~-, .' ,

CHADBOURNE, PARKE, WHITESIDE & WOLFF

30 ROCKEFELLER PLAZA. NEW YORK, !\. Y. 101 12

EDMUND S. MUSKIE

DONALO L. DEMING

ROBERT A.. HOWES

PAUL G. PENNOYER. .JR.

PETER M. WARD

,JOHN WILCOX

JANET C. BROWN

CHARI.l':"; H. HARF'f

DAVID R. BAKER

EDMUND E. HARVEY

MICHAEL B. WEIR

WILLIAM M. BRADNER, JR.

RAYMOND R. FLETCHER, JR.

EDWARD C. /4cLEAN, JR.

STUART D, BAKER

ZACHARY SHIMER

NiCHOLAS B. ANGELL

GEORGE E. ZEITLIN

NORMAN SIN RICH WILLIAM ..I. GEEN

DONALD I STRAUBER

DANIEL ..I. O'NEILL

PAUL A.. RANDOUR

MALCOLM E. MARTIN

EDWARD P. SMITH

WILLIAM .J. CALISE, JR.

EUGENE R. SULLIVAN, JR.

WHITNEY i. GERARD

R. TIMMIS WARE

(2 12) 641-5800 ~Ii~~~~i;: ~: ~~~NN WUI TELEX 62052a STc;.,~~~~;~~~N

g¡~~tLRil ~E:~i;.ARTHY WU TELEX 646n8~ ...~: ..."....... .JAMES K, CRIMMINS MARCIA E CARPENI ¡_.., "_~_'''''''''''-,,''' . ,l", ._.~/¡.,.:)' '~.'.'.. :,...~..............' CHARLES e. LAUREN ~~~~ii t£f¡~~~~~Y:.R ¡~~~L""lI..Ç;(f ..-¿~(P:--~ ',-: ,::,' ~. ~:~,,_~ H~i~1!~ò~~~~~~A~R.

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b~i~~i~: ~;,~~~gN becliQu....../7c,;-, .¿¿.... ,. ._.~ ':1. ~J .' .' ~_.,C': ! WASHINGTON OFFICE THOMAS J. GALLAGHER. J~.. F .~ / 1101 VERMONT AVENUE. N. W. JOHN B. O'SULLIVAN ii' . I..,:': , WASHINGTON. D. C. 20005 JEROME C. KATZ ':'~L':Le . 0 ( . .. '-. c':..,¿'- , (2021 2eg'3000 GILBERT L. KLEMANN, II ,-. --"~--'--'7'- . t' ",~';;.. ,;,:.. - Ì' , . ;' WUI TELEX Q04256 ~g~HR '1:.~61~ER ¡PUbli C' 10 '(jf- --iiz¿" . r:;. "" ' '/ TRT TELEX 140162

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COUNSEL . I ~.:; P. O. BOX Q2t52' DUBAI . ..................:.J ('l' OÙBAI INTERNATIONAL TRADE CENTRE

WILLIAM H. MATHERS March 7, 1984 __ UNITED ARAB EMIRATES . ALVIN D. LURIE TEL. :i73e2~: TELEX 451"5 GARY M. KEYES OFFICES ALSO IN ABU DHABI FREDERICK W. TAYLOR. JR. AND SHARJAH, U. A. E.

eW:l ""~'Trro IN NEW YORK

Investment Company Act of 1940/

Section 17 (f); Rule 17f-2

(, .

Division of Investment Management

Secur.i ties and Exchange Commission

450 Fifth Street, N. W.

Washington, D.C. 20549

Re: The Adams Express Company

File No. 811-2624 . Dear Sirs:

We are counsel to The Adams Express Company (the

"Company"), a closed-end investment company reg istered ~

(' under the Investment Company Act of 1940 (the "1940 Act").

The Bank of New York (the "Bank") acts as '.custodian of

the Company's portfolio of securities in accordance with

Rule 17f-2 promulgated under the 1940 Act. As a source

of income, the Company has in the past loaned certain of

the securities in its portfolio to qualified borrowers who

collateralize such loans to the extent of no less than

102% of the full market value of the securities loaned.

The Company's Board of Directors exercises close and
,

CHADBOGR!\E. PARKE, WHITESIDE & WOLFF

Division of Investment

1'1anag ement -2- Mar ch 7, 19 84

continuous control of the' Company' s securities loan program

in accordance with its business judgment.

The Company now proposes to enter into an agree-

~ent wi th the Bank to appoint the Bank its agent to loan

secur i ties owned by :the Company a?d held by the Bank in an

account for the Company's benefit. The proposed securities

loan agency agreement (the "Agreement") would maintain the

Company ¡ S control Over which secur i ties are loaned, to

whom they are loaned, and the value of colla teral. against

-which they are loaned. In adãi tion, the Agreement would'

prov ide tha t the Bpnk may ioan securi ties only to those

prospective borrowers tha t meet the Bank's standards for

credi tworthiness, thus providing a se~ond, independent

eval ua tion of prospective borrowers that is not currently

av~ilable to the Company.

