<PAGE> 1
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
100% NO-LOADMUTUAL FUND COUNCIL LOGO
ANNUAL REPORT
THE PRIMARY
TREND FUND
THE PRIMARY
INCOME FUND
THE PRIMARY U.S.
GOVERNMENT FUND
MILWAUKEE, WISCONSIN
JUNE 30, 1996
LOGO
<PAGE> 2
MESSAGE TO SHAREHOLDERS . . .
- --------------------------------------------------------------------------------
The Primary Trend Funds built upon solid gains in recent years with the
following accomplishments for periods ended June 30, 1996:
<TABLE>
<CAPTION>
2ND QUARTER 1996 1ST HALF 1996 FISCAL YEAR
---------------- ------------- -----------
<S> <C> <C> <C>
The Primary Trend Fund............................... +3.03% +11.71% +13.50%
The Primary Income Fund.............................. +2.67% + 6.99% +14.83%
The Primary U.S. Government Fund..................... -0.48% - 0.25% + 4.14%
</TABLE>
In many respects, The Primary Trend Funds operated in an environment
characterized by many of the same financial variables as fiscal 1995. These were
meaningful corporate profit improvements, absence of inflationary pressures,
strong inflows into financial assets (particularly stocks) and, through the end
of 1995 and early 1996, declining interest rates.
THE PRIMARY TREND FUND'S net asset value gain trailed the Standard & Poor's
500 average in the first six months of fiscal 1996, but outdistanced the same in
the second half. While the portfolio's heavy exposure to energy stocks failed to
keep pace with the overall stock market in the second half of 1995, the sector
provided above-average returns in the first six months of 1996. Top portfolio
performers for the six months ended June 30, 1996 were: Global Natural Resources
(+56.0%), Melville Corp. (+31.7%), Parker Hannifin (+23.7%), Eastman Kodak
(+16.0%), Occidental Petroleum (+15.8%), Tandy (+14.1%) and Petroleum
Geo-Services (+13.5%). Underachievers included General Motors (-1.0%), Battle
Mountain Gold $3.25 convertible preferred (-1.3%) and USX-U.S. Steel Group
(-7.7%). During the Fund's fiscal 1996 year, distributions of $1.02 per share
were paid, which included $0.23 from dividend and interest income and $0.79 per
share from capital gains.
THE PRIMARY INCOME FUND, despite the move upward in interest rates in early
1996, continued to provide solid returns. Top performers included: Melville
(+31.7%), DeBartolo Realty (+24.0%), Occidental Petroleum (+15.8%) and
Consolidated Natural Gas (+15.2%). Core positions in the utility industry were
27% of assets as of June 30, 1996, above the required minimum of 25%. In fiscal
1996, distributions totaled $1.01 per share of which $0.43 was interest and
dividend income and $0.58 per share was capital gains.
THE PRIMARY U.S. GOVERNMENT FUND'S net asset value mirrored the movement of
interest rates by generating a total rate of return of 3.7% in the six months
ended December 3l, 1995, but declining 0.25% in the final six months of fiscal
1996. By keeping maturities relatively short, The Primary U.S. Government Fund
materially bettered the rate of return achieved by longer maturity U.S.
Government obligations.
So far in 1996, the financial markets have experienced heightened
volatility -- the most in five years. Investors can expect more of the same for
the remainder of 1996. In addition, stock market "internals" have deteriorated
recently as momentum has peaked, volume has diminished and for the first time in
two years, individual stocks making new lows have outpaced those making new
highs. These are amber lights appearing at a time in stock market history where
investor expectations are unusually elevated. Continued intense sector rotation
will provide opportunities both for long-term growth and the liquidation of
underachievers.
The entire staff of Arnold Investment Counsel is dedicated to furthering
the investment objectives of each of our shareholders ... a responsibility which
you have given us through your investment in The Primary Trend Funds. We
appreciate your past support and will strive with all our energy to generate
consistent above-average investment returns commensurate with keeping risk at a
low and manageable minimum.
Sincerely,
DAVID R. AUSHWITZ
David R. Aushwitz
President
ARNOLD INVESTMENT COUNSEL, INC.
