RULE 497(e)
REGISTRATION NO. 2-95077
PINNACLE FUND
STATEMENT OF ADDITIONAL
INFORMATION
April 12, 1996
This Statement of Additional Information is not a prospectus and
investors should read the Prospectus dated April 12, 1996 in
conjunction with this Statement of Additional Information.
Investors may obtain a Prospectus, without charge, from the Fund's
main office listed below.
36 South Pennsylvania Street, Suite 610
Indianapolis, Indiana 46204
<PAGE>
Pinnacle Fund
Statement of Additional Information
Table of Contents
Page
General Information 1
Investment Objectives and Policies 1
Management of the Fund 4
Principal Shareholders 6
Investment Advisory and Other Services 7
Brokerage 9
Purchase and Redemption of Fund Shares 10
Transfer of Fund Shares 12
Determination of Net Asset Value 12
Tax Status 12
Calculation of Performance Data 14
Report of Independent Public Accountants
Financial Statements and Notes Thereto
<PAGE>
General Information
Pinnacle Fund (the "Fund") was formed as a business trust
under the laws of the State of Indiana on December 19, 1984. The
Fund operates as an investment company and does not intend to
engage in any other business. The Fund's investments are managed
by Heartland Capital Management, Inc., Indianapolis, Indiana (the
"Advisor").
The Fund is designed to provide investors with a diversified
professionally managed portfolio. For as little as $1,000,
investors may purchase shares of beneficial interest (the "Shares")
of the Fund, which invests the Shareholders' pooled monies in
securities. The Fund's objective is to provide a long-term growth
component to an investor's holdings; it is not intended to be an
entire investment program.
Investment Objectives and Policies
As explained in the Prospectus, the investment objective of
the Fund is long-term capital appreciation. This objective is a
matter of fundamental policy and cannot be changed without the
approval of the holders of a majority of its Shares.
To achieve this objective, the Fund will invest primarily in
common stocks which appear to offer opportunities for long-term
capital appreciation. However, the Fund may lessen its commitment
to common stocks from time to time by adopting a temporary
defensive position whenever the Advisor believes stock market risks
are high and common stock prices may decline. At such times, the
Fund may invest substantial portions of its assets in the following
money market and fixed income investments: U.S. Treasury bills,
notes, and bonds; U.S. agency securities; commercial paper rated
prime-1 by Moody's Investors Services, Inc. and repurchase
agreements which are fully collateralized by a U.S. Treasury or
agency security. Repurchase agreements may be entered into with a
member bank of the Federal Reserve System or primary dealer in U.S.
Government securities under which the bank or dealer agrees to
repurchase the security from the Fund at an agreed upon time and
price, thereby determining the yield during the term of the
agreement. This results in a fixed rate of return insulated from
market fluctuations during such periods. Although the underlying
obligation is a U.S. Government security, the obligation of the
seller to repurchase the security is not guaranteed by the U.S.
Government and there is a risk that the seller may fail to
repurchase the security. In the event of default by the seller
under a repurchase agreement, the Fund may suffer time delays and
incur costs or losses in connection with the disposition of the
collateral. The Fund will require the seller to provide additional
collateral if the market value of the securities falls below the
repurchase price at any time during the term of the repurchase
agreement.
The Fund has adopted the following restrictions which are
matters of fundamental policy and cannot be changed without the
approval of the holders of a majority of its outstanding Shares:
1. The Fund will not purchase any security on margin, except
such short term credits as are necessary for the clearance of
transactions, participate in a joint trading account, sell
securities short or act as an underwriter in the distribution of
any securities other than Shares in the Fund.
2. The Fund will not lend money to any person, except that
the Fund may purchase a portion of publicly distributed bonds,
debentures or other debt securities, prime quality commercial
paper, certificates of deposit, or United States Treasury
securities.
3. The Fund will not purchase or sell real estate or
interests in real estate or commodities futures; provided, however,
that the Fund may purchase publicly traded securities of companies
engaged in such activities and investments.
4. The Fund will not borrow money except for temporary
purposes, provided, however, that such temporary borrowings shall
not exceed 5% of the lower of cost or market value of the Fund's
total net assets, shall only be for emergency or extraordinary
purposes and shall not be for the purchase of investment
securities.
5. The Fund will not pledge, mortgage, or hypothecate its
assets except for temporary or emergency purposes and then not to
an extent greater than 10% of its total net assets at that time.
6. Securities of other investment companies will not be
purchased.
7. The Fund will not invest for the purpose of exercising
control or management of any company or purchase securities of any
issuer if, as a result of such purchase, the Trust would hold more
than 10% of the voting securities of such issuer or more than 10%
of all or any class of securities of such issuer.
8. Not more than 5% of the total net assets of the Fund,
taken at market value, will be invested in the securities of any
one issuer, not including U.S. Government securities.
9. Not more than 25% of the Fund's total net assets will be
invested in companies of any one industry or group of related
industries.
10. The Fund will not acquire or retain any security issued
by a company, an officer or director of which is an officer or
Trustee of the Fund, or any officer, director, shareholder or other
affiliated person of the Advisor.
