<PAGE> 1
The Value Fund
<PAGE> 2
August 15, 1995
Dear Fellow Shareholder:
The Value Fund had a terrific second quarter. While the stock market
sizzled to an all time high, our Fund gained 9.8% to a record $27.11 per share.
Through June 30 the year-to-date return is 19.3%. A review of the table below
shows the Fund continued to outperform small stocks in general (Russell 2000
Index) and large stocks as represented by the S&P 500 Index. We are pleased with
these results, especially with our long-term record of outperformance:
<TABLE>
<CAPTION>
5-YEAR AVERAGE 10-YEAR AVERAGE AVG. ANNUAL SINCE CUMULATIVE SINCE
ANNUAL RETURN ANNUAL RETURN INCEPTION12/28/84 INCEPTION 12/28/84
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<S> <C> <C> <C> <C>
HEARTLAND VALUE *........................... 18.9% 14.9% 16.4% 393.0%
Russell 2000 (a small stock index) **....... 12.8 11.2 12.4 240.7
S&P 500 Index **............................ 12.1 14.7 15.7 361.0
</TABLE>
* The Heartland Value Fund's average annual return for the 1-year period
ended 6/30/95 was 19.2%.
Our "value approach" focuses on the fundamental strengths underlying
each security selection. We hunt for bargains in the small stock sector,
searching for companies we believe are selling at low prices in relation to
their earnings, cash flows and book values. Typically this means we accumulate
out-of-favor stocks that are in Wall Street's "dog house" because of recent
earnings disappointments. For example, during the quarter we added six retailers
- Damark, Designs, Duckwall, J. Baker, Shopko and Supercuts. We believe these to
be good businesses purchased at compelling valuations: 10X earnings or less and
at, or below, book value.
Conversely, while both institutional and individual "investors" flock
to high-tech stocks, we have been net sellers - reducing our position to 6% of
Fund assets. Technology stocks have been super performers, but in our opinion,
are generally overvalued with 30 P/E ratios commonplace. Also, the stocks are
over-owned by institutions, with one "diversified" fund reporting as much as 75%
of its assets allocated to technology. We believe this is a risky combination of
high P/E stocks with high institutional ownership. We prefer a less traveled
road in our quest for capital gains.
Our bargain-hunting investment strategy has produced outstanding
long-term investment results, and we will continue to focus our energies on
managing a well diversifiED portfolio of small cap stocks selected on a value
basis.
As always, we appreciate your comments and suggestions.
Sincerely,
/s/ William J. Nasgovitz /s/ Hugh F. Denison
------------------------ --------------------
William J. Nasgovitz Hugh F. Denison
President Director of Research
* The Standard & Poor's 500 Index is an unmanaged index of 500 stocks
representing all major U.S. industries. The Russell 2000 is an unmanaged index
consisting of the bottom two-thirds of the 3,000 largest publicly traded U.S.
companies. Small company stocks may be more volatile than those of the S&P 500.
This material may only be used when preceded or accompanied by the Fund's
prospectus. For more complete information, including charges and expenses, call
for a prospectus. Read it carefully before you invest or send money. Performance
data quoted represents past performance. Investment return and principal value
of an investment will fluctuate, and an investor's shares, when redeemed, may be
worth more or less than their original cost.
1
<PAGE> 3
BIG RETURNS FROM SMALL STOCKS
[Chart]
69 YEARS OF INVESTMENT PERFORMANCE BAR CHART
A bar chart portrays the compound annual percent return from 1926 through 1994
of six types of investment categories, as well as inflation, as tracked by
Ibbotson Associates, Chicago.
<TABLE>
<CAPTION>
Investment Type Return
--------------- ------
<S> <C>
Small Company Stocks 12.2%
Common Stocks 10.2%
Long Term Corporate Bonds 5.4%
Intermed. Term Gov't Bonds 5.1%
Long Term Gov't Bonds 4.8%
U.S. T-Bills 3.7%
Inflation 3.1%
</TABLE>
Source: "Stocks, Bonds, Bills and Inflation 1995 Yearbook," Ibbotson
Associates, Chicago. Annually updated work by Roger G. Ibbotson and Rex A.
Sinquefield. All rights reserved. The Small Company and the S&P 500 are
unmanaged indices of common stocks. Small company stocks may be more
volatile than those of the S&P 500 or bonds, while market values may
fluctuate inversely with interest rates, interest and principal. Interest and
principal payments of long-term government and U.S. Treasury bills are backed
by the full faith and credit of the U.S. Treasury. Past performance is no
indication of future investment results and the illustrated returns are not
indicative of the Fund's performance.
Over the long-term, small stocks have provided better returns - 12.2% on average
per year. This is 20% greater than common stocks in general which have returned
10.2% per year.
The Value Fund, a diversified portfolio of small stocks, seeks to capture this
growth potential and lower risk through low P/E value investing. Success in this
sector requires patience. Only those investors with a long-term investment
horizon should be in this Fund.
THE VALUE FUND'S LARGEST HOLDINGS*
AS OF JULY 27, 1995
1. ICN PHARMACEUTICALS ($17) is a global pharmaceutical company that sells
products in sixty countries. This truly international company has facilities
in Eastern Europe, the former Soviet Union and China. The company is growing
rapidly at a compelling 8X this year's earnings per share.
2. GRAND CASINOS ($38) we began accumulating this casino company in December of
1994. Trading at 11X estimated earnings and just above book value of $12,
Grand's stock had dropped from its May 1993 high of $55 on concerns relative
to the prospects for the emerging gaming industry. These concerns were
unfounded as Grand continues to report record sales and earnings.
3. CMAC INVESTMENTS ($38) is one of the country's larger mortgage insurers and
has been in our portfolio for two years. With an average cost of $27 a share,
the Fund has a substantial profit, but the stock still looks inexpensive to
us at 11.5X this year's earnings of $4.10.
4. GIBSON GREETINGS ($14) is a large manufacturer of greeting card and wrapping
paper. A seemingly endless supply of problems cut the stock's price by more
than half since early last year, and allowed us to establish our position at
an average cost of less than $10 a share. The earnings outlook is not clear,
but the stock looks cheap at only 75% of book value.
*As an actively managed fund, portfolio holdings may change at any time.
2
<PAGE> 4
YOUR HEARTLAND VALUE FUND HAS
OUTPERFORMED THE RUSSELL 2000
AND THE S&P 500!
The graph below compares the cumulative total return of the Heartland Value Fund
to the Russell 2000 and the S&P 500* indices since the Fund's inception on
12/28/84. The Russell 2000 is considered the most appropriate benchmark in
measuring small-cap performance and the S&P 500 measures the performance of the
broad U.S.stock market.
[Chart]
Performance Graph
Graph reflects the growth of $10,000 invested December 28, 1984 through June 30,
1995 in the Heartland Value Fund, the S&P 500 index and the Russell 2000 index.
<TABLE>
<CAPTION>
Heartland Value Fund S&P 500 Russell 2000
<S> <C> <C> <C>
12/28/84 10,000 10,000 10,000
12/31/85 14,094 13,179 13,105
12/31/86 15,637 15,645 13,850
12/31/87 14,318 16,418 12,635
12/31/88 18,190 19,135 15,780
12/31/89 19,385 25,189 18,342
12/31/90 16,072 24,408 14,765
12/31/91 24,005 31,828 21,565
12/31/92 34,201 34,250 25,536
12/31/93 40,620 37,682 30,360
12/31/94 41,316 38,176 29,815
6/30/95 49,299 45,895 34,066
</TABLE>
Box in graph contains Average Annual Total Return as of 6/30/95
<TABLE>
<S> <C>
one year 19.2%
five year 18.9%
ten year 14.9%
since inception 16.4%
</TABLE>
* * * * *
-- MORNINGSTAR**
* The Standard & Poor's 500 Index is an unmanaged index of 500 stocks
representing all major U.S. industries. The Russell 2000 is an unmanaged index
consisting of the bottom two-thirds of the 3,000 largest publicly traded U.S.
companies. Small company stocks may be more volatile than those of the S&P 500.
** Morningstar proprietary ratings reflect historical risk-adjusted performance
and are subject to change every month. These ratings are calculated from a
fund's 3-, 5- and 10-year average annual returns (as applicable) in excess of
90-day Treasury bill returns with appropriate fee adjustments and a risk factor
that reflects fund performance below 90-day Treasury bill returns. 10% of funds
in an investment category receive 5 stars. The Fund earned 5 stars for each of
the 3-, 5-, and 10-year periods ended 6/30/95. 134 small company funds were
rated for the 3-year period, 94 for the 5-year period, and 43 for the 10-year
period, each ended 6/30/95.
3
<PAGE> 5
WE'RE GLAD YOU ASKED!
