<PAGE> 1
[C.R. LOGO]
INVESTMENT ADVISER
Arnold Investment Counsel
Incorporated
First Financial Centre
700 North Water Street
Milwaukee, Wisconsin 53202
(800) 443-6544
OFFICERS
Lilli Gust, President
David R. Aushwitz, Senior Vice President
James R. Arnold, Jr., Secretary-Treasurer
Barry S. Arnold, Assistant Secretary
Daniel M. Hanrahan, Assistant Treasurer
DIRECTORS
David R. Aushwitz
Joseph L. Cook
Lilli Gust
CUSTODIAN, TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Firstar Trust Company
615 East Michigan Street
Milwaukee, Wisconsin 53202
(800) 338-1579
INDEPENDENT AUDITORS
Ernst & Young LLP
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
[C.R. LOGO]
ANNUAL REPORT
[C.R. LOGO]
THE PRIMARY
TREND FUND
THE PRIMARY
INCOME FUND
THE PRIMARY U.S.
GOVERNMENT FUND
MILWAUKEE, WISCONSIN
JUNE 30, 1995
<PAGE> 2
MESSAGE TO SHAREHOLDERS . . .
--------------------------------------------------------------------------------
The Primary Trend Funds completed fiscal 1995 (June 30) on a strong note.
With a favorable backdrop of declining interest rates, strong corporate profit
growth, benign inflation and elevated investor skepticism, the stock market as
measured by most major indices recorded in 1995 a series of all-time highs. Bond
investors were also greeted with the "bull" reversing the stunning declines
experienced in 1994.
Specifically, The Primary Trend Funds generated the following returns for
each period ended June 30, 1995:
<TABLE>
<CAPTION>
2ND QUARTER 1995 1ST HALF 1995 FISCAL YEAR
---------------- ------------- -----------
<S> <C> <C> <C>
The Primary Trend Fund....................... +8.13% +14.37% +17.03%
The Primary Income Fund...................... +5.04% +12.39% +14.84%
The Primary U.S. Government Fund............. +4.49% + 9.23% +10.21%
</TABLE>
THE PRIMARY TREND FUND'S net asset value, like the market averages, made a
series of all-time highs. For the six months ended June 30, results were
propelled by 20+% gains in Sallie Mae (+44.2%), AMR (+40.1%), Sundstrand
(+31.3%), IBM (+30.6%), Eastman Kodak (+27.0%), Global Natural Resources
(+26.5%) and Georgia-Pacific (+21.0%). The Primary Trend Fund underperformed the
Standard & Poor's 500 in fiscal 1995 due to the following: underweightings in
technology and financial issues; mediocre, albeit positive, performance by the
Fund's energy component; and absolute price declines in Bethlehem Steel,
USX-U.S. Steel and Data General. However, underperforming the Standard & Poor's
500 was not unique to The Primary Trend Fund -- it is estimated that only 6% of
general equity funds were able to outperform that benchmark for the six months
ended June 30, 1995.
THE PRIMARY INCOME FUND benefited from the decline in interest rates as the
Fund's rate-sensitive bond and utility components recovered. In addition, common
stock holdings of Sallie Mae, Sundstrand, IBM, Eastman Kodak and Occidental
Petroleum (+18.8%) boosted performance, as did the AMR convertible bond
(+33.0%).
THE PRIMARY U.S. GOVERNMENT FUND experienced the majority of its fiscal
1995 return in the six months ended June 30, 1995 (+9.23%). This highlights the
magnitude of the bond rally (interest rate decline) in 1995. Volatility has been
a characteristic of bond prices in 1994 and 1995. Our view for the balance of
1995 is for fixed income investors to be treated to a period of relative
tranquility with a bias for somewhat higher interest rates.
For the remainder of 1995, both the stock and bond markets will be
hard-pressed to match the superb first-half performances. While stock market
"internals" indicate a very powerful bull market exists, levels of valuation
(P/Es, yield and book value relationships) are at historically expensive levels,
implying fewer and fewer bargains . . . and a plurality of stock market
prognosticators are claiming that a Dow 5000 is a fait accompli. When market
consolidations and corrections occur, opportunities will be seized to position
the portfolio for long-term growth.
While generally pleased with investment results achieved in fiscal 1995, we
are diligently striving to enhance our long-term record. This, of course, means
enhancing shareholder capital in rising markets and preserving the same in down
markets. Importantly, that goal encompasses managing risk while striving for
above-average investment results. That is the challenge to the staff of Arnold
Investment Counsel and The Primary Trend Funds and our commitment to
shareholders as we enter another fiscal year.
Sincerely,
[SIG]
David R. Aushwitz
President
ARNOLD INVESTMENT COUNSEL, INC.
