<PAGE> 1
MESSAGE TO SHAREHOLDERS . . .
- --------------------------------------------------------------------------------
Aided by a backdrop of declining interest rates, subdued inflation, strong
(albeit declining) corporate profit growth and a continued presence of investor
disbelief, the stock market ended 1995 on a firm note. Most stock market indices
attained all-time highs in the second half of 1995 except the Dow Jones Utility
Average.
The Primary Trend Funds generated the following returns for the six months
ended December 31, 1995:
<TABLE>
<S> <C>
The Primary Trend Fund........................ +1.8%
The Primary Income Fund....................... +8.2%
The Primary U.S. Government Fund.............. +4.8%
</TABLE>
THE PRIMARY TREND FUND'S current portfolio diversification (with emphasis
on selected cyclicals, energy and gold mining), while well-positioned for 1996,
underachieved in the final six months of 1995. Lower interest rates caused by
the financial markets' late 1995 "recession watch" aided the Fund's holdings in
Student Loan Marketing Association (+40.8%), American International Group
(+21.7%) and Chubb (+20.7%). However, perceived economic weakness contributed to
declines in Battle Mountain Gold $3.25 convertible preferred, Georgia-Pacific,
Occidental Petroleum and USX-U.S. Steel.
THE PRIMARY INCOME FUND continued to benefit from the aforementioned
interest rate declines and its numerous utility holdings. In the latter
category, GTE Corporation (+28.6%), CINergy (+16.7%) and Pacific Enterprises
(+15.3%) were standout performers.
THE PRIMARY U.S. GOVERNMENT FUND built upon the solid gains achieved in the
first six months of calendar 1995 by appreciating another 4.8% for the final six
months of the year. It is conceivable that a further easing in short-term
interest rates will be engineered by the Federal Reserve Board in early 1996.
This would give additional life to a bond market that is searching for some good
news.
In the initial weeks of 1996, the Dow Jones Industrial Average has
continued to advance. Selected portfolio holdings in The Primary Trend and
Income Funds have sparkled, such as Newmont Mining (+24.2%), IBM (+14.6%),
Battle Mountain Gold $3.25 convertible preferred (+12.6%) and Student Loan
Marketing Association (+10.6%). The continuing benefits of the many financial
positives (low interest rates, a moderate growth economy, strong cash inflows to
the stock market via mutual funds) will be counterbalanced by uncertainties
created by the current budget talks, political clouds overhanging President
Clinton and the ever-present concern of a historically overvalued stock market.
For 1996, we envision seeing more "bearish footprints," but we believe the year
will continue to belong to the bulls.
The management of Arnold Investment Counsel, Inc. and The Primary Trend
Funds thank you for your continued support and patience. We will diligently
strive in aiding each and every shareholder to reach their individual investment
goals.
Sincerely,
LOGO
David R. Aushwitz
President
ARNOLD INVESTMENT COUNSEL, INC.
January 26, 1996
1
<PAGE> 2
PORTFOLIOS OF INVESTMENTS
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
THE PRIMARY TREND FUND
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
- --------- ----------- -----------
<S> <C> <C> <C>
COMMON STOCKS 84.7%
6,000 American International Group, Inc. (Insurance).............. $ 417,500 $ 555,000
10,000 Amoco Corporation (Oil and gas)............................. 543,250 718,750
12,000 Chevron Corporation (Oil and gas)........................... 537,000 630,000
5,000 The Chubb Corporation (Insurance)........................... 401,525 483,750
10,000 CINergy Corp. (Electric utility)............................ 202,395 306,250
