PINNACLE FUND
Indianapolis, Indiana
Dear Fellow Shareholders
The Pinnacle Fund had a excellent year rising 35.4% in 1995. The
Fund's return dramatically outpaced the nation's moderate inflation
rate of 2.6% and substantially outperformed the 31.5% gain for the
average growth fund as reported by Lipper Analytical.
Two factors explain the exceptional returns for the financial
markets in 1995. The slowing pace of economic growth enabled long
term interest rates to decline from a high of over 8% to near 6% at
the end of last year. The interest rate decline was accompanied by
an 18% growth in corporate profits. Thus, the markets not only
benefited from low inflation and interest rates but also strong
profit growth brought about by improving corporate productivity.
Pinnacle Fund shares showed a strong gain in this environment.
Early in the year the Fund invested a substantial portion of the
portfolio in large multinational growth issues. These stocks did
well in a period of slowing economic growth. We also did not
overweight the technology sector and did not suffer the negative
results incurred by this group in the second half of 1995.
Particular emphasis was on firms with new products or services that
were gaining market share from competitors.
Given the slow pace of economic growth in our current outlook, we
continue to feel that individual stock selection will determine the
success of your investments. We believe the Fund is well
positioned to benefit in this environment. Thank you for your
continued support.
Sincerely,
Thomas F. Maurath
President
Robert D. Markley
Secretary/Treasurer
February 28, 1996
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
Assets
Investments, at value
Common stock (cost $10,571,674) $14,467,931
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>
<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>
<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>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
December 31, 1995 Shares or Market
COMMON STOCKS Principal Value
Amount (Note 1)
<S> <C> <C>
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
</PAGE>
<PAGE>
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.
</TABLE>
</PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION> 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
</TABLE>
See notes to financial statements.
</PAGE>
<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>
<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.