1
<PAGE> 3
PORTFOLIO OF INVESTMENTS
June 30, 1996
- --------------------------------------------------------------------------------
THE PRIMARY TREND FUND
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS 91.7%
6,000 American International Group, Inc. (Insurance)................ $ 417,500 $ 591,750
8,000 Amoco Corporation (Integrated oil company).................... 434,600 579,000
20,000 Browning-Ferris Industries, Inc. (Waste management
services)..................................................... 598,500 580,000
10,000 Chevron Corporation (Integrated oil company).................. 447,500 590,000
10,000 The Chubb Corporation (Insurance)............................. 401,525 498,750
10,000 Eastman Kodak Company (Photographic equipment)................ 398,415 777,500
10,000 General Motors Corporation (Automobiles and trucks)........... 397,540 523,750
10,000 Georgia-Pacific Corporation (Paper and forest products)....... 718,750 710,000
130,000 Global Natural Resources, Inc.*
(International oil and gas exploration and production)...... 1,135,475 2,128,750
20,000 GreenPoint Financial Corp. (Financial services)............... 576,550 565,000
6,000 International Business Machines Corp. (Computer systems)...... 344,655 594,000
52,500 Juno Lighting, Inc. (Commercial and residential lighting)..... 900,937 892,500
25,000 Longview Fibre Company (Paper and forest products)............ 449,025 425,000
10,000 Melville Corporation (Retail stores).......................... 381,867 405,000
25,000 Mylan Laboratories Inc. (Pharmaceutical products)............. 502,000 431,250
10,000 Newmont Mining Corporation (Gold mining)...................... 375,015 493,750
25,000 Occidental Petroleum Corporation (Integrated oil company)..... 467,085 618,750
15,000 Parker Hannifin Corporation (Industrial and aerospace)........ 401,406 635,625
10,000 J.C. Penney Company, Inc. (Retail stores)..................... 436,225 525,000
25,000 Pennzoil Company (Domestic oil and gas exploration and
production)................................................... 1,489,275 1,156,250
30,000 Petroleum Geo-Services ASA* (Oilfield services)............... 783,700 851,250
65,000 Snyder Oil Corporation (Domestic oil and gas exploration and
production)................................................. 547,205 658,125
10,000 Student Loan Marketing Association
("Sallie Mae")(Financial services)............................ 441,542 750,000
20,000 Sundstrand Corporation (Aerospace and industrial)............. 436,700 732,500
18,000 Tandy Corporation (Retail stores)............................. 1,026,705 852,750
12,000 Triton Energy Limited* (International oil and gas exploration
and production)............................................. 708,720 583,500
30,000 Union Pacific Resources Group, Inc.
(Domestic oil and gas exploration and production)........... 656,588 802,500
15,000 USX-U.S. Steel Group (Steel).................................. 508,150 425,625
----------- -----------
Total Common Stocks........................................... 16,383,155 19,377,875
----------- -----------
</TABLE>
(continued)
2
<PAGE> 4
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1996
- --------------------------------------------------------------------------------
THE PRIMARY TREND FUND (continued)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
PREFERRED STOCKS 3.5%
15,000 Battle Mountain Gold Corp. $3.25 Convertible Preferred........ $ 879,044 $ 735,000
BONDS 0.9%
$200,000 Federal National Mortgage Association note,
6.06%, due 2/3/06........................................... 183,398 183,092
----------- -----------
Total Long-Term Investments................................... 17,445,597 20,295,967
----------- -----------
SHORT-TERM INVESTMENTS 0.5%
96,388 Wisconsin Electric Power Co. variable rate demand note,
5.19%......................................................... 96,388 96,388
----------- -----------
TOTAL INVESTMENTS 96.6%................................. $17,541,985 20,392,355
============
Other Assets, less Liabilities 3.4%..................... 730,720
-----------
NET ASSETS (Equivalent to $12.59 per share based on shares
outstanding)..........................................100.0% $21,123,075
============
*Non-income producing security.
</TABLE>
See notes to financial statements.
3
<PAGE> 5
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1996
- --------------------------------------------------------------------------------
THE PRIMARY INCOME FUND
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- --------- ---------- ----------
<C> <S> <C> <C>
COMMON STOCKS 76.6%
1,500 American Brands, Inc. (Consumer products)...................... $ 52,522 $ 68,062
1,500 Amoco Corporation (Integrated oil company)..................... 83,580 108,563
19,000 Angeles Mortgage Investment Trust (Real estate investment
trust)......................................................... 140,516 152,000
5,000 The Brooklyn Union Gas Company (Natural gas utility)........... 124,545 136,250
4,000 Browning-Ferris Industries, Inc. (Waste management services)... 119,120 116,000
6,000 Cable & Wireless plc (Telecommunication services).............. 124,560 118,500
1,500 Chevron Corporation (Integrated oil company)................... 67,125 88,500
2,000 The Chubb Corporation (Insurance).............................. 80,375 99,750
3,000 CINergy Corp. (Electric utility)............................... 59,269 96,000
3,000 Consolidated Natural Gas Co. (Integrated natural gas system)... 131,800 156,750
8,000 DeBartolo Realty Corporation (Real estate investment trust).... 110,760 129,000
3,000 DPL, Inc. (Electric and gas utility)........................... 45,124 73,125
3,000 L.M. Ericsson Telephone AB
(Telecommunications equipment and services).................... 68,925 64,500
1,500 General Motors Corporation (Automobiles and trucks)............ 58,912 78,562
2,000 GTE Corporation (Telephone utility)............................ 62,995 89,500
2,000 Hawaiian Electric Industries, Inc. (Electric utility).......... 69,450 71,000
400 International Business Machines Corp. (Computer systems)....... 19,580 39,600
8,000 Juno Lighting, Inc. (Commercial and residential lighting)...... 139,225 136,000
7,000 Longview Fibre Company (Paper and forest products)............. 122,068 119,000
2,500 Melville Corporation (Retail stores)........................... 87,281 101,250
5,000 Mylan Laboratories Inc. (Pharmaceutical products).............. 99,764 86,250
2,000 Northern States Power Company (Electric utility)............... 74,513 98,750
4,000 Occidental Petroleum Corp. (Integrated oil company)............ 79,409 99,000
5,000 Pacific Enterprises (Natural gas utility)...................... 116,145 148,125
3,000 J.C. Penney Company, Inc. (Retail stores)...................... 130,610 157,500
3,500 Pennzoil Company (Domestic oil and gas exploration and
production).................................................... 179,137 161,875
1,000 Royal Dutch Petroleum Co., NV (Integrated oil company)......... 84,625 153,750
1,200 Student Loan Marketing Association
("Sallie Mae") (Financial services)............................ 52,866 90,000
2,000 Sundstrand Corporation (Aerospace and industrial).............. 42,920 73,250
2,500 Tandy Corporation (Retail stores).............................. 121,378 118,438
5,200 Union Pacific Resources Group, Inc.
