(THE PRIMARY TREND FUNDS LOGO)
ANNUAL REPORT
THE PRIMARY
TREND FUND
THE PRIMARY
INCOME FUND
THE PRIMARY U.S.
GOVERNMENT FUND
MILWAUKEE, WISCONSIN
JUNE 30, 2000
MESSAGE TO SHAREHOLDERS...
"As long-time value investors, we have just witnessed . . . one of the
most disparate market environments where growth-oriented investing
flourished, while value-oriented investing languished. It has been painful
for value investors and money managers such as ourselves who espouse the
virtues of an investment philosophy that is currently out of synch with
today's trend. Greed is a double-edged sword. 1999 definitely witnessed
the benefits of reaching for the brass ring. We believe that valuations
still do matter. Growth and value are constantly passing the leadership
baton. Value may be down, but it certainly is not out."
THE PRIMARY TREND FUNDS
December 31, 1999 - Semiannual Report
We definitely live in interesting times. To borrow a phrase from Charles
Dickens, "It was the best of times -- it was the worst of times." The technology
boom and Internet craze that captured the hearts of Wall Street and the
investing public in 1998, continued its bullish ways in 1999, finishing the year
on a manic note. However, this was accomplished at the expense of value stocks,
as the chasm between the "haves" and "have-nots" widened considerably.
Everyone realizes that the Internet will become a daily staple in the lives
of Americans, much like the television, telephone or automobile. It is here to
stay. However, the economics of the Internet are much more blurred, uncertain
and untested. And therein lies the problem as the dot-com frenzy has caught
fire. The good news is that it has created a new generation of entrepreneurs
and a new breed of investors. The bad news is that it has also created a high-
expectation atmosphere on Wall Street -- one that has thrown caution to the
wind. It is no different than manias of the past . . . the Gouda Tulip Bulb
craze of the 1600s, the South Sea Bubble of the 1700s, the Nifty-Fifty
phenomenon of the early 1970s, the gold and silver panic of the early 1980s or
the biotech boom of the early 1990s.
What is different is that all of us as investors are currently in the thick
of this technology mania without the benefit of a crystal ball to see how it
ends. And emotion is a very powerful force in the stock market arena. Mob
psychology, more than anything else, is what drives the market pendulum to
extremes.
As card-carrying reasoned contrarians and deep value managers, we were hurt
by technology's fortunes in 1999 -- both indirectly (due to our underweighting
in this top-performing sector) and directly (since value stocks were subjected
to wholesale selling).
The final six months of 1999 and the very beginning of the new millennium
found value managers such as us scratching their heads. The average stock had
peaked in April of 1998 and the majority of stocks were experiencing a bear
market while the success of technology/Internet stocks intoxicated the public
and Wall Street. This frustrating and painful period for the value-oriented
style is best described by value manager and author Seth Klarman as follows: "We
underperformed in 1999 not because we abandoned our strict investment criteria,
but because we adhered to them; not because we ignored fundamental analysis, but
because we practiced it; not because we shunned value, but because we sought it;
and not because we speculated, but because we refused to speculate. Ironically,
we got hurt by not speculating in the U.S. stock market and refusing to play the
technology bubble."
We offer this not as an excuse but as an observation of the stock market
climate in the latter half of 1999. "Buy high to sell higher" ruled the roost,
while the cheap just got cheaper.
The first six months of 2000, however, has been a totally different story.
While the NASDAQ Composite (powered by technology issues) continued its merry
romp into March, this leadership quickly faltered as those stocks suffered a
bear market of their own as the bellwether index fell 35% from its peak in March
to its May low. In a much-anticipated turn of events, value stocks have since
regained some of their lost luster by refusing to make new lows, and in some
cases piquing Wall Street's interest once again.
While the Primary Trend Funds considerably lagged the markets in the latter
half of 1999, they have outpaced those same indices in the first half of 2000.
For the 12 months ended June 30, 2000, the Primary Trend Funds generated the
following total returns to shareholders:
THE PRIMARY TREND FUND -11.1%
THE PRIMARY INCOME FUND - 9.7%
THE PRIMARY U.S. GOVERNMENT FUND + 2.5%
THE PRIMARY TREND FUND
----------------------
The Primary Trend Fund, due to its limited exposure to technology stocks,
underperformed the popular stock market benchmarks in the final six months of
1999. Adherence to our "unpopular" value-oriented investment philosophy
hindered the overall portfolio holdings. We made a conscious decision to avoid
the expensive, high-flying tech sector at a time when that was the only "game in
town". Conversely, lack of exposure to technology has benefited the Fund thus
far in 2000. Technology still represents over 30% of the Standard & Poor's 500
Composite, while it comprises less than 10% in the Fund. We are not averse to
owning technology stocks -- just not at the current rich valuations that the
majority is granted.
Our 18% exposure to the energy sector helped buoy the portfolio as both the
price of crude oil and natural gas climbed to over $30 per barrel and $4.00 per
thousand cubic feet, respectively. We have since taken profits in a number of
exploration and production stocks, trimming our exposure to just under 10%. We
feel much of the capital gain potential in the energy patch has been realized,
but would revisit the sector as values are created.