Q. WHY DID THE VALUE FUND CLOSE TO NEW INVESTORS?
A. Our goal is to maximize returns to existing shareholders. Due to the rapid
growth of the Value Fund and our commitment to providing excellent investment
performance, we closed the Fund to new investors on July 1, 1995.
Q. CAN I STILL ADD TO MY ACCOUNT?
A. Even though the Fund is closed to new investors, existing shareholders may
still add additional money to their account. If you have an automatic
investment plan (AIP), monthly or twice-monthly payments will continue to be
deducted from your checking/savings account to purchase new shares in the
Value Fund.
Q. IF I REDEEM MY VALUE FUND ACCOUNT, CAN I REOPEN IT?
A. You must maintain a $500 balance in your account for it to remain open.
Otherwise, we reserve the right, upon 60 days notice, to close the account
and mail you the proceeds. This also applies to AIP's where you stop the
automatic investment and your Fund balance is less than $500.
Q. WHAT OTHER FUNDS DOES HEARTLAND OFFER?
A. As an alternative to the Value Fund, investors should consider the recently
launched Small Cap Contrarian Fund - a more aggressive fund which seeks to
capitalize on the inefficiencies of the small cap market both on the buy side
and the short side. Investors looking for a blend of both stocks and bonds in
a diversified fund should consider the HEARTLAND VALUE & INCOME FUND. And
those investors looking for a more conservative or fixed income fund should
look at HEARTLAND'S U.S. GOVERNMENT SECURITIES FUND.
[GRAPH]
HEARTLAND FUNDS
RISK/REWARD SPECTRUM
A diagram reflecting the placement of Funds available through Heartland in
context of a risk/reward spectrum. The left side of the diagram shows the
Portico Money Market followed by the U.S. Government Securities Fund below
"shorter time horizon" and "low risk/reward." The Value & Income Fund falls in
the middle of the spectrum, with the Value Fund followed by the Small Cap
Contrarian Fund appearing on the right of the diagram beneath "longer time
horizon" and "high risk/reward."
-------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS:
An annual meeting of the Heartland Funds' shareholders was held on April 27,
1995 for purposes of electing directors and ratifying the selection of
independent accountants for Heartland. Shareholders of all of Heartland's funds
voted together on these matters. All nominees for director were elected and the
accountants were ratified by the following vote:
1. ELECTION OF DIRECTORS: Willard Davidson 25,587,705 For (326,010 Withheld);
Hugh F. Denison 25,636,356 For (277,360 Withheld); Jon D. Hammes 25,601,196 For
(312,520 Withheld); William J. Nasgovitz 25,638,105 For (275,611 Withheld);
Patrick J. Retzer 25,629,732 For (283,983 Withheld); A. Gary Shilling 25,469,580
For (444,136 Withheld); Linda F. Stephenson 25,460,045 For (453,670 Withheld).
2. ARTHUR ANDERSEN LLP: 25,364,947 For; 134,849 Against; 413,920 Abstain.
-------------------------------------------------------------------------------
4
<PAGE> 6
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD COMMON STOCKS - 74.3% NOTE 1(a)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE - 1.5%
214,800 * Banner Aerospace, Inc. - Distributes new/overhauled replacement parts to aviation/aerospace
industries............................................................................................ $ 1,074,000
500,000 * ECC Int'l Corporation - Mnf computer controlled simulators, invented new glass vending machines
(Note 5).............................................................................................. 5,562,500
34,000 * FLIR Systems, Inc. - Manufactures thermal imaging systems that detect infrared radiation............... 484,500
130,100 * Greenwich Air Services, Inc. - Repairs, overhauls, and refurbishes gas turbine engines................. 1,366,050
155,500 Mercury Air Group, Inc. -Provides ground support services to commercial airlines and the US military... 1,302,313
948,700 * UNC, Inc - Manufactures engine and airframe parts (Note 5)............................................. 5,099,262
-----------
14,888,625
BANKS AND SAVINGS & LOANS - 6.5%
100,000 * Alabama National Bancorporation - Rural Alabama bank................................................... 1,137,500
42,025 Beverly Bancorporation - Community bank serving southwest Chicago...................................... 2,227,325
20,000 BSB Bancorp, Inc. - Savings bank in the southern tier of New York...................................... 600,000
78,900 * Calumet Bancorp, Inc. - Chicago thrift that generates residential mortgages in several states.......... 2,150,025
225,000 Coastal Bancorp, Inc. - Texas based savings and loan association....................................... 3,656,250
100,000 Conservative Savings Corporation - Thrift serving Omaha, NE area (Note 5).............................. 1,025,000
110,000 * Cooperative Bankshares, Inc. - Savings bank serving coastal regions of North Carolina (Note 5)......... 2,062,500
87,500 Cupertino National Bancorp - Commercial bank in high growth Silicon Valley (Note 5).................... 820,313
35,000 D & N Financial Corporation - Operates full service branch offices in central and northern Michigan.... 358,750
82,500 Eagle Financial Corporation - Savings bank operating 24 offices in Connecticut......................... 1,835,625
204,500 * First Federal Bancshares of Eau Claire - Operates 13 retail banking offices in central Wisconsin....... 2,530,688
67,800 First Federal of Alabama - Operates four branches in Central and S.E. Alabama (Note 5)................. 1,076,325
498,300 First Financial Corporation - Serves Wisconsin and southern Illinois from approximately 124 locations.. 8,720,250
25,000 First Palm Beach Bancorp - Bank holding company in Palm Beach, Martin and St. Lucie counties........... 559,375
112,400 Flag Financial Corporation - Georgia savings and loan with $180 million in assets (Note 5)............. 1,320,700
74,000 First Northern Savings Bank - Green Bay, Wisconsin savings bank, assets of $558 million................ 1,036,000
135,000 Franklin Bank National Association - Business bank serving suburbs of Detroit, MI...................... 1,282,500
105,000 * Hallmark Capital Corporation - One-bank holding company for West Allis, WI (Note 5).................... 1,417,500
250,000 * HMN Financial, Inc. - Newly created thrift serving Rochester, MN market................................ 3,406,250
17,000 Leader Financial Corporation - Offers general banking services through 22 retail branch offices in
Tennessee............................................................................................. 482,375
17,000 MAF Bancorp, Inc. - Market share leader in Dupage County IL............................................ 399,500
66,200 Massbank Corporation - Serves customers in the Middlesex county area in eastern Massachusetts.......... 1,721,200
308,400 * Metropolitan Bancorp - Holding company for Seattle based Metropolitan Federal Savings and Loan
(Note 5).............................................................................................. 3,353,850
100,000 Northwest Equity Corporation - Wisconsin holding company for Northwest Savings Bank (Note 5)........... 875,000
254,000 Redwood Empire Bancorp - Holding company for a bank and thrift located N. of San Francisco (Note 5).... 2,159,000
150,000 Republic Security Financial Corporation - Chartered holding company in Florida......................... 750,000
154,000 * St. Francis Capital Corporation - Wisconsin holding company for St. Francis State Bank................. 3,080,000
68,000 State Financial Services Corporation (Class A) - Milwaukee area multi-bank holding company............. 986,000
250,000 * Sterling Financial Corporation - Multi-branch savings bank serving WA and some communities in OR
(Note 5).............................................................................................. 3,312,500
141,420 * Transworld Bancorp - Commercial bank serving northern suburbs of Los Angeles with eleven offices
(Note 5).............................................................................................. 1,803,105
201,300 Trans Financial, Inc. - Bank holding company which operates 54 branch offices in Kentucky and
Tennessee.............................................................................................. 3,069,824
70,000 * United Security Bancorp - Provides general banking services through eight branches in eastern
Washington............................................................................................. 603,750
101,000 Virginia First Financial - Provides general banking services through eight offices in Spokane metro
area.................................................................................................. 1,767,500
49,100 Webster Financial Corporation - Serves over 140,000 customers through its offices located in CT........ 1,172,263
67,000 Westerfed Financial Corporation - Thrift holding company in Montana.................................... 1,013,375
-----------
63,772,118
COMMUNICATION/SECURITY - 2.6%
3,100,000 * Automated Security Holdings, ADR - Sells and services electrical security systems (Note 5)............. 4,650,000
400,500 * Cobra Electronics - Designs, markets products in the communication and audio electronics industry
(Note 5).............................................................................................. 801,000
269,000 * Norstan, Inc. - Distributes and services private telephone systems (Note 5)............................ 6,523,250
1,000,000 * Peoples Telephone Co. Inc. - Markets, operates, services and maintains privately owned pay telephones
(Note 5).............................................................................................. 4,187,500
935,000 * Tee-Comm Electronics, Inc. - Manufacturer/distributor of satellite television receiving systems........ 6,289,932
121,000 * Total Tel USA Communications, Inc - A discount long distance telephone company (Note 5)................ 2,541,000
-----------
24,992,682
</TABLE>
5
<PAGE> 7
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS - [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD COMMON STOCKS - [CONT'D] NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION/HOUSING - 2.7%
75,000 * Belmont Homes, Inc. - Produces and markets single and double section manufactured homes.................. $ 759,375
240,000 * Crossmann Communities, Inc. - Builds single family homes in Indianapolis/Lafayette, Indiana.............. 2,460,000
300,000 Engle Homes, Inc. - Florida home builder and developer................................................... 2,737,500
125,000 * Greiner Engineering, Inc. - Engineering firm specializing in transportation projects such as highways
and bridges............................................................................................. 1,437,500