(Domestic oil and gas exploration and production).............. 110,510 139,100
3,000 Wisconsin Energy Corporation (Electric and gas utility)........ 73,280 86,625
---------- ----------
Total Common Stocks............................................ 2,932,889 3,454,575
---------- ----------
</TABLE>
(continued)
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1996
- --------------------------------------------------------------------------------
THE PRIMARY INCOME FUND (continued)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT COST VALUE
- --------- ---------- ----------
<C> <S> <C> <C>
PREFERRED STOCKS 6.5%
3,000 Battle Mountain Gold Corp. $3.25 convertible preferred......... $ 170,353 $ 147,000
340 Long Island Lighting Co. 5.00% Series B preferred.............. 19,920 18,955
400 Long Island Lighting Co. 5.125% Series H preferred............. 25,390 23,600
2,500 WHX Corp. $3.25 convertible preferred.......................... 146,075 104,375
---------- ----------
Total Preferred Stocks......................................... 361,738 293,930
---------- ----------
BONDS AND NOTES 5.0%
CONVERTIBLE DEBENTURES
$ 125,000 Data General Corporation convertible subordinated debenture,
7.75%, due 6/1/01.............................................. 119,504 122,656
CORPORATE OBLIGATIONS
100,000 Wisconsin Gas Company note, 7.50%, due 11/15/98................ 99,939 102,125
---------- ----------
Total Bonds and Notes.......................................... 219,443 224,781
---------- ----------
Total Long-Term Investments.................................... 3,514,070 3,973,286
---------- ----------
SHORT-TERM INVESTMENTS 10.2%
458,815 Wisconsin Electric Power Co. variable rate
demand note, 5.19%............................................. 458,815 458,815
---------- ----------
TOTAL INVESTMENTS 98.3%.................................... $3,972,885 4,432,101
==========
Other Assets, less Liabilities 1.7%........................ 78,282
----------
NET ASSETS (Equivalent to $12.77 per share based on
353,071 shares outstanding)..............................100.0% $4,510,383
==========
Note to Portfolio of Investments -- As permitted by the Fund's investment policies, the
Fund has invested $1,678,120 (37% of its net assets) in securities issued by utilities.
</TABLE>
See notes to financial statements.
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (continued)
June 30, 1996
- --------------------------------------------------------------------------------
THE PRIMARY U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT COST VALUE
- --------- -------- --------
<C> <S> <C> <C>
U.S. GOVERNMENT NOTES 84.2%
U.S. TREASURY NOTES
$ 75,000 U.S. Treasury note, 6.375%, due 7/15/99......................... $ 74,860 $ 75,212
U.S. GOVERNMENT AGENCY NOTES
200,000 Federal National Mortgage Association note,
7.65%, due 4/29/04............................................ 199,051 199,966
100,000 Federal National Mortgage Association note,
8.50%, due 2/1/05............................................. 99,531 104,159
100,000 Federal Home Loan Mortgage Corporation note,
8.15%, due 3/2/05............................................. 100,000 100,551
200,000 Federal Home Loan Bank note,
7.00%, due 11/21/05........................................... 199,179 193,062
--------- ---------
Total U.S. Government Agency Notes.............................. 597,761 597,738
--------- ---------
Total U.S. Government Notes..................................... 672,621 672,950
CORPORATE BONDS 12.3%
100,000 Georgia Power Co. first mortgage bond,
6.125%, due 9/1/99............................................ 99,458 98,250
--------- ---------
Total Long-Term Investments..................................... 772,079 771,200
SHORT-TERM INVESTMENTS 2.1%
16,698 Wisconsin Electric Power Co. variable rate
demand note, 5.19%............................................ 16,698 16,698
--------- ---------
TOTAL INVESTMENTS 98.6%..................................... $788,777 787,898
=========
Other Assets, less Liabilities 1.4%......................... 10,876
---------
NET ASSETS (Equivalent to $9.87 per share
based on 80,961 shares outstanding)......................100.0% $798,774
=========
</TABLE>
See notes to financial statements.