The tighter monetary stance by the Fed, coupled with Wall Street's distaste
for the undervalued interest-sensitive sector, bruised our financial stocks in
1999. However, we have increased exposure this year to nearly 25% (primarily in
the insurance sector, which is by far the cheapest group trading at less than
10x earnings). This increased financial weighting has helped in 2000 and should
continue to do so as we move forward. The Fund currently holds 15% in cash and
fixed income to be used as we uncover further buying opportunities in the stock
market.
THE PRIMARY INCOME FUND
-----------------------
This Fund also suffered the same fate in the latter half of 1999 as its
value-oriented holdings were discarded in favor of the turbo-charged techs.
Additionally, utility securities came under heavy selling pressure in the final
six months of the year. The Fund currently has a utility exposure of 33% of
total assets, with 16% invested in electric and natural gas utility common
stocks. Ironically, this staid sector has been a bastion of strength in 2000
and has aided the portfolio.
The Fund continues to be conservatively positioned with a 30% fixed-income
exposure (which includes 15% in utility bonds). This portion of the portfolio
provided little enhancement due to the poor performance of the bond market, but
it has provided a steady and secure income stream. We anticipate selling some
fixed-income instruments as interest rates decline and deploying the proceeds
into undervalued equities.
THE PRIMARY U.S. GOVERNMENT FUND
--------------------------------
This Fund performed very competitively over the past year. Our expectations
for a more restrictive Fed policy by Alan Greenspan & Co. were realized. This
allowed our shorter duration portfolio to withstand the adverse rising interest-
rate environment in the latter half of 1999. We capitalized on the rise in bond
yields (decline in bond prices) by extending our maturities earlier this year.
The government agency bonds now held have a maturity range of 5-10 years, up
from the 1-6-year duration a year ago. With an inverted yield curve (the risk-
free 3-month Treasury Bill actually yields 6.25%, while the riskier 30-year
Treasury Bond yields a lower 5.71%), we are less bullish on long-term bonds. We
believe interest rates will have trouble making further progress on the downside
as long bond yields have already fallen from a high of 6.75% early in 2000.
A MARKET OF STOCKS...NOT A STOCK MARKET
---------------------------------------
While the stock market has provided investors with a roller-coaster ride thus
far in 2000, scant progress has been made. As of this writing, the Dow Jones
Industrial Average is trading 7% below its all-time closing high of 11,722.98
achieved on January 14, 2000. Likewise, the S&P 500 is nearly 4% away from its
March record high and the bloodied NASDAQ rests 24% below its March 10 closing
high of 5048.62.
The financial markets are trying to digest a number of unknowns. Is it Bush
or Gore in November? Will the Fed continue to raise rates? Has the Internet
bubble burst? Do higher energy prices translate into revived inflation? Have
tech stocks lost their stock market leadership skills? Old economy or new
economy . . . value or growth . . . what should investors own now?
We believe that the U.S. economy and the stock market are in a transitional
period. Alan Greenspan may have a few more interest-rate boosts up his sleeve,
but the damage is already reflected. Valuations will now become paramount and
stock selection critical. Our recent portfolio additions have performed nicely
as we capitalized on unique buying opportunities in some well-known, brand-name
companies selling on the cheap: Abbott Labs (+38%); Anheuser-Busch (+46%);
Compaq Computer (+28%); Disney (+30%); and Unilever (+11%).
We are confident that we will continue to hone the portfolios and take
advantage of the vagaries in the markets as greed and fear play a tug-of-war.
As we alluded to in our Semiannual Report six months ago, value may have been
down, but certainly not out. Evidence is building that value is back . . .
again.
All of us at Arnold Investment Counsel respect and value you as a shareholder
in the Primary Trend Funds. Our efforts are dedicated solely to one objective -
- making you money. We know that means above-average returns without subjecting
your capital to undue risk. You have our pledge that we are constantly striving
to accomplish those objectives. Our value philosophy is proving its mettle
thus far in 2000, and we are excited about the future and its prospects for you,
our fellow shareholders.
Sincerely,
/s/ Lilli Gust /s/ Barry S. Arnold
Lilli Gust, President Barry S. Arnold, Vice President
August 10, 2000
PORTFOLIOS OF INVESTMENTS
June 30, 2000
THE PRIMARY TREND FUND
SHARES OR
PRINCIPAL MARKET
AMOUNT COST VALUE
------ ---- -----
COMMON STOCKS 84.2%
12,000 AT&T Corp. (Telecommunications) $ 429,710 $ 379,500
14,000 Abbott Laboratories
(Pharmaceutical products) 417,620 623,875
10,000 Aetna, Inc. (Managed care/Insurance) 684,132 641,875
7,000 Albertson's, Inc. (Retail food stores) 259,700 232,750
23,000 Allstate Corporation (Insurance) 795,836 511,750
8,000 Anheuser-Busch Companies, Inc. (Beverages) 472,640 597,500
31,500 Archer-Daniels-Midland Co.
(Food processing) 503,293 309,094
6,998 BP Amoco plc (Integrated oil company) 143,640 395,824
10,000 Chubb Corporation (Insurance) 545,550 615,000
20,000 Compaq Computer Corporation
(Computer hardware) 524,725 511,250
5,000 Crown Cork & Seal Co., Inc.
