<PAGE> 1
PROSPECTUS OCTOBER 24, 1995
[C.R. LOGO]
FIRST FINANCIAL CENTRE
700 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
(800) 443-6544 (FUND INFORMATION)
(800) 338-1579 (ACCOUNT INFORMATION)
The Primary Trend Funds (the "Funds") consist of three no-load funds
offering a variety of investment choices. The first of such Funds was The
Primary Trend Fund, Inc., a total return fund launched September 15, 1986. The
Primary Trend Fund, Inc. was followed on September 1, 1989 by The Primary Income
Funds, Inc. which is a separate investment company consisting of two separate
portfolios -- The Primary Income Fund and The Primary U.S. Government Fund --
dedicated primarily to the generation of income.
The investment objectives of the Funds are set forth below.
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THE PRIMARY TREND FUND...
seeks to maximize total return (a combination of capital growth and current
income) without exposing capital to undue risk.
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THE PRIMARY INCOME FUND...
seeks a high level of current income, with a reasonable opportunity for
capital appreciation, from investments in a diversified portfolio of
fixed-income securities and/or dividend-paying common and preferred stocks.
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THE PRIMARY U.S. GOVERNMENT FUND...
seeks a high level of current income from investments in a diversified
portfolio of securities issued or guaranteed as to principal and interest by the
U.S. Government and its agencies or instrumentalities.
No assurances can be given that the respective investment objectives of the
Funds will be realized.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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This Prospectus sets forth concisely the information about the Funds that
you should know before investing. Please read this Prospectus and retain it for
future reference. Additional information about the Funds has been filed with the
Securities and Exchange Commission in the form of a Statement of Additional
Information, dated October 24, 1995 which is incorporated by reference in this
Prospectus. Copies of the Statement of Additional Information will be provided
without charge upon request to the Funds at the above address or telephone
number.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO. PAGE NO.
-------- --------
<S> <C> <C> <C>
EXPENSE INFORMATION.......................... 2 MAY SHAREHOLDERS MAKE
FINANCIAL HIGHLIGHTS......................... 3 EXCHANGES BETWEEN FUNDS?..................... 14
WHAT ARE THE PRIMARY TREND WHAT ABOUT DIVIDENDS, CAPITAL
FUNDS?..................................... 4 GAINS DISTRIBUTIONS AND TAXES?............... 16
WHAT ARE THE FUNDS' INVESTMENT MAY SHAREHOLDERS REINVEST
OBJECTIVES?................................ 5 DIVIDENDS?................................... 16
WHAT ARE THE FUNDS' INVESTMENT MAY SHAREHOLDERS
POLICIES?.................................. 6 SYSTEMATICALLY WITHDRAW
DO THE FUNDS HAVE ANY INVESTMENT INVESTMENTS IN FUND SHARES?.................. 17
LIMITATIONS DESIGNED TO REDUCE WHAT RETIREMENT PLANS DO THE
RISK?...................................... 10 FUNDS OFFER?................................. 17
WHAT REPORTS WILL I RECEIVE?................. 11 WHAT ABOUT BROKERAGE
WHO MANAGES THE FUNDS?....................... 11 TRANSACTIONS?................................ 18
HOW IS EACH FUND'S SHARE PRICE GENERAL INFORMATION ABOUT THE
DETERMINED?................................ 12 COMPANIES AND THE FUNDS...................... 18
HOW DO I OPEN AN ACCOUNT AND WHO ARE THE DIRECTORS AND
PURCHASE SHARES?........................... 12 OFFICERS OF THE COMPANIES?................... 20
HOW DO I SELL MY SHARES?..................... 13 ACCOUNT APPLICATION.......................... 21
</TABLE>
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EXPENSE INFORMATION
<TABLE>
<CAPTION>
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERN-
TREND FUND INCOME FUND MENT FUND
----------- ----------- ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load on Purchases or Reinvested Dividends... None None None
Deferred Sales Load....................................... None None None
Redemption Fee*........................................... None None None
Exchange Fee**............................................ None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees........................................... 0.74% 0.74% 0.65%
12b-1 Fees................................................ None None None
Other Expenses (after fee waivers and expense
reimbursements)***...................................... 0.50% 0.10% 0.10%
----- ----- -----
TOTAL FUND OPERATING EXPENSES............................. 1.24% 0.84% 0.75%
===== ===== =====
</TABLE>
* A fee of $7.50 is charged by Firstar Trust Company for each wire redemption.
** A fee of $5.00 is charged by Firstar Trust Company for each telephone
exchange.
*** Without fee waivers and expense reimbursements, other expenses for The
Primary Income Fund and The Primary U.S. Government Fund would have been
0.86% and 2.02%, respectively.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Primary Trend Fund..................... $ 13 $39 $68 $150
The Primary Income Fund.................... $ 9 $27 $47 $104
The Primary U.S. Government Fund........... $ 8 $24 $42 $ 93
</TABLE>
The purpose of the preceding table is to assist investors in understanding
the various costs that an investor in a particular Fund will bear, directly or
indirectly. They should not be considered to be a representation of past or
future expenses. Actual expenses may be more or less than those shown. The
respective annual fund operating expenses for the Funds are based on the actual
amounts incurred for the fiscal year ended June 30, 1995. The example assumes a
5% annual rate of return pursuant to requirements of the Securities and Exchange
Commission. This hypothetical rate of return is not intended to be
representative of past or future performance of any of the Funds.
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<PAGE> 3
FINANCIAL HIGHLIGHTS
Per share operating data, total investment return, ratios and supplemental data
for each of the periods ended June 30
The following financial highlights of each Fund are derived from the Funds'
financial statements and should be read together with each Fund's financial
statements and related notes. The information for the last five years is covered
by the Report of the Funds' Independent Auditors, which is incorporated into
this Prospectus by reference. The Funds' financial statements, including the
Report of Independent Auditors, and additional performance information are
contained in the Funds' Annual Report to Shareholders, copies of which may be
obtained, without charge, upon request.
<TABLE>
<CAPTION>
THE PRIMARY TREND FUND 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year...... $ 10.98 $ 11.22 $ 11.50 $ 11.41 $ 11.60 $ 12.36 $ 11.82 $ 11.62 $ 10.00
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income................... 0.23 0.25 0.22 0.29 0.45 0.52 0.21 0.64 0.19
Net Realized and Unrealized Gain (Loss)
on Investments........................ 1.55 (0.28) 0.64 0.51 0.60 (0.67) 0.99 (0.02) 1.43
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment Operations........ 1.78 (0.03) 0.86 0.80 1.05 (0.15) 1.20 0.62 1.62
------- ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income............ (0.26) (0.08) (0.28) (0.36) (0.68) (0.31) (0.56) (0.35) --
From Net Realized Gains............... (0.40) (0.13) (0.86) (0.35) (0.56) (0.30) (0.10) (0.07) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions................... (0.66) (0.21) (1.14) (0.71) (1.24) (0.61) (0.66) (0.42) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Increase (Decrease)................. 1.12 (0.24) (0.28) 0.09 (0.19) (0.76) 0.54 0.20 1.62
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Year............ $ 12.10 $ 10.98 $ 11.22 $ 11.50 $ 11.41 $ 11.60 $ 12.36 $ 11.82 $ 11.62
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN................. +17.0% -0.3% +8.2% +7.3% +10.7% -1.4% +10.8% +5.6% +16.2%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year
(in thousands)...................... $21,343 $20,873 $24,966 $31,680 $33,083 $38,492 $55,580 $44,748 $31,327
Ratio of Expenses to Average Net
Assets.............................. 1.24% 1.27% 1.20% 1.10% 1.20% 1.10% 1.10% 1.20% 1.30%
Ratio of Net Investment Income to
Average Net Assets.................. 1.88% 1.91% 1.90% 2.50% 4.70% 3.80% 2.00% 6.40% 3.90%
Portfolio Turnover.................... 37.1% 77.2% 40.0% 65.5% 77.4% 32.4% 29.8% 17.1% 19.6%
</TABLE>
<TABLE>
<CAPTION>
THE PRIMARY INCOME FUND 1995 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year.................................. $ 11.04 $ 11.68 $ 11.02 $ 10.00 $ 9.82 $ 10.00
------- ------- ------- ------- ------- -------
Net Investment Income............................................... 0.50 0.49 0.51 0.61 0.69 0.59
Net Realized and Unrealized Gain (Loss) on Investments.............. 1.10 (0.54) 0.84 1.02 0.18 (0.18)
------- ------- ------- ------- ------- -------
Total from Investment Operations.................................... 1.60 (0.05) 1.35 1.63 0.87 0.41
------- ------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income........................................ (0.50) (0.49) (0.51) (0.61) (0.69) (0.59)
From Net Realized Gains........................................... (0.07) (0.10) (0.18) -- -- --
------- ------- ------- ------- ------- -------
Total Distributions............................................... (0.57) (0.59) (0.69) (0.61) (0.69) (0.59)
------- ------- ------- ------- ------- -------
Net Increase (Decrease)............................................. 1.03 (0.64) 0.66 1.02 0.18 (0.18)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Year........................................ $ 12.07 $ 11.04 $ 11.68 $ 11.02 $ 10.00 $ 9.82
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN............................................. +14.8% -0.6% +12.7% +16.6% +9.2% +4.2%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands)............................ $ 4,221 $ 3,677 $ 2,800 $ 2,447 $ 1,203 $ 814
Ratio of Expenses to Average Net Assets........................... 0.84% 0.84% 0.84% 0.84% 0.84% 0.84%*
Ratio of Net Investment Income to Average Net Assets.............. 4.35% 4.20% 4.50% 5.53% 6.84% 7.38%*
Ratio of Expenses Reimbursed to Average Net Assets................ 0.76% 1.19% 1.55% 1.68% 3.35% 3.88%*
Portfolio Turnover................................................ 40.9% 39.7% 43.8% 24.2% 32.5% None
</TABLE>
* Annualized
3
<PAGE> 4
FINANCIAL HIGHLIGHTS (continued)
Per share operating data, total investment return, ratios and supplemental data
for each of the periods ended June 30
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
THE PRIMARY U.S. GOVERNMENT FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year......................... $ 9.74 $ 10.60 $ 10.43 $ 10.07 $ 9.99 $ 10.00
------ ------ ------ ------- ------ ------
Net Investment Income...................................... 0.57 0.51 0.56 0.69 0.74 0.62
Net Realized and Unrealized Gain (Loss) on Investments..... 0.38 (0.67) 0.35 0.49 0.08 (0.01)
------ ------ ------ ------- ------ ------
Total from Investment Operations........................... 0.95 (0.16) 0.91 1.18 0.82 0.61
------ ------ ------ ------- ------ ------
Less Distributions:
From Net Investment Income............................... (0.57) (0.51) (0.56) (0.69) (0.74) (0.62)
From Net Realized Gains.................................. (0.03) (0.19) (0.18) (0.13) -- --
------ ------ ------ ------- ------ ------
Total Distributions...................................... (0.60) (0.70) (0.74) (0.82) (0.74) (0.62)
------ ------ ------ ------- ------ ------
Net Increase (Decrease).................................... 0.35 (0.86) 0.17 0.36 0.08 (0.01)
------ ------ ------ ------- ------ ------
Net Asset Value, End of Year............................... $ 10.09 $ 9.74 $ 10.60 $ 10.43 10.07 $ 9.99
====== ====== ====== ======= ====== ======
TOTAL INVESTMENT RETURN.................................... +10.2% -1.7% +9.1% +12.0% +8.5% +6.3%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands)................... $ 1,345 $ 1,295 $ 1,354 $ 1,156 $ 898 $ 608
Ratio of Expenses to Average Net Assets.................. 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of Net Investment Income to Average Net Assets..... 5.85% 4.91% 5.29% 6.43% 7.24% 7.57%*
Ratio of Expenses Reimbursed to Average Net Assets....... 1.92% 2.44% 2.75% 2.87% 4.29% 5.44%*
Portfolio Turnover....................................... 63.0% 94.4% 64.5% 108.5% 66.4% 92.8%
</TABLE>
*Annualized
WHAT ARE THE PRIMARY TREND FUNDS?
The Primary Trend Fund, Inc. and The Primary Income Funds, Inc.
(collectively, the "Companies") are no-load, open-end diversified investment
companies -- better known as mutual funds -- registered under the Investment
Company Act of 1940. The Primary Income Funds, Inc. consists of a series of two
funds: The Primary Income Fund and The Primary U.S. Government Fund. The
Companies are Wisconsin corporations.
Each of The Primary Trend Fund, The Primary Income Fund and The Primary
U.S. Government Fund (the "Funds") obtains its assets by continuously selling
its shares to the public. Proceeds from such sales are invested by the
particular Fund in securities of other issuers. In this way, each Fund:
- Combines the resources of many investors, with each individual
investor having an interest in every one of the securities
owned by the Fund;
- Provides each individual investor with diversification by
investing in the securities of many different issuers; and
- Furnishes experienced portfolio management to select and watch
over investments.
Each Fund will redeem any of its outstanding shares on demand of the owner
at its next determined net asset value. The Funds are 100% no-load
funds . . . there are no sales commissions, redemption fees, or 12b-1 charges of
any kind.
4
<PAGE> 5
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
The descriptions that follow are designed to help you choose the Fund that
best fits your investment objectives. You may want to pursue more than one
objective by investing in more than one of The Primary Trend Funds. No
assurances can be given that the respective investment objectives of the Funds
will be realized.
