(THE PRIMARY TREND FUNDS LOGO)
SEMIANNUAL REPORT
THE PRIMARY
TREND FUND
THE PRIMARY
INCOME FUND
THE PRIMARY U.S.
GOVERNMENT FUND
MILWAUKEE, WISCONSIN
DECEMBER 31, 1999
MESSAGE TO SHAREHOLDERS...
"Consensus opinion has Alan Greenspan and the Federal Reserve resting on
their laurels for the remainder of 1999. We believe the inclination is to
raise rates and that the yield on the 30-year U.S. Treasury bond could
approach 6.5%. This credit tightening, along with fears of a 'Year 2000'
snafu, could create a bona fide buying opportunity in both the U.S. stock
and bond markets over the next six months."
THE PRIMARY TREND
June 30, 1999 - Annual Report
The final six months of 1999 provided enough drama for everyone. Our
forecast for a tighter Fed stance and higher interest rates proved correct,
prompting a minor 10% correction in the popular stock market averages during the
third quarter. However, that "bona fide buying opportunity" which we were
expecting never did surface. In fact, the speculative excesses that permeated
the technology sector throughout 1999 continued to lead the equity markets as
they came to life in the fourth quarter.
On the surface, investors and Wall Street had many reasons to celebrate as
they ushered in the new millennium. The Dow Jones Industrial Average closed at
a new all-time high of 11,497 on December 31, 1999 -- nearly 25% higher than its
close of a year ago, with the majority of those returns coming in the first half
of the year. A number of popular benchmarks followed in the footsteps of the
Dow Jones Industrial Average and closed at new all-time highs as well, including
the headline grabbing NASDAQ Composite and its host of technology issues.
However, despite the market's highly publicized trek into new high ground,
the underlying strength and foundation of this latest bull move deteriorated
even further during 1999, creating one of the most dichotomous market
environments in financial history.
Those in the growth camp had a glorious year as the technology sector put in
a stunning performance. Led by "seasoned" Internet issues as well as the new
"dot-com" kids on the block, the Tech group has defied gravity both in terms of
price and valuations. Those in the value camp, such as ourselves, were able to
find plenty of bargains . . . only to find them much cheaper by the end of the
year.
Nothing illustrates this "tale of two tapes" dichotomy that has existed in
the market better than the chart on the next page (courtesy of the January 31,
2000 issue of Barron's). While the Russell 2000 Index powered ahead in the
final three months of 1999, it would be wrong to conclude that the stock market
broadened out (normally a very healthy sign). As the lower chart reveals, the
growth component (heavily weighted toward technology) of the Russell 2000 Index
fueled the overall performance of the Index. The value component, on the other
hand, spent the majority of the year under water and still finished in negative
territory despite the fourth quarter rally.
The Primary Trend Funds generated the following returns for the six months
ended December 31, 1999:
THE PRIMARY TREND FUND -12.22%
THE PRIMARY INCOME FUND -11.60%
THE PRIMARY U.S. GOVERNMENT FUND -0.10%
SMALL STOCKS ROAR AHEAD . . .
