FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
(WITH SUPPLEMENTAL INFORMATION)
ARMSTRONG ASSOCIATES, INC.
JUNE 30, 1999
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders and Board of Directors
Armstrong Associates, Inc.
We have audited the accompanying statement of assets and liabilities of
Armstrong Associates, Inc., including the schedule of portfolio of investments
in securities as of June 30, 1999, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended and the selected per share data and ratios for
each of the eight years in the period then ended. These financial statements and
per share data and ratios are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
per share data and ratios based on our audits. The selected per share data and
ratios for each of the seventeen years in the period ended June 30, 1991 were
audited by other independent certified public accountants whose report thereon
dated July 19, 1991, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and selected per share data and ratios
referred to above present fairly, in all material respects, the financial
position of Armstrong Associates, Inc. as of June 30, 1999, 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 selected per share data and
ratios for each of the eight years in the period then ended, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Dallas, Texas
July 14, 1999
<PAGE>
ARMSTRONG ASSOCIATES, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
ASSETS
Investments in securities, at market value
(identified cost, $6,650,183) $ 15,663,292
Cash 142,902
Receivable from sales of securities 1,412,585
Dividends receivable 10,890
Interest receivable 241
Prepaid expenses and other assets 2,125
------------
17,232,035
LIABILITIES
Accrued expenses and other liabilities 17,680
------------
NET ASSETS $ 17,214,355
============
NET ASSETS CONSIST OF
Paid in capital $ 7,620,677
Distributions in excess of net investment income (19,405)
Accumulated undistributed net realized gains on investments 599,974
Net unrealized appreciation on investments 9,013,109
------------
NET ASSETS APPLICABLE TO 1,272,327 SHARES OUTSTANDING $ 17,214,355
============
NET ASSET VALUE PER SHARE $ 13.53
============
The accompanying notes were an integral part of this statement.
3
<PAGE>
ARMSTRONG ASSOCIATES, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES
June 30, 1999
<TABLE>
<CAPTION>
Shares or
principal Market
amount Cost value (a)
--------- ---------- -----------
COMMON STOCK (88.68%)
Industry and issue
Aerospace (1.0%)
<S> <C> <C> <C>
The Boeing Company 4,000 $ 236,300 $ 177,000
---------- -----------
Broadcasting and Media (10.9%)
A.H. Belo Corporation 12,000 171,285 236,250
New York Times Company 5,000 197,188 184,375
Time Warner, Inc. 20,000 208,192 1,470,000
---------- -----------
576,665 1,890,625
---------- -----------
Chemicals and Related (6.9%)
Avery Dennison Corp. 15,000 211,200 905,625
Praxair, Inc. 6,000 212,890 294,750
---------- -----------
424,090 1,200,375
---------- -----------
Computer, Software, and Related (8.0%)
International Business Machines Corp. 5,000 249,675 650,000
Oracle Systems Corporation* 19,500 122,330 723,937
---------- -----------
372,005 1,373,937
---------- -----------
Consumer Products (12.9%)
Black & Decker Corporation 10,000 216,760 630,000
The Gillette Company 7,232 166,636 297,416
Kimberly Clark Corporation 6,000 230,820 342,000
Sherwin Williams Company 6,000 198,150 167,250
Wal-Mart Stores, Inc. 16,000 196,800 772,000
---------- -----------
1,009,166 2,208,666
---------- -----------
Diversified Operations (7.0%)
Corning, Inc. 12,000 196,566 841,500
Tyco International Limited 3,929 211,614 371,290