11. The Fund will not acquire or retain any security issued
by a company if one or more officers, directors, shareholders or
other affiliated persons of the Advisor beneficially own more than
one half of one percent (0.5%) of such company's outstanding stock
or other securities, and all the foregoing persons owning more than
1/2 of 1% (0.5%) together own more than 5% of such stock or
securities.
12. The Fund will not purchase securities of any company
which together with predecessors has a record of less than three
years of continuous operations if such purchase would cause the
value of the Fund's investments in all such securities or companies
to exceed 5% of the Fund's total net assets.
13. The Fund will not invest in puts, calls, straddles,
spreads or any combination thereof.
14. The Fund will not invest in oil, gas, or other mineral
exploration or development programs; provided, however, that the
Fund is not prohibited from purchasing publicly traded securities
of companies engaging in whole or in part in such activities.
15. The Fund will not purchase securities from or sell
securities to any of its officers, Trustees or employees, except
with respect to Shares in the Fund.
16. The Fund will not invest in restricted securities and
other securities not readily marketable and will not invest more
than 5% of its total assets in repurchase agreements maturing in
more than seven days.
17. The Fund will not purchase or issue any warrants.
18. The Fund will not issue any class of securities senior to
the Shares. Borrowings in accordance with 4. above is not
considered the issuance of senior securities for purposes of this
investment restriction.
In addition to the above restrictions, the Fund will not purchase
securities with a view to rapid turnover, although it is expected
that short-term capital gains may be realized occasionally from the
sale of assets held less than six months. Securities will be sold
if the Fund's management believes that the potential for capital
appreciation has been achieved or is no longer probable or if the
risk of a decline in the market price is too great. The Fund's
portfolio turnover rate was 91.01% and 68.48% for the fiscal years
ended December 31, 1994 and 1995, respectively. Although the
Fund's portfolio turnover rate cannot be predicted, it is expected
to be less than 100% for the current fiscal year. The portfolio
turnover rate is calculated by dividing the lesser of purchases or
sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund
during the fiscal year.
Management of the Fund
The overall operations of the Fund are conducted by the
officers under the control and direction of the Trustees. The
following table sets forth the pertinent information about the
Fund's officers and Trustees:
Name and Address Position(s) Principal Occupations
Held During Past 5 Years
With Fund
Thomas F. Maurath*
36 South Pennsylvania
Suite 610
Indianapolis, IN 46204 President and President of the Fund
Trustee since February, 1995;
Investment officer
with Heartland Capital
Management, Inc. since
February 1984. From
June 1982 until he
joined Heartland Capital
Management, Inc. in
1984, Mr. Maurath was an
investment officer
at Merchants Investment
Counseling, Inc. Prior
to joining Merchants
Investment Counseling,
Inc. Mr. Maurath was
engaged in obtaining his
MBA at Indiana
University School of
Business.
Barry F. Ebert*
36 South Pennsylvania
Suite 610
Indianapolis, IN 46204 Trustee President of the Fund
from December 1984 to
February, 1995;
President and Director
of Heartland Capital
Management, Inc., the
Advisor to the Fund,
since January 1984.
For more than five
years prior to forming
Heartland Capital
Management, Inc. on
January 26, 1984, Mr.
Ebert was President of
Merchants Investment
Counseling, Inc. where
his primary
responsibilities
included investment
management.
Robert D. Markley*
36 South Pennsylvania
Indianapolis, IN 46204 Secretary, Treasurer
and Trustee Secretary/Treasurer of
the Fund since December
1984; Vice President,
Secretary/ Treasurer and
Director of Heartland
Capital Management, Inc.
since January 1984. For
more than five years
prior to forming
Heartland Capital
Management, Inc. in
January 1984, Mr.
Markley was Vice
President of Merchants
Investment Counseling,
Inc., where his primary
responsibilities
included investment
management.
Leo G. Watson Trustee Dr. Watson has engaged
3433 S. LaFountain St. in the private practice
Kokomo, IN 46902 of ophthalmology
in Kokomo, Indiana for
more than five years.
Robert L. Blackburn Trustee Mr. Blackburn has been
1505 National Road President of Columbus
Columbus, IN 47203 Automotive Group, a
Columbus, Indiana
automobile dealership,
for more than five
years.
Thomas D. Rush Trustee Mr. Rush has been
12734 Hamilton Crossing Blvd. President and
Carmel, IN 46032 CEO of Trinity Homes,
Inc., an Indianapolis,
Indiana builder of
single family homes,
since May, 1991. From
1973 to 1991, Mr.
Rush was President and
CEO of the Jonathan
Group, a single family
home builder in
Indianapolis.
* Messrs. Ebert, Markley and Maurath are "interested persons"
in the Advisor, as that term is defined in the Investment
Company Act of 1940. Messrs. Maurath and Markley are the only
executive officers of the Fund.