165,000 L.E. Myers Company Group - Makes transmission systems for electric utilities (Note 5).................... 2,041,875
100,000 * Miller Building Systems, Inc. - Manufactures and markets modular structures.............................. 300,000
325,000 * Morgan Products, Ltd. - Manufactures and distributes specialty building products......................... 1,950,000
145,000 * Patrick Industries, Inc. - Manufactures/distributes building products and materials...................... 1,631,250
85,000 * Rottlund Company, Inc. - Minneapolis based single family home builder.................................... 616,250
190,000 Ryland Group, Inc. - National home builder and mortgage related finance firm............................. 3,063,750
307,900 Schult Homes Corporation - Designs and builds manufactured homes (Note 5)................................ 3,502,363
500,000 * URS Corporation - Provides architectural and engineering services to local and state governments
(Note 5)................................................................................................ 2,875,000
200,000 Watsco, Inc. - Manufacturer and distributor of air conditioning equipment................................ 2,700,000
-----------
26,074,863
EDUCATION - 0.1%
405,000 * American Educational Products, Inc. - Sells educational materials to U.S. teachers and schools
(Note 5)................................................................................................. 708,750
ENERGY/NATURAL RESOURCES - 3.9%
165,100 * American Oilfield Divers, Inc. - Undersea construction, installation and repair to offshore oil and
gas industry............................................................................................ 1,073,150
610,000 * Alexander Energy Corporation - Exprl./dev./produces oil, natural gas and other hydrocarbons (Note 5)..... 2,554,375
250,000 * Chieftain International, Inc. - Exprl./dev./produces oil and natural gas in the Gulf of Mexico region.... 3,406,250
250,000 * Clayton Williams Energy, Inc. - Acquires, explores, and produces oil and natural gas..................... 750,000
300,000 * Cliffs Drilling Company - Provides contract drilling services in the Texas/Louisiana Gulf Coast region
(Note 5)................................................................................................ 4,275,000
274,400 * Dreco Energy Services, Ltd. (Class A) - Manufs/markets/rents mach., equipment and downhole products...... 3,978,800
675,000 * ERC Industries, Inc. - Manufactures and services oil field wellhead equipment............................ 506,250
538,500 * Evergreen Resources, Inc.- Gas exploration, development and production (Note 5).......................... 2,961,750
904,000 * Hallwood Consolidated Resources Corporation - Owns interests in 2,000 oil and gas wells (Note 5)......... 1,808,000
101,100 Howell Corporation - Explores, produces, refines and markets oil and natural gas and processes
chemicals............................................................................................... 1,390,125
1,200,000 * International Colin Energy Corporation - Explores for and produces oil and natural gas (Note 5).......... 6,300,000
118,755 Mining Services International Corporation - Develops explosives technology for the mining industry....... 489,864
425,000 * Pride Petroleum Services, Inc. - Well servicing company providing rigs/crews for oil/gas exploration..... 3,187,500
200,000 * Tipperary Corporation - Explores for, develops and produces oil and gas.................................. 1,162,500
85,000 * Tuboscope Vetco International Corp. - Provides svcs and products to the oil and gas industry worldwide... 541,875
128,500 * Unit Corporation - Oil and gas contract drilling company................................................. 465,813
350,000 * Universal Seismic, Inc. - Provides scientific seismic data to oil and gas companies (Note 5)............. 1,225,000
433,300 * Westmoreland Coal Company - Mines and sells coal (Note 5)................................................ 1,895,687
-----------
37,971,939
ENVIRONMENTAL SERVICES - 2.0%
603,900 * Allwaste, Inc. - Provides industrial waste handling, processing, and transportation...................... 3,321,450
700,000 * Biosys, Inc. - Develops natural bioinsecticides for state and local governments (Note 5)................. 1,312,500
230,000 * Envirotest Systems Corporation (Class A) - Operates vehicle emissions testing programs for
municipalities.......................................................................................... 1,121,250
358,300 * GZA GeoEnvironmental Technologies, Inc. - Environmental consulting services (Note 5)..................... 1,612,350
2,000,000 * Mid American Waste Systems, Inc. - A non-hazardous solid waste management business (Note 5).............. 9,750,000
628,700 * Vectra Technologies, Inc. - Provides products, svcs to operators of nuclear facilities around the world
(Note 5)................................................................................................ 1,964,688
-----------
19,082,238
FINANCE - 3.3%
322,100 * Advest Group, Inc. - Securities brokerage, trading, investment banking, lend., leasing/asset management.. 2,536,538
138,800 Atalanta/Sosnoff Capital Corporation - Investment management firm with over $3 billion in client assets.. 902,200
210,000 Eaton Vance Corporation - Advisor to mutual funds........................................................ 6,772,500
125,000 Inter-Regional Financial Group, Inc. - Full service securities broker benefiting from industry
consolidation........................................................................................... 3,687,500
222,704 Kinnard Investments, Inc. - Securities brokerage svcs in 22 offices, network of affiliated banks and
S&L's................................................................................................... 779,464
845,600 * Payco American Corporation - Nationwide accounts receivable manager (Note 5)............................. 6,553,400
210,000 Raymond James Financial, Inc. - Securities brokerage, investment banking and financial planning.......... 4,068,750
349,900 Stifel Financial Corporation -Securities brokerage with 64 offices located in Central U.S. (Note 5)...... 2,361,825
107,000 Student Loan Corporation - Originates, holds and services guaranteed student loans....................... 2,875,625
</TABLE>
6
<PAGE> 8
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS - [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD COMMON STOCKS - [CONT'D] NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE - [CONT'D]
302,500 * Sunrise Resources - Leasing of new/used electronic data processing equipment (Note 5)................... $ 1,512,500
-----------
32,050,302
FOOD/BEVERAGE - 1.6%
325,000 * Hamburger Hamlet Restaurants, Inc. - Owns and operates full service restaurants (Note 5)................ 1,503,125
34,500 Hanover Foods, Inc. - Produces and markets prepared foods............................................... 2,018,250
545,500 * North Star Universal, Inc. - Holding company with major interest in Michael Foods, Inc. and Corvel
Corp. (Note 5)......................................................................................... 2,795,688
50,000 Schultz Sav-O Stores, Inc. - Food wholesaler, supermarket operator...................................... 1,125,000
405,000 * Summit Family Restaurants, Inc. - Family style restaurants (Note 5)..................................... 1,771,874
85,400 Stokely USA, Inc. - Processes and packages food products................................................ 485,713
126,100 Thorn Apple Valley - Slaughters hogs/provides packaged meat and poultry products........................ 2,963,350
300,000 * Timber Lodge Steakhouse, Inc. - Operates restaurants in the Minneapolis/St. Paul metropolitan area
(Note 5)............................................................................................... 1,350,000
162,000 * Todhunter International, Inc. - Produces citrus-based brandy, distilled spirits and fortified wine...... 1,498,500
56,500 * Unimark Group, Inc. - Markets and distributes both citrus and tropical fruits........................... 395,500
-----------
15,907,000
HEALTH CARE SERVICES - 8.1%
188,500 Applied Bioscience International, Inc. - Conducts toxicological studies................................. 966,063
105,000 Caretenders Healthcorp - Provides home nursing and rehabilitative services.............................. 603,750
500,000 * Coastal Physicians Group, Inc. - Provides medical group management services throughout the United
States................................................................................................. 6,437,500
426,000 * Grancare, Inc. - Operates 80 long-term health care facilities........................................... 6,869,250
106,100 * Health Power, Inc. - Ohio-based managed health care holding company..................................... 1,697,600
100,000 Hooper Holmes, Inc. - Provides health information to the insurance industry............................. 843,750
564,000 * Hospital Staffing Services, Inc. - Provides interim duty medical staff to hospitals (Note 5)............ 987,000
1,959,300 ICN Pharmaceuticals, Inc. - Develops, manufactures, researches pharmaceutical/nutritional products
(Note 5)............................................................................................... 30,858,974
285,600 * Integracare, Inc. - Offers physical, speech and occupational therapy to skilled nursing facilities
(Note 5)............................................................................................... 1,927,800
350,000 * Maxicare Health Plans, Inc. - Managed health care insurer and HMO operator with concentration in CA
and IN................................................................................................. 5,425,000
517,500 * Meadowbrook Rehabilitation Group, Inc. - Provides rehabilitation services (Note 5)...................... 1,035,000
300,000 * Psicor, Inc. - Supply personnel to set up, prime and operate heart-lung machines in hospitals (Note 5).. 3,450,000
500,000 * Ramsay Health Care, Inc. - Provider of psychiatric care (Note 5)........................................ 2,125,000
131,283 * Ramsay Managed Health Care - Provider of managed mental health care and substance abuse treatment....... 484,040
250,000 * Regency Health Services, Inc. - Operator of California healthcare facilities primarily in MD............ 2,625,000
400,000 RightChoice Managed Care (Class A) - Offers managed health care products and services................... 4,800,000
7,000 Safeskin Corporation - Manufactures hypoallergenic disposable latex gloves for medical and dental uses.. 105,000
166,146 * Star Multi Care Services, Inc. - Temporary health care recruiting to hospitals, nursing homes, temp