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THE PRIMARY TREND FUND
The Primary Trend Fund seeks to maximize total return (a combination of
capital growth and current income) without exposing capital to undue risk. The
term "undue risk" refers to the judgement of Arnold Investment Counsel
Incorporated (the "Adviser") that the risk would present a greater than normal
risk of loss in light of current and reasonably anticipated future general
market and economic conditions, trends in yields and interest rates, and fiscal
and monetary policies. In maximizing total return without exposing capital to
undue risk, the Adviser will endeavor over the long-term and in rising and
falling markets to:
- Provide returns in excess of the inflation rate as measured
by the Consumer Price Index;
- Provide returns in excess of the rates of return available
on 90-day U.S. Treasury Bills; and
- Provide returns in excess of the total returns produced by
the popular stock market averages such as the Dow Jones
Industrial Average and the Standard & Poor's 500 Stock
Index.
The foregoing are goals of the Adviser and may be referred to by
shareholders of The Primary Trend Fund in measuring the success of the Adviser
in achieving this Fund's objective. This Fund is designed for long-term
investors who desire capital growth, together with a reasonable level of current
income.
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THE PRIMARY INCOME FUND
The Primary Income Fund seeks a high level of current income, with a
reasonable opportunity for capital appreciation, by actively managing a
portfolio of income-producing securities. This Fund is designed for long-term
investors who desire high current income coupled with reasonable capital
appreciation potential.
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THE PRIMARY U.S. GOVERNMENT FUND
The Primary U.S. Government Fund seeks a high level of current income from
investments in a diversified portfolio of securities issued or guaranteed as to
principal by the U.S. Government and its agencies or instrumentalities. This
Fund is designed for long-term investors desiring a combination of high income,
safety and quality.
5
<PAGE> 6
WHAT ARE THE FUNDS' INVESTMENT POLICIES?
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THE PRIMARY TREND FUND
To meet The Primary Trend Fund's investment objective of maximizing total
return, the Adviser has flexibility to allocate the Fund's assets among common
stocks, convertible securities, fixed-income securities and short-term cash
investments (money market instruments maturing in one year or less). No minimum
or maximum percentage of the Fund's assets is required to be invested in any of
these types of securities.
The Adviser will not use short-term market timing techniques in altering
portfolio composition and asset allocation. Instead, the Adviser attempts to
invest The Primary Trend Fund's assets in phase with what the Adviser refers to
as the "primary trends" of the markets so as to achieve the Fund's investment
objective of maximizing total return. The Adviser defines the primary trend as a
market trend that is in effect for several quarters to several years. By way of
contrast the Adviser defines a secular trend as a very long-term trend that may
last for many years, even decades, and an intermediate trend as a trend that may
last for several months to several quarters. In seeking to invest the Fund's
assets in phase with the primary trends of markets, the Adviser will typically
not alter the Fund's portfolio composition in response to short-term market
conditions. Because of the current volatility of markets, this investment
strategy may result in frequent fluctuations of The Primary Trend Fund's net
asset value. Additionally, because of the generally long-term, patient
investment orientation of the Adviser, an investment in the Fund may not be
suitable for investors intending to make only a short-term investment.
In determining the primary trend of the stock market, the Adviser will
consider a number of factors such as historic dividend yields as compared to
current dividend yields, historic book-value relationships, historic price-
earnings ratios as compared to current price-earnings ratios, market and
economic cycles, momentum models, supply-demand techniques, psychological
indicators, volume and breadth data and general economic factors. In determining
the primary trend of the bond market, the Adviser will consider a number of
factors such as inflationary expectations, interest rate trends and general
economic factors. When the primary trend of the stock market is deemed by the
Adviser to be positive (i.e., a bull market is in force) and the primary trend
of the bond market is negative (i.e., a bear market is in force), this Fund can
be expected to have substantially all of its assets invested in common stocks.
When the primary trend of the stock market is deemed by the Adviser to be
negative, this Fund can be expected to have little or no assets invested in
common stocks.
The Adviser will purchase common stocks which it believes to be
undervalued, rather than common stocks whose prices reflect a premium because of
their popularity. The Adviser will consider various financial characteristics of
issuers such as earnings growth, book value, dividends, net current asset value
per share and replacement cost, and will study the financial statements of the
issuer and other issuers in the same industry. The Adviser believes that
successful investing is more an art than it is a science, and that there is no
single magic formula for success. Typically The Primary Trend Fund's investments
in common stocks will be in well-established, large-capitalization companies.
The Adviser defines well-established, large-capitalization companies as
companies with an operating history of ten or more years and market
capitalization of $500 million or more. Securities of such companies more often
than not trade on the New York Stock Exchange, but the Adviser will not
arbitrarily exclude any securities market. The Primary Trend Fund may also
invest in convertible securities (debt securities or preferred stocks of
corporations which are convertible into, or exchangeable for, common stocks).
The Adviser will select only those convertible securities for which it believes
(a) the underlying common stock is a suitable investment for the Fund using the
criteria described above and (b) the potential for greater total return exists
by purchasing the convertible security because of its higher yield.
6
<PAGE> 7
When the primary trend of the bond market is deemed by the Adviser to be
positive, The Primary Trend Fund may invest in fixed-income securities such as
U.S. Treasury Bonds and investment grade, nonconvertible corporate bonds and
debentures. Except as set forth below, the Fund will limit its investments in
nonconvertible corporate bonds and debentures to those which have been assigned
one of the highest four ratings ("investment grade") of either Standard & Poor's
Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"), or unrated
bonds which the Adviser believes to be of comparable quality. If the rating of a
nonconvertible corporate bond or debenture held by the Fund is reduced such that
neither S&P nor Moody's rates the security as investment grade, or if the
quality of an unrated bond declines such that it can no longer be deemed of
investment grade, the Adviser will review such investment on an independent
basis to determine whether the security should be retained or sold. A
description of the foregoing ratings is set forth in the Statement of Additional
Information under the caption "Description of Bond Ratings." In addition, the
Fund may invest up to 5% of its net assets at the time of investment in
corporate obligations rated less than investment grade (including investment
grade securities which have been downgraded since the time of investment).
However, no investments in corporate obligations rated less than investment
grade will be made unless, in the opinion of the Adviser, such lesser rating is
due to a special situation or other extenuating circumstances. See "WHAT ARE THE
FUNDS' INVESTMENT POLICIES -- General Considerations."
If the primary trends of the stock market and bond market are both
positive, The Primary Trend Fund can be expected to have the majority of its
assets invested in that market (either stock or bond) which in the opinion of
the Adviser offers the greater total return potential. During periods of
declining interest rates when fixed-income securities may appreciate in value,
the bond market may offer a greater total return potential than the stock
market. If the primary trend of the stock market is negative and the primary
trend of the bond market is positive, the Fund may be expected to have
substantially all of its assets invested in fixed-income securities. If the
primary trend of the bond market is negative, little or no assets will be
invested in fixed-income securities.
If the primary trends of the stock market and bond market are both
negative, the Fund can be expected to have substantially all of its assets
invested in short-term cash investments such as United States Treasury Bills;
certificates of deposit of U.S. banks, provided that the bank has capital,
surplus, and undivided profits (as of the date of its most recently published
annual financial statements) with a total value in excess of $100,000,000 at the
date of investment; commercial paper and commercial paper master notes (demand
instruments without a fixed maturity bearing interest at rates which are fixed
to known lending rates and automatically adjusted when such lending rates
change) rated A-2 or better by S&P; or unrated commercial paper or commercial
paper master notes which the Adviser believes to be of comparable quality. The
Fund will also invest in short-term cash investments amounts the Adviser
believes are reasonable to satisfy anticipated redemption requests or other cash
needs.
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THE PRIMARY INCOME FUND
The primary investment objective of The Primary Income Fund is a high level
of current income. Its secondary objective is capital appreciation. To meet
these objectives, The Primary Income Fund has the flexibility to invest in a
diversified portfolio of fixed-income securities of any maturity, including
corporate, U.S. Government and convertible securities, as well as
dividend-paying common and preferred stocks. Typically the Fund's investments in
the foregoing securities (other than government securities) will be in
well-established, large-capitalization companies.
As with The Primary Trend Fund, this Fund generally will invest in
investment grade' obligations. The Fund may also purchase unrated securities
which the Adviser believes to be of comparable quality. In addition, the Fund
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<PAGE> 8
may invest up to 5% of its net assets at the time of investment in corporate
obligations rated less than investment grade (including investment grade
securities which have been downgraded since the time of investment). However, no
investments in corporate obligations rated less than investment grade will be
made unless, in the opinion of the Adviser, such lesser rating is due to a
special situation or other extenuating circumstances. See "WHAT ARE THE FUNDS'
INVESTMENT POLICIES -- General Considerations."
The Primary Income Fund's principal objective is to obtain a high level of
current income. However, unlike funds investing solely for income, this Fund
intends also to take advantage of opportunities for modest capital appreciation
and growth of investment income. The Primary Income Fund may purchase securities
which are convertible into, or exchangeable for, common stock when the Adviser
believes they offer the potential for higher total return than nonconvertible
securities. It may also purchase income securities that carry warrants or common
stock purchase rights attached as an added inducement to participate in the
potential growth of an issuer.
The Primary Income Fund will concentrate its investments in the utility
industry. It may invest up to 100% of the value of its assets in that industry.
However, in some future period or periods, due to adverse economic conditions,
this Fund may temporarily have less than 25% of its assets invested in the
utility industry. To avoid being subject to the Public Utility Holding Company
Act of 1935, The Primary Income Fund will not purchase or hold 5% or more of the
outstanding voting securities of any public utility company.
Public utilities, whether state, municipal or investor-owned, often
experience certain general problems associated with this industry, including the
difficulty in obtaining an adequate return on invested capital in spite of
frequent increases in rates which have been granted by the Public Service
Commissioners having jurisdiction, the difficulty in financing large
construction programs during an inflationary period, the restrictions on
operations and increased costs and delays attributable to environmental
considerations, the difficulty of the capital markets in absorbing utility debt
and equity securities, the difficulty in obtaining fuel for electric generation
at reasonable prices and the effects of energy conservation. In addition,
certain utilities may operate nuclear electric generation facilities which are
subject to extensive governmental regulation. Such facilities and the applicable
regulations are subject to continual review by various governmental bodies. It
is difficult to predict whether such regulations may be significantly modified
in the future and, if so, what effect such modifications would have on utilities
operating nuclear electric generation facilities. For a further discussion of
the risks associated with concentration in utility securities, see "INVESTMENT
CONSIDERATIONS" in the Statement of Additional Information.
- --------------------------------------------------------------------------------
THE PRIMARY U.S. GOVERNMENT FUND
The Primary U.S. Government Fund will invest in a diversified portfolio of
securities issued or guaranteed as to principal by the U.S. Government and its
agencies or instrumentalities. U.S. Government securities include bills, notes
and bonds differing as to maturity and rates of interest, which are either
issued or guaranteed by the U.S. Treasury or some other U.S. Government agency
or instrumentality. The Fund's average portfolio maturity may range from 2 to 30
years, depending on the Adviser's expectations regarding interest rates. See
"WHAT ARE THE FUNDS' INVESTMENT POLICIES -- General Considerations."
U.S. Government agency securities include securities issued by (a) the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration and the Government National
Mortgage Association, whose securities are backed by the full faith and credit
of the United States; (b) the Federal Home Loan Banks, Federal Intermediate
Credit Banks and the Tennessee Valley Authority, whose securities are supported
by the right of the agency to borrow from the U.S. Treasury; (c) the Federal
8
<PAGE> 9
National Mortgage Association, whose securities are supported by the
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and (d) the Student Loan Marketing
Association, whose securities are supported only by the credit of such agency.
The U. S. Government, its agencies and instrumentalities do not guarantee the
market value of their securities, and consequently the value of such securities
can be expected to fluctuate.
This Fund will invest at least 80% of its assets in securities issued or
guaranteed as to principal by the U.S. Government and its agencies or
instrumentalities. The balance of the Fund's assets may be invested in non-
governmental securities, such as investment grade corporate debt obligations,
commercial paper and commercial paper master notes, at such times and in such
amounts as in the opinion of the Adviser seem appropriate to achieve this Fund's
investment objective.
GENERAL CONSIDERATIONS
Options, futures and other derivative instruments will not be used by any
of the Funds to enhance yield or to hedge the investment portfolio. The Adviser
believes such instruments are highly speculative and not in the best interest of
the conservative investor for whom the Funds are designed.
The values of fixed-income securities held by The Primary Trend Fund and
The Primary Income Fund are subject to price fluctuations resulting from various
factors, including rising or declining interest rates ("market risks") and the
ability of the issuers of such investments to make scheduled interest and
principal payments ("financial risks"). The Adviser attempts to minimize these
risks when selecting investments by taking into account interest rates, terms
and marketability of obligations, as well as the capitalization, earnings,
liquidity and other indicators of the issuer's financial condition. Obligations
rated BBB by S&P or Baa by Moody's, although investment grade, do exhibit
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of issuers to make
principal and interest payments than is the case for higher-rated obligations.
Unrated securities, while not necessarily of lower quality than rated
securities, may not have as broad a market as rated securities. Investment in
lower-grade obligations (i.e., less than investment grade), while providing
greater income and opportunity for gain than investment in higher-rated
securities, entails relatively greater risk of loss of income or principal.
Lower-grade obligations are commonly referred to as "junk bonds". Market prices
of high-yield, lower-grade obligations may fluctuate more than market prices of
higher-rated securities. Lower-grade, fixed-income securities tend to reflect
short-term corporate and market developments to a greater extent than
higher-rated obligations which, assuming no change in their fundamental quality,
react primarily to fluctuations in the general level of interest rates. Changes
in the market value of fixed-income securities after their acquisition will not
affect interest income or purchased yield to maturity, but will be reflected in
such Funds+ net asset values.