1
<PAGE> 3
PORTFOLIO OF INVESTMENTS
June 30, 1995
--------------------------------------------------------------------------------
THE PRIMARY TREND FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
---------- ----------- -----------
<S> <C> <C> <C>
COMMON STOCKS 90.7%
4,000 American International Group, Inc. (Insurance).............. $ 417,500 $ 456,000
10,000 Amoco Corporation (Oil and gas)............................. 543,250 666,250
12,000 AMR Corporation* (Airline).................................. 683,045 895,500
60,000 Bethlehem Steel Corp.* (Steel).............................. 929,466 975,000
10,000 Caterpillar Inc. (Construction machinery)................... 211,475 642,500
16,000 Chevron Corporation (Oil and gas)........................... 716,000 746,000
5,000 The Chubb Corporation (Insurance)........................... 401,525 400,625
15,000 CINergy Corp. (Electric utility)............................ 303,592 393,750
70,000 Data General Corporation* (Computer systems)................ 630,255 673,750
35,000 Dresser Industries, Inc. (Energy services).................. 809,400 778,750
10,000 Eastman Kodak Company (Photographic equipment).............. 398,415 606,250
10,000 General Motors Corporation (Automobiles and trucks)......... 397,540 468,750
10,000 Georgia-Pacific Corporation (Paper and forest products)..... 718,750 867,500
130,000 Global Natural Resources, Inc.* (Oil and gas)............... 1,087,300 1,397,500
10,000 International Business Machines Corp. (Computer systems).... 528,875 960,000
45,000 Juno Lighting, Inc. (Commercial and residential lighting)... 782,813 720,000
15,000 Media General, Inc. (Class A) (Newspapers and television)... 363,600 468,750
16,000 Melville Corporation (Retail stores)........................ 610,987 548,000
20,000 Newmont Mining Corporation (Gold mining).................... 770,588 837,500
35,000 Occidental Petroleum Corporation (Oil and gas).............. 642,655 800,625
10,000 Pacific Enterprises (Natural gas utility)................... 229,365 245,000
15,000 Parker Hannifin Corporation (Industrial and aerospace)...... 401,406 543,750
5,000 J.C. Penney Company, Inc. (Retail stores)................... 217,800 240,000
25,000 Pennzoil Company (Oil and gas).............................. 1,489,275 1,178,125
17,000 Student Loan Marketing Association
("Sallie Mae") (Financial services)......................... 750,621 796,875
17,000 Sundstrand Corporation (Aerospace and industrial)........... 723,429 1,015,750
30,000 USX-U.S. Steel Group (Steel)................................ 1,043,995 1,031,250
----------- -----------
Total Common Stocks..................................... 16,802,922 19,353,750
----------- -----------
PREFERRED STOCKS 5.2%
20,000 Battle Mountain Gold Corp. $3.25 Convertible Preferred...... 1,171,714 1,105,000
</TABLE>
(continued)
2
<PAGE> 4
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1995
--------------------------------------------------------------------------------
THE PRIMARY TREND FUND (continued)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
---------- ----------- -----------
<S> <C> <C> <C>
BONDS 1.7%
$400,000 Data General Corporation convertible subordinated debenture,
7.75%, due 6/1/01.......................................... $ 336,309 $ 362,000
SHORT-TERM INVESTMENTS 2.4%
346,526 Pitney Bowes Credit Corp. variable rate demand note,
5.73%...................................................... 346,526 346,526
175,556 Wisconsin Electric Power Co. variable rate demand note,
5.77%...................................................... 175,556 175,556
----------- -----------
Total Short-Term Investments............................. 522,082 522,082
----------- -----------
TOTAL INVESTMENTS 100.0%.............................. $18,833,027 21,342,832
============
Other Assets, less Liabilities 0.0%................... 64
-----------
Net Assets (Equivalent to $12.10 per share based on
1,763,846 shares outstanding)........................100.0% $21,342,896
============
*Non-income producing security.
</TABLE>
See notes to financial statements.