The Agreement would provide that loans of securities could be made to any 'enti ty named on a list agreed to

by the company and the Bank from time to time, other than

any entity whose name the Company has notified the Bank to

delete from such list. In deleting names from such list,

the Company will evaluate prospective borrowers in the

same manner as it currently evaluates the qualif.ications.

and creditworthiness of prospective borrowers of it~

securities under the Company's existing securities loan
CHADBOURNE. PARKE. WHITESIDE & WOLFF

Division of Investment

Management -3- Ma r c h 7, 1 9 8 4

program. As is the case with the Company's existing

secur i ties loan program, loans made under the Agreement

would be collateralized by bank letters of credit, securities and cash equal to not less than 102% of the market

value of the loaned secur i ties. The Bank may accept a

letter of credit as collateral only if it was issued by a

bank named on a list agreed to by the Company and the Bank

from time to time. In evaluating the names on such list,

the Company will evaluate each bank in' the same manner as

it currently evaluates banks when the Company accepts letters of credit as collateral for loans made under its

existing_.~ecuri ties loan program.

The Agreement would require the Bank to terminate

any loan whenever it receives (a) oral or wri tten instructions to term ina te such loan from an off icer of the Company

designated by the Company as authorized (an "Authorized

Person") to give such notice, (b) a written instruction from

an Authorized Person tha.t the name of the borrower is to be

deleted from the list of potential borrowers or that the

name of the bank which issued a letter of credit as colla teral for the loan is to be deleted from the list of

banks, or (c) notice of anydefaul t in connectiqn with the

loan. The Bank may a t any time term ina te any loan in its

absolute discretion and, as stated above, the Bank must

ter~inate any loan upon receiving notice from an Authorized
CHADBOURKE, PARKE. WHITESIDE & WOLFF

Division of Investment

Management -4- March 7, 1984

Person. Therefore the Co~pany, acting through its Authorized

Persons, retains full discretion and power to prevent- any

loan from being made or to terminate any loan once made.

As the Company i s agent under the Agreement, the

Bank would undertake to make colla teralized loans of

secur i ties for the Company i s account in conjunction 'wi th

similar loans made for the accounts òf other lenders of

securities, mostly pension and profit-sharing funds.

Al though th~ Company would still exercise its business

judgment in. controlling the loans made by the Bank, the

Company anticip~ t~s tha tit would obtain significant

benefi ts under the Agreement from the Bank i s economies

of scale and access to markets. In addition, the Bank

would perform certain administrative functions under the

Agreement at lower cost to the Company than that available

under the Company i s existing securities loan program. As

incentive to the Bank to make profitable loans for the

Company and as full compensation under the Agreement, the

Company would pay a fee to the Bank equal to a percentage

of èarnings on ,loans of securities made under the Agreement.

We note tha t the staff of the Commission has

acknowledged that secur i ties loan agency arrang~ents substantially similar to the Agreement meet the requirements

of Section l7(f) of the 1940 Act and Rule l7f-2 thereunder.
.

CHADBOUR:s'E, PARRE. WHITESIDE & WOLFF

Division of Investment

Management -5- March.7, 1984

In rendering no-action advice concerning the application

of Rule 1 7f~ 2 in Twentieth Century Investors, Inc. (available November 26, 1982) and United States & Foreicrn Securi- "'

. ties Corporation (available November 26, 1982), the staff

of the Commission noted tha t the agent for the securities

loan programs therein described would guarantee return to

the lender of the loaned securities and payment when due of

all interest, dividends and distributions in respect thereof,

provisions not present in the Agreement~ The Company has

advised us that current market conditions and competi tion

among thos e insti tu tions lending securities have severely

limi ted the yields earned by the Company under its existing

securi ties loan program and the fees tha t might be earned

by the Company under a securities loan agency agreement

similar to the Agreement but with the borrower i s performance

guaranteed by the agent.

As wi th other investment decisions, the Company i s

management and Board of Directors have pr imary and ul tima te

responsibility for evaluating the relative risks and benefits of any proposed transaction. The Company assumes the

burden of evaluating and selecting borrowers of securities

and issuers of collateral in making loans under its existing

s'ecuri ties loan program and would continue to do so for

loans'made under the Agreement. Al though under the Agreewent
CHA.DBOVRKE, PARKE, WHITESIDE & WOLFF

Division of Investment

Management -6- March 7, 1984

the Bank would not guara~tee the performance of the borrower, the Bank would evaluate the credi tworL~iness of

prospective borrowers, exercise discretion in making

particular loans and accepting collateral, and value daily

the collateral to ensure that it equals no less than 102%

of the market value of the loaned securities. These obliga tions of .the Bank would add a second level of protection

for the Company 's stockhold er s that is not now present. We

believe that to meet the requirements of Rule 17f~2 the

Agreement need not require the Bank to guarantee the performance of a borrower.