The values of The Primary U.S. Government Fund's portfolio securities are
subject to price fluctuations resulting from market risks, and the Adviser
attempts to minimize such risks when selecting investments by adjusting bond
maturities as described below.
When the Adviser believes bond values will rise (an expectation of
declining interest rates), the Funds will emphasize longer-term maturities.
Conversely, when bond values are expected to fall (an expectation of rising
interest rates), the Funds will shorten maturities and/or maintain a larger than
normal position in money market instruments.
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Consistent with the investment objectives of the Funds, the Adviser will
not engage in short-term trading. However, when circumstances dictate,
securities may be sold without regard to the length of time held. The Adviser
intends to limit portfolio turnover to the extent practicable. Each of the Funds
expects to have a portfolio turnover rate of less than 100%, although the annual
portfolio turnover rate may vary widely from year to year, depending upon market
conditions.
The Funds' investment objectives, investment policies and techniques are
not fundamental and may be changed by the appropriate Company's Board of
Directors without shareholder approval. A change in any Fund's investment
objective may result in such Fund having an investment objective different from
the objective which the shareholder considered appropriate at the time of
investment in such Fund. At least 30 days prior to any change in the Fund's
investment objective, such Fund will provide written notice to all of its
shareholders regarding such proposed change.
DO THE FUNDS HAVE ANY INVESTMENT LIMITATIONS DESIGNED TO REDUCE RISK?
The Funds have adopted certain limitations designed to reduce their
exposure to risk of loss of capital. None of the Funds will purchase securities
on margin; participate in a joint-trading account; sell securities short; buy,
sell or write put or call options; or engage in futures trading. In addition,
none of the Funds will do the following:
- Purchase more than 10% of the voting securities of any
issuer;
- Invest more than 5% of its assets in securities of
companies that have a continuous operating history of less
than three years;
- With respect to The Primary Income Fund and The Primary
U.S. Government Fund, invest in warrants which are
unattached to fixed-income securities, and with respect to
The Primary Trend Fund, invest more than 5% of its net
assets in warrants;
- Invest more than 25% of its assets, exclusive of U.S.
Government securities, in any one industry. This
restriction does not apply to investments by The Primary
Income Fund in companies engaged primarily in the utility
industry (See "INVESTMENT CONSIDERATIONS" in the Statement
of Additional Information for a discussion of the industry
risks associated with such concentration.);
- Lend money (except by purchasing publicly distributed debt
securities) or lend their portfolio securities;
- Borrow money or issue senior securities, except for
temporary bank borrowings or for emergency or extraordinary
purposes (but not for the purpose of investments) and then
only in an amount not in excess of 5% of the value of its
total assets; and
- Pledge any of its assets except to secure borrowings and
then only to an extent not greater than 10% of the value of
such Fund's net assets.
The investment limitations described here and in the Statement of
Additional Information are fundamental policies and may be changed only with the
approval of the shareholders of the Funds as described in the Statement of
Additional Information.
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WHAT REPORTS WILL I RECEIVE?
As a shareholder of the Funds, you will receive The Primary Trend
investment letter each month. This letter, published by the Adviser since 1979,
is designed to be educational and informative, to communicate the Adviser's
investment strategy, and to provide insights into the analytical and
decision-making techniques of the Adviser.
Shareholders of each Fund will be provided at least semi-annually with a
report showing such Fund's portfolio and other information. After the close of
the Funds' June 30 fiscal year, you will be provided an annual report containing
audited financial statements.
An individual account statement will be sent to you by Firstar Trust
Company after each purchase, redemption or exchange of shares. Shareholders of
The Primary Trend Fund will also receive account statements after each dividend
payment. Shareholders of The Primary Income Fund and The Primary U.S. Government
Fund will not receive account statements for monthly dividends, but instead will
receive a statement after the end of each calendar quarter listing all
transactions (including dividend payments) during such quarter. You will also
receive an annual statement after the end of the calendar year listing all
transactions in Fund shares during the year. Shareholders may request a
statement of account activity at any time.
Questions about your account may be directed to Firstar Trust Company at
(800) 338-1579. If you have general questions about any of the Funds or want
more information, you may call our Shareholder Services Department at (800)
443-6544 (toll free) or (414) 271-7870, or write us at The Primary Trend Funds,
First Financial Centre, 700 North Water Street, Milwaukee, Wisconsin 53202.
WHO MANAGES THE FUNDS?
As Wisconsin corporations, the business and affairs of the Companies are
managed by their respective Boards of Directors. Each of the Funds has entered
into an investment advisory agreement (collectively the "Agreements") with
Arnold Investment Counsel Incorporated, First Financial Centre, 700 North Water
Street, Milwaukee, Wisconsin 53202. Under such Agreements the Adviser furnishes
continuous investment advisory services and management to each of the Funds. The
Adviser is the investment adviser to individuals and institutional clients with
substantial investment portfolios aggregating in excess of $100 million in
assets as of the date of this Prospectus. The Adviser has managed funds for
individuals and institutions since it was organized in 1978 and has managed the
assets of each of The Primary Trend Funds since inception. The Adviser is
controlled by Lilli Gust.
The Adviser supervises and manages the investment portfolio of each of the
Funds and, subject to such policies as the Boards of Directors of the respective
Companies may determine, directs the purchase or sale of investment securities
in the day-to-day management of the Funds. All investment decisions for the
Funds are made by an investment committee and no one person is primarily
responsible for making investment recommendations to that committee. The
Adviser, at its own expense and without separate reimbursement from any of the
Funds, provides the Funds with copies of The Primary Trend investment letter for
distribution to shareholders; furnishes office space and all necessary office
facilities, equipment, and executive personnel for managing each Fund and
maintaining its organization; bears all sales and promotional expenses of the
Funds, other than expenses incurred in complying with laws regulating the
issuance or sale of securities; and pays the salaries and fees of all officers
and directors of the Companies (except the fees paid to disinterested directors
as such term is defined under the Investment Company Act of 1940). For the
foregoing, the Adviser receives from each of The Primary Trend Fund and The
Primary Income Fund a monthly fee at the annual rate of .74% of such Fund's
average daily net assets and from The Primary U.S. Government Fund a monthly fee
at the annual rate of .65% of such Fund's average daily net assets.
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HOW IS EACH FUND'S SHARE PRICE DETERMINED?
The net asset value (or "price") per share of each Fund is determined by
dividing the total value of that Fund's investments and other assets less any
liabilities, by its number of outstanding shares. Except as otherwise noted
below, each Fund's net asset value per share is determined once daily on each
day that the New York Stock Exchange is open, as of the close of regular trading
on the Exchange (3 P.M. Central Time). Purchase orders accepted and shares
tendered for redemption prior to the close of regular trading on a day the New
York Stock Exchange is open for trading will be valued as of the close of
trading, and purchase orders accepted and shares tendered for redemption after
that time will be valued as of the close of trading on the next trading day.
Notwithstanding the foregoing, the net asset value per share for The Primary
U.S. Government Fund also will not be determined on days when the Federal
Reserve is closed.
In calculating the net asset value of the Funds, portfolio securities
listed on a national securities exchange or quoted on the NASDAQ National Market
System are valued at the last sale price on the day the valuation is made. If no
sale is reported, the average of the latest bid and asked prices is used. Other
securities for which market quotations are readily available are valued at the
average of the latest bid and asked prices. Other assets and securities for
which no quotations are readily available are valued at fair value as determined
in good faith by the appropriate Company's Board of Directors. Securities with
maturities of sixty (60) days or less are valued at amortized cost.
HOW DO I OPEN AN ACCOUNT AND PURCHASE SHARES?
BY MAIL. Please complete and sign the account application included at the
back of this Prospectus and send it, together with your check or money order,
made payable to The Primary Trend Funds, to: The Primary Trend Funds, c/o
Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. The
minimum initial investment is $500 for each Fund.
No cash is accepted. Checks are subject to collection at full face value in
US funds. If a shareholder's check is returned for insufficient funds, the
shareholder's account will be charged $15, in addition to any loss sustained by
the applicable Fund, by Firstar Trust Company ("Firstar").
To purchase shares by overnight or express mail, please use the following
street address: The Primary Trend Funds, c/o Firstar Trust Company, Mutual Fund
Services, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
BY WIRE. To establish a new account by wire transfer from your bank, please
first call Firstar at (800) 338-1579 to advise it of the investment and to
receive an account number and other information necessary for setting up the
account. (Please note that your bank may impose a charge for providing wire
transfer services.) This will ensure prompt and accurate handling of your
investment. A completed account application must also be sent to Firstar at the
address above immediately after the investment is made so that the necessary
remaining information can be recorded to your account.
ADDITIONAL INVESTMENTS. You may add to your account at any time by
purchasing shares of the applicable Fund at the then current net asset value,
either by mail (minimum investment $100) or by wire (minimum investment $500).
It is very important that your account number be specified in the letter or wire
to insure proper crediting to your account.
AUTOMATIC INVESTMENT PLAN. Shareholders wishing to invest fixed dollar
amounts in a particular Fund every month can make automatic purchases of $50 or
more on any date of the month by using our Automatic
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Investment Plan. If that day is a weekend or holiday, the purchase will be made
the following business day. There is no service fee for participating in this
Plan. To use this service, you must authorize Firstar to transfer funds from
your bank checking or NOW account by completing an Automatic Investment Plan
application. A separate application is needed for each Fund, which may be
obtained by calling the Funds at (800) 443-6544.
As no-load mutual funds, the Funds impose no sales charges or commissions,
so all of your investment is used to purchase shares. All shares purchased will
be credited to your account and confirmed by a statement mailed to your address.
The Funds do not issue stock certificates for shares purchased unless
specifically requested by you in writing. When certificates are not issued, the
shareholder is relieved of the responsibility for safekeeping of certificates
and the need to deliver them upon redemption. You may also invest in the Funds
by purchasing shares through a registered broker-dealer, who may charge you a
fee, either at the time of purchase or redemption. This fee, if charged, is
retained by the broker-dealer and not remitted to the Funds or the Adviser.
ALL APPLICATIONS ARE SUBJECT TO ACCEPTANCE BY THE APPLICABLE FUND AND ARE
NOT BINDING UNTIL SO ACCEPTED. THE FUNDS DO NOT ACCEPT TELEPHONE ORDERS FOR
PURCHASE OF SHARES AND RESERVE THE RIGHT TO REJECT APPLICATIONS. The minimum
purchase amounts for the Funds are subject to change at any time; shareholders
will be advised at least 30 days in advance of any increases in such minimum
amounts. Each Fund may waive the applicable minimum purchase amounts in its sole
discretion.
HOW DO I SELL MY SHARES?
REDEMPTION REQUESTS. Redemption requests for the Funds must be made in
writing. All redemption requests should be directed to The Primary Trend Funds,
c/o Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. If a
redemption request is inadvertently sent to the Funds at their corporate
address, the request will be forwarded to Firstar, but the effective date of
redemption will be delayed until the request is received by Firstar. Requests
for redemption by telephone, telegram or facsimile transmission (fax), and
requests which are subject to any special conditions or which specify an
effective date other than as provided herein, cannot be honored.
A redemption request must be received in "Good Order" by Firstar for the
request to be processed. "Good Order" means the request for redemption must
include:
- Your share certificate, if issued, properly endorsed or
accompanied by a properly executed stock power.
- Your letter of instruction specifying the name of the Fund, your
account number, and either the number of shares or the dollar
amount of shares to be redeemed. The letter of instruction must
be manually signed by all owners exactly as the shares to be
redeemed are registered.
- Signature guarantees for redemption requests over $10,000.
Signature guarantees are also required if the proceeds of
redemption (regardless of amount) are to be sent to a person
other than the registered holder and/or to an address other than
the address of record. Transfers of shares also require signature
guarantees. Signature guarantees may be obtained from any
commercial bank or trust company in the United States, a member
of the New York Stock Exchange and some savings and loan
associations.
- Additional documentation, if required, for redemptions by
estates, trusts, guardianships, custodianships, corporations,
partnerships and other organizations.
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Redemption request forms are available from the Funds.
OTHER INFORMATION ABOUT REDEMPTIONS. Shareholders who have an Individual
Retirement Account (IRA) must indicate on their redemption request whether or
not to withhold federal income tax. Unless otherwise indicated, these
redemptions, as well as redemptions of other retirement plans not involving a
direct rollover to an eligible plan, will be subject to federal income tax
withholding.
The redemption price per share for each Fund is the next determined net
asset value per share for such Fund after Firstar receives a redemption request
in "Good Order". The amount paid will depend on the market value of the
investments in the appropriate Fund's portfolio at the time of determination of
its net asset value per share, and may be more or less than the cost of the
shares redeemed. Payment for shares redeemed will be mailed to you typically
within one or two days, but no later than the seventh day after receipt by
Firstar of a redemption request in "Good Order".
When purchases have been made by check, the Funds reserve the right to
delay payment until satisfied that the purchase check has cleared. It may take
up to three days to clear local personal or corporate checks and up to seven
days to clear other personal or corporate checks.
Requests for wire transfers from any Fund must be in writing and must be
made before 3 P.M. (Central Time) on a business day in order for the wire
transfer to take place the next day. Firstar charges $7.50 for each wire
transfer. If you are uncertain about other redemption requirements, please
contact Firstar in advance.