Russell 2000 S+P 500
January 1999: 2.26 3.73
1.26 1.14
0.19 (0.33)
1.33 4.10
February 1999: (2.05) 0.83
(5.46) 0.07
(6.86) 0.81
(6.88) 0.74
March 1999: (5.50) 3.76
(5.35) 5.32
(5.77) 5.70
(6.36) 4.36
April 1999: (5.16) 5.25
(3.45) 9.69
0.32 7.30
2.74 10.38
3.05 8.62
May 1999: 3.85 9.42
5.57 8.83
7.01 8.22
4.56 5.91
June 1999: 5.44 8.01
4.45 5.24
6.14 9.24
5.71 7.00
July 1999: 8.99 13.18
9.37 14.16
11.11 15.42
7.10 10.39
6.29 8.09
August 1999: 2.31 5.78
3.77 8.01
3.89 8.74
3.44 9.68
September 1999: 4.31 10.41
5.57 9.96
4.01 8.64
(0.13) 3.92
October 1999: 1.47 4.36
2.48 8.69
(0.61) 1.48
(0.37) 5.89
2.79 10.88
November 1999: 6.11 11.47
7.88 13.57
10.62 15.68
10.07 15.24
December 1999: 11.46 16.60
11.98 15.28
11.93 15.60
15.83 18.64
21.26 19.53
January 2000: 17.34 17.27
21.99 19.19
28.32 17.26
24.28 13.78
. . . AT LEAST SOME SMALL STOCKS
Russell 2000 Value Russell 2000 Growth
January 1999: 1.31 3.09
(0.55) 2.85
(1.82) 1.96
(2.27) 4.50
February 1999: (5.23) 0.74
(8.01) (3.25)
(8.67) (5.27)
(8.94) (5.06)
March 1999: (8.15) (3.17)
(8.51) (2.57)
(9.60) (2.41)
(10.13) (3.06)
April 1999: (9.52) (1.33)
(8.95) 1.36
(3.80) 3.94
(1.97) 6.88
(1.45) 7.00
May 1999: 0.37 6.92
1.46 9.19
2.87 10.65
1.58 7.17
June 1999: 2.52 8.01
1.46 7.07
3.29 8.66
3.11 8.00
July 1999: 4.96 12.53
5.10 13.14
5.93 15.81
3.49 10.23
2.76 9.33
August 1999: 0.32 3.83
0.83 6.25
1.07 6.23
0.04 6.38
September 1999: 0.23 7.92
0.52 10.15
(1.05) 8.60
(4.84) 4.13
October 1999: (3.69) 6.17
(3.83) 8.35
(6.42) 4.78
(6.51) 6.78
(4.92) 10.02
November 1999: (3.49) 15.28
(3.45) 18.63
(2.55) 23.16
(4.19) 23.67
December 1999: (3.72) 25.95
(6.03) 29.24
(6.00) 29.11
(4.23) 35.06
(1.49) 43.09
January 2000: (2.58) 36.46
(0.71) 43.79
0.78 54.80
(2.05) 49.59
THE PRIMARY TREND FUND lagged the popular large-capitalization benchmarks in
the final six months of 1999. The Standard & Poor's 500 Composite returned 7.7%
during this period, but the unweighted Standard & Poor's 500 returned -7.2%.
Our disciplined, value-oriented investment philosophy contributed to much of
this underperformance as Wall Street's insatiable appetite for momentum and
growth continued at the expense of fundamentally cheap businesses (a/k/a value
stocks). Our lack of exposure to technology and especially its supercharged
Internet brethren explain much of this lethargy.
While the technology/Internet sectors basked in the sun, the interest-
sensitive sectors got burned last year. Alan Greenspan & Co.' s tightening
stance as well as the jump in long-term interest rates from 6% at mid-year to
over 6.5% by year-end inflicted some pain in a number of industry groups. Our
19% exposure to the financial sector (including our bank, insurance and
financial services portfolio holdings) depressed returns as these undervalued
securities became even more undervalued as 1999 unfolded. We continue to find
these stocks greatly undervalued and neglected . . . trading at single-digit
price-earnings multiples when the market trades near 30x and the technology
sector in triple digits. With the price of crude oil surging to near $30 per
barrel (nearly a threefold increase from a year ago), we have been reducing our
energy exposure since we feel much of the move in these stocks has been
realized. Our cushion of fixed income (to include cash and bonds) stood at
23.2% at yearend.
THE PRIMARY INCOME FUND also lagged in the latter half of 1999 due to its
value orientation, and its sensitivity to the interest-rate climate. The rise
in the yield curve hurt our utility equities (currently at 25% of total assets)
as the Standard & Poor's Utilities Index returned -9.9% for the six months ended
December 31, 1999. We have increased our fixed income exposure from 19% at June
30, 1999 to 26% currently . . . premature in the short term, but we feel the
risk/reward potential in bonds is highly attractive relative to the risk
inherent in the equity markets.
