PINNACLE FUND
Indianapolis, Indiana
Dear Pinnacle Fund Shareholders:
The Pinnacle Fund had an excellent first half of 1997, rising 19.9%
in the six month period. The Fund has now produced a positive
return in each of the last ten quarters. We are proud to add that
the Fund has also outperformed Lipper Growth Fund Index for the
last quarter, one, three, five, and ten year periods.
The strong performance in the period was due in part to the
excellent earnings gains generated by your companies. Moreover, the
Fund was aided in the year by maintaining a moderate level of risk.
Many smaller, aggressive growth companies performed very poorly in
the March-April period and caused serious declines for many
investors. Your Fund continues to invest in high quality growth
companies that are growing earnings faster than commonly held
expectations.
An initial investment of $10,000 in Pinnacle Fund at inception in
1984 was worth $59,677 as of June 30, 1997, assuming reinvestment
of dividends. As always, we appreciate your support of the Fund.
Sincerely,
Thomas F. Maurath
President
Robert D. Markley
Secretary/ Treasurer
August 28, 1997
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
<TABLE>
<S> <C> <C>
ASSETS
Investments at value:
Common stock (cost $11,163,196) $17,779,905
Short-term notes (cost $1,893,412) 1,893,412
----------
$19,673,317
Dividends and interest receivable 26,190
Other receivables 1,325
----------
TOTAL ASSETS 19,700,832
LIABILITIES
Payables:
Investment advisory fee - Note 2 25,185
Custodian fee 7,492
Accrued expenses 10,726
---------
TOTAL LIABILITIES 43,403
----------
NET ASSETS - equivalent to $28.74 per share for
683,961.053 shares outstanding (unlimited
authorization, no par value; offering price
equal to net asset value per share) $19,657,429
==========
See notes to financial statements.
</TABLE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997
<TABLE>
<S> <C> <C>
INVESTMENT AND OTHER INCOME
Income:
Dividends $ 97,274
Interest 32,486
Other 41,446
---------
Total income $ 171,206
Expenses:
Investment advisory fee - Note 2 70,753
Custodian fees 13,052
Legal and audit 8,733
Printing and postage 1,911
Gross income taxes 1,452
Other 811
---------
Total expenses 96,712
---------
Net investment and other income 74,494
---------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain from security transactions
(excluding short-term notes):
Proceeds from sales 5,275,171
Cost of securities sold 3,782,311
---------
Net realized gain from
security transactions 1,492,860
Unrealized appreciation of investments:
End of period 6,616,709
Beginning of year 4,865,253
---------
Change in unrealized
appreciation of investments 1,751,456
---------
Net gain on investments 3,244,316
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,318,810
=========
See notes to financial statements.
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
6 Months Year
Ended Ended
June 30, December 31,
1997 1996
--------- --------
<S> <C> <C>
Operations:
Net investment and other income $ 74,494 $ 28,446
Net realized gain from security
transactions 1,492,860 2,141,592
Change in unrealized appreciation
of investments 1,751,456 968,996
---------- ----------
Increase in net assets from
operations 3,318,810 3,139,034
---------- ----------
Distributions to shareholders from:
Net investment income 0 (30,714)
Net realized gains from security
transactions 0 (2,139,158)
---------- ----------
Decrease in net assets from
distributions to shareholders 0 (2,169,872)
---------- ----------
Capital share transactions:
Proceeds from sales of shares 1,634,004 1,009,745
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions 0 2,075,804
Cost of shares redeemed (1,786,326) (2,236,681)
---------- ----------
Increase (decrease) in net
assets from capital share
transactions (152,322) 848,868
---------- ----------
Total increase in net assets 3,166,488 1,818,030
Net assets:
Beginning of year 16,490,941 14,672,911
---------- ----------
End of period $19,657,429 $16,490,941
========== ==========
See notes to financial statements.
