Dear Pinnacle Fund Shareholders:
The Pinnacle Fund had another excellent year rising 22.5% in 1996. The Fund's
return easily outpaced the nation's inflation rate of 3.3% and exceeded the
19.5% gain for the average stock mutual fund as reported by Lipper Analytical.
The strong performance was due, in part, to the returns of several stocks that
had excellent gains during the year. High on the list were Microsoft (+88%),
Cardinal Health (+60%), and Monsanto (+59%). Just as important to the Fund was
maintaining a moderate risk level. Many smaller, more volatile stocks performed
very poorly during the summer and did not recover by year end. The Fund
continues to invest in high quality companies with established market positions
and strong earnings growth. These types of companies with established
market positions and strong earnings growth performed well in this uncertain
market environment.
An initial investment of $10,000 in the Pinnacle Fund at inception of 1985 was
worth $49,751 as of December 31, 1996, assuming the reinvestment of dividends.
As always we appreciate your support of the Fund.
<TABLE>
PINNACLE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C> <C>
Assets
Investments at value:
Common stock (cost $10,918,785) . . . $15,784,038
Short-term notes (cost $727,525). . . 727,525
-----------
$16,511,563
Dividends and interest receivable . . . 20,406
-----------
TOTAL ASSETS 16,531,969
LIABILITIES
Payables:
Investment advisory fee . . . . . . . . 11,250
Custodian fee . . . . . . . . . . . . . 3,512
Accrued expenses. . . . . . . . . . . . 25,666
Other payable . . . . . . . . . . . . . 600
---------
TOTAL LIABILITIES 41,028
---------
NET ASSETS equivalent to $23.96 per share
for 688,312.518 shares outstanding
unlimited authorization, no par value;
offering price equal to net asset value
per share). . . . . . . . . . . . . . $16,490,941
==========
See notes to financial statements.
</TABLE>
<TABLE>
PINNACLE FUND
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C> <C>
INVESTMENT INCOME
Income
Dividends . . . . . . . . . . . . . . $ 162,871
Interest. . . . . . . . . . . . . . . 46,978
-----------
Total income. . . . . . . . . . . $ 209,849
Expenses:
Investment advisory fee . . . . . . . . 126,100
Custodian fees. . . . . . . . . . . . . 24,645
Legal and audit . . . . . . . . . . . . 19,143
Trustees' fees. . . . . . . . . . . . . 400
Printing and postage. . . . . . . . . . 1,465
Gross income taxes. . . . . . . . . . . 2,492
Other . . . . . . . . . . . . . . . . . 7,158
-----------
Total expenses. . . . . . . . . . . 181,403
-------------
Net investment income . . . . . . . 28,446
-------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain from security transactions
(excluding short-term notes):
Proceeds from sales . . . . . . . . 8,333,536
Cost of securities sold . . . . . . 6,191,944
------------
Net realized gain from security
transactions. . . . . . . . . . . 2,141,592
------------
Unrealized appreciation of investments:
End of year . . . . . . . . . . . . 4,865,253
Beginning of year . . . . . . . . . 3,896,257
------------
Change in unrealized appreciation of
investments . . . . . . . . . 968,996
------------
Net gain on investments . . . . 3,110,588
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . $3,139,034
============
See notes to financial statements.
</TABLE>
<TABLE>
PINNACLE FUND
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Year Ended December 31
1996 1995
----------- -----------
<S> <C> <C>
Operations:
Net investment income . . . . . . . $ 28,446 $ 61,362
Net realized gain from security
transactions. . . . . . . . . . . 2,141,592 1,685,959
Change in unrealized appreciation
of investments. . . . . . . . . . 968,996 2,467,377
----------- ----------
Increase in net assets from
operations. . . . . . . . . . . 3,139,034 4,214,698
----------- ----------
Distributions to Shareholders From:
Net investment income . . . . . . . (30,714) (62,118)
Net realized gains from security
transactions. . . . . . . . . . . (2,139,158) (1,684,738)
----------- -----------
Decrease in net assets from distr-
ibutions to shareholders. . . . (2,169,872) (1,746,856)
----------- -----------
Capital Share Transactions:
Proceeds from sales of shares . . . 1,009,745 960,552
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions . . . 2,075,804 1,628,635
Cost of shares redeemed . . . . . . (2,236,681) (3,398,320)
----------- -----------
Increase (decrease) in net assets
from capital share transactions 848,868 (809,133)
----------- -----------
Total increase in net assets . . 1,818,030 1,658,709
Net Assets, Beginning of Year . . . . 14,672,911 13,014,202
----------- -----------
Net Assets, End of Year including
(excess of distributions over) net
investment income of $(2,549) and
$(281), respectively) . . . . . . . $16,490,941 $14,672,911
=========== ============
See notes to financial statements.