THE PRIMARY U.S. GOVERNMENT FUND, despite its slightly negative six-month
return, actually performed quite well relative to its peers. Our commitment to
keep maturities on the shorter side helped the portfolio outpace long-term
bonds, which returned -3.6% for the same period. However, we have extended
maturities lately. We purchased some 10-year agency bonds in the fourth quarter
as yields shot upward. We envision long-term interest rates trading between 6-
7% during the next 12 months.
Thus far, the new millennium has been less than kind to the popular stock
market indices as the Dow Jones Industrial Average has declined 13% to the
10,000 level. Unfortunately, the broader market has followed suit,
deteriorating even further as measured by the New York Stock Exchange daily
advance/decline breadth indicator.
Technology stocks have continued to march higher and now constitute over 30%
of the market capitalization of the S&P 500 compared to just under 20% at the
end of 1998 and a mere 7% in 1992 -- speculation and frothiness at its best.
And certainly not unlike the mob psychology that pumped up energy stocks to
nearly a 30% weighting in the S&P 500 in 1980 prior to that sector's damaging
bear market over the ensuing years.
As long-time value investors, we have just witnessed and participated in 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 which is currently out of synch with today's trend.
In fact, 1999 has seen a number of savvy well-known value managers derided
about the validity and soundness of their investment philosophy and strategy,
culminating in the Barron's cover story that criticized both Warren Buffett and
his Berkshire Hathaway empire. But that will change . . . it always does.
Greed is a double-edged sword. 1999 definitely witnessed the benefits of
reaching for the brass ring. We believe that valuations still do matter.
Richard Hoey of Dreyfus Corporation once quipped, "Our biggest deficit is that
we have a memory." Even one major business magazine has given value managers
honorary memberships in the Flat Earth Society.
Investing is a cyclical business. Growth and value are constantly passing
the leadership baton. Value may be down, but it certainly is not out.
All of us at Arnold Investment Counsel value you as a shareholder in The
Primary Trend Funds. Our efforts are dedicated to helping you achieve your
personal financial goals, which we know include above-average returns
commensurate with below-average risk. As fellow shareholders, we share in the
recent disappointments, but you have our pledge that we are constantly striving
to accomplish those objectives and look forward to the year 2000 as it unfolds.
Sincerely,
/s/ Lilli Gust /s/ Barry S. Arnold
Lilli Gust Barry S. Arnold
President Vice President
PORTFOLIOS OF INVESTMENTS
December 31, 1999 (unaudited)
THE PRIMARY TREND FUND
<TABLE>
SHARES OR
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- -----
<S> <C> <C>
COMMON STOCKS 76.4%
13,000 Aetna, Inc. (Managed care/Insurance) $ 918,887 $ 725,563
7,000 Albertson's, Inc. (Retail food stores) 259,700 225,750
22,000 Allstate Corporation (Insurance) 774,881 528,000
31,500 Archer-Daniels-Midland Co. (Food processing) 503,293 383,906
15,878 BP Amoco plc ADR (Integrated oil company) 325,909 941,764
14,500 CBS Corporation*<F1> (Multimedia) 357,591 927,094
10,000 Chubb Corporation (Insurance) 545,550 563,125
21,000 Crown Cork & Seal Co., Inc. (Packaging products) 672,944 469,875
40,000 Darden Restaurants, Inc. (Restaurant chains) 480,736 725,000
12,000 Eastman Kodak Company (Photographic equipment) 536,365 795,000
35,000 EOG Resources, Inc. (Oil and gas exploration and production) 839,394 614,687
15,000 GreenPoint Financial Corp. (Financial services) 216,550 357,188
8,000 Minnesota Mining & Manufacturing Co.