Trustee and Executive Officer Compensation
Executive officers of the Fund receive no compensation from
the Fund. The following table shows the compensation paid to the
Fund's trustees in 1995:
COMPENSATION TABLE
Name of Person, Aggregate Compensation
Position from Fund
Leo G. Watson, Trustee $100
Robert L. Blackburn, Trustee $200
Thomas D. Rush, Trustee $100
Principal Shareholders
As of February 6, 1996, the Fund had 648,895.951 Shares issued
and outstanding. As far as the Fund is advised, the following
table sets forth, as of February 6, 1996, the persons known to be
beneficial owners of more than 5% of the Fund's outstanding Shares
and the Shares owned by all officers and Trustees of the Fund as a
group.
Name and Amount and Percent
Address of Nature of of Class
Beneficial Owner Beneficial
Ownership(1)
Barry F. Ebert 77,011.978 shs. (2) 11.87%
36 S.Pennsylvania
Suite 610
Indianapolis, Indiana
Robert D. Markley 95,233.467 shs. (3) 14.68%
36 S. Pennsylvania
Suite 610
Indianapolis, Indiana
All Trustees and officers
as a group (6 persons) 118,036.133 shs. 18.19%
(1) Unless otherwise indicated, the persons shown have sole
voting and investment power over the Shares listed.
(2) Includes 67,222.384 Shares owned by the Heartland Capital
Management, Inc. Profit Sharing Trust plan, as to which Shares
Messrs. Ebert and Markley, as co-trustees, have voting control.
Also includes 908.576 Shares owned by Mr. Ebert's wife and her IRA.
Mr. Ebert disclaims beneficial ownership of Shares owned by his
wife.
(3) Includes 3,311.526 Shares held in Mr. Markley's individual
retirement account, 949.338 Shares owned by Mr. Markley's children,
and 23,750.219 Shares owned by Mr. Markley's wife and her
individual retirement account. Mr. Markley disclaims beneficial
ownership of the Shares owned by his wife. Also includes the
67,222.384 Shares owned by the Heartland Capital Management, Inc.
Profit Sharing Trust plan referred to in footnote (2) above.
Investment Advisory and Other Services
Under an Investment Advisory Agreement (the "Agreement") with
the Fund, Heartland Capital Management, Inc., 36 South
Pennsylvania, Indianapolis, Indiana 46204, furnishes continuous
investment service and management to the Fund, for which it
receives an annual fee, payable monthly, based on the average net
asset value of the Fund, as determined by valuations made at the
close of each business day. The annual fee is 8/10 of 1% of the
Fund's average daily net assets. This fee is higher than that paid
by most investment companies. For fiscal years 1993, 1994 and 1995
the Fund paid the Advisor pursuant to the Agreement in the
aggregate amounts of $120,388, $114,123 and $110,245 respectively.
Personnel of the Advisor are primarily responsible for investment
decisions affecting the Fund's portfolio.
Under the Agreement, the Advisor, at its own expense and
without reimbursement from the Fund, furnishes office space, office
facilities, equipment, executive officers and executive expenses,
and bears all sales and promotional expenses of the Fund. The Fund
will pay all operating expenses including but not limited to the
costs of preparing and printing its Registration Statement under
the Securities Act of 1933 and the Investment Company Act of 1940
and any amendments thereto, the expense of registering its Shares
with the Securities and Exchange Commission and in the various
states, the cost of prospectuses sent to current shareholders,
Share certificates and reports to shareholders, interest charges,
taxes, and legal expenses. Also included are fees of Trustees who
are not interested persons of the Advisor or officers or employees
of the Fund, salaries of administrative or clerical personnel,
auditing and accounting services, fees and expenses of any
custodian, printing and mailing expenses, postage, and charges and
expenses of the disbursing agents, registrar and transfer agent,
including the cost of keeping all necessary Shareholder records and
accounts and handling.
The Advisor has agreed to reimburse the Fund to the extent
that the Fund's aggregate annual operating expenses, including the
investment advisory fee but excluding interest, taxes, and
brokerage commissions, exceed the sum of (i) 2% of the first
$10,000,000 of the Fund's average net assets, (ii) 1-1/2% of the
next $20,000,000 of the Fund's average net assets and (iii) 1% of
the Fund's average net assets in excess of $30,000,000 for each
year, as determined by valuations made as of the close of each
business day of the year. The Advisor shall, on a monthly basis,
reimburse the Fund by offsetting against its monthly fee all
expenses in excess of such sum, prorated on an annual basis.
The Agreement is not assignable and may be terminated by
either party, without penalty, on sixty (60) days notice. Unless
sooner terminated, the Agreement will continue in effect as long as
it is approved annually by (a) the Trustees or by a vote for a
majority of the outstanding Shares of the Fund and (b) in either
case, by the affirmative vote of a majority of Trustees, who are
not parties to the Agreement or "interested persons" of the
Advisor, as defined in the Investment Company Act of 1940, as
amended, cast in person at a meeting called for the purpose of
voting for such approval.