6
<PAGE> 8
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1996
- --------------------------------------------------------------------------------
<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........................................ $19,377,875 $ 3,454,575 $ --
Preferred Stocks..................................... 735,000 293,930 --
Bonds and Notes...................................... 183,092 224,781 771,200
Short-Term Investments............................... 96,388 458,815 16,698
----------- ---------- --------
Total Investments (Cost -- $17,541,985;
$3,972,885 and $788,777, respectively)........ 20,392,355 4,432,101 787,898
Receivable from Brokers for Securities Sold........... 733,191 96,177 --
Dividends Receivable.................................. 30,400 14,241 --
Interest Receivable................................... 5,845 3,882 15,019
Cash.................................................. -- 2,185 38
----------- ---------- --------
Total Assets.................................... 21,161,791 4,548,586 802,955
----------- ---------- --------
Liabilities:
Accrued Investment Advisory Fees (Note 3)............. 12,793 35,650 2,060
Cash Overdraft........................................ 11,392 -- --
Other................................................. 14,531 2,553 2,121
----------- ---------- --------
Total Liabilities............................... 38,716 38,203 4,181
----------- ---------- --------
Net Assets.............................................. $21,123,075 $ 4,510,383 $ 798,774
=========== ========== ========
Net Assets Per Share (Based on 1,677,314; 353,071 and
80,961 shares outstanding, respectively)............... $ 12.59 $ 12.77 $ 9.87
=========== ========== ========
Net Assets Consist of:
Capital Stock (30,000,000 shares authorized each)..... $17,194,473 $ 3,855,860 $ 828,905
Net Unrealized Appreciation (Depreciation) of
Investments........................................ 2,850,370 459,216 (879)
Undistributed Net Investment Income................... 361,557 -- --
Undistributed Net Realized Gains (Accumulated
Losses)............................................ 716,675 195,307 (29,252)
----------- ---------- --------
Net Assets.............................................. $21,123,075 $ 4,510,383 $ 798,774
=========== ========== ========
</TABLE>
See notes to financial statements.
7
<PAGE> 9
STATEMENTS OF OPERATIONS
For the year ended June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
----------- ----------- ---------------
<S> <C> <C> <C>
Income (Note 2b):
Interest............................................. $ 125,573 $ 43,038 $ 78,208
Dividends............................................ 482,085 133,822 --
---------- -------- --------
Total Income......................................... 607,658 176,860 78,208
---------- -------- --------
Expenses:
Investment Advisory Fees (Note 3).................... 156,295 30,643 7,285
Shareholder Servicing Costs.......................... 28,576 9,653 8,402
Professional Fees.................................... 21,381 10,967 10,967
Fund Accounting...................................... 10,402 3,164 1,397
Registration Fees.................................... 8,227 3,365 3,099
Custodial Fees....................................... 6,856 2,274 367
Postage.............................................. 5,669 765 251
Printing............................................. 5,642 1,766 578
Insurance............................................ 4,829 1,209 263
Other................................................ 4,154 1,065 441
---------- -------- --------
Total Expenses Before Reimbursement.................. 252,031 64,871 33,050
Less Expenses Reimbursed By Adviser (Note 3)......... -- (30,087) (24,644)
---------- -------- --------
Net Expenses......................................... 252,031 34,784 8,406
---------- -------- --------
Net Investment Income.................................. 355,627 142,076 69,802
---------- -------- --------
Net Realized Gain on Investments....................... 1,960,593 351,686 10,927
Net Change in Unrealized Appreciation (Depreciation) of
Investments.......................................... 340,566 83,924 (27,959)
---------- -------- --------
Net Realized and Unrealized Gain (Loss) on
Investments.......................................... 2,301,159 435,610 (17,032)
---------- -------- --------
Net Increase in Net Assets From Operations............. $ 2,656,786 $ 577,686 $ 52,770
========== ======== ========
</TABLE>
See notes to financial statements.