</TABLE>
<TABLE>
PINNACLE FUND
SCHEDULE OF INVESTMENTS
December 31, 1996
<CAPTION>
Shares Market Value
COMMON STOCKS --------- --------------
<S> <C> <C>
BANKS & FINANCE (8.30%)
Bankamerica Corporation. . . . . . . . 3,650 364,087
Chase Manhattan Corporation. . . . . . 3,900 348,075
Federal National Mortgage Association 12,000 447,000
Heritage Financial Services, Inc.. . . 10,000 212,500
---------
1,371,662
---------
BUSINESS SERVICES (8.73%)
Ceridian Corporation. . . . . . . . . . 8,200 332,100
Electronic Data Systems Corporation . . 6,800 294,100
First Data Corporation. . . . . . . . . 12,000 438,000
GTE Corporation 8,300 377,650
---------
1,441,850
---------
CAPITAL GOODS (13.63%)
Allied Signal, Inc. . . . . . . . . . . 5,300 355,100
Emerson Electric Company. . . . . . . . 4,800 464,400
General Electric Company. . . . . . . . 5,700 563,588
Ingersoll Rand Company. . . . . . . . . 7,600 338,200
Tyco International Ltd. . . . . . . . . 10,000 528,750
---------
2,250,038
---------
CHEMICALS (5.22%)
Dupont E I DeNemours & Company. . . . . 3,500 330,313
Monsanto Company. . . . . . . . . . . . 13,675 531,615
---------
861,928
---------
COMMUNICATIONS (2.81%)
* Worldcom, Inc. . . . . . . . . . . . 17,800 463,913
---------
COMPUTER SYSTEMS & SOFTWARE (14.34%)
* Cisco Systems, Inc.. . . . . . . . . 6,900 439,013
Intel Corporation . . . . . . . . . 2,600 340,438
* Microsoft Corporation. . . . . . . . 8,000 661,000
* Oracle Corporation . . . . . . . . . 7,900 329,824
* Sterling Commerce, Inc.. . . . . . . 10,829 381,722
* Sterling Software, Inc.. . . . . . . 6,800 215,050
---------
2,367,047
---------
CONSUMER SERVICES (5.03%)
* CUC International, Inc.. . . . . . . 15,985 379,644
Service Corporation International 16,100. . . .450,800
---------
830,444
---------
CONSUMER STAPLES (2.42%)
Coca-Cola Company . . . . . . . . . . . 7,600 399,950
---------
ENERGY (5.30%)
Mobil Corporation . . . . . . . . . . . 3,400 415,650
Schlumberger Ltd. . . . . . . . . . . . 4,600 459,425
---------
875,075
---------
HEALTH CARE (18.76%)
* Amgen, Inc.. . . . . . . . . . . . . 8,000 435,000
* Boston Scientific Corporation. . . . 7,700 462,000
Cardinal Health, Inc. . . . . . . . 9,150 532,987
* Medpartners, Inc.. . . . . . . . . . 13,189 276,969
Merck & Company, Inc. . . . . . . . 6,800 538,900
Pfizer, Inc.. . . . . . . . . . . . 6,300 522,113
Warner Lambert Company. . . . . . . 4,400 330,000
---------
3,097,969
---------
INSURANCE (8.98%)
American International Group, Inc.. . . 4,650 503,362
Conseco, Inc. . . . . . . . . . . . . . 6,900 439,875
MGIC Investment Corporation Wisconsin 7,100 539,600
---------
1,482,837
---------
RETAIL (2.07%)
Sears Roebuck & Company . . . . . . . . 7,400 341,325
---------
TOTAL COMMON STOCKS (95.59%). . . . . . . 15,784,038
---------
SHORT-TERM NOTES (4.41%)
Johnson Controls, Inc. (5.80%). . . . . 432,886 432,886
Wisconsin Electric Power Corp. (5.78%) 294,639 294,639
---------
TOTAL SHORT-TERM NOTES. . . . . . . . . . 727,525
---------
TOTAL INVESTMENTS . . . . . . . . . . . . $16,511,563
==========
* Non-income producing security.