---------- -----------
408,180 1,212,790
---------- -----------
Educational Services (1.6%)
DeVRY Inc.* 6,000 132,660 137,250
Sylvan Learning Systems, Inc.* 5,000 163,750 135,938
---------- -----------
296,410 273,188
---------- -----------
</TABLE>
4
<PAGE>
ARMSTRONG ASSOCIATES, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES - CONTINUED
June 30, 1999
<TABLE>
<CAPTION>
Shares or
principal Market
amount Cost value (a)
--------- ---------- -----------
Financial and Related (3.8%)
<S> <C> <C> <C>
Associates First Capital Corporation 8,000 $ 246,800 $ 353,000
Bank of America Corporation 4,000 240,350 293,500
---------- -----------
487,150 646,500
---------- -----------
Food, Beverages and Related (10.1%)
Bestfoods 10,000 199,538 495,000
Crown Cork & Seal Company, Inc. 5,000 239,438 142,813
Pepsico, Inc. 20,000 116,802 775,000
Tricon Global Restaurants, Inc.* 6,000 137,198 324,750
---------- -----------
692,976 1,737,563
---------- -----------
Medical and Related (19.8%)
Abbott Laboratories 30,000 182,381 1,365,000
Biogen, Inc.* 4,000 158,625 515,000
Boston Scientific Corporation* 10,000 234,785 440,000
Medtronics, Inc. 10,000 190,438 776,250
Warner Lambert Company 4,467 170,000 309,898
---------- -----------
936,229 3,406,148
---------- -----------
Office Supplies and Equipment (3.7%)
Xerox Corporation 6,000 253,065 356,250
Staples, Inc.* 9,000 175,875 278,438
---------- -----------
428,940 634,688
---------- -----------
Transportation (1.3%)
Ryder System, Inc. 8,000 196,960 215,500
---------- -----------
Water Treatment and Pollution Control (1.7%)
Ionics, Inc.* 8,000 186,800 288,000
---------- -----------
Total common stocks 6,251,871 15,264,980
</TABLE>
5
<PAGE>
ARMSTRONG ASSOCIATES, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES - CONTINUED
June 30, 1999
<TABLE>
<CAPTION>
Shares or
principal Market
amount Cost value (a)
--------- ---------- -----------
SHORT-TERM DEBT (2.31%)
<S> <C> <C> <C>
U.S. Treasury bills, due August 1999 $ 400,000 $ 398,312 $ 398,312
---------- -----------
Total investment securities - 90 99% $6,650,183 15,663,292
==========
Other assets less liabilities - 9.01% 1,551,063
-----------
Net assets - 100.00% $17,214,355
===========
</TABLE>
NOTES
(a) All common stocks are listed on a national securities exchange or
reported on the NASDAQ national market and are valued at the closing
price. Short-term debt is carried at cost, which approximates market
value.
(b) Aggregate cost for Federal income tax purposes is $6,650,183.
* Nonincome-producing security
The accompanying notes were an integral part of this statement.
6
<PAGE>
ARMSTRONG ASSOCIATES, INC.
STATEMENT OF OPERATIONS
Year ended June 30, 1999
INVESTMENT INCOME
Dividends $ 150,813
Interest 21,338
-----------
172,151
Operating expenses
Investment advisory fees $ 122,851
Administrative fees 16,000
Custodian fees 7,798
Transfer agent fees 9,517
Legal fees 1,728
Accounting fees 12,219
Registration fees, licenses and other 2,601
Reports and notices to shareholders 7,645
Directors' fees and expenses 8,696
Insurance expense 1,628 190,683
----------- -----------
NET INVESTMENT LOSS (18,532)
-----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Realized gains
Proceeds from sales 2,426,986
Cost of securities sold 1,810,125
-----------
NET REALIZED GAINS 616,861
-----------
Unrealized appreciation
Beginning of year 7,176,478
End of year 9,013,109
-----------
INCREASE IN UNREALIZED APPRECIATION 1,836,631
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 2,453,492
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 2,434,960
===========
The accompanying notes were an integral part of this statement.