(Packaging products) 161,182 75,000
40,000 Darden Restaurants, Inc.
(Restaurant chains) 480,736 650,000
9,000 Donaldson, Lufkin & Jenrette, Inc.
(Investment banking) 497,891 381,937
15,000 EOG Resources, Inc. (Oil and gas
exploration and production) 300,644 502,500
10,000 Eastman Kodak Company
(Photography/Imaging) 398,415 595,000
15,000 GreenPoint Financial Corp.
(Financial services) 216,550 281,250
5,000 Honeywell Inc. (Industrial conglomerate) 180,091 168,438
6,000 Minnesota Mining & Manufacturing Co.
(Diversified manufacturing) 428,485 495,000
13,000 Mylan Laboratories, Inc.
(Pharmaceutical products) 209,567 237,250
8,000 Newmont Mining Corporation (Gold mining) 195,830 173,000
25,000 Occidental Petroleum Corporation
(Integrated oil company) 467,085 526,562
10,000 PNC Bank Corporation (Financial services) 499,550 468,750
10,000 PartnerRe Ltd. (Insurance) 332,975 354,375
10,000 J.C. Penney Company, Inc. (Retail stores) 436,225 184,375
30,000 Pennzoil-Quaker State Co.
(Consumer products) 572,401 361,875
10,000 SLM Holding Corporation
(Financial services) 126,155 374,375
6,000 Seagram Company Ltd.
(Entertainment/Beverages) 196,477 348,000
8,000 Unilever N.V. (Consumer products) 344,640 344,000
5,580 United Technologies Corp. (Aerospace) 231,525 328,523
10,000 Walt Disney Company (The) (Entertainment) 327,013 388,125
22,000 Wendy's International, Inc.
(Restaurant chains) 493,848 391,875
----------- -----------
Total Common Stocks 11,874,131 12,448,628
----------- -----------
BONDS AND NOTES 12.3%
$250,000 WorldCom Inc., 7.875%, due 5/15/03 249,842 252,290
150,000 Kimco Realty Corp., 6.83%, due 11/14/05 145,668 142,617
400,000 Federal Home Loan Bank, 7.30%, due 9/5/06 400,000 394,856
100,000 Federal Farm Credit Bank, 5.90%, due 7/21/08 94,140 92,455
365,000 Federal Home Loan Bank, 6.35%, due 8/28/08 365,000 340,341
140,000 Federal Home Loan Bank, 5.355%, due 1/5/09 126,907 124,030
500,000 Federal Home Loan Mortgage Co.,
7.00%, due 6/30/09 500,000 477,540
----------- -----------
Total Bonds and Notes 1,881,557 1,824,129
----------- -----------
Total Long-Term Investments 13,755,688 14,272,757
----------- -----------
SHORT-TERM INVESTMENT 2.8%
VARIABLE RATE DEMAND NOTE
410,113 Wisconsin Corporate Central
Credit Union, 6.32% 410,113 410,113
----------- -----------
TOTAL INVESTMENTS 99.3% $14,165,801 14,682,870
-----------
-----------
Other Assets, less Liabilities 0.7% 104,340
-----------
NET ASSETS 100.0% $14,787,210
-----------
-----------
See notes to financial statements.
THE PRIMARY INCOME FUND
SHARES OR
PRINCIPAL MARKET
AMOUNT COST VALUE
------ ---- -----
COMMON STOCKS 65.2%
2,000 AT&T Corp. (Telecommunications) $ 72,160 $ 63,250
3,000 Abbott Laboratories
(Pharmaceutical products) 89,490 133,687
1,500 Aetna, Inc. (Managed care/Insurance) 91,526 96,281
2,000 Alliant Energy Corporation
(Electric and gas utility) 61,700 52,000
3,000 Allstate Corporation (Insurance) 116,528 66,750
1,500 Anheuser-Busch Companies, Inc. (Beverages) 88,620 112,031
1,637 Apartment Investment & Management Co.
(Real estate investment trust) 23,363 70,800
1,600 BP Amoco plc (Integrated oil company) 33,685 90,500
1,500 Chubb Corporation (Insurance) 81,683 92,250
2,000 CINergy Corp. (Electric utility) 39,641 50,875
3,000 Compaq Computer Corporation
(Computer hardware) 77,240 76,687
4,500 DPL, Inc. (Electric and gas utility) 45,124 98,719
5,000 Darden Restaurants, Inc.
(Restaurant chains) 91,017 81,250
2,000 Donaldson, Lufkin & Jenrette, Inc.
(Investment banking) 107,433 84,875
1,000 Eastman Kodak Company (Photography/Imaging) 69,100 59,500
4,000 KeySpan Energy (Natural gas utility) 99,622 123,000
3,448 MCN Energy Group Inc. (Natural gas utility) 79,420 73,701
1,000 Minnesota Mining & Manufacturing Co.
(Diversified manufacturing) 71,414 82,500
3,000 Occidental Petroleum Corporation
(Integrated oil company) 62,250 63,188
2,000 PNC Bank Corporation (Financial services) 99,660 93,750
2,000 J.C. Penney Company, Inc. (Retail stores) 87,073 36,875
3,000 Pennzoil-Quaker State Co.
