wall Street Journal in a table titled "Closed-End Funds." The
table compares the net asset value at the close of the week's last business day
to the market price of the shares, and shows the amount of the discount or
premium.
Adams Express daily trading is shown in the stock tables of most 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.
21
SHAREHOLDER 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 Shareholders
For shareholders whose stock is held by a broker in "street" name, the AST
INVESTORS CHOICE Direct Stock Purchase and Sale Plan remains available through
many registered investment security dealers. If your shares are currently held
in a "street" name or brokerage account, please contact your broker for details
about how you can participate in AST's Plan or contact AST.
----------
The Company
The Adams Express Company
Lawrence L. Hooper, Jr.
Vice President, General Counsel and Secretary
Seven St. Paul Street, Suite 1140, Baltimore, MD 21202
(800) 638-2479
Website: www.adamsexpress.com
E-mail: contact@adamsexpress.com
The Transfer Agent
American Stock Transfer & Trust Company
Address Shareholder Inquiries to:
Shareholder Relations Department
59 Maiden Lane
New York, NY 10038
(877) 260-8188
Website: www.amstock.com
E-mail: info@amstock.com
Investors Choice Mailing Address:
Attention: Dividend Reinvestment
P.O. Box 922
Wall Street Station
New York, NY 10269-0560
Website: www.amstock.com
E-mail: info@amstock.com
*The year-end dividend and capital gain distribution will usually be made in
newly issued shares of common stock. There are no fees or commissions in
connection with this dividend and capital gain distribution when made in newly
issued shares.
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 64 Columbia University. (28 funds) (investment
companies).
---------------------------------------------------------------------------------------------------------------------------
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 62 Columbia, South Carolina, and Mohawk Industries, Inc.
Vice President of Warnaco Inc. (carpets and flooring).
(apparel).
---------------------------------------------------------------------------------------------------------------------------
Daniel E. Emerson Director One Since Chairman, The National YMCA Two Director of Petroleum &
7 St. Paul Street, Year 1982 Fund Inc. Retired Executive Vice Resources Corporation
Suite 1140 President of NYNEX Corp., (investment company).
Baltimore, MD 21202 (communications), retired
Age 81 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.
---------------------------------------------------------------------------------------------------------------------------
Roger W. Gale, Ph.D. Director One Since President & CEO of GF Energy, Two Director of Petroleum &
7 St. Paul Street, Year Dec. LLC (consultants to electric Resources Corporation
Suite 1140 2005 power companies). Formerly (investment company), Ormat
Baltimore, MD 21202 member of management group, (geothermal and renewable
Age 59 PA Consulting Group (energy energy), and U.S. Energy
consultants). Association.
---------------------------------------------------------------------------------------------------------------------------
Thomas H. Lenagh Director One Since Financial Advisor, Chairman of Two Director of Petroleum &
7 St. Paul Street, Year 1968 the Board, Photonics Product Resources Corporation and
Suite 1140 Group (crystals). Formerly Cornerstone Funds, Inc. (3
Baltimore, MD 21202 Chairman of the Board and CEO funds) (investment
Age 87 of Greiner Engineering Inc. companies).
(formerly Systems Planning
Corp.) (consultants). Formerly
Treasurer and Chief Investment
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 55 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)
John J. Roberts Director One Since Retired Senior Advisor, formerly Two Director of Petroleum &
7 St. Paul Street, Year 1976 Vice-Chairman External Affairs, Resources Corporation
Suite 1140 American International Group, (investment company) and
Baltimore, MD 21202 Inc. (insurance). Formerly Honorary Director of
Age 83 Chairman and CEO of American American International
International Underwriters Group, Inc.
Corporation. Previously
President of American
International Underwriters
Corporation-U.S./ Overseas
Operations.
---------------------------------------------------------------------------------------------------------------------------
Craig R. Smith, M.D. Director One Since President, Williston Consulting Two Director of Petroleum &
7 St. Paul Street, Year Dec. LLC (consultants to Resources Corporation
Suite 1140 2005 pharmaceutical and (investment company),
Baltimore, MD 21202 biotechnology industries). LaJolla Pharmaceutical
Age 59 Formerly Chairman, President & Company, and Depomed, Inc.
CEO of Guilford (specialty pharmaceuticals).
Pharmaceuticals
(pharmaceuticals &
biotechnology).
---------------------------------------------------------------------------------------------------------------------------
Robert J. M. Wilson Director One Since Retired President of the Two Director of Petroleum &
7 St. Paul Street, Year 1975 Company (since 1986) and Resources Corporation
Suite 1140 retired President of Petroleum & (investment company).
Baltimore, MD 21202 Resources Corporation (since
Age 85 1986).