The Funds reserve the right to redeem the shares held in any account if at
the time of any exchange or redemption of shares in the account, the value of
the remaining shares in the account falls below $500. You will be notified that
the value of your account is less than the minimum and allowed at least 60 days
to make an additional investment. The receipt of proceeds of the redemption of
shares held in an IRA will constitute a taxable distribution of benefits from
the IRA unless a qualifying rollover contribution is made.
Your right to redeem shares of any Fund will be suspended and your right to
payment postponed for more than seven days for any period during which the New
York Stock Exchange is closed because of financial conditions or any other
extraordinary reason and may be suspended for any period during which (a)
trading on the New York Stock Exchange is restricted pursuant to rules and
regulations of the Securities and Exchange Commission, (b) the Securities and
Exchange Commission has by order permitted such suspension or (c) such
emergency, as defined by rules and regulations of the Securities and Exchange
Commission, exists as a result of which it is not reasonably practicable for the
applicable Fund to dispose of such Fund's securities or to determine fairly the
value of its net assets.
MAY SHAREHOLDERS MAKE EXCHANGES BETWEEN FUNDS?
The Primary Trend Funds offer the flexibility of exchanging between any of
the Funds managed by the Adviser, as well as the Portico Money Market Fund, a
money market mutual fund not affiliated with the Funds or the Adviser. The
Portico Money Market Fund is described in a separate prospectus. You may obtain
a copy of the prospectus for the Portico Money Market Fund from the Funds and
are advised to read it carefully before investing.
The exchange privilege is only available in states where the exchange may
be legally made. Furthermore, this exchange privilege is not available with
respect to shares of any Fund purchased by check until such time as the
applicable Fund is satisfied that the purchase check has cleared. It may take up
to three days to clear local personal or corporate checks and up to seven days
to clear other personal or corporate checks.
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An exchange may be made in writing or by telephone (see below for more
details). Exchanges may only be made between identically registered accounts. If
certificates are held, they must first be properly delivered with your exchange
request. Exchanges with the Portico Money Market Fund are subject to its minimum
purchase and redemption amounts. Once an exchange request is made, it may not be
modified or cancelled. The shares will be exchanged at the net asset value next
determined after your exchange request is received by Firstar. An exchange
transaction is a sale of shares for federal income tax purposes and may result
in a capital gain or loss.
THE EXCHANGE PRIVILEGE IS NOT DESIGNED TO AFFORD SHAREHOLDERS A WAY TO PLAY
SHORT-TERM SWINGS IN THE MARKET. THE PRIMARY TREND FUNDS ARE NOT SUITABLE FOR
THAT PURPOSE. THE FUNDS RESERVE THE RIGHT, AT ANY TIME WITHOUT PRIOR NOTICE, TO
SUSPEND, LIMIT, MODIFY OR TERMINATE THE EXCHANGE PRIVILEGE OR ITS USE IN ANY
MANNER BY ANY PERSON OR CLASS. IN PARTICULAR, SINCE AN EXCESSIVE NUMBER OF
EXCHANGES MAY BE DISADVANTAGEOUS TO OTHER SHAREHOLDERS, THE FUNDS RESERVE THE
RIGHT TO TERMINATE THE EXCHANGE PRIVILEGE OF ANY SHAREHOLDER WHO MAKES MORE THAN
FIVE EXCHANGES OF SHARES OF ANY ONE FUND DURING ANY TWELVE-MONTH PERIOD OR THREE
EXCHANGES DURING ANY THREE-MONTH PERIOD.
Exchange requests may be made in writing or by telephone as follows:
BY MAIL. A written request to exchange shares of one Fund for shares of
another (or shares of the Portico Money Market Fund) may be made at no cost to
you. There is no minimum for written exchanges. Signatures required are the same
as previously explained under "HOW DO I SELL MY SHARES?"
BY TELEPHONE. You may exchange shares between Funds (or the Portico Money
Market Fund) by telephone if you have completed the telephone exchange
authorization section of your account application. If you add the telephone
exchange option to your account after it is opened, you must have each owner's
signature guaranteed.
Only exchanges of $1,000 or more may be executed by telephone. Telephone
exchanges can only be made by calling Firstar at (800) 338-1579. Firstar will
charge you a $5.00 fee for each telephone exchange.
In an effort to avoid the risks often associated with market timers and
short-term trading strategies, the Funds have set the maximum telephone exchange
per account per day at $100,000, with a maximum of $1,000,000 per day per
related accounts. Only two (2) telephone exchanges per account are allowed
during any twelve-month period. An exchange consists of a move from one Fund to
another.
Each Fund reserves the right to refuse a telephone exchange if it believes
it to be in the best interest of all shareholders to do so. Procedures for
exchanging shares by telephone may be modified or terminated at any time by the
Funds or Firstar. Neither the Funds, Firstar, nor their agents will be liable
for following instructions received by telephone that they reasonably believe to
be genuine, provided reasonable procedures are used to confirm the genuineness
of the telephone instructions, but may be liable for unauthorized transactions
if they fail to follow such procedures. These procedures include requiring some
form of personal identification prior to acting upon the telephone instructions
and recording all telephone calls.
AUTOMATIC EXCHANGE PLAN. You may exchange fixed dollar amounts between
Funds (including the Portico Money Market Fund) and/or Fund accounts
automatically every month, every quarter or annually by using our Automatic
Exchange Plan. The automatic exchange transaction can be made on any day you
choose. If that day is a weekend or holiday, the exchange will be made the
following business day. The minimum exchange per transaction is $50. You may
also automatically exchange dividend and capital gain distributions between
Funds on the dividend payment date. The Automatic Exchange Plan is not available
for exchanges from regular accounts into
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IRA or other qualified plan accounts. No fee is currently charged for this
service. To establish the Automatic Exchange Plan, please call the Funds at
(800) 443-6544 for the necessary forms.
WHAT ABOUT DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES?
Each Fund intends normally to distribute its net investment income and net
realized capital gains to its shareholders so as to avoid paying income tax or a
federal excise tax on undistributed net investment income or net realized
capital gains. The Primary Trend Fund will pay dividends of net investment
income and capital gains (after using any available capital loss carryovers) at
least annually. The Primary Income Fund and The Primary U.S. Government Fund
each will pay dividends of net investment income monthly and capital gains
(after using any available capital loss carryovers) at least annually.
The daily net investment income of the Primary Income Fund and The Primary
U.S. Government Fund is declared as a dividend each day to shareholders of
record. Shares purchased will begin earning dividends the first business day
following the day the purchase becomes effective. Redeemed shares will
participate in the dividend declared on the day of redemption. If all shares in
an account are redeemed, dividends credited to the account since the beginning
of the dividend period through the date of redemption will be paid with the
redemption proceeds. If less than all such shares are redeemed, all dividends
accrued but unpaid on those shares will be distributed on the next payment date.
For the purpose of calculating dividends, net investment income consists of
income accrued on portfolio assets, less accrued expenses. Income earned on
weekends, holidays and other days on which the net asset value is not calculated
will be declared as a dividend in advance on the preceding business day.
For federal income tax purposes, distributions paid by the Funds will be
taxable as ordinary income or capital gains. The distributions are taxable
whether you receive them in cash or in additional shares. You will be advised of
the source or sources and tax status of all distributions.
Each Fund may be required to withhold federal income tax (backup
withholding) at a rate of 31% from dividend payments, distributions and
redemption proceeds if a shareholder fails to furnish such Fund his or her
Social Security or other tax identification number. The shareholder also must
certify that the number is correct and that he or she is not subject to backup
withholding. The certification is included as part of the account application.
In addition to federal taxes, you may also be subject to state and local
taxes, depending on the laws of your home state and locality.
MAY SHAREHOLDERS REINVEST DIVIDENDS?
You may elect to have all income dividends and capital gains distributions
reinvested or paid in cash. Please refer to the account application for further
information. If you do not specify an election, all income dividends and capital
gains distributions will automatically be reinvested in full and fractional
shares on the dividend payment date. Cash dividends also are paid on such date.
As in the case of normal purchases, stock certificates are not issued unless
requested.
You may also automatically exchange income dividends and capital gain
distributions from one Fund into any of the other Primary Trend Funds and/or the
Portico Money Market Fund by using our Automatic Exchange Plan, previously
explained under "MAY SHAREHOLDERS MAKE EXCHANGES BETWEEN FUNDS?"
An election to reinvest, exchange or receive dividends and distributions in
cash will apply to all shares of a Fund registered in your name, including those
previously purchased. You may change an election at any time by notifying
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the Fund in writing or, under certain circumstances, by telephone. If such a
change request is received between dividend payment dates, it will become
effective the next dividend payment date. The Funds may modify or terminate the
dividend reinvestment program at any time on thirty days notice to
participants.
MAY SHAREHOLDERS SYSTEMATICALLY WITHDRAW INVESTMENTS IN FUND SHARES?
If you own Fund shares worth at least $25,000 as of the date the election
is made, the Systematic Withdrawal Plan will enable you to withdraw a fixed
amount at regular monthly or quarterly intervals. To utilize the Systematic
Withdrawal Plan, your shares cannot be held in certificate form. The Plan is not
available for IRA accounts or other retirement plans. To establish the
Systematic Withdrawal Plan, please call the Funds at (800) 443-6544 for the
necessary forms.
The minimum amount of a withdrawal payment is $100. These payments will be
made from the proceeds of planned periodic redemption of shares in your account.
Redemptions can be made monthly or quarterly on any day you choose. If that day
is a weekend or holiday, the redemption will be made the following business day.
Participation in the Systematic Withdrawal Plan requires that all income and
capital gains distributions payable on shares held in your account be reinvested
in additional shares. You may deposit additional Fund shares in your account at
any time.
Withdrawal payments cannot be considered as yield or income on your
investment, since portions of each payment may consist of a return of capital.
Depending on the size or frequency of the withdrawals requested, and the
fluctuation in the value of the Fund's portfolio, redemptions for the purpose of
making such withdrawals may reduce or even exhaust your account.
You may vary the amount or frequency of withdrawal payments, temporarily
discontinue them, or change the designated payee or payee's address, by giving
two weeks advance notice to Firstar. Certain changes may be made by telephone.
WHAT RETIREMENT PLANS DO THE FUNDS OFFER?
Each of the Funds offers the following retirement plans that may fit your
needs and allow you to shelter some of your income from taxes:
- INDIVIDUAL RETIREMENT ACCOUNT (IRA). Individual
shareholders may establish their own tax-sheltered IRA.
Earnings on amounts held in the IRA are not taxed until
withdrawn.
- SIMPLIFIED EMPLOYEE PENSION PLAN (SEP/IRA). The SEP/IRA is
a pension plan in which both the employer and the employee
may contribute to an IRA. The SEP/IRA is also available to
self-employed individuals.
- RETIREMENT PLANS. The plans, including both a
profit-sharing plan and a pension plan, are available for
use by sole proprietors, partnerships and corporations.
- 401(K) PLAN. The 401(k) plan is a salary reduction
profit-sharing plan available to employers of all sizes to
benefit their employees.
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- 403(B) PLAN. The 403(b) plan is available for use by
employees of certain educational, non-profit hospital and
charitable organizations.
Contact the Funds for complete information kits, including forms,
concerning the above plans, their benefits, provisions and fees. Consultation
with a competent financial and tax adviser regarding these plans is recommended.
WHAT ABOUT BROKERAGE TRANSACTIONS?
The Agreements authorize the Adviser to select the brokers or dealers that
will execute the purchases and sales of the Funds' portfolio securities. In
placing purchase and sale orders for the Funds, it is the policy of the Adviser
to seek the best execution of orders at the most favorable price in light of the
overall quality of brokerage and research services provided.
The Agreements permit the Adviser to cause each Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting securities transactions in excess of the amount another broker would
have charged for executing the transaction, provided the Adviser believes this
to be in the best interests of the applicable Fund. Although the Funds do not
intend to market their shares through intermediary broker-dealers, they may
place portfolio orders with broker-dealers who recommend the purchase of, or
sell, their shares to clients and may allocate portfolio brokerage on that
basis, if the Adviser believes the commissions and transaction quality are
comparable to that available from other brokers.
GENERAL INFORMATION ABOUT THE COMPANIES AND THE FUNDS
Description of Shares and Voting Rights. THE PRIMARY TREND FUND, INC. was
incorporated in Wisconsin on June 3, 1986. Its authorized capital consists of
30,000,000 shares of Common Stock. Each share has one vote, and all shares
participate equally in dividends and other distributions by such Fund and in the
residual assets of the Fund in the event of liquidation. Shares of The Primary
Trend Fund, Inc. have no preemptive, conversion, subscription, or cumulative
voting rights. Consequently, the holders of more than 50% of the shares voting
for the election of directors can elect the entire Board of Directors, and in
such event, the holders of the remaining shares voting will not be able to elect
any person or persons to the Board of Directors.
THE PRIMARY INCOME FUNDS, INC. was incorporated in Wisconsin on April 5,
1989. Its authorized capital includes 30,000,000 Primary Income Fund shares and
30,000,000 Primary U.S. Government Fund shares. Each share has one vote.
Generally, Primary Income Fund shares and Primary U.S. Government Fund shares
are voted in the aggregate and not by each Fund, except where class voting by
each Fund is required by Wisconsin law or the Investment Company Act of 1940
(e.g., change in investment policy or approval of an investment advisory
agreement). The shares of The Primary Income Fund and The Primary U.S.
Government Fund have the same preferences, limitations and rights, except that
all consideration received from the sale of shares of each Fund, together with
all income, earnings, profits and proceeds thereof, belong to that Fund and are
charged with the liabilities in respect of that Fund and of that Fund's share of
the general liabilities of The Primary Income Funds, Inc. in the proportion that
the total net assets of the Fund bears to the total net assets of both Funds.