35,000 Dresser Industries, Inc. (Energy services).................. 576,000 609,375
10,000 Eastman Kodak Company (Photographic equipment).............. 398,415 670,000
10,000 General Motors Corporation (Automobiles and trucks)......... 397,540 528,750
15,000 Georgia-Pacific Corporation (Paper and forest products)..... 1,090,437 1,029,375
125,000 Global Natural Resources, Inc.* (Oil and gas)............... 1,077,050 1,312,500
6,000 International Business Machines Corp. (Computer systems).... 344,655 550,500
45,000 Juno Lighting, Inc. (Commercial and residential lighting)... 782,813 720,000
25,000 Longview Fibre Company (Paper and forest products).......... 449,025 406,250
15,000 Media General, Inc. (Class A) (Newspapers and television)... 363,600 455,625
21,000 Melville Corporation (Retail stores)........................ 786,587 645,750
10,000 Newmont Mining Corporation (Gold mining).................... 375,015 452,500
25,000 Occidental Petroleum Corporation (Oil and gas).............. 467,085 534,375
10,000 Pacific Enterprises (Natural gas utility)................... 229,365 282,500
15,000 Parker Hannifin Corporation (Industrial and aerospace)...... 401,406 513,750
10,000 J.C. Penney Company, Inc. (Retail stores)................... 436,225 476,250
25,000 Pennzoil Company (Oil and gas).............................. 1,489,275 1,056,250
10,000 Student Loan Marketing Association
("Sallie Mae") (Financial services)......................... 441,542 658,750
12,000 Sundstrand Corporation (Aerospace and industrial)........... 518,770 844,500
18,000 Tandy Corporation (Retail stores)........................... 1,026,705 747,000
47,400 Union Pacific Resources Group, Inc. (Oil and gas)........... 1,042,782 1,202,775
30,000 USX-U.S. Steel Group (Steel)................................ 1,043,995 922,500
----------- -----------
Total Common Stocks......................................... 15,839,957 17,313,025
----------- -----------
PREFERRED STOCKS 4.9%
20,000 Battle Mountain Gold Corp. $3.25 convertible preferred...... 1,171,714 992,500
</TABLE>
(continued)
2
<PAGE> 3
PORTFOLIOS OF INVESTMENTS (continued)
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
THE PRIMARY TREND FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
- --------- ----------- -----------
<S> <C> <C> <C>
BONDS 4.4%
U.S. GOVERNMENT SECURITIES
$500,000 Federal Home Loan Bank note,
7.50%, due 10/4/10........................................ $ 498,161 $ 505,870
CONVERTIBLE DEBENTURES
400,000 Data General Corporation convertible subordinated debenture,
7.75%, due 6/1/01......................................... 341,730 394,000
----------- -----------
Total Bonds....................................... 839,891 899,870
----------- -----------
SHORT-TERM INVESTMENTS 6.4%
23,634 American Family Financial Services, Inc. variable rate
demand note, 5.49%........................................ 23,634 23,634
130,028 General Mills, Inc. variable rate demand note, 5.49%........ 130,028 130,028
450,000 Southwestern Bell Telephone Co. variable rate demand note,
5.72%..................................................... 450,000 450,000
715,000 Wisconsin Electric Power Co. variable rate demand note,
5.53%..................................................... 715,000 715,000
----------- -----------
Total Short-Term Investments...................... 1,318,662 1,318,662
----------- -----------
TOTAL INVESTMENTS 100.4%.............................. $19,170,224 20,524,057
===========
Liabilities, less Other Assets -0.4%.................. (74,921)
-----------
NET ASSETS (Equivalent to $11.27 per share based on
1,815,069 shares outstanding).......................100.0% $20,449,136
===========
*Non-income producing security.
</TABLE>
See notes to financial statements.