svcs (Note 5).......................................................................................... 623,048
635,000 Transcend Services, Inc. - Healthcare information mgmt firm specializing in contract management of
health info............................................................................................ 1,746,250
253,900 United Wisconsin Services, Inc. - Group health insurance and HMO operator............................... 5,078,000
252,000 * Zynaxis, Inc. - Biotechnology company, engaged in new therapeutic delivery systems...................... 252,000
-----------
78,940,025
INSURANCE - 6.9%
152,700 American Eagle Group, Inc. - Underwrites, mkts property/casualty coverage to aviation and trucking
industries............................................................................................. 1,832,400
189,500 Amwest Insurance Group, Inc. - Underwrites a variety of surety bonds (Note 5)........................... 2,747,750
212,900 AmVestors Financial Corporation - Writer of single-premium deferred annuities........................... 2,474,963
200,000 Capital RE Corporation - Specialty reinsurance emphasizing the mortgage guaranty market................. 5,200,000
350,000 CMAC Investment Corporation - Provides private mortgage insurance coverage.............................. 15,181,250
826,100 John Alden Financial Corporation - Provides group health and life insurance and managed care services... 14,146,962
308,000 * Milwaukee Insurance Group, Inc. - Property, casualty and life insurance (Note 5)........................ 6,237,000
144,400 * Picom Insurance Company - Liability insurance for doctors, dentists and other health care
professionals.......................................................................................... 2,057,700
1,312,000 Presidential Life Corporation - Writes annuities, whole life, universal life and term policies.......... 10,824,000
100,000 * Transnational Re Corporation (Class A) - Provides property catastrophe reinsurance in the U.S. and
abroad................................................................................................. 2,006,250
300,000 * Warrentech Corporation - Sells extended services contracts to owners of consumer electronic products.... 1,500,000
475,000 * Westbridge Capital Corporation - Underwrites and sells individual accident and health insurance
(Note 5)............................................................................................... 3,028,125
-----------
67,236,400
LEISURE - 5.3%
120,500 American Recreation Centers, Inc. - Operates bowling centers, devs/mnges. commercial real estate........ 873,625
269,700 * Baldwin Piano & Organ Company - Manufactures pianos and electric organs (Note 5)........................ 3,775,800
225,000 Barefoot, Inc. - Provides residential lawn care services................................................ 3,121,875
</TABLE>
7
<PAGE> 9
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS - [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD COMMON STOCKS - [CONT'D] NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LEISURE - [CONT'D]
100,000 * Buckhead America Corporation - Provides mortgage servicing and hotel management services (Note 5)........ $ 475,000
75,000 * ERO, Inc. - Markets children's products which feature popular licensed characters........................ 637,500
750,500 * Grand Casinos, Inc. - Develops, manages land-based and dockside casinos and bingo facilities............. 26,548,938
1,000,000 * Iwerks Entertainment, Inc. - Produces movie-based specialty theaters for out-of-home entertainment
mkt (Note 5)............................................................................................ 4,000,000
62,000 La Crosse Footwear, Inc. - Develops and manufactures protective, industrial and recreational
footwear................................................................................................ 682,000
50,000 Marcus Corporation - Restaurants, theaters, hotels and motels............................................ 1,512,500
200,000 Matthews International Corporation (Class A) - Designs, manufactures and mkts custom-made identity
products................................................................................................ 3,750,000
500,000 * MHI Group, Inc. - Operates funeral homes (Note 5)........................................................ 3,625,000
398,000 * Trimark Holdings, Inc. - Distributor of home videos and feature films (Note 5)........................... 2,985,000
-----------
51,987,238
MANUFACTURING - 7.0%
877,500 * Alpine Group, Inc. - Manufactures telephone cable and wire............................................... 4,716,562
137,500 Amcol International Corporation - Mines and processes clays used in the metal casting industry........... 2,200,000
872,900 * Astec Industries, Inc. - Designs, manufactures, markets asphalt plants, milling and paving equipment
(Note 5)................................................................................................ 9,929,237
69,100 Badger Meter, Inc. - Producer of fluid meters and flow valves............................................ 1,632,487
160,000 * Creative Technologies Corporation - Designs and commercializes houseware appliances...................... 440,000
142,500 * Dakotah, Inc. - Designs, manufactures and markets home fashion furnishings............................... 480,938
206,600 * Designatronics, Inc. - Manufactures factory automation components (Note 5)............................... 1,136,300
702,500 * Devlieg-Bullard, Inc. - Manufactures, upgrades and automates precision engineered machine tools
(Note 5)................................................................................................ 965,938
70,700 Doug & Lomason - Supplier of original equipment parts and components to automotive industry.............. 1,060,500
65,000 * Flow International, Inc. - Designs, and manufactures ultra-high pressure waterjets for cutting
machines................................................................................................ 645,938
230,000 * Gehl Company - Manufactures and markets agricultural and construction equipment.......................... 1,926,250
113,000 * Industrial Holdings, Inc. - Sells pipe valves and fittings for refining, and produces industrial
fasteners............................................................................................... 367,250
200,000 * Kentucky Electric Steel Company, Inc. - Owns and operates a mini steel mill.............................. 1,850,000
110,000 Masland Corporation - Manufactures vinyl floor systems, dash insulators and trim components for cars..... 1,416,250
380,000 * Medalist Industries, Inc. - Produces industrial fasteners (Note 5)....................................... 2,375,000
169,000 Memtec, Ltd. - Develops and produces membrane and other filtration products.............................. 2,682,874
182,300 MFRI, Inc. - Manufacturer and marketer of filter bags, related parts and accessories..................... 979,863
32,900 Northstar Computer Forms, Inc. - Mnfs and sells business forms to banking, finance, graphics industries.. 238,525
338,400 * NYCOR, Inc. - Manufactures components for heating and cooling systems.................................... 888,300
261,400 * NYCOR, Inc. (Class A) - Manufactures components for heating and cooling systems.......................... 718,850
83,700 * Photo Control Corporation - Designs, manufactures, markets professional cameras and accessories
(Note 5)................................................................................................ 376,650
593,600 * Powell Industries, Inc. - Designs, develops, manufactures, sells electrical power generation products
(Note 5)................................................................................................ 3,710,000
54,800 Reliance Steel & Aluminum - Full-line distributor and processor of steel and aluminum.................... 815,150
185,500 * Rexworks, Inc. - Manufactures and sells concrete mixer and waste disposal equipment (Note 5)............. 672,438
85,200 Salem Corporation - Designs and installs heavy industrial equipment...................................... 2,406,900
300,000 * Spartech Corporation - Manufactures, markets single and multi-layer plastic for spas, showers, and
signs................................................................................................... 1,987,500
250,000 * Specialty Paperboard, Inc. - Producer of heavyweight pressboard (Note 5)................................. 3,312,500
400,000 * Starcraft Corporation - Custom van converter (Note 5)................................................... 2,300,000
147,300 * Strattec Security Corporation - Designs, develops, manufactures and markets automotive locks............. 1,804,424
541,100 Toastmaster, Inc. - Small electrical appliances manufacturer (Note 5).................................... 3,246,600
100,000 * Tower Automotive, Inc. - Produces high-quality metal stampings, assemblies used by the auto industry..... 1,050,000
180,000 Wescast Industries, Inc. (Class A) - Manufacturer, suppler of exhaust manifolds to big three auto
companies............................................................................................... 1,845,000
500,000 Windmere Corporation - Manufactures/distributes small electric appliances including hair dryers.......... 4,125,000
550,000 Winnebago Industries, Inc. - Manufactures recreational vehicles.......................................... 4,812,500
-----------
69,115,724
MARKETING/CORPORATE SERVICE - 4.4%
250,000 * Career Horizons, Inc. - Provides temporary personnel to businesses, service organizations and
individuals............................................................................................. 4,750,000
293,500 * Employee Benefit Plans, Inc. - Provides managed healthcare svcs to self-funded employer benefit
programs................................................................................................ 4,769,375
220,000 International Research & Development Corporation - Evaluates safety of drugs and agricultural products... 55,000
184,250 LCS Industries, Inc. - Computerized marketing services (Note 5).......................................... 3,915,313
1,000,000 * Luminart, Inc. - Develops products to help achieve new and dramatic visual effects in signage display
(Note 5)................................................................................................ 3,090,900
269,000 * M/A/R/C, Inc. - Provides market research, database marketing and counseling services (Note 5)............ 3,497,000
100,000 * Norwood Promotional Products - Supplies custom imprinted promotional products to distributors
nationwide.............................................................................................. 1,350,000
