PINNACLE FUND
Indianapolis, Indiana
Dear Fellow Shareholders:
Pinnacle Fund turned in a strong performance in the first half of
1996, rising 14.6%. This compares very favorably relative to the gain
of 10.0% posted by both the S&P 500 and the average growth mutual fund
according to Lipper Analytical, Inc.
The first six months of the year were very volatile with many smaller
stocks showing extreme gains and losses. The Fund has been invested in
high quality, medium to large sized companies with solid earnings
growth and strong product demand. These types of companies are more
stable and have performed well in this exceptionally volatile market
environment.
An initial investment of $10,000 in Pinnacle Fund at inception in 1984
was worth $46,582 as of June 30, 1996, assuming reinvestment of
dividends. As always, we are appreciative of your support of the Fund.
Sincerely,
THOMAS F. MAURATH
President
ROBERT D. MARKLEY
Secretary/Treasurer
August 23, 1996
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
<S> <C> <C>
ASSETS
Investment at market value:
Common stock (cost $10,185,746). . . . . .$ 14,654,878
Short-term notes (cost $1,177,163) . . . . 1,177,163
$15,832,041
Dividends and interest receivables . . . . . . . 17,648
Cash . . . . . . . . . . . . . . . . . . . . . . 1,380
TOTAL ASSETS $15,851,069
LIABILITIES
Payables:
Investment advisory fee - Note 2 . . . . . . . . 9,655
Custodian fee. . . . . . . . . . . . . . . . . 3,302
Accrued expenses . . . . . . . . . . . . . . . 10,089
Other payables . . . . . . . . . . . . . . . . . 1,280
TOTAL LIABILITIES 24,326
NET ASSETS - equivalent to $25.76 per
share for 614,293.439 shares
outstanding (unlimited authorization,
no par value; offering price equal to
net asset value per share) . . . . . . . . . . . $15,826,743
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . $ 83,477
Interest . . . . . . . . . . . . . . 20,375
Total income . . . . . . . . . . . $ 103,852
Expenses:
Investment advisory fee - Note 2 . . 61,008
Custodian fees . . . . . . . . . . . 11,454
Legal and audit. . . . . . . . . . . 8,757
Trustee's fees . . . . . . . . . . . 200
Printing and postage . . . . . . . . 1,495
Gross income taxes . . . . . . . . . 1,263
Other. . . . . . . . . . . . . . . . 1,729
Total expense. . . . . . . . . . . 85,906
Net investment income. . . . . . . 17,946
REALIZED AND UNREALIZED GAIN ON INVESTMENT
Realized gain from security transactions
(excluding short-term notes):
Proceeds from sales. . . . . . . . . 4,907,450
Cost of securities sold. . . . . . . 3,407,258
Net realized gain from security
transactions . . . . . . . . . . . 1,500,192
Unrealized appreciation of investments:
End of Period. . . . . . . . . . . . 4,469,132
Beginning of year. . . . . . . . . . 3,896,257
Change in unrealized appreciation
of investments . . . . . . . . . 2,073,067
Net gain on investments. . . . . . 572,875
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . $2,091,013
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
6 Months Year
Ended Ended
June 30, December 31
1996 1995
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . $ 17,946 $ 61,362
Net realized gain from security
transactions . . . . . . . . . . . . 1,500,192 1,685,959
Change in unrealized appreciation of
investments. . . . . . . . . . . . . 572,875 2,467,377
Increase in net assets from operations 2,091,013 4,214,698
Distributions to shareholders from:
Net investment income. . . . . . . . . 0 (62,118)
Net realized gains from security
transactions . . . . . . . . . . . . 0 (1,684,738)
Decrease in net assets from distributions
to shareholders. . . . . . . . . . 0 (1,746,856)
Capital share transactions:
Proceeds from sales of shares. . . . . 471,641 960,552
Net assets value of shares issued to
shareholders in reinvestment of dividends
and distributions. . . . . . . . . . 0 1,628,635
Cost of shares redeemed. . . . . . . . (1,408,822) (3,398,320)
Decrease in net assets from
capital share transactions . . . . (937,181) (809,133)
Total increase in net assets . . . . 1,153,832 1,658,709
Net assets:
Beginning of year. . . . . . . . . . . 14,672,911 13,014,202
End of period. . . . . . . . . . . . . $15,826,743 $14,672,911
See notes to financial statements.