3
<PAGE> 4
PORTFOLIOS OF INVESTMENTS (continued)
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
THE PRIMARY INCOME FUND
<TABLE>
<CAPTION>
VALUE
SHARES COST (NOTE 2A)
--------- ---------- ----------
<S> <C> <C> <C>
COMMON STOCKS 79.5%
2,000 American Brands, Inc. (Consumer products)................... $ 70,030 $ 89,250
1,050 American International Group, Inc. (Insurance).............. 73,238 97,125
1,500 Amoco Corporation (Oil and gas)............................. 83,580 107,813
4,000 The Brooklyn Union Gas Company (Natural gas utility)........ 99,070 117,000
2,000 Chevron Corporation (Oil and gas)........................... 89,500 105,000
1,000 The Chubb Corporation (Insurance)........................... 80,375 96,750
3,000 CINergy Corp. (Electric utility)............................ 59,269 91,875
8,000 DeBartolo Realty Corporation (Real estate investment
trust).................................................... 113,118 104,000
3,000 DPL, Inc. (Electric and gas utility)........................ 45,124 74,250
1,700 Eastman Kodak Company (Photographic equipment).............. 64,527 113,900
1,500 General Motors Corporation (Automobiles and trucks)......... 58,912 79,312
2,000 GTE Corporation (Telephone utility)......................... 62,995 88,000
1,000 International Business Machines Corp. (Computer systems).... 47,315 91,750
8,000 Juno Lighting, Inc. (Commercial and residential lighting)... 139,225 128,000
6,000 Longview Fibre Company (Paper and forest products).......... 106,593 97,500
2,500 Media General, Inc. (Class A) (Newspapers and television)... 60,211 75,938
4,000 Melville Corporation (Retail stores)........................ 144,617 123,000
2,000 Northern States Power Company (Electric utility)............ 74,513 98,250
4,000 Occidental Petroleum Corp. (Oil and gas).................... 79,409 85,500
6,000 Pacific Enterprises (Natural gas utility)................... 138,870 169,500
3,000 J.C. Penney Company, Inc. (Retail stores)................... 130,610 142,875
5,000 Pennzoil Company (Oil and gas).............................. 267,300 211,250
1,000 Royal Dutch Petroleum Co., NV (Oil and gas)................. 84,625 141,125
1,500 Student Loan Marketing Association
("Sallie Mae") (Financial services)....................... 66,082 98,812
1,500 Sundstrand Corporation (Aerospace and industrial)........... 66,072 105,563
2,500 Tandy Corporation (Retail stores)........................... 121,377 103,750
5,200 Union Pacific Resources Group, Inc. (Oil and gas)........... 110,510 131,950
2,000 USX-U.S. Steel Group (Steel)................................ 88,215 76,875
3,000 Wisconsin Energy Corporation (Electric and gas utility)..... 73,280 91,875
---------- ----------
Total Common Stocks............................... 2,698,562 3,137,788
---------- ----------
PREFERRED STOCKS 6.5%
3,000 Battle Mountain Gold Corp. $3.25 convertible preferred...... 170,353 148,875
2,500 WHX Corp. $3.25 convertible preferred....................... 146,075 110,000
---------- ----------
Total Preferred Stocks............................ 316,428 258,875
---------- ----------
</TABLE>
(continued)
4
<PAGE> 5
PORTFOLIOS OF INVESTMENTS (continued)
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
THE PRIMARY INCOME FUND (continued)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
--------- ---------- ----------
<C> <S> <C> <C>
BONDS AND NOTES 5.8%
CONVERTIBLE DEBENTURES
$ 125,000 Data General Corp. convertible subordinated debenture,
7.75%, due 6/1/01........................................... $ 118,947 $ 123,125
CORPORATE OBLIGATIONS
100,000 Wisconsin Gas Company note, 7.50%, due 11/15/98............. 99,929 105,000
---------- ----------
Total Bonds and Notes....................................... 218,876 228,125
---------- ----------
SHORT-TERM INVESTMENTS 8.4%
332,515 Wisconsin Electric Power Co. variable rate
demand note, 5.53%.......................................... 332,515 332,515
---------- ----------
TOTAL INVESTMENTS 100.2%................................ $3,566,381 $3,957,303
==========
Liabilities, less Other Assets -0.2%.................... (8,697)
----------
NET ASSETS (Equivalent to $12.12 per share based on
325,804 shares outstanding)...........................100.0% $3,948,606
==========
Note to Portfolio of Investments - As permitted by the Fund's investment policies, the
Fund has invested $1,168,265 (30% of its net assets) in securities issued by utilities.
</TABLE>
See notes to financial statements.