(Consumer products) 43,652 36,188
1,000 Seagram Company Ltd.
(Entertainment/Beverages) 34,537 58,000
4,511 Sempra Energy (Natural gas utility) 70,329 76,687
2,700 Unilever N.V. (Consumer products) 116,316 116,100
2,000 Walt Disney Company (The) (Entertainment) 64,744 77,625
4,000 Wendy's International, Inc.
(Restaurant chains) 91,476 71,250
3,000 Wisconsin Energy Corporation
(Electric and gas utility) 73,280 59,438
---------- ----------
Total Common Stocks 2,082,083 2,197,757
---------- ----------
PREFERRED STOCKS 1.2%
1,000 Central Maine Power $3.50 55,250 41,000
---------- ----------
BONDS AND NOTES 29.6%
CONVERTIBLE DEBENTURE
$ 50,000 Couer d'Alene Mines Corp.,
6.375%, due 1/31/04 47,406 22,750
---------- ----------
CORPORATE NOTES
100,000 Developers Diversified Realty Corp.,
7.01%, due 2/7/03 98,773 96,478
99,000 Philadelphia Electric Co.,
6.625%, due 3/1/03 100,499 96,916
50,000 Peoples Gas Light Co.,
6.37%, due 5/1/03 50,585 48,661
50,000 Northern Illinois Gas Co.,
5.75%, due 6/1/03 49,767 48,383
100,000 Wisconsin Gas Company,
6.375%, due 11/1/05 100,727 95,575
100,000 Kimco Realty Corp.,
6.83%, due 11/14/05 97,111 95,078
170,000 WPS Resources Corp.,
7.00%, due 11/1/09 161,676 163,530
---------- ----------
Total Corporate Notes 659,138 644,621
---------- ----------
U.S. GOVERNMENT AGENCY NOTES
75,000 Federal Home Loan Bank,
7.30%, due 9/5/06 75,000 74,036
50,000 Federal Home Loan Bank,
7.01%, due 8/20/07 50,000 48,388
70,000 Federal Home Loan Bank,
6.35%, due 8/28/08 70,000 65,271
155,000 Federal National Mortgage Assoc.,
6.11%, due 12/4/08 144,058 143,074
---------- ----------
Total U.S. Government
Agency Notes 339,058 330,769
---------- ----------
Total Bonds and Notes 1,045,602 998,140
---------- ----------
Total Long-Term Investments 3,182,935 3,236,897
---------- ----------
SHORT-TERM INVESTMENT 2.7%
VARIABLE RATE DEMAND NOTE
92,375 Wisconsin Corporate Central
Credit Union, 6.32% 92,375 92,375
---------- ----------
TOTAL INVESTMENTS 98.7% $3,275,310 3,329,272
----------
----------
Other Assets, less Liabilities 1.3% 42,488
----------
NET ASSETS 100.0% $3,371,760
----------
----------
Note to Portfolio of Investments -- As permitted by the Fund's investment
policies, the Fund has invested $1,028,485 (31% of its net assets) in securities
issued by utilities.
See notes to financial statements.
THE PRIMARY U.S. GOVERNMENT FUND
PRINCIPAL MARKET
AMOUNT COST VALUE
------ ---- -----
U.S. GOVERNMENT AGENCY NOTES 94.3%
$ 50,000 Federal Home Loan Mortgage Co.,
6.875%, due 1/15/05 $ 50,000 $ 49,739
50,000 Federal Home Loan Bank, 7.30%, due 9/5/06 50,000 49,357
50,000 Federal National Mortgage Assoc.,
7.45%, due 4/30/07 49,700 49,328
50,000 Federal Home Loan Bank, 7.01%, due 8/20/07 50,000 48,388
45,000 Federal Home Loan Bank, 6.21%, due 12/3/07 44,125 42,729
25,000 Federal Home Loan Bank, 6.35%, due 8/28/08 25,000 23,311
60,000 Federal Home Loan Bank, 5.355%, due 1/5/09 54,388 53,156
45,000 Federal National Mortgage Assoc.,
5.25%, due 1/15/09 40,640 39,555
100,000 Federal National Mortgage Assoc.,
6.42%, due 3/9/09 100,000 94,023
50,000 Federal Home Loan Mortgage Co.,
7.00%, due 6/30/09 50,000 47,754
-------- --------
Total U.S. Government Agency Notes 513,853 497,340
-------- --------
SHORT-TERM INVESTMENTS 3.1%
VARIABLE RATE DEMAND NOTES
15,408 Firstar Bank, 6.32% 15,408 15,408
826 Wisconsin Corporate Central Credit
Union, 6.32% 826 826
-------- --------
Total Variable Rate Demand Notes 16,234 16,234
-------- --------
TOTAL INVESTMENTS 97.4% $530,087 513,574
--------
--------
Other Assets, less Liabilities 2.6% 13,580
--------
NET ASSETS 100.0% $527,154
--------
--------
See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2000
<TABLE>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
Assets:
Investments, at Value (Note 2):
Common Stocks $12,448,628 $2,197,757 $ --
Preferred Stocks -- 41,000 --
Bonds and Notes 1,824,129 998,140 497,340
Short-Term Investments 410,113 92,375 16,234
----------- ---------- --------
Total Investments (Cost $14,165,801; 3,275,310 14,682,870 3,329,272 513,574
and 530,087, respectively)
Receivable for Investments Sold 75,847 45,508 --
Dividends Receivable 22,136 4,921 --
Interest Receivable 30,321 15,745 11,897
Prepaid Expenses 2,335 1,721 16
Cash -- -- 30
Due from Adviser -- -- 9,073
----------- ---------- --------
Total Assets 14,813,509 3,397,167 534,590
----------- ---------- --------
Liabilities
Accrued Investment Advisory Fees 9,321 15,488 --
Other 16,978 9,919 7,436
----------- ---------- --------
Total Liabilities 26,299 25,407 7,436
----------- ---------- --------
Net Assets $14,787,210 $3,371,760 $527,154
----------- ---------- --------
----------- ---------- --------
Shares Outstanding 1,401,600 324,148 55,731
Net Asset Value Per Share $ 10.55 $ 10.40 $ 9.46
----------- ---------- --------
----------- ---------- --------
Net Assets Consist of:
Capital Stock (30,000,000 shares authorized each) $14,190,399 $3,477,481 $585,254