8
<PAGE> 10
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE PRIMARY THE PRIMARY THE PRIMARY
TREND FUND INCOME FUND U.S. GOVERNMENT FUND
-------------------------- ------------------------- ------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income................. $ 355,627 $ 391,422 $ 142,076 $ 170,350 $ 69,802 $ 76,854
Net Realized Gain (Loss) on
Investments......................... 1,960,593 469,577 351,686 26,780 10,927 (40,179)
Net Change in Unrealized Appreciation
(Depreciation) of Investments....... 340,566 2,432,859 83,924 345,169 (27,959) 89,228
----------- ----------- ----------- ---------- ---------- ----------
Net Increase in Net Assets from
Operations.......................... 2,656,786 3,293,858 577,686 542,299 52,770 125,903
----------- ----------- ----------- ---------- ---------- ----------
Distributions to Shareholders:
From Net Investment Income............ (405,673) (484,085) (142,076) (170,350) (69,802) (76,854)
From Net Realized Gains............... (1,358,826) (759,138) (183,159) (22,919) -- (4,822)
----------- ----------- ----------- ---------- ---------- ----------
Decrease in Net Assets from
Distributions....................... (1,764,499) (1,243,223) (325,235) (193,269) (69,802) (81,676)
----------- ----------- ----------- ---------- ---------- ----------
Fund Share Transactions (Note 6):
Proceeds from Shares Sold............. 782,640 875,183 1,054,434 516,700 103,650 101,005
Reinvested Distributions.............. 1,687,297 1,188,082 311,175 186,355 60,464 74,918
Cost of Shares Redeemed............... (3,582,045) (3,643,525) (1,329,123) (507,284) (693,626) (170,229)
----------- ----------- ----------- ---------- ---------- ----------
Net Increase (Decrease) in Net Assets
from Fund Share Transactions........ (1,112,108) (1,580,260) 36,486 195,771 (529,512) 5,694
----------- ----------- ----------- ---------- ---------- ----------
Total Increase (Decrease) in
Net Assets............................ (219,821) 470,375 288,937 544,801 (546,544) 49,921
Net Assets:
Beginning of Year..................... 21,342,896 20,872,521 4,221,446 3,676,645 1,345,318 1,295,397
----------- ----------- ----------- ---------- ---------- ----------
End of Year........................... $21,123,075 $21,342,896 $ 4,510,383 $4,221,446 $ 798,774 $1,345,318
=========== =========== =========== ========== ========== ==========
Undistributed Net Investment Income at
End of Year........................... $ 361,557 $ 411,603 -- -- -- --
=========== =========== =========== ========== ========== ==========
</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 years ended June 30
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
THE PRIMARY TREND FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year...................................... $ 12.10 $ 10.98 $ 11.22 $ 11.50 $ 11.41
------- ------- ------- ------- -------
Net Investment Income................................................... 0.21 0.23 0.25 0.22 0.29
Net Realized and Unrealized Gain (Loss) on Investments.................. 1.30 1.55 (0.28) 0.64 0.51
------- ------- ------- ------- -------
Total from Investment Operations........................................ 1.51 1.78 (0.03) 0.86 0.80
------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income............................................ (0.23) (0.26) (0.08) (0.28) (0.36)
From Net Realized Gains............................................... (0.79) (0.40) (0.13) (0.86) (0.35)
------- ------- ------- ------- -------
Total Distributions................................................... (1.02) (0.66) (0.21) (1.14) (0.71)
------- ------- ------- ------- -------
Net Increase (Decrease)................................................. 0.49 1.12 (0.24) (0.28) 0.09
------- ------- ------- ------- -------
Net Asset Value, End of Year............................................ $ 12.59 $ 12.10 $ 10.98 $ 11.22 $ 11.50
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN................................................. +11.7% +17.0% --0.3% +8.2% +7.3%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands)................................ $21,123 $21,343 $20,873 $24,966 $31,680
Ratio of Net Expenses to Average Net Assets........................... 1.19% 1.24% 1.27% 1.20% 1.10%
Ratio of Net Investment Income to Average Net Assets.................. 1.68% 1.88% 1.91% 1.90% 2.50%
Portfolio Turnover.................................................... 46.5% 37.1% 77.2% 40.0% 65.5%
THE PRIMARY INCOME FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year...................................... $ 12.07 $ 11.04 $ 11.68 $ 11.02 $ 10.00
------- ------- ------- ------- -------