</TABLE>
<PAGE>
SCHEDULE OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
Shares or Market
COMMON STOCKS Principal Value
Amount (Note 1)
<S> <C> <C>
AUTO/TRUCKS & PARTS (0.44%)
ITT Industries, Inc.. . . . . . . . . . . 2,800 $ 70,350
BANKS & FINANCE (3.91%)
Federal National Mortgage Association . . 12,000 402,000
Heritage Financial Services, Inc. . . . . 10,000 217,500
619,500
BUSINESS SERVICES (10.29%)
*Ceridian Corporation . . . . . . . . . . 8,200 414,100
Electronic Data Systems Corporation . . . 6,800 365,500
First Data Corporation. . . . . . . . . . 6,000 477,750
GTE Corporation . . . . . . . . . . . . . 8,300 371,425
1,628,775
CAPITAL GOODS (10.53%)
Emerson Electric Company. . . . . . . . . 4,800 433,800
General Electric. . . . . . . . . . . . . 5,700 493,050
Ingersoll Rand Company. . . . . . . . . . 7,600 332,500
Tyco International Ltd. . . . . . . . . . 10,000 407,500
1,666,850
CHEMICALS (2.87%)
Monsanto Company. . . . . . . . . . . . . 14,000 455,000
COMMUNICATIONS (3.11%)
*Worldcom, Inc. . . . . . . . . . . . . . 8,900 492,837
COMPUTER SYSTEMS & SOFTWARE (11.95%)
*Cisco Systems, Inc.. . . . . . . . . . . 6,900 390,712
*Microsoft Corporation. . . . . . . . . . 4,000 480,500
*Oracle Corporation . . . . . . . . . . . 12,600 496,913
*Sterling Software, Inc.. . . . . . . . . 6,800 523,600
1,891,725
CONSUMER SERVICES (7.92%)
ITT Corporation . . . . . . . . . . . . 5,100 337,875
Service Corporation International . . . . 9,300 534,750
*Sierra On Line, Inc. . . . . . . . . . . 8,700 381,712
1,254,337
CONSUMER STAPLES (6.23%)
Coca-Cola Company . . . . . . . . . . . . 11,500 562,062
Pepsico, Inc... . . . . . . . . . . . . . 12,000 424,500
986,562
ELECTRONICS (1.68%)
Avnet, Inc. . . . . . . . . . . . . 6,300 265,388
ENERGY (2.41%)
Mobil Corporation . . . . . . . . . . . . 3,400 381,225
HEALTH CARE (16.06%)
*Amgen, Inc. . . . . . . . . . . . . 8,000 432,000
Cardinal Health, Inc. . . . . . . . . . . 6,100 439,963
Caremark International, Inc.. . . . . . . 10,900 275,225
Columbia/HCA Healthcare Corporation . . . 8,000 427,000
Merck & Company, Inc. . . . . . . . . . . 6,800 439,450
Pfizer, Inc. . . . . . . . . . . . . 7,400 528,175
2,541,813
INSURANCE (5.41%)
American International Group, Inc.. . . . 4,650 458,606
MGIC Investment Corporation Wisconsin . . 7,100 398,488
857,094
OFFICE EQUIPMENT (2.64%)
Xerox Corporation . . . . . . . . . . . . 7,800 417,300
RETAIL (4.60%)
Albertson's, Inc. . . . . . . . . . . . . 8,900 368,238
Sears Roebuck & Company . . . . . . . . . 7,400 359,825
728,063
TOYS (2.51%)
Mattel, Inc. . . . . . . . . . . . . 13,906 398,059
TOTAL COMMON STOCKS (92.56%). . . . . . . . . 14,654,878
SHORT TERM NOTES (7.44%)
Eli Lilly & Co. (5.23%) . . . . . . . . . 699 699
General Mills, Inc. (5.39%) . . . . . . .247,459 247,459
Pitney Bowers Cedit Corp. (5.39%) . . . .178,228 178,228
Southwestern Bell Telephone Co. (5.37%) .338,766 338,766
Warner Lambert (5.37%). . . . . . . . . .246,663 246,663
Wisconsin Electric Power Corp. (5.44%). .165,348 165,348
TOTAL SHORT TERM NOTES. . . . . . . . . . . . 1,177,163
TOTAL INVESTMENTS. $15,832,041