7
<PAGE>
ARMSTRONG ASSOCIATES, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended June 30,
<TABLE>
<CAPTION>
1999 1998
------------ ------------
OPERATIONS
<S> <C> <C>
Net investment income (loss) $ (18,532) $ 32,463
Net realized gains on investments 616,861 1,096,424
Increase in unrealized appreciation of investments 1,836,631 726,296
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 2,434,960 1,855,183
DISTRIBUTIONS TO SHAREHOLDERS
Dividends paid from net investment income (49,896) (59,092)
Distributions paid from net realized gains (561,330) (980,946)
------------ ------------
NET DECREASE IN NET ASSETS RESULTING FROM DISTRIBUTIONS (611,226) (1,040,038)
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of capital stock 404,587 708,014
Net asset value of shares issued as reinvestment of dividends 587,448 988,680
------------ ------------
992,035 1,696,694
Less cost of shares repurchased (814,219) (1,566,042)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM CAPITAL SHARE TRANSACTIONS 177,816 130,652
------------ ------------
TOTAL INCREASE IN NET ASSETS 2,001,550 945,797
NET ASSETS
Beginning of year 15,212,805 14,267,008
------------ ------------
End of year (Note) $ 17,214,355 $ 15,212,805
============ ============
</TABLE>
Note: At June 30, 1999 and 1998, undistributed net realized investment gains
were $599,974 and $544,443, respectively. At June 30, 1999, distributions
in excess of net investment income were $19,405. At June 30, 1998,
undistributed net investment income was $49,023.
The accompanying notes are an integral part of these statements.
8
<PAGE>
ARMSTRONG ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Nature of Operations
--------------------
Armstrong Associates, Inc. (the Company) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end investment
management company.
Valuation of Securities
-----------------------
The Company's investments in common stocks are carried at market value.
Short-term debt securities are carried at cost which approximates market.
Investment Transactions and Investment Income
---------------------------------------------
Investment transactions are recorded on a trade date basis, and realized
gains and losses are calculated using the identified cost method. Dividend
income and distributions to shareholders are recorded on the ex-dividend
date. Interest income is recorded on the accrual basis.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE B - FEDERAL INCOME TAXES
As of June 30, 1999, the Company qualified and intends to continue to
qualify each fiscal year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended. By qualifying, the
Company will not be subject to Federal income taxes to the extent that it
distributes all of its taxable income for its fiscal year.
NOTE C - PURCHASES AND SALES OF SECURITIES
For the year ended June 30, 1999, purchases and sales of securities,
excluding short-term debt securities, aggregated $461,520 and $2,426,986
respectively.
The Company paid total brokerage commissions aggregating $7,700 in 1999 on
purchases and sales of investment securities. All commissions were paid to
unaffiliated broker-dealers.
9
<PAGE>
ARMSTRONG ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1999
NOTE D - INVESTMENT ADVISORY, TRANSFER AGENT AND ADMINISTRATIVE FEES
The Company has agreed to pay its investment adviser, Portfolios, Inc.
(Portfolios), a fee of .80% per annum of the average net asset value of the
Company. For the year ended June 30, 1999, investment advisory fees to
Portfolios amounted to $122,851. In order to effectively limit the expenses
of the Company, the adviser has agreed to reimburse the Company for all
expenses (including the advisory fee but excluding brokerage commissions,
taxes and interest and extraordinary charges such as litigation costs)
incurred by the Company in any fiscal year in excess of 2% of the first $10
million of its average daily net assets for the fiscal year, 1.5% of the
next $20 million of average daily net assets and 1% of the remainder. No
reimbursements were required in 1999.
Portfolios is the transfer agent for the Company. Applicable fees of $9,517
were incurred by the Company for the year ended June 30, 1999. In addition,
under the terms of an administrative services agreement between Portfolios
and the Company, Portfolios provides accounting services to the Company for
an annual fee of $16,000 payable in equal monthly installments.
At June 30, 1999, the Company owed Portfolios $10,997 in accrued fees.
NOTE E - CAPITAL STOCK
On June 30, 1999, there were 6,000,000 shares of $1 par value capital stock
authorized, and capital paid in was $7,620,675. Transactions in capital
stock for the years ended June 30, 1999 and 1998 were as follows:
1999 1998
-------- --------
Shares sold 34,015 63,588
Shares issued as reinvestment of dividends 51,758 93,981
-------- --------
85,773 157,569
Shares redeemed (66,465) (133,173)
-------- --------
Net increase in shares outstanding 19,308 24,396
======== ========
NOTE F - DIVIDENDS
Dividends from net investment income paid during the year ended June 30,
1999 and 1998 amounted to $.04 and $.05 per share, respectively.