Net Unrealized Appreciation (Depreciation)
of Investments 517,069 53,962 (16,513)
Undistributed Net Investment Income 170,077 257 173
Accumulated Net Realized Losses (90,335) (159,940) (41,760)
----------- ---------- --------
Net Assets $14,787,210 $3,371,760 $527,154
----------- ---------- --------
----------- ---------- --------
</TABLE>
See notes to financial statements.
STATEMENTS OF OPERATIONS
For the year ended June 30, 2000
<TABLE>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
Income:
Interest $207,007 $69,695 $42,101
Dividends 331,904(a) 117,579(b) --
<F1> <F2>
----------- --------- --------
Total Income 538,911 187,274 42,101
----------- --------- --------
Expenses:
Investment Advisory Fees (Note 3) 129,330 27,577 4,070
Administration and Accounting Fees 37,263 28,039 16,585
Shareholder Servicing Costs 28,889 11,608 10,015
Professional Fees 25,456 14,485 12,080
Registration Fees 5,913 3,006 2,505
Printing 4,876 1,492 427
Custodial Fees 4,478 1,970 1,767
Postage 3,625 606 205
Insurance 2,153 444 78
Other 2,090 1,166 1,077
----------- --------- --------
Total Expenses Before Reimbursement 244,073 90,393 48,809
Less Expenses Reimbursed By Adviser (Note 3) -- (53,126) (42,546)
----------- --------- --------
Net Expenses 244,073 37,267 6,263
----------- --------- --------
Net Investment Income 294,838 150,007 35,838
----------- --------- --------
Net Realized Loss on Investments (90,335) (159,940) (9,757)
Change in Net Unrealized Appreciation/Depreciation
of Investments (2,684,013) (407,834) (12,255)
----------- --------- --------
Net Realized and Unrealized Loss on Investments (2,774,348) (567,774) (22,012)
----------- --------- --------
Net Increase (Decrease) in Net Assets From Operations $(2,479,510) $(417,767) $ 13,826
----------- --------- --------
----------- --------- --------
</TABLE>
(a)<F1> Net of $4,082 in foreign withholding taxes.
(b)<F2> Net of $832 in foreign withholding taxes.
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended June 30, 2000 and 1999
<TABLE>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
------------------------- ------------------------- -------------------------
2000 1999 2000 1999 2000 1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income $ 294,838 $ 321,887 $ 150,007 $ 149,077 $ 35,838 $ 39,650
Net Realized Gain (Loss)
on Investments (90,335) 1,426,084 (159,940) 168,129 (9,757) (324)
Change in Net Unrealized
Appreciation/Depreciation
of Investments (2,684,013) (968,823) (407,834) (202,840) (12,255) (10,318)
----------- ----------- ---------- ---------- -------- --------
Net Increase (Decrease) in Net
Assets from Operations (2,479,510) 779,148 (417,767) 114,366 13,826 29,008
----------- ----------- ---------- ---------- -------- --------
Distributions to Shareholders:
From Net Investment Income (280,917) (285,475) (149,823) (152,497) (35,895) (39,642)
From Net Realized Gains (989,175) (2,700,933) (84,195) (484,432) -- --
----------- ----------- ---------- ---------- -------- --------
Decrease in Net Assets from
Distributions (1,270,092) (2,986,408) (234,018) (636,929) (35,895) (39,642)
----------- ----------- ---------- ---------- -------- --------
Fund Share Transactions:
Proceeds from Shares Sold 216,516 391,965 50,202 192,540 73,195 89,102
Reinvested Distributions 1,211,487 2,830,285 215,471 620,704 25,190 32,951
Cost of Shares Redeemed (4,242,090) (3,377,896) (517,696) (587,162) (317,106) (117,429)
----------- ----------- ---------- ---------- -------- --------
Net Increase (Decrease) in
Net Assets from Fund
Share Transactions (2,814,087) (155,646) (252,023) 226,082 (218,721) 4,624
----------- ----------- ---------- ---------- -------- --------
Total Decrease in
Net Assets (6,563,689) (2,362,906) (903,808) (296,481) (240,790) (6,010)
----------- ----------- ---------- ---------- -------- --------
Net Assets:
Beginning of Year 21,350,899 23,713,805 4,275,568 4,572,049 767,944 773,954
----------- ----------- ---------- ---------- -------- --------
End of Year $14,787,210 $21,350,899 $3,371,760 $4,275,568 $527,154 $767,944
----------- ----------- ---------- ---------- -------- --------
----------- ----------- ---------- ---------- -------- --------
Undistributed Net Investment
Income at End of Year $ 170,077 $ 156,007 $ 257 $ 85 $ 173 $ 230
----------- ----------- ---------- ---------- -------- --------
----------- ----------- ---------- ---------- -------- --------
Transactions in Shares:
Sales 19,851 33,413 4,635 16,049 7,495 8,927
Reinvested Distributions 103,237 247,034 19,423 51,871 2,633 3,319
Redemptions (410,119) (288,054) (49,098) (48,685) (32,855) (11,758)
----------- ----------- ---------- ---------- -------- --------
Net Increase (Decrease) (287,031) (7,607) (25,040) 19,235 (22,727) 488
----------- ----------- ---------- ---------- -------- --------
----------- ----------- ---------- ---------- -------- --------
</TABLE>
See notes to financial statements.