3
<PAGE> 5
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1995
--------------------------------------------------------------------------------
THE PRIMARY INCOME FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
--------- ---------- ----------
<S> <C> <C> <C>
COMMON STOCKS 77.7%
2,500 American Brands, Inc. (Consumer products)................... $ 87,538 $ 99,375
700 American International Group, Inc. (Insurance).............. 73,237 79,800
2,500 Ameritech Corporation (Telephone utility)................... 103,838 110,000
1,500 Amoco Corporation (Oil and gas)............................. 83,580 99,938
2,000 Chevron Corporation (Oil and gas)........................... 89,500 93,250
1,000 The Chubb Corporation (Insurance)........................... 80,375 80,125
5,115 CINergy Corp. (Electric utility)............................ 101,150 134,269
2,000 Dominion Resources, Inc. (Electric utility)................. 67,265 73,000
3,000 DPL, Inc. (Electric and gas utility)........................ 45,124 66,375
2,000 Eastman Kodak Company (Photographic equipment).............. 74,465 121,250
2,500 General Motors Corporation (Automobiles and trucks)......... 98,187 117,187
3,500 GTE Corporation (Telephone utility)......................... 108,092 119,438
6,500 Hanson PLC (British conglomerate)........................... 118,492 114,562
1,000 International Business Machines Corp. (Computer systems).... 47,315 96,000
8,000 Juno Lighting, Inc. (Commercial and residential lighting)... 139,225 128,000
3,500 Media General, Inc. (Class A) (Newspapers and television)... 84,296 109,375
3,000 Melville Corporation (Retail stores)........................ 114,672 102,750
2,000 Northern States Power Company (Electric utility)............ 74,513 92,250
3,000 NYNEX Corporation (Telephone utility)....................... 107,325 120,750
6,500 Occidental Petroleum Corp. (Oil and gas).................... 124,233 148,688
7,000 Pacific Enterprises (Natural gas utility)................... 161,395 171,500
3,000 J.C. Penney Company, Inc. (Retail stores)................... 130,610 144,000
4,000 Pennzoil Company (Oil and gas).............................. 221,200 188,500
1,000 Royal Dutch Petroleum Co., NV (Oil and gas)................. 84,625 121,875
2,000 Student Loan Marketing Association
("Sallie Mae") (Financial services)......................... 88,110 93,750
3,000 Sundstrand Corporation (Aerospace and industrial)........... 135,530 179,250
2,000 Texas Utilities Corp. (Electric utility).................... 64,175 68,750
3,500 USX-U.S. Steel Group (Steel)................................ 124,355 120,312
3,000 Wisconsin Energy Corporation (Electric and gas utility)..... 73,280 84,000
---------- ----------
Total Common Stocks......................................... 2,905,702 3,278,319
---------- ----------
PREFERRED STOCKS 6.7%
3,000 Battle Mountain Gold Corp. $3.25 convertible preferred...... 170,353 165,750
2,500 WHX Corporation $3.25 convertible preferred................. 146,075 115,000
---------- ----------
Total Preferred Stocks...................................... 316,428 280,750
---------- ----------
</TABLE>
(continued)
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1995
--------------------------------------------------------------------------------
THE PRIMARY INCOME FUND (continued)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
--------- ---------- ----------
<S> <C> <C> <C>
BONDS AND NOTES 10.1%
CONVERTIBLE DEBENTURES
$ 125,000 Data General Corporation convertible subordinated debenture,
7.75%, due 6/1/01........................................... $ 118,384 $ 113,125
150,000 AMR Corporation convertible debenture, 6.125%, due
11/1/24..................................................... 121,116 155,250
---------- ----------
Total Convertible Debentures................................ 239,500 268,375
---------- ----------
CORPORATE OBLIGATIONS
100,000 Wisconsin Gas Company note, 7.50%, due 11/15/98............. 99,916 103,875
50,000 Philip Morris Companies Inc. note, 9.00%, due 1/1/01........ 49,856 55,375
---------- ----------
Total Corporate Obligations................................. 149,772 159,250
---------- ----------
Total Bonds and Notes....................................... 389,272 427,625
---------- ----------
SHORT-TERM INVESTMENTS 5.3%
68,244 Pitney Bowes Credit Corp. variable rate demand note,
5.73%....................................................... 68,244 68,244
156,162 Wisconsin Electric Power Co. variable rate
demand note, 5.77%.......................................... 156,162 156,162
---------- ----------
Total Short-Term Investments................................ 224,406 224,406
---------- ----------
TOTAL INVESTMENTS 99.8%................................. $3,835,808 4,211,100
==========
Other Assets, less Liabilities 0.2%..................... 10,346
----------
NET ASSETS (Equivalent to $12.07 per share based on
349,717 shares outstanding)...........................100.0% $4,221,446
==========
Note to Portfolio of Investments - As permitted by the Fund's investment policies, the
Fund has invested $1,300,369 (31% of its net assets) in securities issued by utilities.
</TABLE>
See notes to financial statements.
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1995
--------------------------------------------------------------------------------
THE PRIMARY U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
--------- ----------- -----------
<C> <S> <C> <C>
U.S. GOVERNMENT NOTES 76.5%
U.S. TREASURY NOTES
$ 200,000 U.S. Treasury note, 5.375%, due 5/31/98.................. $ 199,959 $ 197,268
200,000 U.S. Treasury note, 6.375%, due 7/15/99.................. 202,688 202,788
----------- -----------
Total U.S. Treasury Notes............................. 402,647 400,056
----------- -----------
U.S. GOVERNMENT AGENCY NOTES
200,000 Federal National Mortgage Association note, 7.65%, due
4/29/04................................................. 198,929 203,682
200,000 Federal National Mortgage Association note, 8.625%, due
11/10/04................................................ 199,969 215,316
100,000 Federal National Mortgage Association note, 8.50%, due
2/1/05.................................................. 99,531 107,443
100,000 Federal Home Loan Mortgage Corporation note, 8.15%, due
3/2/05.................................................. 100,000 102,600
----------- -----------
Total U.S. Government Agency Notes.................... 598,429 629,041
----------- -----------
Total U.S. Government Notes........................... 1,001,076 1,029,097
----------- -----------
CORPORATE BONDS 7.4%
100,000 Georgia Power Co. first mortgage bond, 6.125%, due
9/1/99.................................................. 99,285 99,000
----------- -----------
Total Long-Term Investments........................... 1,100,361 1,128,097
----------- -----------
SHORT-TERM INVESTMENTS 14.7%
1,496 Pitney Bowes Credit Corp. variable rate
demand note, 5.73%...................................... 1,496 1,496
47,140 Wisconsin Electric Power Co. variable rate demand note,
5.77%................................................... 47,140 47,140
150,000 U.S. Treasury note, 5.125%, due 3/31/96.................. 150,000 149,344
----------- -----------
Total Short-Term Investments.......................... 198,636 197,980
----------- -----------
TOTAL INVESTMENTS 98.6%.............................. $ 1,298,997 1,326,077
============
Other Assets, less Liabilities 1.4%.................. 19,241
-----------
NET ASSETS (Equivalent to $10.09 per share
based on 133,397 shares outstanding)..............100.0% $ 1,345,318
============
</TABLE>
See notes to financial statements.