Net Investment Income................................................... 0.43 0.50 0.49 0.51 0.61
Net Realized and Unrealized Gain (Loss) on Investments.................. 1.28 1.10 (0.54) 0.84 1.02
------- ------- ------- ------- -------
Total from Investment Operations........................................ 1.71 1.60 (0.05) 1.35 1.63
------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income............................................ (0.43) (0.50) (0.49) (0.51) (0.61)
From Net Realized Gains............................................... (0.58) (0.07) (0.10) (0.18)1 --
------- ------- ------- ------- -------
Total Distributions................................................... (1.01) (0.57) (0.59) (0.69) (0.61)
------- ------- ------- ------- -------
Net Increase (Decrease)................................................. 0.70 1.03 (0.64) 0.66 1.02
------- ------- ------- ------- -------
Net Asset Value, End of Year............................................ $ 12.77 $ 12.07 $ 11.04 $ 11.68 $ 11.02
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN................................................. +14.8% +14.8% -0.6% +12.7% +16.6%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands)................................ $ 4,510 $ 4,221 $ 3,677 $ 2,800 $ 2,447
Ratio of Net Expenses to Average Net Assets........................... 0.84% 0.84% 0.84% 0.84% 0.84%
Ratio of Net Investment Income to Average Net Assets.................. 3.43% 4.35% 4.20% 4.50% 5.53%
Ratio of Expenses Reimbursed to Average Net Assets.................... 0.73% 0.76% 1.19% 1.55% 1.68%
Portfolio Turnover.................................................... 41.5% 40.9% 39.7% 43.8% 24.20%
(continued)
</TABLE>
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 years ended June 30
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
THE PRIMARY U.S. GOVERNMENT FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year...................................... $ 10.09 $ 9.74 $ 10.60 $ 10.43 $ 10.07
------- ------- ------- ------- -------
Net Investment Income................................................... 0.63 0.57 0.51 0.56 0.69
Net Realized and Unrealized Gain (Loss) on Investments.................. (0.22) 0.38 (0.67) 0.35 0.49
------- ------- ------- ------- -------
Total from Investment Operations........................................ 0.41 0.95 (0.16) 0.91 1.18
------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income............................................ (0.63) (0.57) (0.51) (0.56) (0.69)
From Net Realized Gains............................................... -- (0.03) (0.19) (0.18) (0.13)
------- ------- ------- ------- -------
Total Distributions................................................... (0.63) (0.60) (0.70) (0.74) (0.82)
------- ------- ------- ------- -------
Net Increase (Decrease)................................................. (0.22) 0.35 (0.86) 0.17 0.36
------- ------- ------- ------- -------
Net Asset Value, End of Year............................................ $ 9.87 $ 10.09 $ 9.74 $ 10.60 $ 10.43
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN................................................. +4.1% +10.2% -1.7% +9.1% +12.0%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands)................................ $ 799 $ 1,345 $ 1,295 $ 1,354 $ 1,156
Ratio of Net Expenses to Average Net Assets........................... 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of Net Investment Income to Average Net Assets.................. 6.24% 5.85% 4.91% 5.29% 6.43%
Ratio of Expenses Reimbursed to Average Net Assets.................... 2.20% 1.92% 2.44% 2.75% 2.87%
Portfolio Turnover.................................................... 46.6% 63.0% 94.4% 64.5% 108.5%
</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. The cost basis
of investments for federal income tax purposes is the same as that for
financial statement purposes. The Government Fund's accumulated net
realized loss on sales of investments for federal income tax purposes at
June 30, 1996, is $29,252. This loss carryover is available to offset
future taxable gains in the Government Fund, and, if not applied, will
expire in 2003.
d. 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 at
the date of the financial statements and the reported amounts of income
and expenses during the reporting period. Actual results could differ from
those estimates.
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
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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, 1996. As of June 30, 1996, 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, 1996. For