5
<PAGE> 6
PORTFOLIOS OF INVESTMENTS (continued)
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
THE PRIMARY U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT COST (NOTE 2A)
- --------- ---------- ----------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES 85.8%
$ 200,000 Federal National Mortgage Association note,
7.65%, due 4/29/04.......................................... $ 198,990 $ 204,474
200,000 Federal National Mortgage Association note,
8.625%, due 11/10/04........................................ 199,969 217,808
100,000 Federal National Mortgage Association note,
8.50%, due 2/1/05........................................... 99,531 109,110
100,000 Federal Home Loan Mortgage Corporation note,
8.15%, due 3/2/05........................................... 100,000 104,542
200,000 Federal Home Loan Bank note, 7.00%, due 11/21/05............. 199,135 200,258
200,000 Federal National Mortgage Association note,
7.04%, due 12/9/05.......................................... 200,000 201,548
---------- ----------
Total U.S. Government Securities................... 997,625 1,037,740
---------- ----------
CORPORATE BONDS 8.4%
100,000 Georgia Power Co. first mortgage bond, 6.125%, due 9/1/99.... 99,372 101,000
---------- ----------
Total Long-Term Investments........................ 1,096,997 1,138,740
---------- ----------
SHORT-TERM INVESTMENTS 4.8%
58,066 Wisconsin Electric Power Co. variable rate demand note,
5.53%....................................................... 58,066 58,066
---------- ----------
TOTAL INVESTMENTS 99.0%.................................. $1,155,063 1,196,806
==========
Other Assets, less Liabilities 1.0%...................... 12,216
----------
NET ASSETS (Equivalent to $10.22 per share based on 118,280
shares outstanding) 100.0%.............................. $1,209,022
==========
</TABLE>
See notes to financial statements.
6
<PAGE> 7
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
<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...................................... $17,313,025 $ 3,137,788 $ --
Preferred Stocks................................... 992,500 258,875 --
Bonds and Notes.................................... 899,870 228,125 1,138,740
Short-Term Investments............................. 1,318,662 332,515 58,066
----------- ---------- ----------
Total Investments (Cost -- $19,170,224;
$3,566,381 and $1,155,063, respectively)...... 20,524,057 3,957,303 1,196,806
Dividends Receivable.................................. 26,020 12,094 --
Interest Receivable................................... 16,221 3,459 16,478
Cash.................................................. 1,320 1,240 47
----------- ---------- ----------
Total Assets.................................... 20,567,618 3,974,096 1,213,331
----------- ---------- ----------
Liabilities:
Payable to Brokers for Securities Purchased........... 103,100 -- --
Accrued Investment Advisory Fees (Note 3)............. 12,803 24,278 3,264
Other................................................. 2,579 1,212 1,045
----------- ---------- ----------
Total Liabilities............................... 118,482 25,490 4,309
----------- ---------- ----------
Net Assets.............................................. $20,449,136 $ 3,948,606 $ 1,209,022
=========== ========== ==========
Net Assets Per Share (Based on 1,815,069; 325,804 and
118,280 shares outstanding, respectively).............. $ 11.27 $ 12.12 $ 10.22
=========== ========== ==========
Net Assets Consist of:
Capital Stock (30,000,000 shares authorized each)..... $18,844,431 $ 3,522,597 $ 1,206,313
Net Unrealized Appreciation of Investments............ 1,353,833 390,922 41,743
Undistributed Net Investment Income................... 219,259 -- --
Undistributed Net Realized Gains (Accumulated
Losses)............................................ 31,613 35,087 (39,034)
----------- ---------- ----------
Net Assets............................................ $20,449,136 $ 3,948,606 $ 1,209,022
=========== ========== ==========
</TABLE>
See notes to financial statements.
7
<PAGE> 8
STATEMENTS OF OPERATIONS
For the six months ended December 31, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
----------- ----------- ---------------
<S> <C> <C> <C>
Income (Note 2b):
Interest............................................. $ 95,228 $ 22,086 $ 43,068
Dividends............................................ 249,000 70,437 --
----------- ----------- ---------------
Total Income......................................... 344,228 92,523 43,068
----------- ----------- ---------------
Expenses:
Investment Advisory Fees (Note 3).................... 78,761 14,840 4,132
Shareholder Servicing Costs.......................... 15,945 4,178 3,667
Professional Fees.................................... 9,719 8,004 8,004
Registration Fees.................................... 5,936 3,290 3,024
Fund Accounting...................................... 5,244 1,987 843
Custodial Fees....................................... 4,617 1,193 262
Postage.............................................. 3,483 297 98
Printing............................................. 2,543 26 9
Insurance............................................ 2,515 1,209 263
Other................................................ 2,137 635 376
----------- ----------- ---------------
Total Expenses Before Reimbursement.................. 130,900 35,659 20,678
Less Expenses Reimbursed By Adviser (Note 3)......... -- (18,814) (15,910)
----------- ----------- ---------------
Total Expenses....................................... 130,900 16,845 4,768
----------- ----------- ---------------
Net Investment Income.................................. 213,328 75,678 38,300
----------- ----------- ---------------
Net Realized Gain on Investments....................... 1,275,531 191,466 1,145
Change in Net Unrealized Appreciation or Depreciation
of Investments....................................... (1,155,971) 15,630 14,663
----------- ----------- ---------------
Net Realized and Unrealized Gain on Investments........ 119,560 207,096 15,808
----------- ----------- ---------------
Net Increase in Net Assets From Operations............. $ 332,888 $ 282,774 $ 54,108
============ ========== =============
</TABLE>
See notes to financial statements.