(Diversified manufacturing) 571,313 783,000
13,000 Mylan Laboratories, Inc. (Pharmaceutical products) 209,567 327,437
8,000 Newmont Mining Corporation (Gold mining) 195,830 196,000
25,000 Occidental Petroleum Corporation (Integrated oil company) 467,085 540,625
10,000 PNC Bank Corporation (Financial services) 499,550 445,000
10,000 PartnerRe Ltd. ADR (Insurance) 332,975 324,375
10,000 J.C. Penney Company, Inc. (Retail stores) 436,225 199,375
20,000 Pennzoil-Quaker State Co. (Automotive consumer products) 452,851 203,750
10,000 Philip Morris Companies, Inc. (Tobacco) 401,000 231,875
10,000 SLM Holding Corporation (Financial services) 126,155 422,500
18,000 Seagram Company Ltd. (Entertainment/Beverages) 611,865 808,875
22,000 UST, Inc. (Tobacco) 615,875 554,125
40,000 Union Pacific Resources Group Inc.
(Oil and gas exploration and production) 756,038 510,000
5,580 United Technologies Corp. (Aerospace) 231,525 362,700
22,000 Wendy's International, Inc. (Restaurant chains) 493,848 453,750
----------- -----------
Total Common Stocks 12,833,502 13,620,339
----------- -----------
BONDS AND NOTES 11.4%
$150,000 Kimco Realty Corp., 6.83%, due 11/14/05 145,265 139,320
400,000 Federal Home Loan Bank, 7.30%, due 9/5/06 400,000 394,360
100,000 Federal Farm Credit Bank, 5.90%, due 7/21/08 93,787 92,707
365,000 Federal Home Loan Bank, 6.35%, due 8/28/08 365,000 337,275
140,000 Federal Home Loan Bank, 5.355%, due 1/5/09 126,140 124,381
500,000 Federal National Mortgage Assoc., 6.42%, 3/9/09 500,000 462,675
500,000 Federal Home Loan Mortgage Co., 7.00%, due 6/30/09 500,000 476,405
----------- -----------
Total Bonds and Notes 2,130,192 2,027,123
----------- -----------
Total Long-Term Investments 14,963,694 15,647,462
----------- -----------
SHORT-TERM INVESTMENTS 11.8%
VARIABLE RATE DEMAND NOTES
897,357 Firstar Bank, 6.16% 897,357 897,357
102,811 General Mills, Inc., 6.10% 102,811 102,811
221,710 Pitney Bowes Credit Corp., 6.10% 221,710 221,710
349,795 Warner-Lambert, Inc., 6.08% 349,795 349,795
422,551 Wisconsin Corporate Central Credit Union, 6.16% 422,551 422,551
108,385 Wisconsin Electric Power Co., 6.04% 108,385 108,385
----------- -----------
Total Variable Rate Demand Notes 2,102,609 2,102,609
----------- -----------
TOTAL INVESTMENTS 99.6% $17,066,303 17,750,071
-----------
-----------
Other Assets, less Liabilities 0.4% 68,702
-----------
NET ASSETS (Equivalent to $10.42 per share
based on 1,709,801 shares outstanding) 100.00% $17,818,773
-----------
-----------
</TABLE>
*<F1> Non-income producing security.
See notes to financial statements.
THE PRIMARY INCOME FUND
<TABLE>
SHARES OR
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- -----
<S> <C> <C>
COMMON STOCKS 62.8%
3,000 Aetna, Inc. (Managed care/Insurance) $ 208,904 $ 167,438
2,000 Alliant Energy Corporation (Electric and gas utility) 61,700 55,000
3,000 Allstate Corporation (Insurance) 116,528 72,000
1,637 Apartment Investment & Management Co.