---------------------------------------------------------------------------------------------------------------------------
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 59 of the
Board
Since
1991
---------------------------------------------------------------------------------------------------------------------------
24
THE ADAMS EXPRESS COMPANY
--------------------------------------------------------------------------------
Board Of Directors
Enrique R. Arzac/(1)(3) / Kathleen T.
McGahran/(2)(4)/
Phyllis O. Bonanno/(1)(3)/
Douglas G. Ober/(1)/
Daniel E. Emerson/(2)(3) /
John J. Roberts/(1)(3)/
Roger W. Gale/(3)(4)/
Craig R. Smith/(2)(4)/
Thomas H. Lenagh/(1)(4)/
Robert J.M. Wilson/(1)(2)/
--------
/(1)/ Member of Executive Committee
/(2)/ Member of Audit Committee
/(3)/ Member of Compensation Committee
/(4)/ Member of Retirement Benefits Committee
Officers
Douglas G. Ober Chairman and Chief
Executive Officer
Joseph M. Truta President
Lawrence L. Hooper, Jr. Vice President, General
Counsel and Secretary
Maureen A. Jones Vice President, Chief
Financial Officer and
Treasurer
Stephen E. Kohler Vice President -- Research
David R. Schiminger Vice President -- Research
D. Cotton Swindell Vice President -- Research
Christine M. Sloan Assistant Treasurer
Geraldine H. Pare Assistant Secretary
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 billed for
professional services rendered by its independent auditors,
PricewaterhouseCoopers LLP, for the audits of the Company's
annual and semi-annual financial statements for 2005 and
2004 were $76,609 and $54,712, respectively.
(b) Audit Related Fees. There were no audit-related fees
in 2005 and 2004.
(c) Tax Fees. The aggregate fees billed 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
2005 and 2004 were $9,396 and $9,950, respectively.
(d) All Other Fees. The aggregate fees billed to
registrant by PricewaterhouseCoopers LLP other than for the
services referenced above for 2005 and 2004 were $800 and
$0, respectively. The $800 billed for services in 2005 were
in connection with the preparation and review of the
registration statement filed with the Securities and
Exchange Commission relating to the 2005 Equity Incentive
Compensation Plan.
(e) (1) Audit Committee Pre-Approval Policy. As of 2005,
all services to be performed for registrant by
PricewaterhouseCoopers LLP must be pre-approved by the audit
committee. All services performed in 2005 were pre-approved
by the committee.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate fees billed by PricewaterhouseCoopers
LLP for non-audit professional services rendered to
registrant for 2005 and 2004 were $9,396 and $9,950,
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 LLPs 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, Craig R. Smith and Robert J.M. Wilson.
(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 POLICIES & PROCEDURES
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 analyzes 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. Staggered boards are used to
help create a roadblock to a possible takeover of a company
or to entrench incumbent management and board. 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 anti-takeover
provisions. For example, we generally vote in favor of
stockholder proposals to rescind or require a stockholder
vote on anti-takeover provisions such as poison pills and
the like.
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 13, 2006. 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 comprise the
portfolio management team for registrant's non-
controlled affiliate, Petroleum & Resources
Corporation (Petroleum), a registered investment
company with total net assets of $761,913,652 as of
December 31, 2005. Mr. Ober is Chairman, Chief
Executive Officer and President of Petroleum and Mr.
Truta is Executive Vice President. This information is
as of February 13, 2006. 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.
The basis for the portfolio managers' cash incentive
compensation determinations for Petroleum is the same as
for Adams, except that the portion of the incentive
based upon fund performance uses the Dow Jones Oil and
Gas Index and the S&P 500 Index as the benchmarks in a
70%/30% ratio, over a one and three year period. All of
the above information is as of December 31, 2005.
(4) Using a valuation date of December 31, 2005, 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
-------- --------- --------- --------- ---------
Jul. 2005 273,500 $ 13.18 273,500 2,644,353
Aug. 2005 289,000 $ 13.24 289,000 2,355,353
Sep. 2005 307,700 $ 13.23 307,700 2,047,653
Oct. 2005 158,900 $ 12.92 158,900 1,888,753
Nov 2005 76,900 $ 13.15 76,900 1,811,853
Dec 2005 157,100 $ 12.72 157,100 4,035,629
-------- --------- --------- --------- ---------
Total 1,263,100(1) $ 13.11 1,263,100(2) 4,035,629(2)
(1) There were no shares purchased other than through a
publicly announced plan or program.
(2.a) The Plan was announced on December 9, 2004 and was
reapproved on December 8, 2005.
(2.b) The share amount approved in 2004 was 5% of
outstanding shares, or approximately 4,172,453 shares, and
in 2005 was 5% of outstanding shares, or approximately
4,192,729 shares.
(2.c) The Plan will expire on or about December 8, 2006.
(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 13, 2006, 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 13, 2006, 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 13, 2006
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 13, 2006
BY: /s/ Maureen A. Jones
-----------------------
Maureen A. Jones
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: February 13, 2006