200,000 * Outlook Group Corporation - Printing, packaging, distribution in sport cards, food and consumer
products................................................................................................ 1,850,000
</TABLE>
8
<PAGE> 10
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS - [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD COMMON STOCKS - [CONT'D] NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MARKETING/CORPORATE SERVICE - [CONT'D]
175,000 * Varitronic Systems, Inc. - Develops electronic print-on-tape lettering systems (Note 5).................. $ 1,990,625
2,500,000 * Work Recovery, Inc. - Supplies advd. rehabil. technology, operates test clinics serving employers
(Note 5)................................................................................................ 17,656,250
-----------
42,924,463
MEDICAL PRODUCTS - 5.1%
470,000 * Aequitron Medical, Inc. - Manufactures home health care and hospital products (Note 5)................... 2,526,250
180,000 Allied Healthcare Products - Manufactures/markets medical gas and respiratory therapy equipment.......... 2,925,000
99,000 * Americian Medical Electronics, Inc. - Manufactures, mkts bone growth stimulation medical equipment....... 965,250
410,000 * E For M Corporation - Specialized films and related imaging products (Note 5)............................ 3,075,000
108,300 * Fluoroscan Imaging Services - Manufactures a real time x-ray imaging device.............................. 839,325
200,000 * Gish Biomedical, Inc. - Manufactures and markets specialty surgical devices (Note 5)..................... 1,425,000
272,500 * Hauser Chemical Research, Inc. - Chem. processor, extracts/purifies natural products for use in drugs.... 1,447,656
641,400 * MDT Corporation - Develops, manufactures, markets and services sterility assurance systems (Note 5)...... 3,928,575
300,000 * Marquette Electronics, Inc. (Class A) - Manufacturer of medical electronic monitoring equipment.......... 4,762,500
264,000 * Maxxim Medical, Inc.- Manufactures and distributes physical therapy equipment............................ 3,960,000
228,200 * Medical Graphics Corporation - Computerized diagnostic systems to detect heart and lung disease
(Note 5)................................................................................................ 1,255,100
350,000 Mentor Corporation - Produces implantable medical devices and disposable devices......................... 9,756,250
123,000 * National Dentex Corporation - Owns and operates 23 dental laboratories throughout the United States...... 1,629,750
190,000 * Neoprobe Corporation - Involved in the development of cancer treatment and detection systems............. 1,068,750
300,000 * Orthologic Corporation - Develops noninvasive therapeutic bone growth stimulation devices................ 1,612,500
438,000 * Rehabilicare, Inc. - Dsgns./manufactures/markets electromed. rehab. and pain mngmt. products (Note 5).... 1,149,750
402,000 * Sullivan Dental Products, Inc. - Distributes consumable dental supplies to dentists...................... 3,417,000
354,000 Sterile Concepts Holdings - Produces surgical and clinical custom procedure trays (Note 5)............... 4,380,750
-----------
50,124,406
RETAIL - 5.9%
550,000 * Action Industries, Inc. - Merchandising programs (Note 5)................................................ 653,125
206,900 * Amrion, Inc. - Markets dietary supplements and other consumer products................................... 2,069,000
449,250 * Dairy Mart Convenience Stores, Inc. (Class A) - Operates over 1,000 convenience stores (Note 5).......... 2,358,563
581,000 * Damark International, Inc. (Class A) (Note 1(g)) - Information-based, direct marketer of merchandise
(Note 5)................................................................................................ 3,410,188
250,000 * Designs, Inc. - Operates 120 specialty retail stores which sell apparel manufactured by Levi Strauss &
Co...................................................................................................... 2,218,750
200,000 * Duckwall-ALCO Stores, Inc. - Discount retailer operating throughout the central United States (Note 5)... 1,850,000
200,000 * Funco Inc. - Provides interactive home entertainment through the purchase and resale of video games...... 875,000
1,200,600 Gibson Greetings, Inc. - Manufacturer and retailer of greeting cards and wrapping paper (Note 5)........ 16,058,025
470,000 * Harmony Brook, Inc. - Develops, manufactures, distributes and operates water filtering equipment
(Note 5)................................................................................................ 587,500
320,000 * Hi-Lo Automotive, Inc. - Retails automotive replacement parts............................................ 3,360,000
92,500 * Huffman Koos, Inc. - Specialty retailer of furniture in NJ and NY........................................ 601,250
100,000 J. Baker, Inc.- Retailer of footwear through shoe departments in mass merchandising department stores.... 1,012,500
275,600 * Oneita Industries, Inc. - Manufactures and sells high quality blank t-shirts for screenprinting.......... 2,514,850
400,000 * Roberds, Inc. - Operates retail outlets of home furnishing products (Note 5)............................. 3,800,000
150,000 Shopko Stores, Inc. - Regional discount store concentrated in the upper Midwest.......................... 1,612,500
250,000 * Sports & Recreation, Inc. - Sells sporting goods thru 26 "Sports Unlimited" superstores.................. 3,281,250
450,000 * Supercuts, Inc. - Nationwide franchiser of haircare stores............................................... 3,543,750
366,500 * Trak Auto Corporation - Retail auto parts stores (Note 5)................................................ 6,047,250
365,000 * Vitamin Specialties Corporation - Sells vitamins, dietary supplements (Note 5)........................... 1,095,000
25,000 Weyco Group, Inc. - Manufacturer and retailer of quality shoes........................................... 900,000
-----------
57,848,501
TECHNOLOGY - 6.0%
350,000 * Advance Circuits, Inc. - Manufactures printed circuit boards............................................. 6,300,000
100,000 * BancTec, Inc. - Manufacturer of computerized check processing systems.................................... 1,562,500
280,000 * CSP, Inc. - Manufacturer of array processors to enhance computer speed (Note 5).......................... 2,100,000
125,000 * Check Technology Corporation - Manufactures computerized check printing systems.......................... 765,625
40,000 * Ciprico, Inc. - Manufactures micro computer parts........................................................ 250,000
1,600,000 * Computer Products, Inc. - Designs and manufactures products for industrial data processing (Note 5)...... 10,000,000
500,000 * Control Data Systems, Inc. - Provides computer prods. and svcs to industrial/government customers
worldwide................................................................................................ 4,500,000
137,000 * Effective Management Systems - Develops, manufactures and services integrated business mngmt software.... 907,625
75,000 * FDP Corporation - Sells and supports computer applications software systems.............................. 562,500
</TABLE>
9
<PAGE> 11
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS - [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD COMMON STOCKS - [CONT'D] NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY - [CONT'D]
270,100 * GBC Technologies, Inc. - National wholesaler of microcomputer products.................................. $ 2,160,800
375,000 Hogan System, Inc. - Sells and supports computer applications software systems.......................... 3,843,750
250,000 Hutchinson Technology - Sells and supports computer applications software systems....................... 10,625,000
357,400 * IEC Electronics Corporation - Manufactures complex printed circuit boards and electronic products....... 2,546,474
240,000 Netframe Systems, Inc. - Manufactures specialized computer systems for local area networks.............. 1,260,000
326,500 * Odetics, Inc. (Class A) - Develops, manufrs/markets intelligent mach. to collect both digital/analog
data (Note 5).......................................................................................... 1,673,312
256,500 * Perle Systems, Ltd. - Designs proprietary data communication networking hardware and software........... 1,539,000
300,925 * PolyVision Corporation - Manufactures visual display and interior design products....................... 1,015,622
200,000 Quixote Corporation - Manufactures compact and optical discs............................................ 2,500,000
51,800 Southern Electronics Corporation - Distributes microcomputers and peripheral products to dealers........ 259,000
940,000 Technology Research Corporation - Control/measurement devices for electric power distribution (Note 5).. 1,351,250
600,000 * Telsoft MobiIe Data, Inc. - Designs, develops, installs, svcs proprietary software for wireless
applications (Note 5).................................................................................. 894,540
158,600 * Voice Powered Technology International - Designs and manufactures voice-recognition products............ 515,450
181,200 * Zytec Corporation - Designs and manufactures custom electronic power supplies........................... 1,177,800
------------
58,310,248
TRANSPORTATION - 1.4%
500,000 * Amtran, Inc. - Provides charter and selective scheduled airline services to leisure travelers........... 5,625,000
212,000 * Marten Transport, Ltd. - Long-haul refrigerated motor carrier (Note 5).................................. 4,134,000
140,650 MTL, Inc. - Transports industrial chemicals and bulk food products by tank truck........................ 1,916,356
331,700 * Trism, Inc. - Transport company carrying heavy machinery, explosives and radioactive materials
(Note 5)............................................................................................... 2,487,750
------------
14,163,106
------------
TOTAL COMMON STOCK (Cost $625,804,291).................................................................. $726,098,628
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD PREFERRED STOCK - 0.2% NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2,600,000 Automated Security Holdings 6.00% - Sells/services electrical security systems.......................... $ 1,724,840
39,500 BankUnited Financial 8.00% Series 1993 - Operates nine banking offices serving south Florida........... 345,625
------------
TOTAL PREFERRED STOCK (Cost $1,870,950)................................................................. $ 2,070,465
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUOTED
PAR MARKET VALUE
AMOUNT BONDS & NOTES - 16.6% COUPON MATURITY NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY AND AGENCY SECURITIES - 16.0%