(Real estate investment trust) 23,363 65,173
4,000 Archer-Daniels-Midland Co. (Food processing) 62,085 48,750
2,646 BP Amoco plc ADR (Integrated oil company) 55,706 156,941
2,000 Chubb Corporation (Insurance) 108,910 112,625
2,000 CINergy Corp. (Electric utility) 39,641 48,250
2,000 Consolidated Natural Gas Co. (Integrated natural gas systems) 87,325 129,875
3,000 Crown Cork & Seal Co., Inc. (Packaging products) 92,928 67,125
4,500 DPL, Inc. (Electric and gas utility) 45,124 77,906
5,000 Darden Restaurants, Inc. (Restaurant chains) 91,017 90,625
1,000 Eastman Kodak Company (Photographic equipment) 69,100 66,250
2,000 GTE Corporation (Telephone utility) 62,995 141,125
4,000 KeySpan Energy (Natural gas utility) 99,715 92,750
1,500 Minnesota Mining & Manufacturing Co. 107,121 146,812
(Diversified manufacturing)
3,000 Occidental Petroleum Corporation (Integrated oil company) 62,250 64,875
2,000 PNC Bank Corporation (Financial services) 99,660 89,000
2,000 J.C. Penney Company, Inc. (Retail stores) 87,073 39,875
3,000 Pennzoil-Quaker State Co.
(Automotive consumer products) 43,652 30,562
2,000 Philip Morris Companies, Inc. (Tobacco) 80,200 46,375
2,500 Seagram Company Ltd. (Entertainment/Beverages) 86,343 112,344
4,511 Sempra Energy (Natural gas utility) 70,329 78,379
4,000 UST, Inc. (Tobacco) 111,240 100,750
4,200 Union Pacific Resources Group Inc.
(Oil and gas exploration and production) 89,510 53,550
4,000 Wendy's International, Inc. (Restaurant chains) 91,476 82,500
3,000 Wisconsin Energy Corporation (Electric and gas utility) 73,280 57,750
----------- -----------
Total Common Stocks 2,227,175 2,294,605
----------- -----------
PREFERRED STOCKS 9.7%
1,000 Central Maine Power $3.50 55,250 41,250
2,000 Conseco Financing Trust $3.50 Series F convertible 77,256 46,750
4,000 Conseco Financing Trust $2.175 100,000 80,250
2,000 MCN Energy Group 8.00% convertible 79,425 81,250
5,000 Tennessee Valley Authority 6.50% Series A 125,000 103,750
----------- -----------
Total Preferred Stocks 436,931 353,250
----------- -----------
BONDS AND NOTES 25.3%
CONVERTIBLE DEBENTURE
$ 50,000 Couer d'Alene Mines Corp., 6.375%, due 1/31/04 47,046 26,750
----------- -----------
CORPORATE NOTES
100,000 Developers Diversified Realty Corp., 7.01%, due 2/7/03 98,538 96,432
99,000 Philadelphia Electric Co., 6.625%, due 3/1/03 100,755 97,296
50,000 Peoples Gas Light Co., 6.37%, due 5/1/03 50,679 49,219
50,000 Northern Illinois Gas Co., 5.75%, due 6/1/03 49,767 48,233
100,000 Wisconsin Gas Company, 6.375%, due 11/1/05 100,785 95,027
100,000 Kimco Realty Corp., 6.83%, due 11/14/05 96,843 92,880
----------- -----------
Total Corporate Notes 497,367 479,087
----------- -----------
U.S. GOVERNMENT AGENCY NOTES
75,000 Federal Home Loan Bank, 7.30%, due 9/5/06 75,000 73,943
50,000 Federal Home Loan Bank, 7.01%, due 8/20/07 50,000 47,451
70,000 Federal Home Loan Bank, 6.35%, due 8/28/08 70,000 64,683
155,000 Federal National Mortgage Assoc., 6.11%, due 12/4/08 143,412 140,408
100,000 Federal National Mortgage Assoc., 6.42%, due 3/9/09 100,000 92,535
----------- -----------
Total U.S. Government Agency Notes 438,412 419,020
----------- -----------
Total Bonds and Notes 982,825 924,857
----------- -----------
Total Long-Term Investments 3,646,931 3,572,712
SHORT-TERM INVESTMENTS 0.4%
VARIABLE RATE DEMAND NOTES
17,382 Firstar Bank, 6.16% 17,382 17,382
----------- -----------
TOTAL INVESTMENTS 98.2% $ 3,664,313 3,590,094
-----------
-----------
Other Assets, less Liabilities 1.8% 64,111
-----------
NET ASSETS (Equivalent to $10.39 per share
based on 351,642 shares outstanding) 100.0% $ 3,654,205
-----------
-----------
</TABLE>
Note to Portfolio of Investments - As required by the Fund's investment
policies, the Fund has invested $1,197,060 (33% of its net assets) in securities
issued by utilities.