Distributions from net realized gains paid during the years ended June 30,
1999 and 1998 amounted to $.45 and $.83 per share, respectively.
10
<PAGE>
ARMSTRONG ASSOCIATES, INC.
CONDENSED FINANCIAL INFORMATION
Selected per Share Data and Ratios
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.14 $ 11.61 $ 10.45 $ 9.70 $ 8.19 $ 8.26 $ 7.08
Income (loss) from investment operations
Net investment income (loss) (.01) .03 .06 .05 .02 -- .02
Net realized and unrealized gains
(losses) on investments 1.89 1.38 1.64 1.10 2.12 .10 1.19
------- ------- ------- ------- ------- ------- -------
Total from investment operations 1.88 1.41 1.70 1.15 2.14 .10 1.21
Less distributions
Dividends from net investment income .04 .05 .07 .02 .04 -- .02
Distributions from net realized gains .45 .83 .47 .38 .59 .17 .01
------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 13.53 $ 12.14 $ 11.61 $ 10.45 $ 9.70 $ 8.19 $ 8.26
======= ======= ======= ======= ======= ======= =======
Total return 16.26% 13.31% 17.19% 12.09% 27.32% 1.13% 17.12%
Ratios/supplemental data
Net assets, end of period (000's) 17,214 15,213 14,300 13,100 11,961 9,255 9,680
Ratio of expenses to average net assets 1.2 1.3 1.4 1.4 1.8 1.8 1.8
Ratio of net investment income
to average net assets (.1) .2 .5 .5 .2 -- .2
Portfolio turnover rate 2% 7% 7% 19% 12% 15% 17%
<CAPTION>
1992 1991 1990 1989 1988 1987 1986
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 6.87 $ 7.38 $ 7.74 $ 7.17 $ 9.66 $ 8.72 $ 7.65
Income (loss) from investment operations
Net investment income (loss) .06 .16 .23 .24 .09 .10 .14
Net realized and unrealized gains
(losses) on investments .33 (.27) .19 .67 (.53) 1.51 1.17
------- ------- ------- ------- ------- ------- -------
Total from investment operations .39 (.11) .42 .91 (.44) 1.61 1.31
Less distributions
Dividends from net investment income .15 .23 .24 .11 .14 .16 .24
Distributions from net realized gains .03 .17 .54 .23 1.91 .51 --
------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 7.08 $ 6.87 $ 7.38 $ 7.74 $ 7.17 $ 9.66 $ 8.72
======= ======= ======= ======= ======= ======= =======
Total return 5.79% (.92)% 5.93% 13.23% (6.27)% 20.00% 17.80%
Ratios/supplemental data
Net assets, end of period (000's) 9,366 9,228 9,770 9,887 10,435 12,294 11,714
Ratio of expenses to average net assets 1.9 1.9 1.8 1.9 2.0 1.7 1.6
Ratio of net investment income
to average net assets .8 2.3 2.9 3.0 1.3 1.0 1.6
Portfolio turnover rate 35% 24% 44% 46% 20% 51% 54%
<CAPTION>
1985 1984 1983 1982 1981 1980 1979
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 7.29 $ 10.22 $ 7.10 $ 9.37 $ 7.74 $ 7.06 $ 6.50
Income (loss) from investment operations
Net investment income (loss) .24 .16 .21 .41 .24 .23 .16
Net realized and unrealized gains
(losses) on investments 1.02 (2.51) 3.72 (1.28) 2.62 1.40 .84
------- ------- ------- ------- ------- ------- -------
Total from investment operations 1.26 (2.35) 3.93 (.87) 2.86 1.63 1.00
Less distributions
Dividends from net investment income .14 .20 .43 .19 .23 .13 .11
Distributions from net realized gains .76 .38 .38 1.21 1.00 .82 .33
------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $ 7.65 $ 7.29 $ 10.22 $ 7.10 $ 9.37 $ 7.74 $ 7.06
======= ======= ======= ======= ======= ======= =======
Total return 19.10% (24.01)% 61.27% (9.87)% 38.04% 24.08% 15.17%
Ratios/supplemental data
Net assets, end of period (000's) 10,957 9,788 12,869 7,669 8,277 5,777 4,538
Ratio of expenses to average net assets 1.7 1.6 1.6 1.7 1.5 1.6 1.5
Ratio of net investment income
to average net assets 3.1 1.9 2.4 5.6 2.7 3.2 2.3
Portfolio turnover rate 53% 96% 59% 34% 60% 131% 97%
<CAPTION>
1978 1977 1976 1975