We would apprecia te your advice as to whether

you concur in our views set forth herein. Because the

Company is currently considering entering into the Agreement, we would appreciate your prompt response to our

inquiry. . If any further information is needed or if we

can be helpful in any other way, please contact the undersigned or, in my absence, Christopher G. Karras of this

office, by collect telephone (212) 541-5800.

Very truly yours,

~~.o.~
EDMUND S. MUSKIE

DONALD L. DEMING

ROBERT A. HOWES

PAUL G. PENNOYER. JR,

PETER M. WARD

JOHN WILCOX

.JANET C. BROWN

DAVID R. BAKER

EDMUND E. HARVEY

MICHAEL B. WEIR

WILLIAM M. BRADNER, JR.

EDWARD C. McLEAN, JR.

STUART D. BAKER

ZACHARY SHIMER

NICHOLAS B. ANGELL

GEORGE E. ZEITLIN

NORMAN SIN RICH WILLIAM J. GEEN

DONALD I STRAUBER

- DANIEL J. O'NEILL

PAUL A. RANDOUR

MALCOLM E. MARTIN

EDWARD P. SMITH

WILLIAM .J. CALISE. JR.

EUGENE R. SULLIVAN, .JR.

WHITNEY i. GERARD

R. TIMMIS WARE

CHADBOURNE, PARKE, WHITESIDE & WOLFF

30 ROCKEFELLER PLAZA. NEW YORK, N. Y. 10112

RICHARD J. NEY

MICHAEL K, GLENN

BERNARD W. McCARTHY

DANIEL E. LEACHMARCIA E. CARPENI

LESLIE JOHN SCHREYER

HENRY J. OECHLER. JR.

CHARLES K. O'NEILL

RIGDON H. BOYKIN

THOMAS E. BEZANSON

GEORGE T. MANNING

JOHN B.O'SULLIVAN

JEROME C. KATZ

GILBERT L. KLEMANN. II

KEITH MARTIN.

PETER R. KOLYER

VERONICA M. AHERN-

(2 12) 54 i -5800

WUI TELEX 620520

WU TELEX 645383

TELECOPIER (2 1 2) 586-7713

OF COUNSEL

STANNARD DUNN

CHARLES B. LAUREN

FRANK B. STONE

HAROLD L. WARNER. .JR.

MELVIN D. GOODMAN

GEORGE BOYD, JR.

. . M. A. K. AFRIDIWASHINGTON OFFICE

1101 VERMONT AVENUE. N, W.

WASHINGTON. D, C. 20005 (202) 289'3000

WUI TELEX Q04256

TRT TELEX 140162

TELECOPIER (2021 28Q'B517

COUNSEL

WILLIAM H. MATHERS

ALVIN D. LURIE

GARY M, KEYES

FREDERICK W. TAYLOR. JR.

U.A.E, OFFICES

CHADBOURNE, PARKE & AFRIDI

DUBAI INTERNATIONAL TRADE CENTRE

P. O. BOX 9262' DjJBAI

UNITED ARAB EMIRATES I,). 984 TEL. 373625: TELEX '046145

t. OFFICES ALSO IN ABU DHABI

r SECURITIES A!lO mHANGtNRiM~M' u. A. E.

RECEIVED

JUL 1 3 1984

July 12, -NOT ADMITTED IN NEW YOftK

Mr. Thomas S. Harman

Division of Investment Management

Securi ties and Exchange Commission

450 Fifth street, N.W.

Washington~ D.C. 20549 . 0!l-.'

OFFll,E ~f C!-IlEf cnUMSEl

nlYtSin~ OF IiI~mi1E1n MAlUGEMElIt

pany '.~ I

. ....: Re: The Adams Expres s Co

File Number: 811-262

Dear Mr. Harman:

Reference is made to my letter of March 7, 1984

reques ting your advice as to our views regarding the

applicabili ty of and requirements under Section 17 (f) of

the Investment Company Act of 1940 and Rule l7f-2 thereunder to certain securities loan transactions proposed to

be entered into by The Adams Express Company (the "Company").