the year ended June 30, 1996, the Funds incurred investment advisory fees,
net of expense reimbursements, totalling $139,492. 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 year ended
June 30, 1996.
4. PURCHASES AND SALES OF SECURITIES
For the year ended June 30, 1996, total purchases and proceeds from sales of
securities, other than short-term investments, for the Trend Fund were
$9,160,809 and $11,993,993, respectively; for the Income Fund, $1,570,030 and
$2,015,250, respectively; and for the Government Fund, $473,984 and $963,273,
respectively.
5. FUND SHARE TRANSACTIONS
Transactions in shares of the Funds were as follows:
<TABLE>
<CAPTION>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT FUND
TREND FUND INCOME FUND
----------------------- ---------------------- ---------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales.............................. 64,755 79,010 84,762 45,106 10,332 10,347
Reinvested Distributions........... 147,550 110,217 25,475 16,290 5,995 7,678
Redemptions........................ (298,837) (326,696) (106,883) (44,579) (68,763) (17,637)
-------- -------- -------- ------- ------- -------
Net Increase (Decrease)............ (86,532) (137,469) 3,354 16,817 (52,436) 388
======== ======== ======== ======= ======= =======
</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, 1996, 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, 1996, 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 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, 1996,
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
July 24, 1996 Earnst & Young LLP Sig
14
<PAGE> 16
FUND PERFORMANCE COMPARISON (CORRECTED PAGE 15 OF ANNUAL REPORT)
- --------------------------------------------------------------------------------
[LINE GRAPH]
<TABLE>
<CAPTION>
Primary Trend Fund S&P 500 Composite
<S> <C> <C>
9/30/86 10,000 10,000
9,980 10,577
10,058.84 10,834.02
9,940.148 10,562.09
10,524.63 11,976.35
10,673.03 12,448.22
11,009.23 12,806.73
10,929.96 12,692.75
11,207.58 12,803.17
6/30/87 11,504.58 13,449.73
11,930.25 14,131.64
11,865.83 14,658.75
11,774.46 14,337.72
10,288.52 11,250.81
9,974.724 10,323.74
10,301.89 11,109.38
10,980.79 11,592.64
11,536.42 12,110.83
11,607.94 11,740.24
11,823.85 11,889.34
11,741.08 11,965.43
6/30/88 12,152.02 12,521.82
11,987.97 12,491.77
11,502.46 12,047.06
11,815.32 12,563.88
11,912.21 12,928.23
11,837.16 12,722.67
12,194.64 12,947.87
13,066.56 13,894.36
12,870.56 13,548.39
12,958.08 13,864.06
13,503.62 14,583.61
13,677.82 15,174.24
6/30/89 13,471.28 15,095.34
14,233.75 16,472.03
14,257.95 16,771.82
13,728.98 16,708.09
13,200.42 16,332.16
13,166.1 16,647.37
13,280.64 17,050.24
12,856.99 15,923.22
13,132.13 16,088.82
13,338.3 16,526.43
12,754.08 16,129.8
13,372.66 17,660.52
6/30/90 13,281.72 17,556.32
13,075.86 17,514.18
12,590.74 15,916.89
12,215.54 15,152.88
12,239.97 15,101.36
12,941.32 16,076.91
13,052.61 16,525.45
13,851.43 17,244.31
14,507.99 18,477.28
14,803.96 18,924.43
15,023.05 18,969.85
15,267.93 19,787.45
6/30/91 14,701.49 18,881.18
15,088.14 19,761.05
15,595.1 20,229.38
15,501.53 19,891.55
15,568.19 20,158.1
14,912.77 19,345.73
15,603.23 21,558.88
15,451.88 21,157.88
15,629.57 21,430.82
15,506.1 21,012.92
15,780.56 21,628.6
15,999.91 21,734.58
6/30/92 15,766.31 21,410.73
16,286.6 22,284.29
15,710.05 21,827.46
16,033.68 22,085.03
15,650.47 22,160.12
15,900.88 22,913.56
15,635.34 23,195.4
15,863.61 23,390.24
16,304.62 23,708.35
16,593.21 24,208.59
16,699.41 23,622.74
16,988.31 24,253.47
6/30/93 17,049.47 24,323.81
16,988.09 24,226.51
17,312.56 25,144.7
17,265.82 24,951.08
17,419.48 25,467.57
17,111.16 25,225.63
17,419.16 25,530.86
17,913.86 26,398.91
17,526.92 25,683.5
16,908.22 24,563.7
17,001.22 24,878.11
17,388.85 25,286.11
6/30/94 17,001.07 24,666.6
17,574.01 25,475.67
18,254.12 26,520.17
17,914.6 25,870.42
18,043.58 26,452.51
17,363.34 25,489.64
17,396.33 25,866.88
17,133.65 26,536.84
17,561.99 27,558.5
18,401.45 28,371.48
19,043.66 29,205.6
19,685.43 30,373.83
6/30/95 19,990 31,078.5
20,409.44 32,107.2
20,433.93 32,187.47
20,062.04 33,545.78
19,201.37 33,425.01
20,178.72 34,889.03
20,217.06 35,562.39
21,114.7 36,771.51
21,581.34 37,113.48
21,922.32 37,469.77
22,693.99 38,020.58
22,784.76 38,997.71
6/30/96 22,586.54 39,145.9
</TABLE>
FUND'S TOTAL RETURN PERFORMANCE
1996 Year to Date +11.7%
12 Months Ended June 30, 1996 +13.5%
5 Years (Annualized) + 9.0%
Annualized Since Inception (9/15/86) + 8.8%
[LINE GRAPH]
<TABLE>
<CAPTION>
Primary Income Fund S&P 500 Composite S&P Utilities Index
<S> <C> <C> <C>
9/1/89 10,000 10,000 10,000
10,051 9,962 10,374
10,239.96 9,737.855 10,311.76
10,350.55 9,925.796 10,494.27