</TABLE>
<TABLE>
PINNACLE FUND
FINANCIAL HIGHLIGHTS
<CAPTION>
Year Ended December 31
-------------------------------
1996 1995 1994 1993 1992
-------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Selected data for each share outstanding
throughout the period is as follows:
Net asset value, beginning of period $22.47 $18.83 $21.15 $21.83 $22.14
------- ------ ------ ------ ------
Income from Investment Operations
Net investment income .05 .11 .09 .10 .13
Net gains or losses on securities
(both realized and unrealized) 5.04 6.54 (.34) .62 (.29)
------- ------ ------ ------ ------
Total from investment operations 5.09 6.65 (.25) .72 (.16)
------- ------ ------ ------ ------
Dividends (from net investment income) (.05) (.11) (.09) (.10) (.13)
------- ------ ------ ------ ------
Distributions (from capital gains) (3.55) (2.90) (1.98) (1.30) (.02)
------- ------ ------ ------ ------
Net Asset Value, End of Period $23.96 $22.47 $18.83 $21.15 $21.83
======= ======= ======= ======= =======
Total Return 22.5% 35.4% (1.1)% 3.3% (.7)%
======= ======= ======= ======= =======
Ratios/Supplemental Data (in thousands)
Net assets, end of period $16,491 $14,673 $13,014 $15,135 $14,721
======= ======= ======= ======= =======
Ratio of expenses to average net
assets 1.16% 1.14% 1.15% 1.17% 1.18%
======= ======= ======= ======= =======
Ratio of net income to average net
assets .18% .44% .41% .46% .67%
======= ======= ======= ======= =======
Portfolio turnover rate 44.07% 68.48% 91.01% 85.35% 33.26%
======= ======= ======= ======= =======
Average commission rate paid $.0606 $.0590
======= =======
See notes to financial statements.
</TABLE>
PINNACLE FUND
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. 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.
PINNACLE FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - INVESTMENT ADVISORY 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,
1996, the Fund incurred investment advisory fees of $126,100.
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,
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 year ended December 31, 1996, the aggregate cost of securities
purchased, exclusive of short-term notes, amounted to $6,539,055.
NOTE 4 - SHARE AND OTHER CAPITAL TRANSACTIONS
At December 31, 1996, paid-in capital aggregated $11,639,596.
Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
Shares Amount
-------------- -------------
1996 1955 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Shares sold 40,025.901 46,067.691 $1,009,745 $960,552
Shares issued in reinvest-
ment of dividends and
distributions 85,424.031 72,902.202 2,075,804 1,628,635
---------- ---------- --------- ---------
125,449.932 118,969.893 3,085,549 2,589,187
Shares redeemed 90,239.226 157,063.618 2,236,681 3,398,320
---------- ---------- --------- ---------
Net increase (decrease) 35,210.706(38,093.725) $ 848,868 $(809,133)
========= ========== ========= =========
</TABLE>
On December 27, 1996, the Board of Trustees declared a dividend from net
investment income and a distribution of net realized gains from security
transactions. The dividend of $.051 and the distribution of $3.552 were
paid December 30, 1996 to each shareholder of record on December 27, 1996.
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, 1996, 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, 1996, 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, 1996, 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 5, 1997
<TABLE>
<CAPTION>
HISTORICAL RECORD
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 $10,000.00
December 31, 1985 $11.54 $11,545.00
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
*Date of Initial Public Offering
**Assuming reinvestment of all distributions
PINNACLE
FUND
________________________________________________________________
Investment Advisor
HEATHLAND 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 ANNUAL REPORT
benefit of existing shareholders of the Fund
and is not intended as an offer to sell the DECEMBER 31, 1996
Fund's shares. When used otherwise, it must
be accompanied or preceded by the current
prospectus.
</TABLE>