8
<PAGE> 9
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE PRIMARY THE PRIMARY THE PRIMARY
TREND FUND INCOME FUND U.S. GOVERNMENT FUND
------------------------------ ---------------------------- ----------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
DEC. 31, 1995 YEAR ENDED DEC. 31, 1995 YEAR ENDED DEC. 31, 1995 YEAR ENDED
(UNAUDITED) JUNE 30, 1995 (UNAUDITED) JUNE 30, 1995 (UNAUDITED) JUNE 30, 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income............ $ 213,328 $ 391,422 $ 75,678 $ 170,350 $ 38,300 $ 76,854
Net Realized Gain (Loss) on
Investments.................... 1,275,531 469,577 191,466 26,780 1,145 (40,179)
Change in Net Unrealized
Appreciation or Depreciation of
Investments.................... (1,155,971) 2,432,859 15,630 345,169 14,663 89,228
----------- ----------- ---------- ---------- ---------- ----------
Net Increase in Net Assets from
Operations..................... 332,888 3,293,858 282,774 542,299 54,108 125,903
----------- ----------- ---------- ---------- ---------- ----------
Distributions to Shareholders:
From Net Investment Income....... (405,672) (484,085) (75,678) (170,350) (38,300) (76,854)
From Net Realized Gains.......... (1,358,826) (759,138) (183,159) (22,919) -- (4,822)
----------- ----------- ---------- ---------- ---------- ----------
Decrease in Net Assets from
Distributions.................. (1,764,498) (1,243,223) (258,837) (193,269) (38,300) (81,676)
----------- ----------- ---------- ---------- ---------- ----------
Fund Share Transactions (Note 5):
Proceeds from Shares Sold........ 602,711 875,183 119,735 516,700 84,854 101,005
Reinvested Distributions......... 1,687,297 1,188,082 247,581 186,355 33,437 74,918
Cost of Shares Redeemed.......... (1,752,158) (3,643,525) (664,093) (507,284) (270,395) (170,229)
----------- ----------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net
Assets from Fund Share
Transactions................... 537,850 (1,580,260) (296,777) 195,771 (152,104) 5,694
----------- ----------- ---------- ---------- ---------- ----------
Total Increase (Decrease) in Net
Assets........................... (893,760) 470,375 (272,840) 544,801 (136,296) 49,921
Net Assets:
Beginning of Period.............. 21,342,896 20,872,521 4,221,446 3,676,645 1,345,318 1,295,397
----------- ------- --- ---------- ---------- ---------- ----------
End of Period.................... $20,449,136 $21,342,896 $3,948,606 $4,221,446 $1,209,022 $1,345,318
=========== =========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
9
<PAGE> 10
FINANCIAL HIGHLIGHTS
The following table shows per share operating performance data, total investment
return, ratios and supplemental data for each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE PRIMARY THE PRIMARY THE PRIMARY
TREND FUND INCOME FUND U.S. GOVERNMENT FUND
----------------------------- ------------------------------ ------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
DEC. 31, 1995 YEAR ENDED DEC. 31, 1995 YEAR ENDED DEC. 31, 1995 YEAR ENDED
(UNAUDITED) JUNE 30, 1995 (UNAUDITED) JUNE 30, 1995 (UNAUDITED) JUNE 30, 1995
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period.......................... $ 12.10 $ 10.98 $ 12.07 $11.04 $ 10.09 $ 9.74
---------- ----------- ---------- ---------- ---------- ----------
Net Investment Income............. 0.12 0.23 0.23 0.50 0.31 0.57
Net Realized and Unrealized Gain
on Investments.................. 0.07 1.55 0.63 1.10 0.13 0.38