6
<PAGE> 8
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
----------- ----------- ---------------
<S> <C> <C> <C>
Assets:
Investments, at Value (Note 2a):
Common Stocks........................................ $19,353,750 $ 3,278,319 $ --
Preferred Stocks..................................... 1,105,000 280,750 --
Bonds and Notes...................................... 362,000 427,625 1,128,097
Short-Term Investments............................... 522,082 224,406 197,980
----------- ----------- -------------
Total Investments (Cost - $18,833,027;
$3,835,808 and $1,298,997, respectively)...... 21,342,832 4,211,100 1,326,077
Receivable from Brokers for Securities Sold........... -- 4,230 --
Dividends Receivable.................................. 17,600 13,257 --
Interest Receivable................................... 6,567 6,974 22,553
Cash.................................................. (5,093) 180 50
----------- ----------- -------------
Total Assets.................................... 21,361,906 4,235,741 1,348,680
----------- ----------- -------------
Liabilities:
Accrued Investment Advisory Fees (Note 3)............. 13,051 12,803 2,425
Other................................................. 5,959 1,492 937
----------- ----------- -------------
Total Liabilities............................... 19,010 14,295 3,362
----------- ----------- -------------
Net Assets.............................................. $21,342,896 $ 4,221,446 $ 1,345,318
=========== ========== =============
Net Assets Per Share (Based on 1,763,846; 349,717 and
133,397 shares outstanding, respectively).............. $ 12.10 $ 12.07 $ 10.09
=========== ========== =============
</TABLE>
See notes to financial statements.
7
<PAGE> 9
STATEMENTS OF OPERATIONS
For the year ended June 30, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
----------- ----------- ---------------
<S> <C> <C> <C>
Income (Note 2b):
Interest.............................................. $ 145,010 $ 47,508 $ 86,702
Dividends............................................. 504,006 155,699 --
----------- ---------- ------------
Total Income.......................................... 649,016 203,207 86,702
----------- ---------- ------------
Expenses:
Investment Advisory Fees (Note 3)..................... 153,886 28,945 8,535
Shareholder Servicing Costs........................... 31,718 8,567 7,552
Professional Fees..................................... 19,332 9,622 9,622
Registration Fees..................................... 11,809 4,992 4,515
Fund Accounting....................................... 10,432 3,090 1,440
Custodial Fees........................................ 9,178 2,303 718
Postage............................................... 6,928 378 130
Printing.............................................. 5,058 1,907 715
Insurance............................................. 5,004 983 464
Amortization of Deferred Organization Costs (Note
4)................................................. -- 941 941
Other................................................. 4,249 967 456
----------- ---------- ------------
Total Expenses Before Reimbursement................... 257,594 62,695 35,088
Less Expenses Reimbursed By Adviser (Note 3).......... -- (29,838) (25,240)
----------- ---------- ------------
Net Expenses.......................................... 257,594 32,857 9,848
----------- ---------- ------------
Net Investment Income................................... 391,422 170,350 76,854
----------- ---------- ------------
Net Realized Gain (Loss) on Investments................. 469,577 26,780 (40,179)
Net Increase in Unrealized Appreciation of
Investments........................................... 2,432,859 345,169 89,228
----------- ---------- ------------
Net Realized and Unrealized Gain on Investments......... 2,902,436 371,949 49,049
----------- ---------- ------------
Net Increase in Net Assets From Operations.............. $ 3,293,858 $ 542,299 $ 125,903
========== ========== ============
</TABLE>
See notes to financial statements.