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>
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
THE PRIMARY TREND FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $ 12.64 $ 13.98 $ 14.82 $ 12.59 $ 12.10
------- ------- ------- ------- -------
Net Investment Income 0.20 0.19 0.13 0.12 0.21
Net Realized and Unrealized Gain (Loss) on Investments (1.53) 0.23 1.60 2.98 1.30
------- ------- ------- ------- -------
Total from Investment Operations (1.33) 0.42 1.73 3.10 1.51
------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income (0.17) (0.16) (0.06) (0.14) (0.23)
From Net Realized Gains (0.59) (1.60) (2.51) (0.73) (0.79)
------- ------- ------- ------- -------
Total Distributions (0.76) (1.76) (2.57) (0.87) (1.02)
------- ------- ------- ------- -------
Net Increase (Decrease) (2.09) (1.34) (0.84) 2.23 0.49
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 10.55 $ 12.64 $ 13.98 $ 14.82 $ 12.59
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN (11.1)% 4.7% 13.1% 26.2% 11.7%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands) $14,787 $21,351 $23,714 $23,206 $21,123
Ratio of Net Expenses to Average Net Assets 1.40% 1.27% 1.24% 1.18% 1.19%
Ratio of Net Investment Income to Average Net Assets 1.69% 1.53% 0.89% 0.82% 1.68%
Portfolio Turnover 32.6% 47.9% 24.4% 63.5% 46.5%
THE PRIMARY INCOME FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $ 12.24 $ 13.86 $ 14.45 $ 12.77 $ 12.07
------- ------- ------- ------- -------
Net Investment Income 0.44 0.42 0.45 0.42 0.43
Net Realized and Unrealized Gain (Loss) on Investments (1.60) (0.14) 1.50 2.44 1.28
------- ------- ------- ------- -------
Total from Investment Operations (1.16) 0.28 1.95 2.86 1.71
------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income (0.44) (0.43) (0.44) (0.42) (0.43)
From Net Realized Gains (0.24) (1.47) (2.10) (0.76) (0.58)
------- ------- ------- ------- -------
Total Distributions (0.68) (1.90) (2.54) (1.18) (1.01)
------- ------- ------- ------- -------
Net Increase (Decrease) (1.84) (1.62) (0.59) 1.68 0.70
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 10.40 $ 12.24 $ 13.86 $ 14.45 $ 12.77
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN (9.7)% 3.0% 14.7% 24.1% 14.8%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands) $ 3,372 $ 4,276 $ 4,572 $ 4,307 $ 4,510
Ratio of Net Expenses to Average Net Assets 1.00% 1.00% 0.97% 0.84% 0.84%
Ratio of Net Investment Income to Average Net Assets 4.04% 3.46% 3.16% 3.19% 3.43%
Ratio of Expenses Reimbursed to Average Net Assets 1.43% 1.12% 1.05% 0.86% 0.73%
Portfolio Turnover 33.4% 46.9% 33.5% 48.4% 41.5%
THE PRIMARY U.S. GOVERNMENT FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $ 9.79 $ 9.93 $ 9.88 $ 9.87 $ 10.09
------- ------- ------- ------- -------
Net Investment Income 0.56 0.51 0.55 0.63 0.63
Net Realized and Unrealized Gain (Loss) on Investments (0.33) (0.14) 0.05 0.01 (0.22)
------- ------- ------- ------- -------
Total from Investment Operations 0.23 0.37 0.60 0.64 0.41
------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income (0.56) (0.51) (0.55) (0.63) (0.63)
From Net Realized Gains -- -- -- -- --
------- ------- ------- ------- -------
Total Distributions (0.56) (0.51) (0.55) (0.63) (0.63)
------- ------- ------- ------- -------
Net Increase (Decrease) (0.33) (0.14) 0.05 0.01 (0.22)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 9.46 $ 9.79 $ 9.93 $ 9.88 $ 9.87
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL INVESTMENT RETURN 2.5% 3.8% 6.2% 6.7% 4.1%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands) $ 527 $ 768 $ 774 $ 734 $ 799
Ratio of Net Expenses to Average Net Assets 1.00% 1.00% 0.95% 0.75% 0.75%
Ratio of Net Investment Income to Average Net Assets 5.74% 5.13% 5.55% 6.41% 6.24%
Ratio of Expenses Reimbursed to Average Net Assets 6.81% 4.97% 5.09% 3.84% 2.20%
Portfolio Turnover 49.6% 21.3% 62.6% 29.3% 46.6%
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
1. ORGANIZATION
The Primary Trend Fund, Inc. ("Trend Fund"), a growth and income 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 60 days or less remaining to
maturity, is valued at the last sale price on the principal exchange, 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 60 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. As of June 30, 2000, the Trend Fund,
Income Fund, and Government Fund had federal income tax capital loss
carryforwards of $23,777, $34,060, and $32,443, respectively. The entire
federal income tax loss carryforward for the Trend Fund and Income Fund
expire in 2008. The federal income tax loss carryforward for the
Government Fund expires as follows: $28,714 in 2003, $2,965 in 2005, and
$764 in 2008. As of June 30, 2000, the Trend Fund, Income Fund, and
Government Fund had post-October capital losses of $66,558, $125,880,
and $9,317, respectively, which are deferred until 2001 for tax
purposes.