The Advisor may act as an investment advisor to other persons,
firms, or corporations including investment companies. Heartland
Capital Management, Inc. is a registered investment advisor and has
numerous advisory clients of its own, none of which, however, is a
registered investment company, The Advisor was founded in January,
1984, and has never been controlled by or affiliated with any other
business entity or person. On December 31, 1995, the Advisor had
approximately $700 million of assets under management, but has not
managed any registered investment companies other than the Fund.
The members of the Board of Directors of the Advisor are Barry
F. Ebert, who serves as a Trustee of the Fund and as President of
the Advisor, and Robert D. Markley, who serves as
Secretary/Treasurer and a Trustee of the Fund and as Vice President
of the Advisor. Thomas F. Maurath, the President and a Trustee of
the Fund, is also an employee of the Advisor. Messrs. Ebert and
Markley each own more than 10% of the outstanding securities of the
Advisor and collectively Messrs. Ebert, Markley and Maurath own
100% of such securities. Messrs. Ebert, Markley and Maurath are
the only individuals with responsibility for making portfolio
investment determinations or recommendations for the Fund.
Each of the individuals mentioned above is involved in
performing investment research for the Fund. The Advisor relies
upon information supplied by the analytical staffs of various
brokerage firms as well as other publications and research
services. A discussion of how the Advisor allocates investment
opportunities among clients and how portfolio transactions are
allocated among brokers is found under "Brokerage".
Whipple & Company, P.C., 9302 North Meridian Street, Indianapolis,
Indiana 46260, was the Fund's independent public accountants for the
fiscal year ended December 31, 1986. Geo. S. Olive & Co. LLC, as
independent certified public accountants and auditors to the Fund,
examined the financial statements of the Fund for all subsequent fiscal
years including the fiscal year ended December 31, 1995 and will
examine the financial statements of the Fund for the current fiscal
year ending December 31, 1996.
The custodian for the Fund's assets and the transfer and
disbursing agent for the Fund is Firstar Trust Company, P. O. Box
701, Milwaukee, Wisconsin 53201.
Brokerage
Portfolio brokerage transactions of the Fund are placed with
those securities brokers which the Advisor believes will provide
the best value in brokerage and research services for the Fund.
Although some transactions involve only brokerage services, many
involve research services as well.
In valuing brokerage services, the Advisor makes a judgment as
to which brokers are capable of providing a favorable net price
(not necessarily the lowest commission considered alone) and a
reasonable execution in a particular transaction. Reasonable
execution connotes not only general competence and reliability, but
specific expertise and effort of a broker in overcoming the
anticipated difficulties in fulfilling the requirements of
particular transactions.
In valuing research services, the Advisor makes a judgment of
the usefulness of research and other information provided by a
broker to the Advisor in managing the Fund's investment portfolio.
In some cases, the information relates to the specific transaction
placed with the broker, but for the greater part the research
consists of a wide variety of information concerning companies,
industries, investment strategy and economic, financial and
political conditions and prospects, all of which is useful to the
Advisor in advising the Fund and other clients of the Advisor.
In compensating brokers for their services, the Advisor takes
into account the value of the information received for use in
advising the Fund. It is understood by the Fund that other clients
of the Advisor might also benefit from the information obtained.
where the Fund and one or more other clients of the Advisor are
simultaneously engaged in the purchase or sale of the same
security, the transactions will, to the extent possible, be
averaged as to price and allocated equitably. In most cases,
coordination and the ability to participate in volume transactions
will be to the benefit of the Fund. The aggregate amount of
commissions paid by the Fund for the fiscal years 1993, 1994 and
1995 were $45,263, $46,931 and $28,279, respectively.
The Fund may not allocate brokerage solely on the basis of a
recommendation to purchase securities. When feasible and
practical, over-the-counter purchases and sales are transacted
directly with principal market makers. Principal market makers are
not paid a direct commission. They receive in payment the
difference between the bid and asked prices for a particular
security.
Purchase and Redemption of Fund Shares
As discussed in the Prospectus, application for the purchase
of Shares is made to Pinnacle Fund, c/o Firstar Trust Company, P.
O. Box 701, Milwaukee, Wisconsin 53201. The price per Share will
be the net asset value computed after the time the application is
received. (See "Determination of Net Asset Value" below.) The net
asset value for a particular day is applicable to all applications
for the purchase of Shares as well as all requests for the
redemption of Shares received at or before that day's close of
trading on the New York Stock Exchange (the "Exchange"). The
Exchange usually closes at 4:00 p.m. New York time. Applications
for purchase of Shares and requests for redemption of Shares
received after the close of trading on the Exchange will be based
on the net asset value as determined as of the close of trading on
the next day the Exchange is open.
All applications to purchase Shares are subject to acceptance
or rejection by authorized officers of the Fund and are not binding
until accepted. Applications will not be accepted unless they are
accompanied by payment. However, minor differences between amounts
submitted and actual cost of Shares will be refunded or billed. It
is the policy of the Fund not to accept applications under
circumstances or in amounts considered disadvantageous to existing
Shareholders.