8
<PAGE> 10
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended June 30, 1995 and 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE PRIMARY THE PRIMARY THE PRIMARY
TREND FUND INCOME FUND U.S. GOVERNMENT FUND
-------------------------- ------------------------ ------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income.................. $ 391,422 $ 451,167 $ 170,350 $ 140,914 $ 76,854 $ 67,342
Net Realized Gain (Loss) on
Investments.......................... 469,577 700,191 26,780 27,921 (40,179) 24,136
Net Increase (Decrease) in Unrealized
Appreciation of Investments.......... 2,432,859 (1,190,164) 345,169 (228,082) 89,228 (114,296)
----------- ----------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Assets
from Operations...................... 3,293,858 (38,806) 542,299 (59,247) 125,903 (22,818)
----------- ----------- ---------- ---------- ---------- ----------
Distributions to Shareholders:
From Net Investment Income............. (484,085) (170,348) (170,350) (140,914) (76,854) (67,342)
From Net Realized Gains................ (759,138) (285,802) (22,919) (25,808) (4,822) (25,890)
----------- ----------- ---------- ---------- ---------- ----------
Decrease in Net Assets from
Distributions........................ (1,243,223) (456,150) (193,269) (166,722) (81,676) (93,232)
----------- ----------- ---------- ---------- ---------- ----------
Fund Share Transactions (Note 6):
Proceeds from Shares Sold.............. 875,183 835,820 516,700 1,265,455 101,005 199,465
Reinvested Distributions............... 1,188,082 432,198 186,355 159,874 74,918 86,158
Cost of Shares Redeemed................ (3,643,525) (4,866,618) (507,284) (323,114) (170,229) (227,750)
----------- ----------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Assets
from Fund Share Transactions......... (1,580,260) (3,598,600) 195,771 1,102,215 5,694 57,873
----------- ----------- ---------- ---------- ---------- ----------
Total Increase (Decrease) in
Net Assets............................. 470,375 (4,093,556) 544,801 876,246 49,921 (58,177)
Net Assets:
Beginning of Year...................... 20,872,521 24,966,077 3,676,645 2,800,399 1,295,397 1,353,574
----------- ----------- ---------- ---------- ---------- ----------
End of Year............................ $21,342,896 $20,872,521 $4,221,446 $3,676,645 $1,345,318 $1,295,397
=========== =========== ========== ========== ========== ==========
Net Assets Consist of:
Capital Stock (30,000,000 shares
authorized each)..................... $18,306,581 $19,886,841 $3,819,374 $3,623,602 $1,358,417 $1,352,724
Net Unrealized Appreciation
(Depreciation) of Investments........ 2,509,804 76,945 375,292 30,123 27,080 (62,149)
Undistributed Net Investment Income.... 411,603 504,266 -- -- -- --
Undistributed Net Realized Gains
(Accumulated Losses)................. 114,908 404,469 26,780 22,920 (40,179) 4,822
----------- ----------- ---------- ---------- ---------- ----------
Net Assets............................... $21,342,896 $20,872,521 $4,221,446 $3,676,645 $1,345,318 $1,295,397
=========== =========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
9
<PAGE> 11
FINANCIAL HIGHLIGHTS
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for each of the periods ended June 30
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
THE PRIMARY TREND FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year...................................... $ 10.98 $ 11.22 $ 11.50 $ 11.41 $ 11.60
------- ------- ------- ------- -------
Net Investment Income................................................... 0.23 0.25 0.22 0.29 0.45
Net Realized and Unrealized Gain (Loss) on Investments.................. 1.55 (0.28) 0.64 0.51 0.60
------- ------- ------- ------- -------
Total from Investment Operations........................................ 1.78 (0.03) 0.86 0.80 1.05
------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income............................................ (0.26) (0.08) (0.28) (0.36) (0.68)
From Net Realized Gains............................................... (0.40) (0.13) (0.86) (0.35) (0.56)
------- ------- ------- ------- -------
Total Distributions................................................... (0.66) (0.21) (1.14) (0.71) (1.24)
------- ------- ------- ------- -------
Net Increase (Decrease)................................................. 1.12 (0.24) (0.28) 0.09 (0.19)
------- ------- ------- ------- -------
Net Asset Value, End of Year............................................ $ 12.10 $ 10.98 $ 11.22 $ 11.50 $ 11.41
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN................................................. +17.0% -0.3% +8.2% +7.3% +10.7%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands)................................ $21,343 $20,873 $24,966 $31,680 $33,083
Ratio of Expenses to Average Net Assets............................... 1.24% 1.27% 1.20% 1.10% 1.20%
Ratio of Net Investment Income to Average Net Assets.................. 1.88% 1.91% 1.90% 2.50% 4.70%
Portfolio Turnover.................................................... 37.1% 77.2% 40.0% 65.5% 77.4%
THE PRIMARY INCOME FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year...................................... $ 11.04 $ 11.68 $ 11.02 $ 10.00 $ 9.82
------- ------- ------- ------- -------
Net Investment Income................................................... 0.50 0.49 0.51 0.61 0.69
Net Realized and Unrealized Gain (Loss) on Investments.................. 1.10 (0.54) 0.84 1.02 0.18
------- ------- ------- ------- -------
Total from Investment Operations........................................ 1.60 (0.05) 1.35 1.63 0.87
------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income............................................ (0.50) (0.49) (0.51) (0.61) (0.69)
From Net Realized Gains............................................... (0.07) (0.10) (0.18) -- --
------- ------- ------- ------- -------
Total Distributions................................................... (0.57) (0.59) (0.69) (0.61) (0.69)
------- ------- ------- ------- -------
Net Increase (Decrease)................................................. 1.03 (0.64) 0.66 1.02 0.18