d. Dividends from net investment income are declared and paid at least
annually by the Trend Fund and are declared and paid monthly by the
Income Fund and the Government Fund. Distributions of net realized
capital gains, if any, are declared and paid at least annually.
Distributions to shareholders are recorded on the ex-dividend date. The
character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for
federal income tax purposes due to differences in the recognition of
income, expense and gain items for financial statement and tax purposes.
Where appropriate, reclassifications between net asset accounts are made
for such differences.
e. 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 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, 2000. As of June 30, 2000, the Adviser was
reimbursing the Income Fund and the Government Fund for all expenses
exceeding 1.00% of their respective 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, 2000. For the year
ended June 30, 2000, the Funds incurred investment advisory fees, net of
expense reimbursements, totalling $65,305. The Trend Fund and the Income
Funds each paid total directors fees of $1,000 to its outside directors
during the year ended June 30, 2000.
4. PURCHASES AND SALES OF SECURITIES
Total purchases and sales of securities, other than short-term investments,
for the Funds for the year ended June 30, 2000, were as follows:
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
---------- ----------- ---------------
Purchases
U.S. Government $ 619,471 $ 218,181 $288,226
Other 4,617,082 981,300 --
Sales
U.S. Government 461,465 92,293 418,078
Other 6,981,366 1,440,785 72,110
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders,
The Primary Trend Fund, Inc.
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, 2000, 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 auditing standards generally
accepted in the United States. 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, 2000, 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 positions of The
Primary Trend Fund, Inc. and The Primary Income Funds, Inc. at June 30, 2000,
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 accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
July 21, 2000
FUND PERFORMANCE COMPARISON
PRIMARY TREND FUND S&P 500 COMPOSITE
6/30/90 10,000 10,000
9/30/90 9,197 8,626
12/31/90 9,827 9,399
3/31/91 11,147 10,764
6/30/91 11,069 10,740
9/30/91 11,671 11,314
12/31/91 11,748 12,263
3/31/92 11,676 11,953
6/30/92 11,872 12,180
9/30/92 12,075 12,564
12/31/92 11,776 13,197
3/31/93 12,497 13,773
6/30/93 12,840 13,840
9/30/93 13,003 14,198
12/31/93 13,119 14,527
3/31/94 12,734 13,976
6/30/94 12,804 14,035
9/30/94 13,492 14,721
12/31/94 13,102 14,718
3/31/95 13,858 16,151
6/30/95 14,985 17,693
9/30/95 15,107 19,099
12/31/95 15,225 20,249
3/31/96 16,508 21,336
6/30/96 17,008 22,294
9/30/96 17,592 22,983
12/31/96 19,789 24,898
3/31/97 19,529 25,566
6/30/97 21,470 30,029
9/30/97 23,607 32,279
12/31/97 23,388 33,205
3/31/98 24,986 37,837
6/30/98 24,274 39,086
9/30/98 21,771 35,198
12/31/98 22,918 42,694
3/31/99 23,179 44,822
6/30/99 25,411 47,981
9/30/99 23,445 44,985
12/31/99 22,305 51,679
3/31/2000 22,177 52,864
6/30/2000 22,584 51,460
FUND'S TOTAL RETURN PERFORMANCE
-------------------------------
2000 Year to Date + 1.3%
12 Months Ended June 30, 2000 -11.1%
5 Years (Annualized) + 8.6%
10 Years (Annualized) + 8.5%
Annualized Since Inception (9/15/86) + 8.4%
Initial Investment of
$10,000 on 6/30/90
Primary Income Fund S&P 500 Composite S&P Utilities Index
6/30/90 10,000 10,000 10,000
9/30/90 9,515 8,626 9,510
12/31/90 10,431 9,399 10,730
3/31/91 11,005 10,764 10,879
6/30/91 10,918 10,740 10,397