The Trustees of the Fund are authorized from time to time to
fix upper and lower limits on the number of Shares which may be
purchased. Pursuant to this authority, the Trustees have
established $1,000 as the minimum initial purchase and $100 as the
minimum for any subsequent purchase, except through dividend or
capital gain reinvestment.
Purchases of Shares will be made in full and fractional
shares, computed to three decimal places, unless the investor
specifies full shares only.
Certificates representing Shares purchased will not be issued
unless the Shareholder specifically requests certificates in a
separate signed written request. In no instance will certificates
be issued for fractional Shares. When certificates are not
requested, the Fund's transfer agent, Firstar Trust Company will
credit the Shareholder's account with the number of Shares
purchased. The Fund offers this service to relieve Shareholders of
responsibility for safekeeping certificates and to eliminate the
need for delivery of certificates in the event of redemption.
Written confirmations are issued for all purchases of Shares.
A Shareholder may require the Fund at any time to redeem his
Shares in whole or in part. If Shares are represented by
certificates, redemption is accomplished by delivering to the
Fund's transfer agent, Firstar Trust Company, the certificate for
the full Shares to be redeemed. The certificate must be properly
endorsed or accompanied by instrument of transfer, in either case
with signatures guaranteed by a bank or by a member firm of the
Exchange. A notary public or a savings and loan association is not
an acceptable guarantor. If certificates have not been issued,
redemption is accomplished by delivering a signed written request
for redemption. If the account is owned jointly, both owners must
sign. Redemption cannot be accomplished by telephoning or
telegraphing the Fund. The redemption price is the net asset value
next computed after the time of the receipt of the certificates or
written request in the proper form set out above.
If there is doubt as to what is necessary in order to redeem
Shares, please write or call the Fund's transfer agent, Firstar
Trust Company (P. O. Box 701, Milwaukee, Wisconsin 53201; telephone
number 414-765-4124) prior to submitting the redemption request.
No redemption request will become effective until all documents
have been received in proper form by the transfer agent.
All redemptions will be processed immediately upon receipt and
the Fund will return redemption requests that contain restrictions
as to the time or date redemptions are to be effected. The
redemption price will depend on the market value of the investments
in the Fund's portfolio at the time of redemption (see
"Determination of Net Asset Value" below) and may be more or less
than the cost of Shares redeemed. Payment for Shares redeemed will
be made within seven (7) days after redemption and will be made in
cash only. There is no redemption charge.
The right of redemption may be suspended for any period during
which the Exchange is closed other than customary weekend and
holiday closings, and may be suspended for any period during which
trading on the Exchange is restricted as determined by the
Securities and Exchange Commission, or the Commission has by order
permitted such suspension, or the Commission has determined that an
emergency exists and, therefore, it is not reasonably practical for
the Fund to dispose of its securities nor to fairly determine the
value of its net assets.
Transfer of Fund Shares
Shares of the Fund may be transferred in much the same manner
as they are redeemed. If Shares are represented by certificates,
the certificates representing the Shares to be transferred must be
delivered to the Fund, c/o Firstar Trust Company, P.0. Box 701,
Milwaukee, Wisconsin 53201. The Fund is not bound to record any
transfer on the transfer books maintained by Firstar Trust Company
until all required documents have been received by it.
Determination of Net Asset Value
The net asset value of a Share of the Fund is determined by
dividing the total value of the net assets of the Fund by the total
number of full and fractional Shares outstanding at that time. Net
assets of the Fund are determined by deducting the liabilities of
the Fund from the total assets of the Fund. The net asset value is
determined as of the close of trading on the Exchange on each day
the Exchange is open for trading and on any other day in which a
significant degree of trading in the Fund's portfolio securities
materially affects the net asset value of a Share of the Fund.
Securities traded on a stock exchange will ordinarily be
valued on the basis of the last sale price on the date of
valuation, or in the absence of any sale on that day, the closing
bid price. Other securities will be valued at the closing bid
price. Any securities for which there are not readily available
market quotations will be valued at fair value, as determined in
good faith by the Trustees. Short-term securities with over 60
days to maturity are valued at market value, those under 60 days to
maturity are valued at amortized cost. Odd lot differentials and
brokerage commissions will be excluded in calculating values. All
assets other than securities will be valued at their then current
fair value as determined in good faith by the Trustees.
Tax Status
During the current taxable year and in future years, the Fund
intends to qualify under the provisions of Subchapter M of the
Internal Revenue Code which is applicable to investment companies.
Upon qualifying under the federal tax laws related to
investment companies, the Fund will not be subject to federal taxes
on income or capital gains distributed to the Shareholders. Upon
so qualifying, distributions designated as "capital gain
distributions" (meaning the excess of net long-term capital gains
over net short-term capital losses) will be taxable to Shareholders
as long-term capital gains, regardless of the length of time shares
of the Fund have been held. Distributions of the excess of net
short-term gains over the net long-term capital losses and
distributions from net investment income will be taxable as
ordinary income to Shareholders. The federal tax treatment will be
the same whether distributions are made in cash or reinvested in
additional Shares of the Fund. If the Fund does not qualify for
such preferential tax treatment in any fiscal year, it will be
taxed as an ordinary corporation with the result that net asset
value per Share may be adversely affected.