The net asset value per share of each of The Primary Income Fund and The Primary
U.S. Government Fund is based on the assets belonging to that Fund less the
liabilities charged to that Fund, and dividends are paid on shares of each Fund
only out of lawfully available assets belonging to that Fund. Shares of each
Fund participate equally in the residual assets of the respective Fund in the
event of liquidation. Shares of the Funds have no preemptive, conversion,
subscription, or cumulative voting rights. Consequently, the holders of more
than 50% of the shares of The Primary
18
<PAGE> 19
Income Funds, Inc. voting for the election of directors can elect the entire
Board of Directors, and in such event, the holders of the remaining shares
voting will not be able to elect any person or persons to the Board of
Directors.
The shares of each Fund arc redeemable and transferable. All shares issued
and sold by The Primary Trend Funds will be fully paid and nonassessable, except
as provided in Section 180.0622(2)(b) of the Wisconsin Business Corporation Law.
Fractional shares have the same rights proportionately as do full shares.
The Primary Trend Fund, Inc. and The Primary Income Funds, Inc. are
separately incorporated investment companies. Each of the Funds is described in
this Prospectus in order to help investors understand the similarities and
differences among the Funds. Because the Funds share this Prospectus there is a
possibility that one Fund might become liable for a misstatement, inaccuracy or
disclosure in this Prospectus concerning another Fund.
Custodian and Transfer and Dividend Disbursing Agent. Firstar Trust
Company, Milwaukee, Wisconsin, is the custodian for all securities and cash of
the Funds and serves as each Fund's transfer and dividend disbursing agent.
Performance Information. From time to time the Funds may provide
performance information in advertisements, sales literature or information to
shareholders. Fund performance may be quoted numerically or may be represented
in a table, graph or other illustration by presenting one or more performance
measurements, including total return, average annual total return and yield.
The Funds may compare their performance to other mutual funds with similar
investment objectives and to the industry as a whole, as quoted by ranking
services and publications of general interest. For example, this may include
Morningstar, Inc. and Lipper Analytical Services, Inc. (independent fund ranking
services) and magazines, such as Money, Forbes, and Business Week. In addition,
the Funds may compare their performance to that of other selected mutual funds
or recognized market indicators, including the Standard & Poor's 500 Stock Index
and the Dow Jones Industrial Average. Such performance rankings or comparisons
may be made with mutual funds that may have different investment restrictions,
objectives, policies or techniques than the Funds, and such other funds or
market indicators may be comprised of securities that differ from those the
Funds hold or may purchase.
The total return of any Fund is calculated for any specified period of time
by assuming the purchase of shares of the Fund at the net asset value at the
beginning of the period. Each dividend or other distribution paid by the Fund is
assumed to have been reinvested in additional shares of the Fund at the net
asset value on the reinvestment date. The total number of shares then owned as a
result of this process is valued at the net asset value at the end of the
period. The percentage increase is determined by subtracting the initial value
of the investment from the ending value and dividing the difference by the
initial value.
The average annual total return of any Fund refers to the rate of return
which, if applied to an initial investment at the beginning of a stated period
and compounded over the period, would result in the value of the investment at
the end of the stated period assuming reinvestment of all dividends and
distributions.
A quotation of yield reflects a Fund's income over a stated period
expressed as a percentage of the Fund's share price. The yield of The Primary
Income Fund and The Primary U.S. Government Fund is determined by dividing the
applicable Fund's net investment income for a 30-day (or one month) period by
the average number of such Fund's shares outstanding during the period, and
expressing the result as a percentage of the Fund's share price on the last day
of the 30-day (or one month) period. This percentage is then annualized. Capital
gains and losses are not included in the yield calculation.
19
<PAGE> 20
The Funds impose no sales or other charges which would impact their
performance computations. Investors should remember that all performance figures
are based on historical results and are not intended to indicate future
performance. The value of shares when redeemed may be more or less than their
original cost.
WHO ARE THE DIRECTORS AND OFFICERS OF THE COMPANIES?
The officers of The Primary Trend Fund, Inc. direct The Primary Trend
Fund's day-to-day operations and are directly responsible to that Company's
Board of Directors. Such Board of Directors is responsible for the overall
management of the business and affairs of The Primary Trend Fund. Similarly, the
officers of The Primary Income Funds, Inc. direct the day-to-day operations of
The Primary Income Fund and The Primary U.S. Government Fund and are directly
responsible to that Company's Board of Directors. The Board of Directors of The
Primary Income Funds, Inc. is responsible for the overall management of the
business and affairs of The Primary Income Fund and The Primary U.S. Government
Fund. The following are the Directors and Officers of both the Primary Trend
Fund, Inc. and The Primary Income Funds, Inc.:
<TABLE>
<S> <C> <C>
Directors: David R. Aushwitz President, Arnold Investment Counsel Incorporated,
Milwaukee, Wisconsin
Joseph L. Cook Attorney, Waukesha, Wisconsin
Lilli Gust Executive Vice President, Secretary-Treasurer,
Arnold Investment Counsel Incorporated
Officers: Lilli Gust President
David R. Aushwitz Senior Vice President
James R. Arnold, Jr. Secretary-Treasurer; Vice President,
Arnold Investment Counsel Incorporated
Barry S. Arnold Assistant Secretary; Assistant Vice President,
Arnold Investment Counsel Incorporated
Daniel M. Hanrahan Assistant Treasurer
</TABLE>
20
<PAGE> 21
[C.R. LOGO]
FUNDS
<TABLE>
<S> <C>
ACCOUNT APPLICATION
For individual, joint, custodial, corporate, trust Mail to: THE PRIMARY TREND FUNDS
(including pension and profit sharing plan) c/o Firstar Trust Company
accounts only. To open an IRA or 403(b) account, P.O. Box 701
please call us for a special application. If you Milwaukee, WI 53201-0701
have questions about this application, please call
(800) 443-6544.
</TABLE>
- --------------------------------------------------------------------------------
REGISTRATION
Please check type of account:
<TABLE>
<S> <C> <C> <C>
/ / INDIVIDUAL ---------------------------------------------------- -----------------------
Name (please print) Social Security Number
/ / JOINT ---------------------------------------------------- -----------------------
OWNER Name ("Joint tenants with right of survivorship", Social Security Number
unless otherwise specified)
/ / GIFT OR ---------------------------------------------------- as custodian for
TRANSFER Name of Custodian (one name only)
TO MINOR
---------------------------------------------------- -----------------------
Name of Minor (one name only) Minor's Minor's Social Security
Date of Birth Number
OTHER ---------------------------------------------------- -----------------------
Name of Corporation, Partnership, Trust, Estate, Taxpayer Identification
Guardianship, or Other Entity Number
----------------------------------------------------
Name of Fiduciary(s)
- --------------------------------------------------------------------------- -----------------------
Mailing Address Daytime phone
- --------------------------------------------------------------------------- -----------------------
Evening phone
- ---------------------------------------------------------------------------
City State Zip
</TABLE>
I am a citizen of United States Other (please specify)
-----------------------
- --------------------------------------------------------------------------------
DIVIDEND OPTION All income dividends and capital gains distributions will be
reinvested in additional shares unless the following box is checked.
/ / Pay all income dividends and capital gains distributions in cash. To
have your cash payment deposited electronically to your bank account, please
attach a voided check or deposit slip to this application.
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------
CHECKWRITING PRIVILEGE
<TABLE>
<S> <C>
Please complete the section below to establish checkwriting ------------------------------------------
privileges for your ------------------------------------------
Portico Money Market Fund account. (Subject to conditions on Account Number (for bank use only)
reverse side.)
- ---------------------------------------------------------------
ACCOUNT REGISTRATION (please print, as shown above)
AUTHORIZED SIGNATURE(S): (All owners must sign for joint
accounts.) ------------------------------------------
1. Please indicate the combination of
- --------------------------------------------------------------- signatures required on checks (Check ONE
2. box):
- --------------------------------------------------------------- / / ALL of the adjacent signatures are
3. required
- --------------------------------------------------------------- / / ANY one signature is acceptable on checks.
/ / A COMBINATION of signatures is required
(please specify).
------------------------------------------
</TABLE>
<PAGE> 22
- --------------------------------------------------------------------------------
INVESTMENT INSTRUCTIONS
/ / THE PRIMARY TREND FUND $
-------------
/ / THE PRIMARY INCOME FUND $
-------------
/ / THE PRIMARY U.S. GOVERNMENT FUND $
-------------
/ / PORTICO MONEY MARKET FUND $
-------------
Your investment may be made to one or more of the above Funds. Please make
checks payable to The Primary Trend Funds. There is a minimum initial investment
of $500 for each of the Funds. (The stated minimum initial investment does not
apply if participating in the Automatic Investment Plan. Please see the
prospectus for details.)
Please check the form of investment:
/ / By check $
-------------
/ / By Automatic Investment Plan (Please also complete and enclose an
Automatic Investment Plan application.)
/ / By exchange from my identically registered account.
Account Number
-------------
Amount $
-------------
/ / By Wire $
-------------
Date of wire
-------------
(Call (800) 338-1579 for wire instructions.)
- --------------------------------------------------------------------------------
TELEPHONE AUTHORIZATION
I would like the following telephone privileges:
<TABLE>
<S> <C>
/ / TELEPHONE EXCHANGE This option lets you use the telephone to make exchanges ($1,000 minimum)
between any of The Primary Trend Funds and/or Portico Money Market Fund with the
same registration. Firstar Trust Company charges a $5 fee for each telephone
exchange.
/ / TELEPHONE REDEMPTION This option lets you redeem shares by telephone ($1,000 minimum) from your
Portico Money Market Fund account only. The proceeds may be mailed to the
address of record or transferred to your bank account by electronic deposit or
by wire.*
* IF YOU WOULD LIKE THE ELECTRONIC DEPOSIT OR WIRE OPTIONS, PLEASE ATTACH A
VOIDED CHECK OR DEPOSIT SLIP TO THIS APPLICATION TO ENSURE ACCURATE BANK ACCOUNT
INFORMATION.
</TABLE>
- --------------------------------------------------------------------------------
SIGNATURE
BY SIGNING THIS FORM, I CERTIFY THAT:
/X/ I have received and read the current prospectus for the Funds in which I am
investing. I have the authority and legal capacity to purchase mutual fund
shares.
/X/ Under penalties of perjury, my social security number shown on this
application is correct and that I am of legal age.
/X/ I understand that neither The Primary Trend Funds nor Firstar Trust Company
will be liable for any loss or expense for acting on any instructions taken
in writing or by telephone believed by it to be genuine.
/X/ I am (please check appropriate box):
/ / Not subject to backup withholding because:
a) The IRS has not informed me that I am subject to backup withholding;
or
b) The IRS has notified me that I am no longer subject to backup
withholding.
/ / Subject to backup withholding.
<TABLE>
<S> <C>
- ---------------------------------------------------- ----------------------------------------------------
Signature of Owner, Trustee, or Custodian Date Signature of Joint Owner (if any) Date
</TABLE>
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------
CONDITIONS OF CHECKWRITING PRIVILEGE
The payment of funds is authorized by the signature(s) appearing on the
other side. If this card is signed by more than one person, all checks will
require all signatures appearing on the other side unless otherwise indicated.
Firstar Bank Milwaukee is appointed agent by the person(s) signing this
card (the "Depositor(s)") to present checks drawn on this account to Firstar
Trust Company, as requests to redeem shares. The Depositor(s) agrees to be
subject to the rules pertaining to the checkwriting privileges as amended from
time to time. Portico Money Market Fund or Firstar Trust Company reserve the
right to change, modify, or terminate this account and authorization at any
time.
Checks may not be for less than $250 or such other minimum amount as may
from time to time be established by Portico Money Market Fund upon prior written
notice to its shareholders. Shares purchased by check, (including certified or
cashier's check) will not be redeemed by checkwriting or any other method within
12 days of the purchase date.
<PAGE> 23
[C.R. LOGO]
INVESTMENT ADVISER
Arnold Investment Counsel
Incorporated
First Financial Centre
700 North Water Street
Milwaukee, Wisconsin 53202
(800) 443-6544
OFFICERS
Lilli Gust, President
David R. Aushwitz, Senior Vice President
James R. Arnold, Jr., Secretary-Treasurer
Barry S. Arnold, Assistant Secretary
Daniel M. Hanrahan, Assistant Treasurer
DIRECTORS
David R. Aushwitz
Joseph L. Cook
Lilli Gust
CUSTODIAN, TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Firstar Trust Company
615 East Michigan Street
Milwaukee, Wisconsin 53202
(800) 338-1579
INDEPENDENT AUDITORS
Ernst & Young LLP
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
[C.R. LOGO]
[C.R. LOGO]
PROSPECTUS
THE PRIMARY
TREND FUND
THE PRIMARY
INCOME FUND
THE PRIMARY U.S.
GOVERNMENT FUND
MILWAUKEE, WISCONSIN
OCTOBER 24, 1995
STATEMENT OF ADDITIONAL INFORMATION October 24, 1995
THE PRIMARY TREND FUNDS
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of The Primary Trend
Funds dated October 24, 1995. Requests for copies of the prospectus
should be made in writing to The Primary Trend Funds, First Financial
Centre, 700 North Water Street, Milwaukee, Wisconsin 53202, or by calling
(800) 443-6544.
THE PRIMARY TREND FUND, INC.
THE PRIMARY INCOME FUNDS, INC.
First Financial Centre
700 North Water Street
Milwaukee, Wisconsin 53202
<PAGE>
THE PRIMARY TREND FUNDS
Table of Contents
Page No.