This letter is in response to the four questions you raised

in our telephone conversation on JUlY 11, 1984 i as follows:

1. You have asked whether the collateral

underlying securities loans will include accrued interest

and dividends. I am advised that, under the proposed arrangements, the dividends payable on corporate stocks and accrued

interest on corporate bonds will not be collateralized;

however i interest accrued on government securities that are

the subject of loans is collateralized. It may be noted

in this connection that the proposed arrangements call for

collateralization at 102% of the market value of any loan

securities, with such collateral being marked to market; thus,

it is likely that in substantially all securities loan transactions the margin of 2% of market value will be sufficient
CHADBOURNE, PARKE. WHITESIDE & WOLFF

Mr. Thomas 8. Harman -2- July 12, 1984

to cover accrued quarterly dividends inasmuch as most

corporate stocks do not carry annual dividends of 8% or more.

Furthermore, it is normal practice that the dividends be

paid, or credited through DTC, on the payment date or within one day following the payment date so that the Company

would receive credit therefor wi thin one day of payment.

As to U.8. government securities collateral, the

accrued interest on such obligations is permitted under the

proposed arrangements and is included as part of the col- lateral.

2. You have asked who receives the loan premium.

The proposed agreement with. The Bank of New York (the "Bank")

will provide for the Company to pay to the Bank a loan fee

in an amount equal to a percentage of the earnings on

loaned securities and, for this purpose, earnings include

the difference between any rebate paid to a borrower and -the

rate of return earned on cash collateral as well as any

fees paid by borrowers on loans collateralized by letters

of credit. The Bank will initially receive any such earnings

or loan fees and will credit the Company's account for the

amounts payable to the Company after retention of the Bank's

fee. The current arrangemente call for the Company to

receive 60% of earnings on securities loans but such percentage is subject to adjustment upwards or downwards,

depending upon experience under the proposed agreement and

future negotiations with respect thereto. .

3. You have asked what are the permissible

investments of cash collateral and whether they include

investments in securities of the Bank. The proposed agreement will provide for cash collateral to be invested in

obligations issued or guaranteed as to interest and principal

by the U. 8. goverli.ment or agencies or instrumentalities

thereof, or commercial paper, certificates of deposit,

bankers' acceptances, repurchase agreements with respect

to the same, and/or bank time deposits issued or guaranteed

as to interest and principal by an entity, except a broker/

dealer, named on a list given to the Company by the Bank

from time to time, other than an entity that the Company

has notified the Bank to delete from such list. It is

anticipated that the Bank of New York would be such an

eligible entity, and the Company has determined that an investment of cash collateral in securities of the Bank will

be limited to an aggregate principal amount of $10,000,000

a t anyone time.
CHADBOURNE. PARKE, WHITESIDE & WOLFF

Mr. Thomas S. Harman -3- July 12, 1984

4. You have asked whether, if a letter of credit is involved, the Bank can be an issuer of' such

letter of credit. The propose~ agreement precludes th~t

the Bank of New York will be an issuer of any letters of

credit used as collateral for loans of the Company i s

securi ties.

I trust the foregoing is responsive to your

questions and if you need further clarification, I would

appreciate your calling me.

Very truly yours, 'Z~o.~

Robert A. Howes

cc: Mr. Simeon F. Wooten

The Adams Express Company
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. ~~

SEP 7 1984

RESPONSE OF THE OFFICE OF CHIEF COONSEL

DIVISION OF INVES'IMENT MANAGEMENT

Our Ref. No. 84- 140-CC

The Adams Express Company

File No. 811-2624

We would not recommend that the Commission take any enforcement

action pursuant to section 17 (f) of the Investment Company Act of 1940

or rule 17f-2 thereunder if The Adams Express Company (the "Company")

lends its portfolio securities as proposed. Our position is based on

the understanding that the Company's board of directors will remain

responsible for determining who may borrow the Company's securities and

the propriety of any loan. Our position is also based upon the facts

and representations in your letters of March 7 and July 12, 1984,

and upon the representations made to Thomas S. Harman by Robert A. Howes

on August 7, 1984, that:

(1) the Bank of New York ("BNY") will value daily the

collateral supporting the securities loaned to ensure that the collateral equals no less than 102%

of the market value of the loaned securities;

(2) the Company will retain full discretion and power

to prevent any loan from being made or to terminate

any loan once made;

(3) the Company will receive all dividends, interest,

and distributions on the securities it lends;

(4) the valuation of any securities lent, for the purpose

of determining the amount of the collateral to be

deposited thereon, will include accrued interest;

(5) any cash collateral invested with BNYwill be limited

to an aggregate pr incipal amount of $10,000,000 at any

one time and BNY will pay interest on such cash collateral at a rate that is competitive ,with what it pays

its other customers and with what other banks pay; and

(6) any letter of credit accepted as collateral will be

irrevocable and will not be issued by BNY.

61/~~, !f~

Thomas S. Harman

Attorney