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Dividends and Distributions
As announced on November 13, 1997, a year-end distribution consisting of investment income of $0.17 and capital gains of $1.43 was made on December 27, 1997, both realized and taxable in 1997. On January 8, 1998, an additional distribution of $0.12 per share was declared payable March 1, 1998, representing the balance of undistributed net investment income and capital gains earned during 1997 and an initial distribution from 1998 net investment income, all taxable to shareholders in 1998.
Outlook for 1998
On the economic front, we are essentially in uncharted waters at this point. The U.S. economy has rarely experienced over six years of continuous growth without generating higher levels of inflation, unemployment, and interest rates. There has been much talk about a new paradigm or way of thinking about economic relationships as a result of great strides made in worker productivity and the effects of a more global marketplace. It is our belief, however, that the old relationships will reassert themselves in the form of higher wages and a slower rate of economic growth. The effects of the problems in Southeast Asia are still largely unknown, but one can surmise that worldwide prices will feel downward pressure, affecting profit margins negatively. Exports to the area are likely to decline due to lower currency values and the market for infrastructure-building goods and services will shrink. Since the magnitude of the problems has caught most investors by surprise, there was very little that could be done to take advantage of the situation.
Our belief is that economic growth in this country will be a full percentage point lower as a result of the Asian "flu" than it might otherwise have been. Combining this with the tight labor market and high capacity utilization in this country, we can see growth decelerating to the 2% range in 1998. Most forecasters are still looking for a 2.5% or higher rate and may have to reduce their expectations as the year unfolds. Should this be the case, it would be necessary for analysts to reduce their corporate earnings estimates, which in turn would trigger a negative reaction in the stock market. With the current anticipation of 7% growth in earnings, the Standard & Poor's 500 Composite Index is trading at a 1998 price/earnings multiple of 20. With a low general level of interest rates, such a valuation may be appropriate. Given the uncertainty of the impact of the Asian crisis on our economy, however, the market seems overvalued at this point and we would expect a correction to occur as the situation is clarified.
It is interesting to note that, after several years of watching and waiting for the Federal Reserve Board to cause the end of the bull market, the focus of interest has shifted to the Far East. The logic behind this is there will be no need for the Fed to take action to slow economic growth in order to keep inflation under control. The stock market has historically reacted almost immediately to action by the Fed and we have seen it do the same with each new revelation of the depth of the Asian problems. The response to Fed action has generally lasted some time, whereas with this new influence, the market has recovered each time progress seems to have been made toward resolving some aspect of the problems. The result has been an increase in the volatility of the market as a whole. Sooner or later, we believe that the impact of little or no economic growth in what has been the most dynamic part of the world will be fully realized and valuations will come down accordingly. The effect on companies with heavy exposure in Asia will be the greatest, naturally, but the entire market is expected to decline measurably.
With its emphasis on companies with strong balance sheets and geographically diversified operations, The Adams Express Company's portfolio should outperform the market during such a correction. We believe we are well-positioned in companies and industries which, while they may have temporary setbacks, have strategies and managements in place to produce excellent returns over the long term.
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Mr. Leigh Carter retired from the Board of Directors as of December 31, 1997. Mr. Carter joined the Board in 1982 while he was President of the Engineered Products Group of the BFGoodrich Co., and Chairman of the Board and Chief Executive Officer of Tremco, Inc. He has been an invaluable source of knowledge and wisdom during his fifteen years of service as a director of the Company. We wish to express our sincere appreciation to him and, along with the Board of Directors, wish him well in all his future endeavors.
Effective January 1, 1998, Ms. Maureen A. Jones was promoted to Vice President and Treasurer. Ms. Jones was formerly Treasurer of the Company.
The proxy statement for the Annual Meeting of Stockholders to be held in Houston, Texas on March 31, 1998, will be mailed on or about February 17, 1998 to holders of record on February 13, 1998.
By order of the Board of Directors,
Douglas G. Ober,
Chairman and Chief Executive Officer
Joseph M. Truta,
President
January 16, 1998
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