*Non-income producing security.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
6 Months Year Year
Ended Ended Ended
June 30, Dec. 31, Dec. 31,
1996 1995 1994
<S> <C> <C> <C>
Selected date for each outstanding
throughout the period is as follows:
Net asset value, beginning of period $ 22.47 $ 18.83 $ 21.15
INCOME FROM INVESTMENT OPERATIONS
Net investment income .03 .11 .09
Net gains or losses on securities
(both realized and unrealized) 3.26 6.54 (.34)
Total from investment operations 3.29 6.65 (.25)
Dividends (from net investment income) 0 (.11) (.09)
Distributions (from capital gains) 0 (2.90) (1.98)
NET ASSET VALUE, END OF PERIOD 25.76 22.47 18.83
TOTAL RETURN 14.6% 35.4% (1.1%)
RATIOS/SUPPLEMENTAL DATA (IN THOUSANDS)
Net assets, end of period $15,827 $14,673 $13,014
Ratio of expenses to average net assets .56% 1.14% 1.15%
Ratio of net income to average net assets .12% .44% .41%
Portfolio turnover rate 20.73% 68.48% 91.01%
Average commission rate paid $ .0674 $ .0590
See notes to financial statements.
</TABLE>
<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 of Indiana 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. Investment 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.
NOTE 2 - INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
Under an investment advisory agreement with the Fund, the 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 period ended June 30, 1996, the Fund
incurred investment advisory fees of $61,008.
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 period ended June 30,
1996.
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 period ended June 30, 1996, the aggregate cost of securities
purchased, exclusive of short-term notes, amounted to $3,021,331.
NOTE 4 - SHARE AND OTHER CAPITAL TRANSACTIONS:
At June 30, 1996, paid-in capital aggregated $9,853,546. Transactions in
shares of the Fund were as follows:
<TABLE>
<CAPTION>
Shares Amount
6 Months Year 6 Months Year
Ended Ended Ended Ended
June 30, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Shares sold . . . . 19,672.702 46,067.691 $ 471,641 $ 960,552
Shares issued in
reinvestment of dividends
and distributions. 0 72,902.202 0 1,628,635
19,672.702 118,969.893 471,641 2,589,187
Shares redeemed . . 58,481.075 157,063.618 1,408,822 3,398,320
Net decrease. . . . (38,808.373)(38,093.725) $ (937,181)$ (808,133)
</TABLE>
<PAGE>
HISTORICAL RECORD
<TABLE>
<CAPTION>
Net Asset Capital Gains Dividend Growth of An
Value Distributions Distributions Initial $10,000
Per Share Per Share Per Share Investment**
<S> <C> <C> <C> <C>
March 4, 1985* $10.00 $10,000
December 31, 1985 11.54 11,545
December 31, 1986 12.85 $0.653 $0.059 13,557
December 30, 1987 14.02 0.553 0.223 15,623
December 31, 1988 14.53 0.228 0.215 16,676
December 29, 1989 18.23 0.548 0.252 21,841
December 30, 1990 16.87 0.431 0.352 21,155
December 31, 1991 22.14 1.208 0.246 29,589
December 31, 1992 21.83 0.020 0.129 29,374
December 31, 1993 21.15 1.303 0.101 30,347
December 31, 1994 18.83 1.980 0.095 30,009
December 29, 1995 22.47 2.902 0.107 40,633
June 30, 1996 25.76 46,582
*Date of Initial Public Offering
** Assuming reinvestment of all distributions
</TABLE>