Distributions of the Fund's net investment income will
normally be made by the end of January. Capital gains
distributions, if any, will ordinarily also be made by the end of
January. It is possible that the Fund will declare a dividend in
October, November or December payable to Shareholders as of a
specified date in such months, and will actually pay the dividend
in January of the following year. In that case, Shareholders will
be required to report the amount of the dividend as income in the
year in which the dividend was declared even though the dividend is
not received until the following January.
Since at the time of purchase of Shares the Fund may have
undistributed income or capital gains included in the computation
of the net asset value per share, a dividend or capital gains
distribution received shortly after such purchase by a Shareholder
may be taxable to the Shareholder, although it is, in whole or in
part, a return of capital and may have the effect of reducing the
net asset value per Share.
Distributions from net investment income are taxable as
ordinary income to Shareholders and are eligible in whole or in
part for the 70% inter-corporate "dividends received" deduction.
Shareholders will be advised as to any distributions not so
eligible for the "dividends received" deduction. Distributions may
be also subject to state and/or local income tax in states having
such taxes.
IT IS RECOMMENDED THAT INVESTORS CONSULT WITH THEIR PERSONAL
TAX ADVISOR IN EVALUATING THEIR INDIVIDUAL TAX SITUATION.
The Fund is required to deduct and withhold income tax from a
distribution payment at a 31 percent rate if:
(1) The Shareholder fails to furnish his/her taxpayer
identification number to the Fund;
(2) The IRS notifies the Fund that the taxpayer
identification number furnished by the Shareholder is incorrect;
(3) The IRS notifies the Fund that the backup
withholding should be commenced because the Shareholder has failed
to properly report interest or dividend income; or
(4) When required to do so, the Shareholder fails to
certify, under penalties of perjury, that he/she is not subject to
backup withholding.
Calculation of Performance Data
The average annual total return for the Fund is the average
compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of the
investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net
asset value at the end of the period. The number of shares owned
at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, adjusted for stock
splits, and assuming the reinvestment of all dividends and assuming
the reinvestment of all dividends and distributions. The Fund's
average annual total returns for the periods ended December 31,
1995, are as follows:
One Year Five Years Ten Years
35.4% 13.9% 13.4%
<PAGE>
Pinnacle Fund
Financial Statements
December 31, 1995
<PAGE>
Pinnacle Fund
Table of Contents Page
Independent Auditor's Report 1
Financial Statements
Statement of assets and liabilities 2
Statement of operations 3
Statement of changes in net assets 4
Schedule of investments 5
Financial highlights 7
Notes to financial statements 8
<PAGE>
Independent Auditor's Report
To the Board of Trustees
and Shareholders of
Pinnacle Fund
We have audited the accompanying statement of assets and
liabilities of Pinnacle Fund, including the schedule of portfolio
investments, as of December 31, 1995, the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995, by correspondence with
the custodian and a broker. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Pinnacle Fund as of December 31, 1995, the
results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting
principles.
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
February 8, 1996
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
Assets
Investments, at value
Common stock (cost $10,571,674) $14,0467,931
Short-term notes (cost $608,529) 608,529
$15,076,460
Dividends and interest receivable 18,255
Other receivable 100
Total assets 15,094,815
Liabilities
Payables
Investment advisory fee 9,318
Custodian fee 4,644
Accrued expenses 22,715
Investment securities purchased 371,683
Other payable 13,544
Total liabilities 421,904
Net Assets equivalent to $22.47 per share for
653,101.812 shares outstanding (unlimited
authorization, no par value; offering price
equal to net asset value per share) $14,672,911
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME
Income:
Dividends $177,559
Interest 41,640
Total income $ 219,199
Expenses
Investment advisory fee 110,245
Custodian fees 21,207
Legal and audit 15,948
Trustees' fees 400
Printing and postage 1,268
Gross income taxes 2,620
Other 6,149
Total expenses 157,837
Net investment income 61,362
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain from security
transactions (excluding
short-term notes):
Proceeds from sales 11,236,362
Cost of securities sold 9,550,403
Net realized gain from
security transactions 1,685,959
Unrealized appreciation
of investments:
End of year 3,896,257
Beginning of year 1,428,880
Change in unrealized
appreciation of investments 2,467,377
Net gain on investments 4,153,336
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $4,214,698
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31
1995 1994
Operations:
Net investment income $ 61,362 $ 57,635
Net realized gain from
security transactions 1,685,959 1,242,934
Change in unrealized
appreciation of investments 2,467,377 (1,475,430)
Increase (decrease) in net