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 5.68 $ 5.30 $ 3.81 $ 2.74
Income (loss) from investment operations
Net investment income (loss) .08 .04 .03 .07
Net realized and unrealized gains
(losses) on investments .78 .38 1.53 1.04
------- ------- ------- -------
Total from investment operations .86 .42 1.56 1.11
Less distributions
Dividends from net investment income .04 .04 .07 .04
Distributions from net realized gains -- -- -- --
------- ------- ------- -------
Net asset value, end of year $ 6.50 $ 5.68 $ 5.30 $ 3.81
======= ======= ======= =======
Total return 15.31% 8.05% 42.06% 41.46%
Ratios/supplemental data
Net assets, end of period (000's) 3,886 3,649 3,785 2,892
Ratio of expenses to average net assets 1.5 1.5 1.5 1.5
Ratio of net investment income
to average net assets 1.6 1.9 .8 2.7
Portfolio turnover rate 151% 113% 113% 210%
</TABLE>
(a) For a share outstanding throughout the year. Per share data has been
rounded to nearest cent and adjusted to give effect to a 2-for-1 stock
split, effective October 16, 1978, by means of a stock distribution.
(b) The Fund had no senior securities or outstanding debt during the
twenty-five-year period ended June 30, 1999.
(c) Total commissions paid divided by number of shares of applicable investment
securities transactions. Disclosure requirement beginning with fiscal year
ended June 30, 1996. Information for fiscal years prior to June 30, 1996,
is not applicable.
See accompanying report of independent certified public accountants.
11
<PAGE>
TO OUR SHAREHOLDERS:
The fiscal year of Armstrong Associates, Inc., ended June 30, 1999. At that time
Armstrong had total net assets of $17,214,355 and a per share price of $13.53.
Not reflected in the fiscal year end price were December 1998 distributions of
income and capital gains totaling $0.49 per share. For the twelve months
Armstrong recorded a total investment return of +16.26%.
Reversing a declining trend that had been in place since calendar 1997, interest
rates increased sharply during the first half of calendar 1999. Inflation, on
the other hand, stayed low despite increases in energy prices and interest
rates. For the year large-cap stocks generally continued to outperform mid and
small-cap issues. The Standard and Poor's 500 Index, a market capitalization
weighted index, increased +21.07% in price for the twelve months under review
while the Standard and Poor's 400 MidCap and 600 SmallCap Indexes had price
returns of +15.72% and -3.14%, respectively. More reflective of the general
market, the Value Line Composite Index, which covers approximately 1,700
equally-weighted issues, showed a price loss of -2.29%. For comparison purposes,
long term bonds, as represented by the Lehman Brothers U.S. Treasury Composite
Index, had a total return, interest and price change, of +2.95%.
Looking ahead, we see continued market volatility as well as wide performance
divergence between individual stocks and stock groups. While large-cap stocks
should continue to play a key role in investment portfolios, we would expect
mid-cap and small-cap issues to reflect a higher level of market interest as
investors look for less exploited investment opportunities. We believe the long
term outlook for equity investments continues to be strong, helped by a
developing demographic trend that favors increased investment savings as a large
portion of the population prepares for retirement over the next 10 to 15 years
and the preeminent position of the United States in the world economy which we
expect to continue.
Please call or write if you have any questions concerning your Armstrong
investment.
Sincerely,
C.K. Lawson
August 6, 1999