Investment Restrictions......................... 1
Investment Considerations....................... 3
Directors and Officers of the Companies......... 8
Ownership of Management and Principal
Shareholders.................................... 10
Investment Adviser.............................. 11
Determination of Net Asset Value................ 13
Performance and Yield Information............... 14
Purchase of Shares.............................. 17
Allocation of Portfolio Brokerage............... 17
Custodian....................................... 18
Taxes........................................... 19
Independent Auditors............................ 19
Financial Statements............................ 20
Description of Securities Ratings............... 20
No person has been authorized to give any information or to make
any representations other than those contained in this Statement of
Additional Information and the Prospectus dated October 24, 1995 and, if
given or made, such information or representations may not be relied upon
as having been authorized by The Primary Trend Funds.
This Statement of Additional Information does not constitute an
offer to sell securities.
INVESTMENT RESTRICTIONS
As set forth in the joint prospectus dated October 24, 1995 of
The Primary Trend Fund, Inc. and The Primary Income Funds, Inc.
(collectively, the "Companies") under the caption "WHAT ARE THE FUNDS'
INVESTMENT OBJECTIVES?", the investment objective of The Primary Trend
Fund is to maximize total return (a combination of capital growth and
current income) without exposing capital to undue risk; the investment
objective of The Primary Income Fund is to obtain a high level of current
income, with a reasonable opportunity for capital appreciation, from
investments in a diversified portfolio of fixed income securities and/or
dividend-paying common and preferred stocks; and the investment objective
of The Primary U.S. Government Fund is to obtain a high level of current
income from investments in a diversified portfolio of securities issued or
guaranteed as to principal by the U.S. Government and its agencies or
instrumentalities. (The Primary Trend Fund, The Primary Income Fund and
The Primary U.S. Government Fund are hereinafter referred to collectively
as the "Funds".) Consistent with these investment objectives, each of the
Funds has adopted the following investment restrictions which are matters
of fundamental policy. Each Fund's fundamental investment policies cannot
be changed without approval of the holders of the lesser of: (i) 67% of
that Fund's shares present or represented at a shareholders' meeting at
which the holders of more than 50% of such shares are present or
represented; or (ii) more than 50% of the outstanding shares of that Fund.
1. None of the Funds will purchase securities on margin,
participate in a joint-trading account, sell securities short, or write or
invest in put or call options. The Primary Income Fund and The Primary
U.S. Government Fund will not invest in warrants which are unattached to
fixed income securities. The Primary Trend Fund's investments in
warrants, valued at the lower of cost or market, will not exceed 5% of the
value of such Fund's net assets and of such 5% not more than 2% of the
Fund's net assets at the time of purchase may be invested in warrants that
are not listed on the New York or American Stock Exchanges. Warrants are
options to purchase securities at a specified price, valid for a specified
period of time. Warrants are pure speculation in that they have no voting
rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. If a Fund does not exercise a warrant, its
loss will be the purchase price of the warrant.
2. None of the Funds will borrow money or issue senior
securities, except for temporary bank borrowings or for emergency or
extraordinary purposes (but not for the purpose of purchase of
investments) and then only in an amount not in excess of 5% of the value
of its total assets, and none of the Funds will pledge any of its assets
except to secure borrowings and then only to an extent not greater than
10% of the value of such Fund's net assets.
3. None of the Funds will lend money (except by purchasing
publicly distributed debt securities) or lend its portfolio securities.
4. None of the Funds will purchase securities of other
investment companies except (a) as part of a plan of merger, consolidation
or reorganization approved by the shareholders of such Fund or (b)
securities of registered closed-end investment companies on the open
market where no commission or profit results, other than the usual and
customary broker's commission, and where as a result of such purchase such
Fund would hold less than 3% of any class of securities, including voting
securities, of any registered closed-end investment company and less than
5% of such Fund's net assets, taken at current value, would be invested in
securities of registered closed-end investment companies. The Funds have
no current intention of investing in securities of closed-end investment
companies.
5. None of the Funds will make investments for the purpose of
exercising control or management of any company.
6. Each of the Funds will limit its purchases of securities of
any one issuer (other than the United States or an agency or
instrumentality of the United States Government) in such a manner that it
will satisfy the requirements of Section 5(b)(1) of the Investment Company
Act of 1940. Pursuant to Section 5(b)(1) of the Investment Company Act of
1940 at least 75% of the value of a Fund's total assets must be
represented by cash and cash items (including receivables), U.S.
Government securities, securities of other investment companies, and other
securities for the purpose of the foregoing limited in respect of any one
issuer to an amount not greater than 5% of the value of the total assets
of such Fund and to not more than 10% of the outstanding voting securities
of such issuer.
7. None of the Funds will concentrate 25% or more of the value
of its assets, determined at the time an investment is made, exclusive of
U.S. Government securities, in securities issued by companies primarily
engaged in the same industry, except that The Primary Income Fund will
concentrate more than 25% of the value of its assets in companies
primarily engaged in the utility industry.
8. None of the Funds will acquire or retain any security
issued by a company, an officer or director of which is an officer or
director of either Company or an officer, director or other affiliated
person of such Fund's investment adviser.
9. None of the Funds will acquire or retain any security
issued by a company if any of the directors or officers of either Company,
or directors, officers or other affiliated persons of such Fund's
investment adviser, beneficially own more than 1/2% of such company's
securities and all of the above persons owning more than 1/2% own together
more than 5% of its securities.
10. None of the Funds will act as an underwriter or distributor
of securities other than shares of the applicable Company and will not
purchase any securities which are restricted from sale to the public
without registration under the Securities Act of 1933, as amended.
11. None of the Funds will purchase any interest in any oil,
gas or any other mineral exploration or development program.
12. None of the Funds will purchase or sell real estate or real
estate mortgage loans, but each of the Funds may purchase securities of
issuers whose assets consist primarily of real estate or real estate
mortgage loans.
13. None of the Funds will purchase or sell commodities or
commodities contracts.
14. None of the Funds will invest more than 5% of such Fund's
total assets in securities of issuers which have a record of less than
three years of continuous operation, including the operation of any
predecessor business of a company which came into existence as a result of
any merger, consolidation, reorganization or purchase of substantially all
of the assets of such predecessor business.
15. No Fund's investments in illiquid and/or not readily
marketable securities will exceed 10% of such Fund's total assets. The
Funds have no current intention of investing in illiquid and/or not
readily marketable securities.
INVESTMENT CONSIDERATIONS
As set forth above under the caption "INVESTMENT RESTRICTIONS,"
The Primary Income Fund will concentrate more than 25% of the value of its
assets in securities issued by companies primarily engaged in the utility
industry. Public utilities, whether state, municipal or investor-owned,
often experience certain problems associated with this industry, including
the difficulty in obtaining an adequate return on invested capital in
spite of frequent increases in rates which have been granted by the Public
Service Commissioners having jurisdiction, the difficulty in financing
large construction programs during an inflationary period, the
restrictions on operations and increased cost and delays attributable to
environmental considerations, the difficulty of the capital markets in
absorbing utility debt and equity securities, the difficulty in obtaining
fuel for electric generation at reasonable prices and the effects of
energy conservation. Certain utilities in which The Primary Income Fund
may invest may operate nuclear electric generation facilities. Various
governmental bodies are conducting, and may be expected to conduct in the
future, reviews relating to nuclear electric generation. It is difficult
to predict with any degree of certainty the findings, recommendations and
other results of these or any future studies and hearings, whether any
recommended legislation will be adopted, or whether governmental
regulations affecting nuclear generation will be significantly modified.
While it is difficult to predict the effect of any of the foregoing on
such utilities or any of their products, facilities under construction may
be subjected to changes in regulatory requirements and to closer
regulatory scrutiny, which in turn may increase exposure to licensing
related impacts on schedules, design and operating requirements.
In seeking to achieve their respective investment objectives,
each of The Primary Trend Fund and The Primary Income Fund may invest up
to 5% of its total assets in corporate obligations rated less than
investment grade if, in the opinion of the Adviser, such lesser rating is
due to a special situation or other extenuating circumstances. See "WHAT
ARE THE FUNDS' INVESTMENT POLICIES -- The Primary Trend Fund" and " -- The
Primary Income Fund" in the Prospectus. Corporate obligations rated less
than investment grade (hereinafter referred to as "low-rated securities")
are commonly referred to as "junk bonds", and while generally offering
higher yields than investment grade securities with similar maturities,
involve greater risks, including the possibility of default or bankruptcy.
They are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. The special risk
considerations in connection with investments in low-rated securities are
discussed below. See "DESCRIPTION OF SECURITIES RATINGS."
Effect of Interest Rates and Economic Changes
Even though the exposure of The Primary Trend Fund and The
Primary Income Fund to the low-rated security market is limited to a
maximum of 5% of their respective total assets, the Funds are required to
provide the following discussion of such market.
The low-rated security market is relatively new and its growth
paralleled a long economic expansion. As a result, it is not clear how
this market may withstand a prolonged recession or economic downturn.
Such a prolonged economic downturn could severely disrupt the market for
and adversely affect the value of high-yield securities.
Interest-bearing securities typically experience appreciation
when interest rates decline and depreciation when interest rates rise.
The market values of low-rated securities tend to reflect individual
corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Low-rated securities also tend to be more sensitive to
economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of low-rated securities may
experience financial stress and may not have sufficient revenues to meet
their payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate
developments, or the issuer's inability to meet specific projected
business forecasts or the unavailability of additional financing. The
risk of loss due to default by an issuer of low-rated securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a low-rated security defaulted, The
Primary Trend Fund and/or The Primary Income Fund might incur additional
expenses in seeking recovery. Periods of economic uncertainty and changes
would also generally result in increased volatility in the market prices
of low-rated securities and thus in either Fund's net asset value.
As previously stated, the value of a low-rated security
generally will decrease in a rising interest rate market, and accordingly,
so normally will the respective net asset values of The Primary Trend Fund
and The Primary Income Fund. If either of such Funds experiences
unexpected net redemptions in such a market, it may be forced to liquidate
a portion of its portfolio securities without regard to their investment
merits. Due to the limited liquidity of low-rated securities (discussed
below), either The Primary Trend Fund or The Primary Income Fund may be
forced to liquidate these securities at a substantial discount. Any such
liquidation would reduce such Fund's asset base over which expenses could
be allocated and could result in a reduced rate of return for such Fund.
Payment Expectations
Low-rated securities typically contain redemption, call or
prepayment provisions which permit the issuer of such securities
containing such provisions to, at their discretion, redeem the securities.
During periods of falling interest rates, issuers of low-rated securities
are likely to redeem or prepay the securities and refinance them with debt
securities with a lower interest rate. To the extent an issuer is able to
refinance the securities or otherwise redeem them, The Primary Trend Fund
and/or The Primary Income Fund may have to replace the securities with a
lower yielding security which would result in lower returns for such
Funds.
Credit Ratings
Credit ratings issued by credit rating agencies evaluate the
safety of principal and interest payments of rated securities. They do
not, however, evaluate the market value risk of low-rated securities and
therefore may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the condition of the issuer
that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in low-rated securities will be more dependent on the
Adviser's credit analysis than would be the case with investments in
investment grade debt securities. The Adviser employs its own credit
research and analysis which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current
trend of earnings. The Adviser continually monitors the investments in
The Primary Trend Fund's and The Primary Income Fund's portfolios and
carefully evaluates whether to dispose of or to retain low-rated
securities whose credit ratings or credit quality may have changed.
Liquidity and Valuation
The Primary Trend Fund and The Primary Income Fund may have
difficulty disposing of certain low-rated securities because there may be
a thin trading market for such securities. Because not all dealers
maintain markets in all low-rated securities there is no established
retail secondary market for many of these securities. Such Funds
anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading
market does exist, it is generally not as liquid as the secondary market
for higher rated securities. The lack of a liquid secondary market may
have an adverse impact on the market price of the security, and
accordingly, the respective asset values of The Primary Trend Fund and The
Primary Income Fund, and such Funds' ability to dispose of particular
securities when necessary to meet their liquidity needs or in response to
a specific economic event, or an event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities may also make it more difficult for The Primary Trend
Fund and The Primary Income Fund to obtain accurate market quotations for
purposes of valuing their respective portfolios. Market quotations are
generally available on many low-rated issues only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or
prices for actual sales. During periods of thin trading, the spread
between bid and asked prices is likely to increase significantly. In
addition, adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of
high-yield securities, especially in a thinly-traded market.
New and Proposed Legislation
Legislation has been adopted, and from time to time proposals
have been discussed regarding new legislation, designed to limit the use
of certain low-rated securities by certain issuers. An example of
legislation was the relatively recent law which required federally insured
savings and loan associations to divest over time their investments in
low-rated securities. New legislation could further reduce the market for
such securities generally, could negatively affect the financial condition
of the issuers of low-rated securities and could adversely affect the low-
rated security market in general. It is not currently possible to
determine the impact of the recent legislation or the proposed legislation
on the low-rated securities market. However, it is anticipated that if
additional legislation is enacted, it could have a material effect on the
value of low-rated securities and the existence of a secondary trading
market for the securities.
Zero Coupon and Pay-In-Kind and Step Coupon Securities
The Primary Income Fund may invest in zero coupon, pay-in-kind
and step coupon securities. Zero coupon and step coupon bonds are issued
and traded at a discount from their face amounts. They do not entitle the
holder to any periodic payment of interest prior to maturity or prior to a
specified date when the securities begin paying current interest. The
discount from the face amount or par value depends on the time remaining
until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer.