10,474.76 10,166 11,211.03
10,174.13 9,494.027 10,255.85
10,240.26 9,592.765 10,143.04
10,226.95 9,853.688 10,283.01
10,021.39 9,617.2 9,836.73
10,317.02 10,529.87 10,505.63
6/30/90 10,421.22 10,467.75 10,285.01
10,453.53 10,442.62 10,254.15
10,059.43 9,490.256 9,444.076
9,915.58 9,034.724 9,781.23
10,329.06 9,004.006 10,514.82
10,657.52 9,585.664 10,819.75
10,869.61 9,853.104 11,036.15
10,916.35 10,281.71 10,705.06
11,242.75 11,016.86 11,025.14
11,467.6 11,283.47 11,189.42
11,608.65 11,310.55 10,999.2
11,728.22 11,798.03 10,845.21
6/30/91 11,377.55 11,257.68 10,693.38
11,851.99 11,782.29 11,024.87
12,296.44 12,061.53 11,311.52
12,590.33 11,860.1 11,537.75
12,709.93 12,019.03 11,768.5
12,586.65 11,534.66 11,662.59
13,205.91 12,854.22 12,513.96
12,803.13 12,615.14 11,925.8
12,812.09 12,777.87 11,508.4
12,617.35 12,528.7 11,347.28
13,176.3 12,895.79 12,084.85
13,414.79 12,958.98 12,072.77
6/30/92 13,263.2 12,765.89 12,241.79
13,795.06 13,286.74 13,221.13
13,692.97 13,014.36 13,115.36
13,753.22 13,167.93 13,207.17
13,383.26 13,212.7 13,088.3
13,420.73 13,661.94 13,062.13
13,507.97 13,829.98 13,532.36
13,780.83 13,946.15 13,748.88
14,272.81 14,135.82 14,738.8
14,632.48 14,434.08 15,004.1
14,591.51 14,084.78 14,689.01
14,803.09 14,460.84 14,674.32
6/30/93 14,951.12 14,502.78 15,349.34
15,197.81 14,444.77 15,702.38
15,735.81 14,992.22 16,456.09
15,671.3 14,876.78 16,423.18
15,710.47 15,184.73 16,390.33
15,432.4 15,040.48 15,570.82
15,591.35 15,222.47 15,492.96
16,015.44 15,740.03 15,585.92
15,523.76 15,313.48 14,713.11
14,985.09 14,645.81 14,212.68
14,982.09 14,833.28 14,568.18
15,115.43 15,076.54 14,174.84
6/30/94 14,664.52 14,707.17 14,203.19
15,329.78 15,189.56 14,686.1
15,690.02 15,812.33 14,642.04
15,512.73 15,424.93 14,275.99
15,678.71 15,771.99 14,390.2
15,153.48 15,197.89 14,188.74
15,189.85 15,422.82 14,273.87
15,437.44 15,822.27 15,387.23
15,761.63 16,431.43 15,356.46
16,251.81 16,916.16 15,259.71
16,630.48 17,413.49 15,830.42
17,146.02 18,110.03 16,322.75
6/30/95 17,070.58 18,530.18 16,392.94
17,442.72 19,143.53 16,814.24
17,434 19,191.39 17,157.25
17,622.29 20,001.27 18,233.01
17,178.21 19,929.26 18,619.55
17,976.99 20,802.17 18,822.5
18,322.15 21,203.65 20,145.72
18,822.34 21,924.57 20,409.63
18,976.69 22,128.47 19,609.57
19,092.45 22,340.9 19,187.97
19,235.64 22,669.32 19,416.3
19,391.45 23,251.92 19,373.59
6/30/96 19,604.75 23,340.27 20,148.53
</TABLE>
FUND'S TOTAL RETURN PERFORMANCE
1996 Year to Date + 7.0%
12 Months Ended June 30, 1996 +14.8%
5 Years (Annualized) +11.5%
Annualized Since Inception (9/1/89) +10.4%
[LINE GRAPH]
<TABLE>
<CAPTION>
Primary U.S. Lehman Intermediate
Government Fund Treasury Composite
<S> <C> <C>
9/1/89 10,000 10,000
10,026 10,046
10,200.45 10,258.98
10,313.68 10,358.49
10,336.37 10,388.53
10,266.08 10,321
10,282.51 10,357.12
10,276.34 10,368.52
10,122.19 10,332.23
10,442.05 10,553.34
6/30/90 10,623.74 10,691.59
10,723.61 10,840.2
10,471.6 10,800,09
10,581.55 10,896.21
10,758.27 11,049.85
11,011.09 11,214.49
11,190.57 11,370.37
11,305.83 11,487.49
11,365.75 11,552.97
11,449.86 11,615.35
11,517.41 11,734.99
11,562.33 11,799.53
6/30/91 11,525.33 11,808.97
11,662.48 11,937.69
11,915.56 12,163.31
12,181.27 12,371.3
12,275.07 12,512.34
12,415.01 12,658.73
12,837.12 12,973.93
12,573.95 12,844.2
12,537.49 12,884.01
12,519.94 12,831.19
12,575.03 12,946.67
12,734.73 13,139.57
6/30/92 12,911.74 13,330.1
13,159.65 13,590.03
13,246.5 13,731.37
13,418.7 13,924.98
13,202.66 13,753.71
13,140.61 13,694.56
13,293.04 13,873.96
13,546.94 14,134.79
13,724.4 14,345.4
13,775.18 14,397.05
13,863.35 14,510.78
13,860.57 14,468.7
6/30/93 14,080.96 14,681.39
14,104.89 14,709.29
14,395.45 14,931.4
14,465.99 14,992.61
14,509.39 15,028.6
14,361.39 14,953.45
14,418.84 15,014.76
14,555.82 15,163.41
14,274.89 14,951.12
14,037.93 14,734.33
13,901.76 14,640.03
13,837.81 14,650.28
6/30/94 13,841.96 14,653.21
14,031.6 14,843.7
14,056.86 14,886.75
13,917.69 14,764.68
13,910.73 14,769.11
13,892.65 14,701.17
13,966.28 14,749.68
14,186.95 14,988.63
14,526.02 15,274.91
14,600.1 15,358.92
14,762.16 15,478.72
15,240.45 15,974.04
6/30/95 15,254.17 16,076.27
15,193.15 16,082.7
15,452.96 16,211.37
15,545.67 16,319.98
15,652.94 16,502.77
15,793.82 16,704.1
15,924.9 16,871.14
16,026.82 17,016.23
15,956.31 16,834.16
15,964.28 16,751.67
15,780.69 16,703.09
15,722.31 16,694.74
6/30/96 15,887.39 16,860.02
</TABLE>
FUND'S TOTAL RETURN PERFORMANCE
1996 Year to Date - 0.3%
12 Months Ended June 30, 1996 + 4.1%
5 Years (Annualized) + 6.6%
Annualized Since Inception (9/1/89) + 7.0%
Past performance is not predictive of future performance. (You already know
that...but we are required to say it anyway.)
15