$ 50,000,000 U.S. Treasury Note............................................................... 4.250% 12/31/1995 $ 49,656,250
50,000,000 U.S. Treasury Note............................................................... 7.750 03/31/1996 50,703,100
50,000,000 U.S. Treasury Note............................................................... 7.250 11/30/1996 50,937,500
5,000,000 Federal Home Loan Bank........................................................... 7.280 02/24/1998 5,150,075
------------
156,446,925
CORPORATE SECURITIES - 0.6%
5,000,000 Engle Homes Corporation.......................................................... 11.750 12/15/2000 4,700,000
1,000,000 Professional Bancorp, Inc........................................................ 8.500 03/01/2004 950,000
------------
5,650,000
------------
TOTAL BONDS (Cost $161,128,379) $162,096,925
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR AT COST
AMOUNT SHORT-TERM INVESTMENTS - 9.2% COUPON MATURITY NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DISCOUNT NOTES - 8.6%
$ 32,000,000 Federal Farm Credit Bank......................................................... 5.850% 07/14/1995 $ 31,932,324
6,000,000 Federal National Mortgage Association............................................ 5.880 07/17/1995 5,984,320
20,000,000 Federal National Mortgage Association............................................ 5.870 07/19/1995 19,941,265
16,000,000 Federal Home Loan Bank........................................................... 5.880 07/21/1995 15,947,855
10,000,000 Federal National Mortgage Association............................................ 5.870 07/25/1995 9,960,867
------------
$ 83,766,631
</TABLE>
10
<PAGE> 12
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS - [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PAR AT COST
AMOUNT SHORT-TERM INVESTMENTS - [CONT'D] COUPON MATURITY NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VARIABLE DEMAND NOTES - 0.6%
$ 6,287,000 Southwest Bell Telephone Company............................................ 5.709% 07/03/1995 $ 6,287,000
------------
6,287,000
TOTAL SHORT-TERM INVESTMENTS (Cost $90,053,631).................................................... 90,053,631
------------
TOTAL INVESTMENTS (Cost $878,857,251) - 100.3% (+)................................................. $980,319,649
============
* Non-income producing security.
(+) Percentages for the various classifications relate to total net assets.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
For the six months ending June 30, 1995 (Unaudited)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest........................................................................................... $ 3,162,829
Dividends-non affiliated companies................................................................. 1,392,044
Dividends-affiliated companies (Note 5)............................................................ 407,115
------------
Total investment income........................................................................ 4,961,988
------------
EXPENSES:
Management fees (Note 2)........................................................................... 2,251,298
Distribution expense (Note 2)...................................................................... 750,433
Transfer agent fees................................................................................ 236,839
Postage............................................................................................ 73,503
Custodian fees..................................................................................... 41,719
Registration fees.................................................................................. 41,082
Printing and communications........................................................................ 38,148
Legal fees......................................................................................... 17,890
Directors' fees.................................................................................... 1,000
------------
Total expenses................................................................................. 3,451,912
------------
Net investment income.............................................................................. 1,510,076
------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS-NET:
NET REALIZED GAINS ON INVESTMENTS - non-affliated companies........................................ 18,555,122
NET REALIZED GAINS ON INVESTMENTS - affiliated companies (Note 5).................................. 1,193,594
------------
TOTAL NET REALIZED GAINS ON INVESTMENTS............................................................ 19,748,716
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS............................................. 86,653,213
------------
NET GAINS ON INVESTMENTS........................................................................... 106,401,929
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $107,912,005
============
</TABLE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ending June 30, 1995 (Unaudited)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net investment income.............................................................................. $ 1,510,076
Net realized gains on investments.................................................................. 19,748,716
Net increase in unrealized appreciation on investments............................................. 86,653,213
------------
Net increase in net assets resulting from operations........................................... 107,912,005
FUND SHARE ACTIVITIES: ------------
Proceeds from shares issued (23,407,608 shares).................................................... 587,174,210
Cost of shares redeemed (2,297,104 shares)......................................................... (57,169,379)
------------
Net increase in net assets derived from Fund share activities.................................. 530,004,831
------------
TOTAL INCREASE..................................................................................... 637,916,836
NET ASSETS AT DECEMBER 31, 1994.................................................................................. 339,364,388
------------
NET ASSETS AT JUNE 30, 1995 (Note 4)............................................................................. $977,281,224
============
</TABLE>
The acccompanying notes to financial statements are an integral part of these
statements.
11
<PAGE> 13
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the six months ending Year ended December 31
June 30, 1995 -------------------------------------------------------------
(Unaudited) 1994 1993 1992 1991 1990 1989
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $22.72 $23.22 $20.41 $16.06 $11.32 $13.82 $14.35
Income from investment operations:
Net investment income (loss) 0.04 (0.09) (0.12) (0.09) (0.08) 0.02 0.13
Net realized and unrealized gains
(losses) on securities 4.35 0.47 3.95 6.91 5.66 (2.38) 0.81
------ ------ ------ ------ ------ ------ ------
Total from investment
operations 4.39 0.38 3.83 6.82 5.58 (2.36) 0.94
Less distributions:
Dividends from net investment income -- -- -- -- -- (0.02) (0.13)
Distributions from net realized gains -- (0.88) (1.02) (2.47) (0.84) (0.12) (1.34)
------ ------ ------ ------ ------ ------ ------
Total distributions -- (0.88) (1.02) (2.47) (0.84) (0.14) (1.47)
Net asset value, end of period $27.11 $22.72 $23.22 $20.41 $16.06 $11.32 $13.82
====== ====== ====== ====== ====== ====== ======
Total return(1) 19.3% (2) 1.7% 18.8% 42.5% 49.4% (17.1)% 6.6%
Supplemental data and ratios:
Net assets, end of period (in
thousands) $977,281 $339,364 $186,518 $48,391 $29,880 $19,943 $30,798
Ratio of total expenses to average net
assets 1.12% (3) 1.39% 1.51% 1.48% 1.69% 1.74% 1.65%
Ratio of net investment income
(loss) to average net assets 0.49% (3) (0.52)% (0.71)% (0.49)% (0.54)% 0.14% 0.86%
Portfolio turnover rate 25% (3) 35% 51% 76% 79% 76% 88%
(1) Contingent deferred and initial sales charges in effect for the Fund prior to June 1, 1994 are not reflected in Total Return as
set forth in the table. (2) Not annualized. (3) Annualized.
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
<TABLE>
------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at quoted market value
-non-affiliated companies (Cost $594,196,683).............................................. $ 666,816,061
-affiliated companies (Cost $284,660,568) (Note 5)......................................... 313,503,588
Variation margin on open futures contracts (Note 1(e))......................................... 208,651
Receivable from investments sold............................................................... 25,001,770
Receivable from fund shares sold............................................................... 4,571,654
Accrued dividends and interest................................................................. 1,878,897
Prepaid operating expenses..................................................................... 481,268
---------------
Total Assets............................................................................... 1,012,461,889
---------------
LIABILITIES
Payable for investments purchased.............................................................. 34,344,280
Payable for fund shares redeemed............................................................... 378,522
Payable to Distributor for distribution fees (Note 2).......................................... 457,863
---------------
Total Liabilities.......................................................................... 35,180,665
---------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value, 100,000,000 shares authorized, 36,047,100 shares outstanding)................ $ 977,281,224
===============
NET ASSET VALUE PER SHARE
Net asset value, offering price and redemption price per share ($.001 par value, 100,000,000
shares authorized [$977,281,224 36,047,100 shares outstanding])............................. $ 27.11
===============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
12
<PAGE> 14
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The Heartland Value Fund ("The Fund") is a separate series of Heartland Group,
Inc. The assets and liabilities of each portfolio of Heartland Group, Inc. are
segregated with a shareholder's interest limited to the portfolio in which the
shareholder owns shares. The following is a summary of significant accounting
policies of the Fund:
(a) Each security is valued at the last sale price reported by the principal
security exchange on which the issue is traded, or if no sale is reported,
the latest bid price. Net realized gains and losses on investments are
computed on the specific identification cost method. Short-term investments
are recorded at cost which approximates market.