Current federal income tax law requires holders of zero coupon
securities and step coupon securities to report as interest income each
year the portion of the original issue discount on such securities that
accrues that year, even though the holders receive no cash payments of
interest during the year. In order to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company must distribute each Fund's investment
company taxable income, including the original issue discount accrued on
zero coupon or step coupon bonds. Because The Primary Income Fund will
not receive on a current basis cash payments in respect of accrued
original issue discount on zero coupon bonds or step coupon bonds during
the period before interest payments commence, in some years The Primary
Income Fund may have to distribute cash obtained from other sources in
order to satisfy the distribution requirement under the Code. Such cash
might be obtained from selling other portfolio holdings of the Fund.
These actions are likely to reduce the assets to which Fund expenses could
be allocated and to reduce the rate of return for the Fund. In some
circumstances, such sales might be necessary in order to satisfy cash
distribution requirements even though investment considerations might
otherwise make it undesirable for the Fund to sell the securities at the
time.
The market prices of zero coupon, step coupon and pay-in-kind
securities generally are more volatile than the prices of securities that
pay interest periodically and in cash and are likely to respond to changes
in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit quality.
DIRECTORS AND OFFICERS OF THE COMPANIES
The same persons currently serve as directors and officers of
both The Primary Trend Fund, Inc. and The Primary Income Funds, Inc. The
name, address, principal occupations during the past five years and other
information with respect to each of the directors of the Companies are as
follows:
DAVID R. AUSHWITZ*
700 North Water Street
Milwaukee, Wisconsin
(SENIOR VICE PRESIDENT AND A DIRECTOR OF EACH COMPANY)
Mr. Aushwitz has served as Senior Vice President and a director
of The Primary Trend Fund, Inc. and The Primary Income Funds, Inc. since
January, 1990. He is also President and a director of Arnold Investment
Counsel Incorporated, Milwaukee, Wisconsin, a position he has held since
November, 1989. Arnold Investment Counsel Incorporated (the "Adviser"),
an investment advisory firm organized in February, 1978, is the investment
adviser of the Funds. From August, 1988 to November, 1989, Mr. Aushwitz
was a Vice President and Director of Research of the Adviser. Prior to
that time, he served as a Vice President of both Marshall & Ilsley
Corporation and M&I Investment Management Corp., beginning in March, 1973.
* Mr. Aushwitz and Ms. Gust are directors who are "interested persons"
of the Companies as that term is defined in the Investment Company
Act of 1940.
JOSEPH L. COOK
1220 South Grand Avenue
Waukesha, Wisconsin
(A DIRECTOR OF EACH COMPANY)
Mr. Cook has been a practicing attorney since 1975. He has
served as a director of The Primary Trend Fund, Inc. since it was founded
in 1986 and as a director of The Primary Income Funds, Inc. since it was
founded in 1989.
LILLI GUST*
700 North Water Street
Milwaukee, Wisconsin
(PRESIDENT AND A DIRECTOR OF EACH COMPANY)
Ms. Gust is Executive Vice President, Secretary-Treasurer and a
director of the Adviser and has been an officer of the Adviser since
February, 1978. She is President and a director of The Primary Trend
Fund, Inc. and has been an officer and a director thereof since its
inception in 1986. She is also President and a director of The Primary
Income Funds, Inc. and has been an officer and a director thereof since
its inception in 1989.
The name, address, principal occupations during the past five
years and other information with respect to each of the officers of the
* Mr. Aushwitz and Ms. Gust are directors who are "interested persons"
of the Companies as that term is defined in the Investment Company
Act of 1940.
Companies who are not directors are as follows:
JAMES R. ARNOLD, JR.
700 North Water Street
Milwaukee, Wisconsin
(SECRETARY-TREASURER OF EACH COMPANY)
Mr. Arnold is a Vice President of the Adviser and the Secretary-
Treasurer of both The Primary Trend Fund, Inc. and The Primary Income
Funds, Inc. He joined the Adviser in October, 1985.
BARRY S. ARNOLD
700 North Water Street
Milwaukee, Wisconsin
(ASSISTANT SECRETARY OF EACH COMPANY)
Mr. Arnold is an Assistant Vice President of the Adviser and the
Assistant Secretary of both The Primary Trend Fund, Inc. and The Primary
Income Funds, Inc. He joined the Adviser in September, 1987.
DANIEL M. HANRAHAN
700 North Water Street
Milwaukee, Wisconsin
(ASSISTANT TREASURER OF EACH COMPANY)
Mr. Hanrahan is an employee of the Adviser and the Assistant
Treasurer of both The Primary Trend Fund, Inc. and The Primary Income
Funds, Inc. He joined the Adviser in September, 1988.
James R. Arnold, Jr. and Barry S. Arnold are brothers.
During the fiscal year ended June 30, 1995, each Company paid
$500 in aggregate remuneration to its disinterested director. Each
Company's standard method of compensating directors is to pay each
disinterested director a fee of $250 for each meeting of the Board of
Directors of such Company attended. The table below sets forth the
compensation paid by each Company to each of the current directors of
the Companies during the fiscal year ended June 30, 1995:
<TABLE>
COMPENSATION TABLE
<CAPTION>
Total
Aggregate Pension or Retirement Estimated Annual Compensation
Name of Compensation Benefits Accrued As Benefits Upon from Company
Person from Company Part of Company Expenses Retirement Paid to Directors
The Primary Trend Fund, Inc.
<S> <C> <C> <C> <C>
David R. Aushwitz $0 $0 $0 $0
Joseph L. Cook $500 $0 $0 $500
Lilli Gust $0 $0 $0 $0
<CAPTION>
The Primary Income Funds, Inc.
<S> <C> <C> <C>
David R. Aushwitz $0 $0 $0 $0
Joseph L. Cook $500 $0 $0 $500
Lilli Gust $0 $0 $0 $0
</TABLE>
OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
As of September 30, 1995, all officers and directors of The
Primary Trend Fund, Inc. as a group (6 persons) beneficially owned 92,113
shares of The Primary Trend Fund, which constituted 5.2% of the
outstanding shares of such Fund at such date. As of September 30, 1995,
the only shareholder known to the Fund to beneficially own more than five
percent (5%) of its then outstanding shares was Ruth L. Leef (Elm Grove,
Wisconsin, 53122), who owned 126,138 shares, or 7.1% of the total shares
outstanding. The following table sets forth certain information regarding
the ownership of outstanding shares of each of The Primary Income Fund and
The Primary U.S. Government Fund as of September 30, 1995, by (i) each
person known by The Primary Income Fund, Inc. to own more than 5% of
either Fund's outstanding shares, and (ii) all directors and officers of
The Primary Income Fund, Inc. as a group. Unless otherwise indicated,
each shareholder possesses both record and beneficial ownership of the
shares listed opposite his or her name.
The Primary Income Fund
Amount of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
Marshall & Ilsley Trust
Company, Trustee
FBO Carroll College
Milwaukee, Wisconsin 53202 53,391 16.5%
Carolyn V. Arnold IRA
New Berlin, Wisconsin 53146 31,657 9.8%
Directors and Officers
as a Group (6 persons) 28,783* 8.9%
_____________________
* The amount shown includes the shares of such Fund held of record
by Arnold Investment Counsel Incorporated. Arnold Investment
Counsel Incorporated is controlled by Lilli Gust. See
"INVESTMENT ADVISER."
The Primary U.S. Government Fund
Amount of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
Carolyn V. Arnold IRA
New Berlin, Wisconsin 53146 33,753 27.5%
Burnell F. Eckardt
Sheboygan, Wisconsin 53081 15,372 12.5%
Arnold Investment
Counsel Incorporated*
Milwaukee, Wisconsin 53202 15,245 12.4%
Lilli Gust
Milwaukee, Wisconsin 53208 7,410 6.0%
Directors and Officers
as a Group (6 persons) 22,834** 18.6%
_____________________
* Arnold Investment Counsel Incorporated is controlled by Lilli
Gust. See "INVESTMENT ADVISER."
** The amount shown includes the shares of such Fund held of record
by Arnold Investment Counsel Incorporated.
By virtue of her stock ownership, Mrs. Carolyn V. Arnold is
deemed to control The Primary U.S. Government Fund. In combination with
the holders of more than 22.5% of The Primary U.S. Government Fund's
outstanding stock, she owns sufficient shares to approve or disapprove all
matters (other than the election of directors of the Company or the
approval of auditors) brought before such Fund's shareholders. Mrs.
Arnold does not control The Primary Income Fund, The Primary Trend Fund or
either of the Companies.
INVESTMENT ADVISER
As set forth in the Prospectus under the caption "WHO MANAGES
THE FUNDS?" the investment adviser to the Funds is Arnold Investment
Counsel Incorporated (the "Adviser"). The Adviser is controlled by Lilli
Gust, by virtue of her having voting control of a majority of the
Adviser's outstanding shares. Pursuant to investment advisory agreements
between the respective Funds and the Adviser (the "Agreements"), the
Adviser furnishes continuous investment advisory and management services
to the Funds. For the fiscal years ended June 30, 1995, 1994 and 1993,
The Primary Trend Fund paid the Adviser fees of $153,886, $174,720 and
$208,255, respectively, pursuant to its Agreement. For the fiscal years
ended June 30, 1995, 1994 and 1993, the Adviser effectively waived 100% of
its advisory fee for each of The Primary Income Fund and The Primary U.S.
Government Fund as a result of the expense reimbursements discussed below.
The Funds will pay all of their expenses not assumed by the
Adviser pursuant to the Agreements, including, but not limited to: the
costs of preparing and printing their registration statements required
under the Securities Act of 1933 and the Act and any amendments thereto;
the expense of registering their shares with the Securities and Exchange
Commission and the various states; the printing and distribution cost of
prospectuses mailed to existing shareholders; interest charges; brokerage
commissions; and expenses incurred in connection with portfolio
transactions. The Funds will also pay: the fees of directors who are not
interested persons of the Adviser; director and officer liability
insurance, if any; salaries of administrative and clerical personnel;
association membership dues; auditing and accounting services; legal fees
and expenses; fees and expenses of any custodian or trustee having custody
of the Funds' assets; expenses of calculating the Funds' net asset values
and repurchasing and redeeming shares; and charges and expenses of
dividend disbursing agents, registrars and stock transfer agents,
including the cost of keeping all necessary shareholder records and
accounts and handling any related problems.
The Adviser has agreed to reimburse The Primary Income Fund for
all expenses exceeding an annual rate of .84% of its average daily net
assets and The Primary U.S. Government Fund for all expenses exceeding an
annual rate of .75% of its average daily net assets (for this purpose "all
expenses" include the investment advisory fee, but exclude interest,
taxes, brokerage commissions and extraordinary items). It will be each of
such Funds' practice, if any expense reimbursement is necessary, to reduce
the investment advisory fee and any other amounts owed the Adviser, by the
amount of such excess. During the fiscal years ended June 30, 1995, 1994
and 1993 each of such Funds' expenses exceeded their respective limits.
Accordingly, the amounts owed the Adviser by The Primary Income Fund and
The Primary U.S. Government Fund were reduced by $29,838 (including
$28,945 of advisory fees) and $25,240 (including $8,535 of advisory fees),
respectively, for the fiscal year ended June 30, 1995; $40,008 (including
$24,840 of advisory fees) and $33,504 (including $8,917 of advisory fees),
respectively, for the fiscal year ended June 30, 1994; and $40,334
(including $18,893 of advisory fees) and $34,814 (including $8,076 of
advisory fees), respectively, for the fiscal year ended June 30, 1993.
These voluntary reimbursements to The Primary Income Fund and The Primary
U.S. Government Fund may be modified or discontinued at any time by the
Adviser.
Under the Agreements, regardless of the voluntary expense
reimbursements discussed above, the Adviser must reimburse each Fund
(including The Primary Trend Fund) to the extent that its annual operating
expenses, including investment advisory fees (net of any reimbursements
made by the Adviser), but excluding interest, taxes, brokerage commissions
and extraordinary items, exceed that percentage of the average net assets
of such Fund for such year, as determined by valuations made as of the
close of each business day of the year, which is the most restrictive
percentage provided by the state laws of the various states in which the
shares of such Fund are qualified for sale or, if the states in which the
shares of such Fund are qualified for sale impose no such restrictions,
2%. Although state requirements are subject to change, the percentage
currently applicable to each of the Funds is 2-1/2% of the first $30,000,000
of its average net assets; 2% of the next $70,000,000 of its average net
assets; and 1-1/2% on average net assets in excess of $100,000,000. Each
Fund monitors its expense ratio on a monthly basis. If the accrued amount
of the expenses of a Fund exceeds the expense limitation, the Fund records
an account receivable from the Adviser for the amount of such excess. In
such a situation, the monthly payment of the Adviser's fee will be reduced
by the amount of such excess, subject to adjustment month by month during
the balance of the Funds' fiscal year if accrued expenses thereafter fall
below this limit. The adjustment will be reconciled at the end of the
Fund's fiscal year and not carried forward. Except as set forth in the
preceding paragraph, no reimbursement was required for the Funds during
the fiscal years ended June 30, 1995, 1994 and 1993.
Each of the Agreements will remain in effect as long as its
continuance is specifically approved at least annually by (i) the Board of
Directors of the applicable Company, or by the vote of a majority (as
defined in the Investment Company Act of 1940) of the outstanding shares
of the applicable Fund, and (ii) by the vote of a majority of the
directors of the applicable Company who are not parties to the Agreements
or interested persons of the Adviser, cast in person at a meeting called
for the purpose of voting on such approval. Each of the Agreements
provides that it may be terminated at any time without the payment of any
penalty, by the Board of Directors of the applicable Company or by vote of
a majority of the shares of the applicable Fund, on sixty (60) days'
written notice to the Adviser, and by the Adviser on the same notice to
the applicable Fund, and that it shall be automatically terminated if it
is assigned.