------- ------- ------- ------- -------
Net Asset Value, End of Year............................................ $ 12.07 $ 11.04 $ 11.68 $ 11.02 $ 10.00
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN................................................. +14.8% -0.6% +12.7% +16.6% +9.2%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands)................................ $ 4,221 $ 3,677 $ 2,800 $ 2,447 $ 1,203
Ratio of Expenses to Average Net Assets............................... 0.84% 0.84% 0.84% 0.84% 0.84%
Ratio of Net Investment Income to Average Net Assets.................. 4.35% 4.20% 4.50% 5.53% 6.84%
Ratio of Expenses Reimbursed to Average Net Assets.................... 0.76% 1.19% 1.55% 1.68% 3.35%
Portfolio Turnover.................................................... 40.9% 39.7% 43.8% 24.20% 32.50%
</TABLE>
(continued)
10
<PAGE> 12
FINANCIAL HIGHLIGHTS (continued)
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for each of the periods ended June 30
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
THE PRIMARY U.S. GOVERNMENT FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year...................................... $ 9.74 $ 10.60 $ 10.43 $ 10.07 $ 9.99
------- ------- ------- ------- -------
Net Investment Income................................................... 0.57 0.51 0.56 0.69 0.74
Net Realized and Unrealized Gain (Loss) on Investments.................. 0.38 (0.67) 0.35 0.49 0.08
------- ------- ------- ------- -------
Total from Investment Operations........................................ 0.95 (0.16) 0.91 1.18 0.82
------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income............................................ (0.57) (0.51) (0.56) (0.69) (0.74)
From Net Realized Gains............................................... (0.03) (0.19) (0.18) (0.13) --
------- ------- ------- ------- -------
Total Distributions................................................... (0.60) (0.70) (0.74) (0.82) (0.74)
------- ------- ------- ------- -------
Net Increase (Decrease)................................................. 0.35 (0.86) 0.17 0.36 0.08
------- ------- ------- ------- -------
Net Asset Value, End of Year............................................ $ 10.09 $ 9.74 $ 10.60 $ 10.43 $ 10.07
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN................................................. +10.2% -1.7% +9.1% +12.0% +8.5%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands)................................ $ 1,345 $ 1,295 $ 1,354 $ 1,156 $ 898
Ratio of Expenses to Average Net Assets............................... 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of Net Investment Income to Average Net Assets.................. 5.85% 4.91% 5.29% 6.43% 7.24%
Ratio of Expenses Reimbursed to Average Net Assets.................... 1.92% 2.44% 2.75% 2.87% 4.29%
Portfolio Turnover.................................................... 63.0% 94.4% 64.5% 108.5% 66.4%
</TABLE>
See notes to financial statements.
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. ORGANIZATION
The Primary Trend Fund, Inc. ("Trend Fund") began operations on September 15,
1986. The Primary Income Funds, Inc. ("Income Funds") began operations on
September 1, 1989. The Trend Fund and the Income Funds, collectively, the
"Funds", are registered under the Investment Company Act of 1940 as open-end
investment management companies. The Income Funds is a "series" fund which
consists of two portfolios: The Primary Income Fund ("Income Fund") and The
Primary U.S. Government Fund ("Government Fund").
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds.
a. Each security, excluding securities with sixty days or less remaining to
maturity, is valued at the last sale price, or if no sale is reported, the
average of the latest bid and asked prices. Other securities for which
market quotations are not readily available are valued under procedures
approved by the Boards of Directors. Securities with sixty days or less
remaining to maturity are valued at amortized cost, which approximates
market value.
b. Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded as earned,
and includes amortization of premiums and discounts. Securities gains and
losses are determined on the basis of identified cost, which is the same
basis used for federal income tax purposes.
c. No provision for federal income taxes has been made since the Funds have
elected to be taxed as regulated investment companies and intend to
distribute their net investment income and net realized gains to
shareholders and otherwise comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies.
3. INVESTMENT ADVISORY FEES AND MANAGEMENT AGREEMENTS
The Funds have agreements with Arnold Investment Counsel, Inc. (the
"Adviser"), with whom certain officers and directors of the Funds are
affiliated, to serve as investment adviser. Under the terms of the
agreements, the Adviser receives from both the Trend Fund and the Income Fund
a monthly fee at an annual rate of 0.74% of their respective average daily
net assets; and from the Government Fund a monthly fee at an annual rate of
0.65% of its average daily net assets. The agreements further stipulate that
the Adviser will reimburse the Funds for annual expenses exceeding certain
specified levels. In addition to the reimbursements required under the
agreements, the Adviser has voluntarily reimbursed the Income Fund and the
Government Fund for additional expenses incurred during the year ended June
30, 1995. As of June 30, 1995, the Adviser was reimbursing the Income Fund
for all expenses exceeding 0.84% of its average daily net assets; and the
Government Fund for all expenses exceeding 0.75% of its average daily net
assets. These additional voluntary reimbursements to the Funds may be
modified or discontinued at any time by the Adviser. The Adviser was not
required to reimburse the Trend Fund for the year ended June 30, 1995. The
Trend Fund paid total directors fees of $500 to its
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
outside director and the Income Funds paid total directors fees of $500 to
its outside director during the year ended June 30, 1995.