See notes to financial statements.
THE PRIMARY U.S. GOVERNMENT FUND
<TABLE>
SHARES OR
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- ---- -----
<S> <C> <C>
U.S. GOVERNMENT AGENCY NOTES 97.4%
$100,000 Federal Home Loan Bank, 5.84%, due 3/5/03 $ 100,000 $ 96,821
100,000 Federal National Mortgage Assoc.,
8.50%, due 2/1/05 99,531 100,180
50,000 Federal Home Loan Bank, 7.30%, due 9/5/06 50,000 49,295
50,000 Federal Home Loan Bank,
7.01%, due 8/20/07 50,000 47,452
45,000 Federal Home Loan Bank, 6.21%, due 12/3/07 44,068 42,760
25,000 Federal Home Loan Bank, 6.35%, due 8/28/08 25,000 23,101
60,000 Federal Home Loan Bank, 5.355%, due 1/5/09 54,060 53,306
100,000 Federal National Mortgage Assoc.,
6.42%, due 3/9/09 100,000 92,535
50,000 Federal Home Loan Mortgage Co., 7.00%, due 6/30/09 50,000 47,640
----------- -----------
Total U.S. Government Agency Notes 572,659 553,090
----------- -----------
TOTAL INVESTMENTS 97.4% $ 572,659 553,090
-----------
-----------
Other Assets, less Liabilities 2.6% 14,498
-----------
NET ASSETS (Equivalent to $9.49 per share
based on 59,832 shares outstanding) 100.00% $ 567,588
-----------
-----------
</TABLE>
See notes to financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1999 (unaudited)
<TABLE>
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 $13,620,339 $2,294,605 $ --
Preferred Stocks -- 353,250 --
Bonds and Notes 2,027,123 924,857 553,090
Short-Term Investments 2,102,609 17,382 --
----------- ---------- --------
Total Investments (Cost $17,066,303;
$3,664,313 and $572,659, respectively) 17,750,071 3,590,094 553,090
Interest Receivable 47,311 15,438 12,210
Dividends Receivable 25,200 7,024 --
Prepaid Expenses 18,092 8,168 5,540
Cash -- 65,363 3,967
----------- ---------- --------
Total Assets 17,840,674 3,686,087 574,807
----------- ---------- --------
Liabilities
Accrued Investment Advisory Fees 11,123 20,882 2,323
Other 10,778 11,000 4,896
----------- ---------- --------
Total Liabilities 21,901 31,882 7,219
----------- ---------- --------
Net Assets $17,818,773 $3,654,205 $567,588
----------- ---------- --------
----------- ---------- --------
Shares Outstanding 1,709,801 351,642 59,832
Net Asset Value Per Share $ 10.42 $ 10.39 $ 9.49
----------- ---------- --------
----------- ---------- --------
Net Assets Consist of:
Capital Stock (30,000,000 shares authorized each) $17,312,357 $3,759,701 $624,260
Net Unrealized Appreciation (Depreciation) of Investments 683,768 (74,219) (19,569)
Undistributed Net Investment Income 42,552 -- --
Undistributed Net Realized Gains (Accumulated Losses) (219,904) (31,277) (37,103)
----------- ---------- --------
Net Assets $17,818,773 $3,654,205 $567,588
----------- ---------- --------
----------- ---------- --------
</TABLE>
See notes to financial statements.