assets from operations 4,214,698 (174,861)
Distributions to Shareholders From:
Net investment income (62,118) (59,653)
Net realized gains from
security transactions (1,684,738) (1,243,287)
Decrease in net assets
from distributions
to shareholders (1,746,856) (1,302,940)
Capital share transactions:
Proceeds from sales of shares 960,552 993,175
Net asset value of shares issued
to shareholders in
reinvestment of dividends
and distributions 1,628,635 1,215,530
Cost of shares redeemed (3,398,320) (2,851,424)
Decrease in net assets
from capital share
transactions (809,133) (642,719)
Total increase (decrease)
in net assets 1,658,709 (2,120,520)
Net Assets:
Beginning of Year 13,014,202 15,134,722
End of Year including
undistributed (excess of
distributions over)
net investment income
of $(281) and
$475, respectively $14,672,911 $13,014,202
See notes to financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1995 Shares or Market
COMMON STOCKS Principal Value
Amount (Note 1)
AEROSPACE & DEFENSE (5.40%)
Boeing Company 5,200 $ 407,550
Loral Corporation 11,500 406,813
814,363
AUTO/TRUCKS & PARTS (0.45%)
ITT Industries, Inc. 2,800 67,200
BANKS & FINANCE (8.56%)
Federal National
Mortgage Association 3,000 372,375
General Re Corporation 2,200 341,000
Heritage Financial Services, Inc. 10,000 192,500
MGIC Investment Corporation
Wisconsin 7,100 385,175
1,291,050
BUSINESS SERVICES (7.25%)
*Ceridian Corporation 8,200 338,250
First Data Corporation 6,000 401,250
General Motors Corporation Class E 6,800 353,600
1,093,100
CHEMICALS (2.27%)
Monsanto Company 2,800 343,000
COMMUNICATIONS (4.22%)
SBC Communications, Inc. 5,600 322,000
Worldcom, Inc. 8,900 313,725
635,725
COMPUTER SYSTEMS & SOFTWARE (9.83%)
Hewlett-Packard Company 4,200 351,750
Microsoft Corporation 4,000 351,000
Oracle Corporation 8,400 355,950
*Sterling Software, Inc. 6,800 424,150
1,482,850
CONGLOMERATES (7.68%)
Emerson Electric Company 4,800 391,200
General Electric Company 5,700 410,400
Tyco International Ltd. 10,000 356,250
1,157,850
CONSUMER SERVICES (3.70%)
ITT Corporation 2,800 148,400
Service Corporation International 9,300 409,200
557,600
CONSUMER STAPLES (12.30%)
Coca-Cola Company 5,750 426,937
Kimberly-Clark Corporation 4,500 372,375
Pepsico, Inc. 6,000 335,250
Philip Morris Companies, Inc. 3,600 325,800
Proctor & Gamble Company 4,750 394,250
1,854,612
SCHEDULE OF INVESTMENTS (cont.)
December 31, 1995
Shares or Market
Principal Value
Amount (Note 1)
ELECTRONICS (1.87%)
Avnet, Inc. 6,300 $ 281,925
ENTERTAINMENT (2.43%)
Walt Disney Company 6,200 365,800
HEALTH CARE (17.13%)
*Amgen, Inc. 8,000 475,000
Cardinal Health, Inc. 6,100 333,975
Columbia/HCA Healthcare Corporation 8,000 406,000
Johnson & Johnson 5,300 453,812
Merck & Company, Inc. 6,800 447,100
Pfizer, Inc. 7,400 466,200
2,582,087
INSURANCE (3.75%)
American International Group, Inc. 4,650 430,125
ITT Hartford Group, Inc. 2,800 135,450
565,575
OFFICE & PHOTOGRAPHIC EQUIPMENT (2.13%)
*Viking Office Products, Inc. 6,900 320,850
RESTAURANTS (2.78%)
McDonald's Corporation 9,300 419,663
RETAIL (1.94%)
Albertson's, Inc. 8,900 292,587
TOYS (2.27%)
Mattel, Inc. 11,125 342,094
TOTAL COMMON STOCKS (95.96%) 14,467,931
SHORT-TERM NOTES (4.04%)
Eli Lilly & Co. (5.60%) 668 668
General Mills, Inc. (5.70%) 300,825 300,825
Pitney Bowes Credit Corp. (5.70%) 34,312 34,312
Sara Lee Corp. (5.70%) 54,647 54,647
Southwestern Bell Telephone (6.00%) 3,304 3,304
Warner Lambert (5.70%) 190,164 190,164
Wisconsin Electric Power Corp. (5.80%) 24,609 24,609
TOTAL SHORT-TERM NOTES 608,529
TOTAL INVESTMENTS $15,076,460
* Non-income producing security.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Year Ended December 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Selected data for each share
outstanding throughout the
period is as follows
Net asset value,
beginning of period $18.83 $21.15 $21.83 $22.14 $16.87
Income from Investment
Operations
Net investment income .11 .09 .10 .13 .25
Net gains or losses on
securities
(both realized
and unrealized) 6.54 (.34) .62 (.29) 6.48
Total from investment
operations 6.65 (.25) .72 (.16) 6.73
Dividends (from net
investment income) (.11) (.09) (.10) (.13) (.25)
Distributions (from capital
gains) (2.90) (1.98) (1.30) (.02) (1.21)
Net Asset Value,
End of Period $22.47 $18.83 $21.15 $21.83 $22.14
Total Return 35.4% (1.1)% 3.3% (.7)% 39.9%
Ratios/Supplemental Data
(in thousands)
Net assets,
end of period $14,673 $13,014 $15,135 $14,721 $12,116
Ratio of expenses
to average
net assets 1.14% 1.15% 1.17% 1.18% 1.27%
Ratio of net income
to average
net assets .44% .41% .46% .67% 1.33%
Portfolio turnover
rate 68.48% 91.01% 85.35% 33.26% 55.00%
Average commission
rate paid $.0590
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization: Pinnacle Fund (the "Fund") was formed as a business
trust under the laws of the state ofIndiana on December 19, 1984,
and is registered under the Investment Company Act of 1940 as an
open-end diversified investment company. The Fund invests
primarily in common stocks as well as some money market and fixed
income investments. The Fund is licensed to sell shares in
Indiana, Ohio and Michigan. The following is a summary of
significant accounting policies followed by the Fund in
the preparation of its financial statements.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of the revenues, expenses, gains, losses and other
changes in net assets during the reporting period. Actual results
could differ from those estimates.