</TABLE>
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
Shares or Market
COMMON STOCKS Principal Value
Amount (Note 1)
--------- --------
<S> <C> <C>
BANKS & FINANCE (8.55%)
Bankamerica Corporation 7,300 $ 471,310
Chase Manhattan Corporation 3,900 378,546
Federal National Mortgage Association 12,000 523,500
Heritage Financial Services, Inc. 15,000 309,375
----------
1,682,731
----------
BUSINESS SERVICES (2.19%)
*Ceridian Corporation 10,200 430,950
----------
CAPITAL GOODS (14.18%)
Allied Signal, Inc. 6,000 504,000
Emerson Electric Company 9,600 528,605
General Electric Company 11,400 745,275
Tyco International Ltd. 6,900 479,985
United Technologies Corporation 6,400 531,200
----------
2,789,065
----------
CHEMICALS (5.23%)
Dupont E I De Nemours & Company 7,000 440,125
Monsanto Company 13,675 588,887
----------
1,029,012
----------
COMMUNICATIONS (2.90%)
*Worldcom, Inc. 17,800 569,600
----------
COMPUTER SYSTEMS & SOFTWARE (13.86%)
Computer Associates Int'l, Inc. 7,800 434,366
International Business Machines 4,200 378,790
Intel Corporation 2,600 368,714
Lucent Technologies, Inc. 8,200 590,917
*Microsoft Corporation 4,400 556,050
*Oracle Corporation 7,900 397,963
----------
2,726,799
----------
CONSUMER SERVICES (7.27%)
*CUC International, Inc. 18,085 466,828
Gannett, Inc. 4,400 434,500
Service Corporation International 16,100 529,287
----------
1,430,615
----------
CONSUMER STAPLES (6.45%)
Coca-Cola Company 7,600 513,000
Eastman Kodak 4,650 356,887
Quaker Oats Company 8,900 399,387
----------
1,269,274
----------
ENERGY (5.34%)
Mobil Corporation 6,800 475,150
Schlumberger Ltd. 4,600 575,000
----------
1,050,150
----------
HEALTH CARE (10.95%)
Healthsouth Corporation 16,800 418,958
Merck & Company, Inc. 4,200 434,700
Pfizer, Inc. 6,300 752,850
Warner Lambert Company 4,400 546,700
----------
2,153,208
----------
INSURANCE (9.59%)
American International Group, Inc. 4,650 694,594
Conseco, Inc. 13,800 510,600
MGIC Investment Corporation Wisconsin 14,200 680,720
----------
1,885,913
----------
RETAIL (2.02%)
Sears Roebuck & Company 7,400 397,750
----------
TRANSPORTATION (1.85%)
Southwest Airlines Company 14,100 364,838
----------
TOTAL COMMON STOCKS (90.38%) 17,779,905
----------
SHORT TERM NOTES (9.62%)
American Family Fin Svcs. (5.51%) 468,233 468,233
Johnson Controls, Inc. (5.53%) 963,880 963,880
Wisconsin Electric Power Corp. (5.55%) 461,299 461,299
----------
TOTAL SHORT TERM NOTES 1,893,412
----------
TOTAL INVESTMENTS $19,673,317
===========
</TABLE>
*Non-income producing security.
FINANCIAL HIGHLIGHTS
<TABLE>
6 Months Year Year Year Year
Ended Ended Ended Ended Ended
6/30/97 12/31/96 12/21/95 12/31/94 12/31/93
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Selected data for each share outstanding
throughout the period is as follows:
Net asset value, beginning of period $ 23.96 $ 22.47 $ 18.83 $ 21.15 $ 21.83
-------- -------- -------- -------- --------
Income from Investment Operations
Net investment income .11 .05 .11 .09 .10
Net gains or losses on securities
(both realized and unrealized) 4.67 5.04 6.54 (.34) .62
-------- -------- -------- -------- --------
Total from investment operations 4.78 5.09 6.65 (.25) .72
-------- -------- -------- -------- --------
Dividends (from net investment income) 0 (.05) (.11) (.09) (.10)
-------- -------- -------- -------- --------
Distributions (from capital gains) 0 (3.55) (2.90) (1.98) (1.30)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 28.74 $ 23.96 $ 22.47 $ 18.83) $ 21.15
======= ======= ======= ======= =======
Total Return 19.9% 22.5% 35.4% (1.1%) 3.3%
======= ======= ======= ======= =======
Ratios/Supplemental Data (in thousands)
Net assets, end of period $19,657 $16,491 $14,673 $13,014 $15,135
========= ======== ========= ========= ========
Ratio of expenses to average net assets .54% 1.16% 1.14% 1.15% 1.17%
========= ======== ========= ========= ========
Ratio of net income to average net assets .42% .18% .44% .41% .46%
========= ======== ========= ========= ========
Portfolio turnover rate 24.49% 44.07% 68.48% 91.01% 85.35%
========= ======== ========= ========= ========
Average commission rate paid $ .0557 $ .0608 $ .0590
========= ======== ========= ========= ========
See notes to financial statements.
</TABLE>
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, Heartland
Capital Management, Inc. (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, 1997, the Fund incurred
investment advisory fees of $70,753.
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, 1997.
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, 1997, the aggregate cost of
securities purchased, exclusive of short-term notes, amounted to
$4,026,722.
NOTE 4 - SHARE AND OTHER CAPITAL TRANSACTIONS:
At June 30, 1997, paid-in capital aggregated $11,458,359.
Transactions in shares of the Fund were as follows:
<TABLE>
Shares Amount
------------------ ------------------
6 Months Year 6 Months Year
Ended Ended Ended Ended
6/30/97 12/31/96 12/31/95 12/31/94
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Shares sold 64,879.254 40,025.901 $1,634,004 $1,009,745
Shares issued in reinvestment
of dividends and distributions 0 85,424.031 0 2,075,804
----------- ----------- ----------- -----------
64,879.254 125,449.932 1,634,004 3,085,549
Shares redeemed 69,230.719 90,239.226 1,786,326 2,236,681
----------- ----------- ----------- -----------
Net increase (decrease) (4,351.465) 35,210.706 $ (152,322) $ 848,868
=========== =========== =========== ===========
</TABLE>
HISTORICAL RECORD
<TABLE>
Net Asset Capital Gains Dividend Growth of An
Value Distributions Distributions Initial $10,000
Per Share Per Share Per Share Investment**
<C> <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 31, 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
December 31, 1996 23.96 3.552 0.051 49,751
June 30, 1997 28.74 59,677
*Date of Initial Public Offering
**Assuming reinvestment of all distributions
</TABLE>
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PINNACLE
FUND
- ------------------------------------------------------------------
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
This report has been prepared primarily for the benefit of existing
shareholders of the Fund and is not intended as an offer to sell
the Fund's shares. When used otherwise, it must be accompanied or
preceded by the current prospectus.
SEMI-ANNUAL REPORT
JUNE 30, 1997