The Agreements provide that the Adviser shall not be liable to
any of the Funds or their shareholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. The Agreements also provide that the Adviser and
its officers, directors and employees may engage in other businesses,
devote time and attention to any other business, whether of a similar or
dissimilar nature, and render investment advisory services to others.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "HOW IS EACH
FUND'S SHARE PRICE DETERMINED?" the net asset value of each Fund will be
determined (except as otherwise noted in the succeeding paragraph) as of
the close of regular trading (currently 3:00 P.M. Central Time) on each
day the New York Stock Exchange is open for trading. The New York Stock
Exchange is open for trading Monday through Friday except New Year's Day,
Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the New York Stock Exchange
will not be open for trading on the preceding Friday, and when any such
holiday falls on a Sunday, the New York Stock Exchange will not be open
for trading on the succeeding Monday, unless unusual business conditions
exist, such as the ending of a monthly or the yearly accounting period.
Notwithstanding the preceding paragraph, the net asset value for
The Primary U.S. Government Fund also will not be determined on days when
the Federal Reserve is closed. In addition to the days on which the New
York Stock Exchange is not open for trading, the Federal Reserve is closed
on Martin Luther King, Jr. Day, Columbus Day and Veterans Day.
PERFORMANCE AND YIELD INFORMATION
Any total return quotation for The Primary Trend Fund, The
Primary Income Fund or The Primary U.S. Government Fund will assume the
reinvestment of all dividends and capital gains distributions which were
made by the applicable Fund during that period. Any period total return
quotation of a Fund will be calculated by dividing the net change in value
of a hypothetical shareholder account established by an initial payment of
$1,000 at the beginning of the period by $1,000. The net change in the
value of a shareholder account is determined by subtracting $1,000 from
the product obtained by multiplying the net asset value per share at the
end of the period by the sum obtained by adding (A) the number of shares
purchased at the beginning of the period plus (B) the number of shares
purchased during the period with reinvested dividends and distributions.
Any average annual total return quotation of a Fund will be calculated by
dividing the value at the end of the period (i.e., the product referred to
in the preceding sentence) by $1,000. A root equal to the period,
measured in years, in question is then determined and 1 is subtracted from
such root to determine the average annual total return.
The foregoing computation may also be expressed by the following
formula:
n
P(1+T) = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending value of a hypothetical $1,000 payment made at the
beginning of the stated periods at the end of the stated
periods.
The Primary Trend Fund's annual compounded rate of return for
the one and five year periods ended June 30, 1995 was +17.03% and +8.42%,
respectively, and for the period from September 15, 1986 (beginning of
operations) through June 30, 1995 was 8.26%. The Primary Income Fund's
annual compounded rate of return for the one- and five-year periods ended
June 30, 1995 was +14.84% and +10.37%, respectively, and for the period
from September 1, 1989 (beginning of operations) through June 30, 1995 was
+9.60%. The Primary U.S. Government Fund's annual compounded rate of
return for the one- and five-year periods ended June 30, 1995 was +10.21%
and +7.5%, respectively, and for the period from September 1, 1989
(beginning of operations) through June 30, 1995, was +7.51%. An average
annual compounded rate of return refers to the rate of return which, if
applied to an initial investment at the beginning of a stated period and
compounded over the period, would result in the redeemable value of the
investment at the end of the stated period. The calculation assumes
reinvestment of all dividends and distributions and reflects the effect of
all recurring fees.
The results below show the value of an assumed initial
investment in The Primary Trend Fund of $10,000 made on September 15, 1986
through June 30, 1995, assuming reinvestment of all dividends and
distributions.
Value of
$10,000 Cumulative
June 30 Investment % Change
1987 $11,620 +16.20%
1988 12,276 +22.76
1989 13,606 +36.06
1990 13,415 +34.15
1991 14,850 +48.50
1992 15,927 +59.27
1993 17,225 +72.25
1994 17,178 +71.78
1995 20,102 +101.02
The foregoing performance results are based on historical
earnings and should not be considered as representative of the performance
of The Primary Trend Fund, The Primary Income Fund or The Primary U.S.
Government Fund in the future. Such performance results also reflect
reimbursements made by the Adviser during the fiscal years ended June 30,
1995, 1994, 1993, 1992 and 1991 and the ten-month period ended June 30,
1990 to keep The Primary Income Fund's and The Primary U.S. Government
Fund's total annual fund operating expenses at or below .84% and .75%,
respectively, of average daily net assets. An investment in any of the
Funds will fluctuate in value and at redemption its value may be more or
less than the initial investment.
The Primary Income Fund and The Primary U.S. Government Fund may
cite yields in advertisements, sales literature or information to
shareholders. Each Fund's yield is based on a 30-day period and is
computed by dividing the net investment income per share earned during the
period by the net asset value per share on the last day of the period,
according to the following formula:
a-b 6
YIELD = 2[(--- + 1) -1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the net asset value per share on the last day of
the period.
The yield for the thirty days ended June 30, 1995 was 4.12% for
The Primary Income Fund and 5.58% for The Primary U.S. Government Fund.
Yield fluctuations may reflect changes in the applicable Fund's net
income, and portfolio changes resulting from net purchases or net
redemptions of the Fund's shares may affect the yield. Accordingly, such
Fund's yield may vary from day to day, and the yield stated for a
particular past period is not necessarily representative of its future
yield. Neither Fund's yield is guaranteed, nor is its principal insured.
Yield information may be useful in reviewing the performance of
each of The Primary Income Fund and The Primary U.S. Government Fund and
for providing a basis for comparison with other investment alternatives.
However, since net investment income of each Fund changes in response to
fluctuations in interest rates and such Fund's expenses, any given yield
quotation should not be considered representative of its yield for any
future period. An investor should also be aware that there are
differences in investments other than yield.
Furthermore, a particular Fund's yield will be affected if it
experiences a net inflow of new money which is invested at interest rates
different from those being earned on its then-current investments. An
investor's principal in a particular Fund and such Fund's return are not
guaranteed.
PURCHASE OF SHARES
The Articles of Incorporation of The Primary Trend Fund, Inc.
permit the issuance of shares of The Primary Trend Fund in exchange for
securities of a character which are permitted investments of such Fund.
The Articles of Incorporation of The Primary Income Funds, Inc. permit the
issuance of shares of either The Primary Income Fund or The Primary U.S.
Government Fund in exchange for securities of a character which are
permitted investments of the applicable Fund. However, neither Company
anticipates issuing Fund shares for investment securities in the
foreseeable future. Any such issuances will be limited to a bona fide
reorganization, statutory merger, or other acquisitions of portfolio
securities which: (a) meet the investment objectives and policies of the
applicable Fund; (b) are acquired for investment and not for resale; (c)
are liquid securities which are not restricted as to transfer either by
law or liquidity of market; and (d) have a value which is readily
ascertainable (and not established only by evaluation procedures) as
evidenced by a listing on the American Stock Exchange, the New York Stock
Exchange, or NASDAQ. For purposes of determining the number of shares to
be issued, the securities to be exchanged will be valued in the same
manner as the applicable Fund's portfolio securities.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Funds are made by
the Adviser subject to review by the appropriate Company's Board of
Directors. In placing purchase and sale orders for portfolio securities
for each Fund, it is the policy of the Adviser to seek the best execution
of orders at the most favorable price in light of the overall quality of
brokerage and research services provided. In selecting brokers to effect
portfolio transactions, the determination of what is expected to result in
best execution at the most favorable price involves a number of largely
judgmental considerations. Among these are the Adviser's evaluation of
the broker's efficiency in executing and clearing transactions and the
broker's financial strength and stability. The Funds may also allocate
portfolio brokerage on the basis of recommendations to purchase shares of
the applicable Fund made by brokers if the Adviser reasonably believes the
commissions and transaction quality are comparable to that available from
other brokers.
In allocating brokerage business for the Funds, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Agreements. Other clients of the Adviser may
indirectly benefit from the availability of these services to the Adviser,
and the Funds may indirectly benefit from services available to the
Adviser as a result of transactions for other clients. The Adviser may
cause the Funds to pay a broker which provides brokerage and research
services to the Adviser a commission for effecting a securities
transaction in excess of the amount another broker would have charged for
effecting the same transaction, if the Adviser determines that such
commission is reasonable in relation to the value of the services
provided.
Brokerage commissions paid by The Primary Trend Fund during its
fiscal years ended June 30, 1995, 1994 and 1993 totaled $37,252 on
transactions of $10,445,384; $116,926 on transactions of $29,384,136; and
$103,009 on transactions of $23,553,237, respectively. During the fiscal
year ended June 30, 1995, The Primary Trend Fund paid commissions of
$29,062 on transactions of $8,390,231 to brokers who provided research
services to the Adviser. Brokerage commissions paid by The Primary Income
Fund during its fiscal years ended June 30, 1995, 1994 and 1993 totaled
$9,816 on transactions of $2,625,331; $11,950 on transactions of
$3,066,627; and $7,806 on transactions of $1,853,295, respectively.
During the fiscal year ended June 30, 1995, The Primary Income Fund paid
commissions of $7,015 on transactions of $1,837,305 to brokers who
provided research services to the Adviser. The Primary U.S. Government
Fund paid no brokerage commissions during its fiscal years ended June 30,
1995, 1994 and 1993.
CUSTODIAN
Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as custodian for the Funds. As such, Firstar Trust
Company holds all securities and cash of the Funds, delivers and receives
payment for securities sold, receives and pays for securities purchased,
collects income from investments and performs other duties, all as
directed by officers of the respective Companies. Firstar Trust Company
does not exercise any supervisory function over the management of the
Funds, the purchase and sale of securities or the payment of distributions
to shareholders. Firstar Trust Company also acts as the Funds' transfer
agents and dividend disbursing agents.
TAXES
As set forth in the Prospectus under the caption "WHAT ABOUT
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES?" each of the Companies
intends to qualify annually for and elect tax treatment applicable to a
regulated investment company under Subchapter M of the Code.
Dividends from each Fund's net investment income and
distributions from each Fund's net realized short-term capital gains are
taxable to shareholders as ordinary income, whether received in cash or in
additional shares. The 70% dividends-received deduction for corporations
may apply to such dividends and distributions, subject to proportionate
reductions if the aggregate dividends received by a Fund from domestic
corporations in any year are less than 100% of such Fund's gross income.
Any dividend or capital gains distribution paid shortly after a
purchase of shares will have the effect of reducing the per share net
asset value of such shares by the amount of the dividend or distribution.
Furthermore, if the net asset value of the shares immediately after a
dividend or distribution is less than the cost of such shares to the
shareholder, the dividend or distribution will be taxable to the
shareholder even though it results in a return of capital.
Shareholders may realize a capital gain or capital loss in any
year in which they redeem shares. The gain or loss is the difference
between the shareholder's basis (cost) and the redemption price of the
shares redeemed.
Each Fund may be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividend payments and redemption
proceeds if a shareholder fails to furnish such Fund with his Social
Security or other tax identification number and certify under penalty of
perjury that such number is correct and that he is not subject to backup
withholding due to the underreporting of income. The certification form
is included as part of the account application and should be completed
when the account is opened.
INDEPENDENT AUDITORS
The Funds' independent auditors, Ernst & Young LLP, 111 East
Kilbourn Avenue, Milwaukee, Wisconsin, audit and report on the Funds'
annual financial statements, review certain regulatory reports and the
Funds' federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do so by
the Funds. Shareholders will receive annual audited financial statements
and semiannual unaudited financial statements.
FINANCIAL STATEMENTS
The following financial statements are incorporated by reference to
the Annual Report, dated June 30, 1995, of The Primary Trend Funds (File
Nos. 811-04704 and 811-05831), as filed with the Securities and Exchange
Commission on August 16, 1995:
The Primary Trend Fund, Inc.
Portfolio of Investments
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Auditors
The Primary Income Funds, Inc.
Portfolio of Investments
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Auditors
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Prospectus under the caption "WHAT ARE THE
FUNDS' INVESTMENT POLICIES?" the Funds may invest in "investment grade"
corporate obligations (securities rated "BBB" or better by Standard &
Poor's Corporation or "Baa" or better by Moody's Investors Service, Inc.).
However, The Primary Trend Fund and The Primary Income Fund also may, from
time to time, purchase corporate obligations rated less than investment
grade if, in the opinion of the Adviser, such lesser rating is due to a
special situation or other extenuating circumstance. A brief description
of the ratings symbols and their meanings follows.
Standard & Poor's Corporation ("Standard & Poor's") Debt
Ratings. A Standard & Poor's corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment may take into consideration obligors
such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform any audit in connection with
any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes
in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness
of the obligor as to the timely payment of
interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of
the obligation in the event of bankruptcy,
reorganization or other arrangement under the
laws of bankruptcy and other laws affecting
creditors' rights;
AAA - Debt rated AAA has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in the
higher rated categories.
BBB - Debt rated BBB has an adequate capacity to pay interest
and repay principal. Whereas such debt normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B, CCC, CC - Debt rated BB, B, CCC or CC is regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. ("Moody's") Bond Ratings.
Aaa - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by
a large, or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Bonds which are rate A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes Bonds in this class.
B - Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
Moody's applies numerical modifiers 1, 2 and 3 in each of the
foregoing generic rating classifications. The modifier 1 indicates that
the company ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
that the company ranks in the lower end of its generic rating category.