Investment Valuation: Securities traded on a national exchange are
valued at their last reported sales price on the primary exchange
on which they are traded. Securities traded in the
over-the-counter market, and listed securities for which no sale
was reported on that date, are valued at the last reported bid
price. Securities for which there are no readily available market
quotations are valued at their fair value as determined in good
faith by the Board of Trustees.
Short-term securities which mature in more than 60 days are valued
at current market quotations. Short-term securities which mature in
60 days or less are valued at amortized cost, which approximates
current market value. The cost of investments is the same for
financial reporting and federal income tax purposes.
Securities transactions are recorded on the trade date. Realized
gains and losses on sales of investments are determined on the
specific-identification method for financial reporting and federal
income tax purposes. Dividends from equity securities are recorded
as income on the ex-dividend date. Interest income from debt
securities is accrued on a daily basis.
Federal Income Taxes: It is the Fund's policy to meet the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. On such basis, the Fund has not incurred and,
under present law, will not incur any liabilities for income taxes
on such income.
Distributions to Shareholders: Distributions in cash or shares of
the Fund are recorded on the ex-dividend date. Distributions
payable in shares of the Fund are made at net asset value on the
ex-dividend date.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH
AFFILIATES:
Under an investment advisory agreement with the Fund, Heartland
Capital Management, Inc. ("Advisor") provides investment advisory
services and certain other services and facilities required by the
Fund to conduct its business. For such services, the Fund pays an
annual investment advisory fee equal to .80% of the average daily
net assets of the Fund. The fee is computed daily and payable
monthly. For the year ended December 31, 1995, the Fund incurred
investment advisory fees of $110,245.
The Advisor has agreed to reimburse the Fund to the extent annual
operating expenses, including the investment advisory fee but
excluding interest, taxes, and brokerage commissions, exceed the
sum of (i) 2% of the first $10 million of the Fund's average net
assets, (ii) 1 1/2% of the next $20 million of such assets, and
(iii) 1% of any excess over $30 million. Reimbursement was not
required for the year ended December 31, 1995.
Three officers/trustees of the Fund are also officers, directors,
and principal shareholders of the Advisor. The Advisor's profit
sharing trust is a shareholder of the Fund.
NOTE 3 - PURCHASE OF SECURITIES
For the year ended December 31, 1995, the aggregate cost of
securities purchased, exclusive of short-term notes, amounted to
$8,991,339.
NOTE 4 - SHARE AND OTHER CAPITAL TRANSACTIONS
At December 31, 1995, paid-in capital aggregated $10,790,727.
Transactions in shares of the Fund were as follows:
</TABLE>
<TABLE>
<CAPTION>
Shares Amount
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Shares sold 46,067.691 47,240.085 $ 960,552 $ 993,175
Shares issued in
reinvestment
of dividends
and distributions 72,902.202 64,828.282 1,628,635 1,215,530
118,969.893 112,068.367 2,589,187 2,208,705
Shares redeemed 157,063.618 136,457.081 3,398,320 2,851,424
Net decrease (38,093.725) (24,388.714) $ (809,133) $ (642,719)
</TABLE>
On December 27, 1995, the Board of Trustees declared a dividend
from net investment income and a distribution of net realized gains
from security transactions. The dividend of $.107 and the
distribution of $2.902 were paid December 28, 1995 to each
shareholder of record on December 27, 1995.
<PAGE>
PINNACLE
FUND
STATEMENT OF
ADDITIONAL INFORMATION
Investment Advisor
HEARTLAND CAPITAL MANAGEMENT, INC.
Indianapolis 317/633-4080
Custodian, Transfer Agent and
Disbursing Agent
FIRSTAR TRUST COMPANY
Milwaukee 414/765-4124
Auditors
GEO. S. OLIVE & CO. LLC
Indianapolis
Counsel
SOMMER & BARNARD, PC
Indianapolis