4. ORGANIZATION COSTS
Organization costs of $28,231 and $28,230 for the Income Fund and the
Government Fund, respectively, were deferred and have been amortized on a
straight-line basis over five years.
5. PURCHASES AND SALES OF SECURITIES
For the year ended June 30, 1995, total purchases and proceeds from sales of
securities, other than short-term investments, for the Trend Fund were
$7,607,987 and $7,312,526, respectively; for the Income Fund, $1,667,451 and
$1,531,269, respectively; and for the Government Fund, $794,439 and $756,366,
respectively.
6. FUND SHARE TRANSACTIONS
Transactions in shares of the Funds were as follows:
<TABLE>
<CAPTION>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
---------------------------- ---------------------------- ----------------------------
1995 1994 1995 1994 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales..................... 79,010 74,563 45,106 107,259 10,347 19,194
Reinvested
Distributions........... 110,217 38,988 16,290 13,715 7,678 8,334
Redemptions............... (326,696) (437,017) (44,579) (27,855) (17,637) (22,247)
------------ ------------ ------------ ------------ ------------ ------------
Net Increase (Decrease)... (137,469) (323,466) 16,817 93,119 388 5,281
============= ============= ============= ============= ============= =============
</TABLE>
13
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
The Board of Directors and Shareholders,
The Primary Trend Fund, Inc. and The Primary Income Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of The Primary Trend Fund, Inc. and The
Primary Income Funds, Inc. (comprised of The Primary Income Fund and The Primary
U.S. Government Fund) as of June 30, 1995, and the related statements of
operations for the year then ended and changes in 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. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
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 financial
highlights 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, 1995, by correspondence with the custodian and brokers. 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 financial highlights referred
to above present fairly, in all material respects, the financial position of The
Primary Trend Fund, Inc. and The Primary Income Funds, Inc. at June 30, 1995,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and their
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
Milwaukee, Wisconsin [SIG]
July 19, 1995
14
<PAGE> 16
FUND PERFORMANCE COMPARISON
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MEASUREMENT PERIOD PRIMARY TREND S&P 500
(FISCAL YEAR COVERED) FUND COMPOSITE
<S> <C> <C>
9/30/86 10000.0 10000.0
9980.0 10577.0
10058.8 10834.0
9940.2 10562.1
10524.6 11976.4
10673.0 12448.2
11009.2 12806.7
10930.0 12692.8
11207.6 12803.2
6/30/87 11504.6 13449.7
11930.3 14131.6
11865.8 14658.8
11774.5 14337.7
10288.5 11250.8
9974.72 10323.7
10301.9 11109.4
10980.8 11592.6
11536.4 12110.8
11607.9 11740.2
11823.9 11889.3
11741.1 11965.4
6/30/88 12152.0 12521.8
11988.0 12491.8
11502.5 12047.1
11815.3 12563.9
11912.2 12928.2
11837.2 12722.7
12194.6 12947.9
13066.6 13894.4
12870.6 13548.4
12958.1 13864.1
13503.6 14583.6
13677.8 15174.2
6/30/89 13471.3 15095.3
14233.8 16472.0
14258.0 16771.8
13729.0 16708.1
13200.4 16332.2
13166.1 16647.4
13280.6 17050.2
12857.0 15923.2
13132.1 16088.8
13338.3 16526.4
12754.1 16129.8
13372.7 17660.5
6/30/90 13281.7 17556.3
13075.9 17514.2
12590.7 15916.9
12215.5 15152.9
12240.0 15101.4
12941.3 16076.9
13052.6 16525.5
13851.4 17244.3
14508.0 18477.3
14804.0 18924.4
15023.1 18969.9
15267.9 19787.5
6/30/91 14701.5 18881.2
15088.1 19761.1
15595.1 20229.4
15501.5 19891.6
15568.2 20158.1
14912.8 19345.7
15603.2 21558.9
15451.9 21157.9
15629.6 21430.8
15506.1 21012.9
15780.6 21628.6
15999.9 21734.6
6/30/92 15766.3 21410.7
16286.6 22284.3
15710.1 21827.5
16033.7 22085.0