STATEMENTS OF OPERATIONS
For the six months ended December 31, 1999 (unaudited)
<TABLE>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
---------- ----------- ---------------
<S> <C> <C> <C>
Income:
Interest $ 115,495 $ 31,329 $ 23,852
Dividends 177,393(a)<F2> 68,130(b)<F3> --
----------- --------- --------
Total Income 292,888 99,459 23,852
----------- --------- --------
Expenses:
Investment Advisory Fees (Note 3) 73,317 14,910 2,323
Administration and Accounting Fees 18,944 14,251 8,388
Shareholder Servicing Costs 14,463 6,484 5,510
Professional Fees 8,263 5,373 4,111
Registration Fees 2,934 1,492 1,281
Postage 2,304 386 135
Printing 2,080 768 187
Custodial Fees 1,689 1,153 1,269
Other 1,581 630 501
----------- --------- --------
Total Expenses Before Reimbursement 125,575 45,447 23,705
Less Expenses Reimbursed By Adviser (Note 3) -- (25,299) (20,130)
----------- --------- --------
Net Expenses 125,575 20,148 3,575
----------- --------- --------
Net Investment Income 167,313 79,311 20,277
----------- --------- --------
Net Realized Loss on Investments (219,904) (31,277) (5,100)
Change in Net Unrealized Appreciation (Depreciation)
of Investments (2,517,314) (536,015) (15,311)
----------- --------- --------
Net Realized and Unrealized Loss on Investments (2,737,218) (567,292) (20,411)
----------- --------- --------
Net Decrease in Net Assets From Operations $(2,569,905) $(487,981) $ (134)
----------- --------- --------
----------- --------- --------
</TABLE>
(a)<F2> Net of $1,897 in foreign withholding taxes.
(b)<F3> Net of $291 in foreign withholding taxes.
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
<TABLE>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
--------------------------- --------------------------- ---------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
DEC. 31, 1999 1999 DEC. 31, 1999 1999 DEC. 31, 1999 1999
------------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income $ 167,313 $ 321,887 $ 79,311 $ 149,077 $ 20,277 $ 39,650
Net Realized Gain (Loss)
on Investments (219,904) 1,426,084 (31,277) 168,129 (5,100) (324)
Change in Net Unrealized
Appreciation (Depreciation)
of Investments (2,517,314) (968,823) (536,015) (202,840) (15,311) (10,318)
----------- ----------- ---------- ---------- --------- --------
Net Increase (Decrease) in Net
Assets from Operations (2,569,905) 779,148 (487,981) 114,366 (134) 29,008
----------- ----------- ---------- ---------- --------- --------
Distributions to Shareholders:
From Net Investment Income (280,917) (285,475) (79,385) (152,497) (20,525) (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) (163,580) (636,929) (20,525) (39,642)
----------- ----------- ---------- ---------- --------- --------
Fund Share Transactions:
Proceeds from Shares Sold 142,012 391,965 26,006 192,540 68,269 89,102
Reinvested Distributions 1,211,487 2,830,285 153,334 620,704 16,876 32,951
Cost of Shares Redeemed (1,045,628) (3,377,896) (149,142) (587,162) (264,842) (117,429)
----------- ----------- ---------- ---------- --------- --------
Net Increase (Decrease) in
Net Assets from Fund
Share Transactions 307,871 (155,646) 30,198 226,082 (179,697) 4,624
----------- ----------- ---------- ---------- --------- --------
Total Decrease in
Net Assets (3,532,126) (2,362,906) (621,363) (296,481) (200,356) (6,010)
Net Assets:
Beginning of Period 21,350,899 23,713,805 4,275,568 4,572,049 767,944 773,954
----------- ----------- ---------- ---------- --------- --------
End of Period $17,818,773 $21,350,899 $3,654,205 $4,275,568 $ 567,588 $767,944
----------- ----------- ---------- ---------- --------- --------
----------- ----------- ---------- ---------- --------- --------
Undistributed Net Investment
Income at End of Period $ 42,552 $ 156,007 $ -- $ 85 $ -- $ 230