9/30/91 12,083 11,314 11,218
12/31/91 12,673 12,263 12,167
3/31/92 12,107 11,953 11,033
6/30/92 12,726 12,180 11,903
9/30/92 13,197 12,564 12,841
12/31/92 12,961 13,197 13,157
3/31/93 14,040 13,773 14,588
6/30/93 14,346 13,840 14,924
9/30/93 15,037 14,198 15,968
12/31/93 14,962 14,527 15,064
3/31/94 14,380 13,976 13,819
6/30/94 14,264 14,035 13,810
9/30/94 14,885 14,721 13,880
12/31/94 14,575 14,718 13,878
3/31/95 15,595 16,151 14,837
6/30/95 16,380 17,693 15,939
9/30/95 16,909 19,099 17,728
12/31/95 17,580 20,249 19,587
3/31/96 18,320 21,336 18,656
6/30/96 18,810 22,294 19,590
9/30/96 19,223 22,983 18,902
12/31/96 21,112 24,898 20,163
3/31/97 21,545 25,566 19,483
6/30/97 23,342 30,029 20,628
9/30/97 25,661 32,279 21,619
12/31/97 26,498 33,205 25,140
3/31/98 27,502 37,837 26,553
6/30/98 26,778 39,086 26,874
9/30/98 25,756 35,198 28,120
12/31/98 26,637 42,694 28,858
3/31/99 25,577 44,822 26,157
6/30/99 27,574 47,981 29,196
9/30/99 25,649 44,985 27,799
12/31/99 24,376 51,679 26,299
3/31/2000 24,529 52,864 28,426
6/30/2000 24,911 51,460 32,178
FUND'S TOTAL RETURN PERFORMANCE
-------------------------------
2000 Year to Date + 2.2%
12 Months Ended June 30, 2000 - 9.7%
5 Years (Annualized) + 8.8%
10 Years (Annualized) + 9.6%
Annualized Since Inception (9/1/89) + 9.2%
Initial Investment of
$10,000 on 6/30/90
Primary U.S. Lehman Intermediate U.S.
Government Fund Government Bond Index
6/30/90 10,000 10,000
9/30/90 9,960 10,193
12/31/90 10,533 10,636
3/31/91 10,777 10,871
6/30/91 10,848 11,053
9/30/91 11,465 11,578
12/31/91 12,083 12,135
3/31/92 11,784 12,007
6/30/92 12,153 12,473
9/30/92 12,630 13,019
12/31/92 12,513 12,976
3/31/93 12,966 13,461
6/30/93 13,254 13,726
9/30/93 13,616 14,015
12/31/93 13,572 14,037
3/31/94 13,214 13,778
6/30/94 13,029 13,701
9/30/94 13,101 13,805
12/31/94 13,146 13,792
3/31/95 13,743 14,366
6/30/95 14,360 15,038
9/30/95 14,634 15,271
12/31/95 14,991 15,782
3/31/96 15,026 15,673
6/30/96 14,954 15,779
9/30/96 15,246 16,050
12/31/96 15,555 16,421
3/31/97 15,569 16,416
6/30/97 15,957 16,875
9/30/97 16,259 17,307
12/31/97 16,508 17,690
3/31/98 16,697 17,956
6/30/98 16,947 18,288
9/30/98 17,369 19,140
12/31/98 17,456 19,188
3/31/99 17,573 19,136
6/30/99 17,588 19,099
9/30/99 17,684 19,292
12/31/99 17,571 19,282
3/31/2000 17,725 19,598
6/30/2000 18,027 19,954
FUND'S TOTAL RETURN PERFORMANCE
-------------------------------
2000 Year to Date +2.6%
12 Months Ended June 30, 2000 +2.5%
5 Years (Annualized) +4.7%
10 Years (Annualized) +6.1%
Annualized Since Inception (9/1/89) +6.2%
Initial Investment of
$10,000 on 6/30/90
Past performance is not predictive of future performance. (You already know
that...but we are required to say it anyway.)
TAX INFORMATION FOR CORPORATE SHAREHOLDERS
For the year ended June 30, 2000, 99.2% and 70.9% of dividends paid from net
investment income qualified for the dividends received deduction available to
corporate shareholders of the Trend Fund and Income Fund, respectively.
(THE PRIMARY TREND FUNDS LOGO)
WWW.PRIMARYTRENDFUNDS.COM
INVESTMENT ADVISER
Arnold Investment Counsel Incorporated
First Financial Centre
700 North Water Street
Milwaukee, Wisconsin 53202
1-800-443-6544
OFFICERS
Lilli Gust, President
Barry S. Arnold, Vice President and Assistant Secretary
James R. Arnold, Jr., Secretary and Treasurer
DIRECTORS
Barry S. Arnold
Lilli Gust
Clark J. Hillery
Harold L. Holtz
ADMINISTRATOR
Sunstone Financial Group, Inc.
803 West Michigan Street
Milwaukee, Wisconsin 53233
CUSTODIAN
Firstar Bank, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
1-800-968-2122
INDEPENDENT AUDITORS
Ernst & Young LLP
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Founding member of
100% NO-LOAD TM
MUTUAL FUND
COUNCIL