(b) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise
comply with the provisions of the Internal Revenue Code applicable to
regulated investment companies.
(c) Net investment income and undistributed capital gains are distributed to
shareholders annually and recorded on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting
principles. To the extent these book and tax differences are permanent in
nature, such amounts are re-classified to paid-in capital in excess of par
value.
(d) The Fund records security transactions at cost no later than the first
business day after the trade date. The cost amount as reflected in the
Schedule of Investments is the same for Federal income tax purposes.
(e) The Fund may enter into futures contracts to provide protection against
adverse movements in the prices of securities in the portfolio. Upon
entering into futures contracts, the Fund pledges to the broker stock or
U.S. government securities equal to the minimum "initial margin"
requirements of the exchange. Additionally, the Fund receives from or pays
to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin,"
and are recorded by the Fund as unrealized gains or losses. When the
futures contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statement of assets and
liabilities. The predominant risk is that the movement of the futures contract
price may result in a loss which could render the portfolio's hedging strategy
unsuccessful. Futures contracts open at June 30, 1995 (Unaudited), were as
follows:
<TABLE>
<CAPTION>
COLLATERAL CONTRACTS EXPIRATION UNREALIZED DEPRECIATION
---------- --------- ---------- -----------------------
<S> <C> <C> <C>
Stock: 321 S&P 500 Sept 1995 $(513,335)
200,000 shs. CMAC Investments Short
</TABLE>
(f) The Fund may engage in "short sales against the box," transactions which
involve selling a security that the Fund owns (or has an unconditional
right to purchase) for delivery at a specified date in the future, to hedge
protectively against anticipated declines in the market price of its
portfolio securities or to defer any unrealized gain.
(g) The Fund may write covered call options that are traded on recognized U.S.
exchanges with respect to specific securities owned, to enhance Fund income
to the extent of the premium received. A written covered call option
provides the holder of the option the right to buy the security at a fixed
price for a stated period of time; therefore, the specific Fund would not
realize any appreciation on the security above the option price. The Fund
currently holds options that were sold short against Damark International,
Inc. (Class A). The acquired shares may be called away at $10.00 a share.
The number of option contracts open and related premiums at June 30, 1995
(Unaudited) are as follows:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS PREMIUM AMOUNT
------------------- --------------
<S> <C> <C>
Balance, January 1, 1995 255 $ 51,485
Options opened 0 0
Options expired 0 0
Options exercised 0 0
--- --------
Balance, June 30, 1995 (Unaudited) 255 $ 51,485
=== ========
</TABLE>
2.) INVESTMENT ADVISOR, MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES.
The Fund has a management agreement with Heartland Advisors, Inc. (the
"Advisor") with whom certain officers and directors of the Fund are affiliated,
to serve as investment advisor and manager. Under the terms of the agreement,
the Fund will pay the Advisor a monthly management fee at the annual rate of
.75% of the daily net asset value of the Fund.
13
<PAGE> 15
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS - [CONT'D]
June 30, 1995 (Unaudited)
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Distributor is Heartland Advisors,
Inc. (the "Distributor") with whom certain officers and directors of the Fund
are affiliated. The Plan requires the Fund to pay the Distributor a quarterly
distribution fee on an annual basis up to .25% of its daily net assets. In
addition, for the six months ended June 30, 1995, the Distributor received
$112,355 from investors representing commissions for Fund share redemptions and
$286,094 from the Fund for brokerage fees on the execution of purchases and
sales of portfolio investments.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the Board
of Directors of the Fund has adopted a plan which will allow the Fund, under
certain conditions described in the Rule, to acquire newly-issued securities
from syndicates in which the Distributor is a member.
3.) INVESTMENT TRANSACTIONS.
For the six months ended June 30, 1995, the cost of purchases and the proceeds
from sales of investment securities (excluding short-term securities) were
$523,885,431 and $72,937,362 respectively.
4.) SOURCES OF NET ASSETS.
As of June 30, 1995, the sources of net assets were as follows:
<TABLE>
<S> <C>
Fund shares issued and outstanding.................................... $855,073,511
Net unrealized appreciation on investments and futures contracts...... 100,949,063
Undistributed net realized gains on investments....................... 19,748,574
Undistributed net income.............................................. 1,510,076
------------
$977,281,224
============
Aggregate gross unrealized appreciation (depreciation) as of June 30, 1995,
based on investment cost for Federal income tax purposes is as follows:
Aggregate gross unrealized appreciation............................... $133,862,315
Aggregate gross unrealized depreciation............................... (32,399,917)
Unrealized depreciation on open futures contracts..................... (513,335)
------------
Net unrealized appreciation on investments and futures contracts...... $100,949,063
============
</TABLE>
(5) TRANSACTIONS WITH AFFILIATES.
The following companies are affiliated with the Fund; that is, the Fund holds 5%
or more of the outstanding voting securities. Such companies are defined in
Section (2)(a)(3) of the Investment Company Act of 1940. The Fund holds less
than 10% of the voting securities.
<TABLE>
<CAPTION>
SHARE SHARE REALIZED
BALANCE AT BALANCE AT DIVIDENDS GAIN
SECURITY NAME DEC. 31, 1994 PURCHASES SALES JUNE 30, 1995 RECEIVED (LOSSES)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Action Industries, Inc. 550,000 0 0 550,000 $ 0 $ 0
Aequitron Medical, Inc. 470,000 0 0 470,000 0 0
Alexander Energy Corporation 500,000 110,000 0 610,000 0 0
American Educational Products, Inc. 405,000 0 0 405,000 0 0
Amwest Insurance Group, Inc. 100,000 89,500 0 189,500 30,180 0
Astec Industries, Inc. 214,000 658,900 0 872,900 0 0
Automated Security Holdings, ADR 1,501,000 1,599,000 0 3,100,0000 0 0
Baldwin Piano & Organ Company 250,900 18,800 0 269,700 0 0
Biosys, Inc. 430,000 270,000 0 700,000 0 0
Buckhead America Corporation 50,000 50,000 0 100,000 0 0
Cliffs Drilling Company 142,000 158,000 0 300,000 0 0
Cobra Electronics, Inc. 305,000 95,500 0 400,500 0 0
Computer Products, Inc. 1,600,000 0 0 1,600,000 0 0
Conservative Savings Corporation 100,000 0 0 100,000 6,000 0
Cooperative Bankshares, Inc. 75,000 35,000 0 110,000 0 0
CSP, Inc. 183,800 96,200 0 280,000 0 0
Cupertino National Bancorp 9,000 78,500 0 87,500 0 0
Dairy Mart Convenience Stores, Inc. (Class A) 399,250 50,000 0 449,250 0 0
Damark International, Inc. (Class A) 210,000 371,000 0 581,000 0 0
Designatronics, Inc. 200,000 6,600 0 206,600 0 0
Devlieg-Bullard, Inc. 577,500 125,000 0 702,500 0 0
Duckwall-ALCO Stores, Inc. 0 200,000 0 200,000 0 0
E For M Corporation 410,000 0 0 410,000 0 0
ECC International Corporation 450,000 50,000 0 500,000 0 0
Evergreen Resources, Inc. 298,000 240,500 0 538,500 0 0
First Federal of Alabama 67,800 0 0 67,800 24,408 0
Flag Financial Corporation 112,400 0 0 112,400 16,860 0
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
SHARE SHARE REALIZED
BALANCE AT BALANCE AT DIVIDENDS GAIN
SECURITY NAME DEC. 31, 1994 PURCHASES SALES JUNE 30, 1995 RECEIVED (LOSSES)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gibson Greetings, Inc. 151,200 1,049,400 0 1,200,600 $ 0 $ 0