----------- ----------- ---------- ---------- --------- --------
----------- ----------- ---------- ---------- --------- --------
Transactions in Shares:
Sales 12,578 33,413 2,246 16,049 6,973 8,927
Reinvested Distributions 103,237 247,034 13,369 51,871 1,748 3,319
Redemptions (94,645) (288,054) (13,161) (48,685) (27,347) (11,758)
----------- ----------- ---------- ---------- --------- --------
Net Increase (Decrease) 21,170 (7,607) 2,454 19,235 (18,626) 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 period (unaudited)
<TABLE>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
--------------------------- --------------------------- ---------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
DEC. 31, 1999 1999 DEC. 31, 1999 1999 DEC. 31, 1999 1999
------------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $12.64 $13.98 $12.24 $13.86 $9.79 $9.93
------ ------ ------ ------ ----- -----
Net Investment Income 0.10 0.19 0.23 0.42 0.29 0.51
Net Realized and Unrealized Gain
(Loss) on Investments (1.56) 0.23 (1.61) (0.14) (0.30) (0.14)
------ ------ ------ ------ ----- -----
Total from Investment Operations (1.46) 0.42 (1.38) 0.28 (0.01) 0.37
------ ------ ------ ------ ----- -----
Less Distributions:
From Net Investment Income (0.17) (0.16) (0.23) (0.43) (0.29) (0.51)
From Net Realized Gains (0.59) (1.60) (0.24) (1.47) -- --
------ ------ ------ ------ ----- -----
Total Distributions (0.76) (1.76) (0.47) (1.90) (0.29) (0.51)
------ ------ ------ ------ ----- -----
Net Decrease (2.22) (1.34) (1.85) (1.62) (0.30) (0.14)
------ ------ ------ ------ ----- -----
Net Asset Value, End of Period $10.42 $12.64 $10.39 $12.24 $9.49 $9.79
------ ------ ------ ------ ----- -----
------ ------ ------ ------ ----- -----
TOTAL INVESTMENT RETURN -12.2% +4.7% -11.6% +3.0% -0.1% +3.8%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(in thousands) $17,819 $21,351 $3,654 $4,276 $568 $768
Ratio of Net Expenses to
Average Net Assets 1.27%*<F4> 1.27% 1.00%*<F4> 1.00% 1.00%*<F4> 1.00%
Ratio of Net Investment
Income to Average Net Assets 1.69%*<F4> 1.53% 3.95%*<F4> 3.46% 5.69%*<F4> 5.13%
Ratio of Expenses Reimbursed
to Average Net Assets -- -- 1.26%*<F4> 1.12% 5.65%*<F4> 4.97%
Portfolio Turnover 10.1% 47.9% 10.8% 46.9% 23.0% 21.3%
</TABLE>
*<F4> Annualized
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 (unaudited)
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 60 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 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.
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 six months ended December 31, 1999. As of December 31, 1999, 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 six months ended December 31, 1999. For
the six months ended December 31, 1999, the Funds incurred investment
advisory fees, net of expense reimbursements, totalling $45,121. The Trend
Fund paid total directors fees of $1,000 to its outside directors and the
Income Funds paid total directors fees of $1,000 to its outside directors
during the six months ended December 31, 1999.
4. PURCHASES AND SALES OF SECURITIES
Total purchases and sales of securities, other than short-term investments,
for the Funds for the six months ended December 31, 1999 were as follows:
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERNMENT
TREND FUND INCOME FUND FUND
----------- ----------- ---------------
Purchases
U.S. Government $ 619,472 $218,181 $148,026
Other 1,156,961 203,703 --
Sales
U.S. Government -- -- 223,203
Other 2,643,613 419,057 72,110
(THE PRIMARY TREND FUNDS LOGO)
WWW.PRIMARYTRENDFUNDS.COM
INVESTMENT ADVISER
Arnold Investment Counsel Incorporated
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.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202
CUSTODIAN
Firstar Bank Milwaukee, 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