15650.5 22160.1
15900.9 22913.6
15635.3 23195.4
15863.6 23390.2
16304.6 23708.4
16593.2 24208.6
16699.4 23622.7
16988.3 24253.5
6/30/93 17049.5 24323.8
16988.1 24226.5
17312.6 25144.7
17265.8 24951.1
17419.5 25467.6
17111.2 25225.6
17419.2 25530.9
17913.9 26398.9
17526.9 25683.5
16908.2 24563.7
17001.2 24878.1
17388.9 25286.1
6/30/94 17001.1 24666.6
17574.0 25475.7
18254.1 26520.2
17914.6 25870.4
18043.6 26452.5
17363.3 25489.6
17396.3 25866.9
17133.7 26536.8
17562.0 27558.5
18401.5 28371.5
19043.7 29205.6
19685.4 30373.8
6/30/95 19900.0 31078.5
</TABLE>
<TABLE>
<CAPTION>
MEASUREMENT PERIOD PRIMARY IN- S&P 500 S&P UTILITIES
(FISCAL YEAR COVERED) COME FUND COMPOSITE INDEX
<S> <C> <C> <C>
9/1/89 10051.0 9962.0 10374.0
10240.0 9737.9 10311.8
10350.6 9925.8 10494.3
10474.8 10166.0 11211.0
10174.1 9494.0 10255.9
10240.3 9592.8 10143.0
10227.0 9853.7 10283.0
10021.4 9617.2 9836.7
10317.0 10529.9 10505.6
6/30/90 10421.2 10467.8 10285.0
10453.5 10442.6 10254.2
10059.4 9490.3 9444.1
9915.6 9034.7 9781.2
10329.1 9004.0 10514.8
10657.5 9585.7 10819.8
10869.6 9853.1 11036.2
10916.4 10281.7 10705.1
11242.8 11016.9 11025.1
11467.6 11283.5 11189.4
11608.7 11310.6 10999.2
11728.2 11798.0 10845.2
6/30/91 11377.6 11257.7 10693.4
11852.0 11782.3 11024.9
12296.4 12061.5 11311.5
12590.3 11860.1 11537.8
12709.9 12019.0 11768.5
12586.7 11534.7 11662.6
13205.9 12854.2 12514.0
12803.1 12615.1 11925.8
12812.1 12777.9 11508.4
12617.4 12528.7 11347.3
13176.3 12895.8 12084.9
13414.8 12959.0 12072.8
6/30/92 13263.2 12765.9 12241.8
13795.1 13286.7 13221.1
13693.0 13014.4 13115.4
13753.2 13167.9 13207.2
13383.3 13212.7 13088.3
13420.7 13661.9 13062.1
13508.0 13830.0 13532.4
13780.8 13946.2 13748.9
14272.8 14135.8 14738.8
14632.5 14434.1 15004.1
14591.5 14084.8 14689.0
14803.1 14460.8 14674.3
6/30/93 14951.1 14502.8 15349.3
15197.8 14444.8 15702.4
15735.8 14992.2 16456.1
15671.3 14876.8 16423.2
15710.5 15184.7 16390.3
15432.4 15040.5 15570.8
15591.4 15222.5 15493.0
16015.4 15740.0 15585.9
15523.8 15313.5 14713.1
14985.1 14645.8 14212.9
14982.1 14833.3 14568.2
15115.4 15076.5 14174.8
6/30/94 14864.5 14707.2 14203.2
15329.8 15189.6 14686.1
15690.0 15812.3 14642.0
15512.7 15424.9 14276.0
15678.7 15772.0 14390.2
15153.5 15197.9 14188.7
15189.9 15422.8 14273.9
15437.4 15822.3 15387.2
15761.6 16431.4 15356.5
16251.8 16916.2 15259.7
16630.5 17413.5 15830.4
17146.0 18110.0 16322.8
6/30/95 17070.6 18530.2 16392.9
</TABLE>
<TABLE>
<CAPTION>
PRIMARY US LEHMAN INTER-
MEASUREMENT PERIOD GOVERNMENT MEDIATE TREA-
(FISCAL YEAR COVERED) FUND SURY COMPOSITE
<S> <C> <C>
9/1/89 10026.0 10046.0
10200.5 10259.0
10313.7 10358.5
10336.4 10388.5
10266.1 10321.0
10282.5 10357.1
10276.3 10368.5
10122.2 10332.2
10442.1 10553.3
6/30/90 10623.7 10691.6
10723.6 10840.2
10471.6 10800.1
10581.6 10896.2
10758.3 11049.9
11011.1 11214.5
11190.6 11370.4
11305.8 11487.5
11365.8 11553.0
11449.9 11615.4
11517.4 11735.0
11562.3 11799.5
6/30/88 11525.3 11809.0
11662.5 11937.7
11915.6 12163.3
12181.3 12371.3
12275.1 12512.3
12415.0 12658.7
12837.1 12973.9
12574.0 12844.2
12537.5 12884.0
12519.9 12831.2
12575.0 12946.7
12734.7 13139.6
6/30/92 12911.7 13330.1
13159.7 13590.0
13246.5 13731.4
13418.7 13925.0
13202.7 13753.7
13140.6 13694.6
13293.0 13874.0
13546.9 14134.8
13724.4 14345.4
13775.2 14397.1
13863.4 14510.8
13860.6 14468.7
6/30/93 14081.0 14681.4
14104.9 14709.3
14395.5 14931.4
14466.0 14992.6
14509.4 15028.6
14361.4 14953.5
14418.8 15014.8
14555.8 15163.4
14274.9 14951.1
14037.9 14734.3
13901.8 14640.0
13837.8 14650.3
6/30/94 13842.0 14653.2
14031.6 14843.7
14056.9 14886.8
13917.7 14764.7
13910.7 14769.1
13892.7 14701.2
13966.3 14749.7
14187.0 14988.6
14526.0 15274.9
14600.1 15358.9
14762.2 15478.7
15240.5 15974.0
6/30/95 15254.2 16076.3
</TABLE>
Past performance is not predictive of future performance. (You already know
that...but we are required to say it anyway.)
20