---------- ----------- ---------- ---------- ---------- ----------
Total from Investment
Operations...................... 0.19 1.78 0.86 1.60 0.44 0.95
---------- ----------- ---------- ---------- ---------- ----------
Less Distributions:
From Net Investment Income...... (0.23) (0.26) (0.23) (0.50) (0.31) (0.57)
From Net Realized Gains......... (0.79) (0.40) (0.58) (0.07) -- (0.03)
---------- ----------- ---------- ---------- ---------- ----------
Total Distributions............. (1.02) (0.66) (0.81) (0.57) (0.31) (0.60)
---------- ----------- ---------- ---------- ---------- ----------
Net Increase (Decrease)........... (0.83) 1.12 0.05 1.03 0.13 0.35
---------- ----------- ---------- ---------- ---------- -----------
Net Asset Value, End of Period.... $ 11.27 $ 12.10 $ 12.12 $12.07 $ 10.22 $10.09
========== =========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN........... +1.6% +17.0% +7.3% +14.8% +4.4% +10.2%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(in thousands)................ $20,449 $ 21,343 $ 3,949 $4,221 $ 1,209 $1,345
Ratio of Expenses to Average Net
Assets........................ 1.23%* 1.24% 0.84%* 0.84% 0.75%* 0.75%
Ratio of Net Investment Income
to Average Net Assets......... 2.00%* 1.88% 3.78%* 4.35% 6.03%* 5.85%
Ratio of Expenses Reimbursed to
Average Net Assets............ -- -- 0.94%* 0.76% 2.51%* 1.92%
Portfolio Turnover.............. 24.1% 37.1% 16.9% 40.9% 34.6% 63.0%
* Annualized
</TABLE>
10
<PAGE> 11
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 each Fund's 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. For the six months ended December 31, 1995, the Adviser has
voluntarily reimbursed 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 six
months ended December 31, 1995. The Trend Fund paid total directors fees of
$500 to its outside director and the Income Funds paid total directors fees of
$500 to its outside director during the six months ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
For the six months ended December 31, 1995, total purchases and proceeds from
sales of securities, other than short-term investments, for the Trend Fund
were $4,634,469 and $6,375,062, respectively; for the Income Fund, $627,595
and $1,196,629, respectively; and for the Government Fund, $399,125 and
$553,523, respectively.
5. FUND SHARE TRANSACTIONS
Transactions in shares of the Funds were as follows:
<TABLE>
<CAPTION>
THE PRIMARY THE PRIMARY THE PRIMARY
TREND FUND INCOME FUND U.S. GOVERNMENT FUND
------------------------------ ------------------------------ ------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
DEC. 31, 1995 YEAR ENDED DEC. 31, 1995 YEAR ENDED DEC. 31, 1995 YEAR ENDED
(UNAUDITED) JUNE 30, 1995 (UNAUDITED) JUNE 30, 1995 (UNAUDITED) JUNE 30, 1995
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sales.................... 49,984 79,010 9,796 45,106 8,461 10,347
Reinvested
Distributions.......... 147,550 110,217 20,432 16,290 3,299 7,678
Redemptions.............. (146,311 ) (326,696 ) (54,141 ) (44,579 ) (26,877 ) (17,637 )
-------- -------- ------- ------- ------- -------
Net Increase
(Decrease)............. 51,223 (137,469 ) (23,913 ) 16,817 (15,117 ) 388
======== ======== ======= ======= ======= =======
</TABLE>
11
<PAGE> 12
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
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
[CR LOGO]
SEMIANNUAL REPORT
THE PRIMARY
TREND FUND
THE PRIMARY
INCOME FUND
THE PRIMARY U.S.
GOVERNMENT FUND
MILWAUKEE, WISCONSIN
DECEMBER 31, 1995
LOGO