Gish Biomedical, Inc. 200,000 0 0 200,000 0 0
GZA GeoEnvironmental Technologies, Inc. 121,000 237,300 0 358,300 0 0
Hallmark Capital Corporation 91,000 14,000 0 105,000 0 0
Hallwood Consolidated Resources Corporation 500,000 404,000 0 904,000 0 0
Hamburger Hamlet Restaurants, Inc. 260,000 65,000 0 325,000 0 0
Harmony Brook, Inc. 445,500 24,500 0 470,000 0 0
Hospital Staffing Services, Inc. 460,000 120,000 16,000 564,000 0 (11,134)
Integracare, Inc. 251,500 34,100 0 285,600 0 0
ICN Pharmaceuticals, Inc. 670,461(1) 1,288,839 0 1,959,300 203,274 0
International Colin Energy Corporation 357,000 843,000 0 1,200,000 0 0
Iwerks Entertainment, Inc. 0 1,000,000 0 1,000,000 0 0
LCS Industries, Inc. 184,250(2) 0 0 184,250 13,192 0
Luminart, Inc. 600,000 767,500 367,500 1,000,000 0 1,241,603
L.E. Myers Company Group 165,000 0 0 165,000 19,388 0
Marten Transport, Ltd. 212,000 0 0 212,000 0 0
MDT Corporation 641,400 0 0 641,400 0 0
Meadowbrook Rehabilitation Group, Inc. 481,500 36,000 0 517,500 0 0
Medalist Industries, Inc. 380,000 0 0 380,000 0 0
Medical Graphics Corporation 136,500 91,700 0 228,200 0 0
Metropolitan Bancorp 227,700 80,700 0 308,400 0 0
Mid Americian Waste Systems, Inc. 923,300 1,076,700 0 2,000,000 0 0
Milwaukee Insurance Group, Inc. 308,000 0 0 308,000 0 0
MHI Group, Inc. 280,000 220,000 0 500,000 0 0
M/A/R/C, Inc. 269,000 0 0 269,000 0 0
Norstan, Inc. 210,000 59,000 0 269,000 0 0
North Star Universal, Inc. 185,000 360,500 0 545,500 0 0
Northwest Equity Corporation 0 100,000 0 100,000 7,000 0
Odetics, Inc. (Class A) 100,000 226,500 0 326,500 0 0
Payco American Corporation 200,000 645,600 0 845,600 0 0
Peoples Telephone Co., Inc. 200,000 800,000 0 1,000,000 0 0
Photo Control Corporation 72,700 11,000 0 83,700 0 0
Powell Industries, Inc. 372,700 220,900 0 593,600 0 0
Psicor, Inc. 294,900 5,100 0 300,000 0 0
Ramsay Health Care, Inc. 111,000 389,000 0 500,000 0 0
Redwood Empire Bancorp 104,900 149,100 0 254,000 0 0
Rehabilicare, Inc. 350,000 88,000 0 438,000 0 0
Rexworks, Inc. 175,500 20,000 10,000 185,500 0 (36,875)
Roberds, Inc. 79,500 320,500 0 400,000 0 0
Schult Homes Corporation 232,400 75,500 0 307,900 21,256 0
Specialty Paperboard, Inc. 250,000 0 0 250,000 0 0
Star Multi Care Services, Inc. 78,646(3) 87,500 0 166,146 0 0
Starcraft Corporation 350,000 50,000 0 400,000 0 0
Sterile Concepts Holdings 0 354,000 0 354,000 13,700 0
Sterling Financial Corporation 250,000 0 0 250,000 0 0
Stifel Financial Corporation 218,600 131,300 0 349,900 17,279 0
Summit Family Restaurants, Inc. 120,000 285,000 0 405,000 0 0
(formerly JB's Restaurants, Inc.)
Stifel Financial Corporation 218,600 131,300 0 349,900 17,279 0
Sunrise Resources 202,500 100,000 0 302,500 0 0
(formerly Sunrise Leasing Corporation)
Technology Research Corporation 500,000 440,000 0 940,000 17,000 0
Telsoft Mobile Data, Inc. 0 600,000 0 600,000 0 0
Timber Lodge Steakhouse, Inc. 200,000 100,000 0 300,000 0 0
(formerly Q-Steaks, Inc.)
Toastmaster, Inc. 325,000 216,100 0 541,100 17,578 0
Total Tel USA Communications, Inc. 110,000 11,000 0 121,000 0 0
Trak Auto Corporation 350,000 16,500 0 366,500 0 0
Transworld Bancorp 141,020(4) 400 0 141,420 0 0
Trimark Holdings, Inc. 350,000 48,000 0 398,000 0 0
Trism, Inc. 25,000 306,700 0 331,700 0 0
UNC, Inc. 450,000 498,700 0 948,700 0 0
Universal Seismic, Inc. 275,000 75,000 0 350,000 0 0
URS Corporation 0 500,000 0 500,000 0 0
Varitronic Systems, Inc. 158,000 17,000 0 175,000 0 0
Vectra Technologies, Inc. 100,000 528,700 0 628,700 0 0
Vitamin Specialties Corporation 0 365,000 0 365,000 0 0
Westbridge Capital Corporation 0 475,000 0 475,000 0 0
Westmoreland Coal Company 140,500 292,800 0 433,300 0 0
Work Recovery, Inc. 500,000 2,000,000 0 2,500,000 0 0
---------------------
$407,115 $1,193,594
=====================
(1) Adjusted for 1.4% and 1.7% stock dividends
(2) Adjusted for 10% stock dividend
(3) Adjusted for 10% stock dividend (4) Adjusted for 2 for 1 stock split
</TABLE>
15
<PAGE> 17
HEARTLAND
VALUE FUND
790 N. Milwaukee Street
414-347-7777 or 1-800-HEARTLN
Account Information and Fund Prices
1-800-248-1162 (24 hrs.)
414-287-3702 (8:00 a.m.-7:00 p.m.) M-F, CST
HEARTLAND FAMILY OF FUNDS
VALUE FUND
[Closed as of July 1, 1995]
SMALL CAP CONTRARIAN FUND
Maximum long-term growth through aggressive
value investing in small company stocks
VALUE & INCOME FUND
Capital growth and current income through
investment in stocks and bonds
U.S. GOVERNMENT SECURITIES FUND
Current income, liquidity and safety of principal
WISCONSIN TAX FREE FUND
Current income exempt from federal and
Wisconsin state income taxes
NEBRASKA TAX FREE FUND
Current income exempt from federal and
Nebraska state income taxes
MONEY MARKET FUND
Liquidity and current yield, offered through Portico Funds
BOARD OF DIRECTORS AND OFFICERS
William J. Nasgovitz, President
Hugh F. Denison, Director of Research
Patrick J. Retzer C.P.A., Director of Fixed Income, Treasurer
Willard H. Davidson
Jon D. Hammes
A. Gary Shilling
Linda F. Stephenson
Lois J. Schmatzhagen, Secretary
CUSTODIAN, TRANSFER &
DIVIDEND DISBURSING AGENT
Firstar Trust Company, Milwaukee
HEARTLAND
VALUE FUND
"CAPITAL APPRECIATION THROUGH SMALL COMPANY STOCKS
SELECTED ON A VALUE BASIS"
SEMI-ANNUAL REPORT
JUNE 30, 1995
<PAGE> 18
The Heartland Small Cap Contrarian Fund
<PAGE> 19
Dear Fellow Shareholder: August 15, 1995
The Heartland Small Cap Contrarian Fund is off to a great start with a
total return of 12.2% through June 30. Since inception on April 27, 1995, the
Fund easily outperformed small stocks in general (Russell 2000 Index) and the
S&P 500 Index.
<TABLE>
<CAPTION>
SINCE INCEPTION
4/27/95 - 6/30/95
-----------------
<S> <C>
HEARTLAND SMALL CAP CONTRARIAN FUND . . . . . . . . . . . . 12.2%
Russell 2000 (a small stock index)* . . . . . . . . . . . . 7.3
S&P 500* . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
</TABLE>
Our value approach in selecting small company stocks focuses on the
fundamental strengths underlying each security. As shown by the chart on page
two, small capitalization stocks have a long-term record of outperforming common
stocks in general. To capture this growth potential, the Fund invests primarily
in issuers with market values of less than $500 million.
However, to lower risk, we hunt for bargains within this small stock
sector - searching for companies we believe are selling at low prices in
relation to their earnings, cash flows and book values. Two examples of this
disciplined, value investment style - Sullivan Dental and Work Recovery - are
detailed on the following page.
In addition, the Fund seeks to profit by selling short shares of
overvalued companies.** Currently the Fund is "short" five high technology
stocks which we feel are grossly overvalued in relation to fundamentals. Cisco
Systems and Oracle Corporation, two such stocks, have been sold short at 12X
sales and 28X earnings, respectively, in anticipation of a decline in prices.
With the stock market roaring to record highs, your Fund has taken a
true contrarian stance; holding over 50% of assets in cash, investing in a small
portfolio of low P/E stocks and the aforementioned short positions. We believe
the current market advance has come too far too fast, investor sentiment is
overly optimistic, and downside risk far outweighs upside potential.
Our investment flexibility should offer shareholders a measure of
protection against a market decline; however, we will continue to search for
undiscovered and out-of-favor small stocks in our quest for superior long-term
investment results. Thank you for your trust and confidence.
Sincerely,
/s/ WILLIAM J. NASGOVITZ
------------------------
William J. Nasgovitz
Portfolio Manager
* The Standard & Poor's 500 Index is an unmanaged index of 500 stocks
representing all major U.S. industries. The Russell 2000 is an unmanaged
index consisting of the bottom two-thirds of the 3,000 largest publicly
traded U.S. companies. Small company stocks may be more volatile than those
of the S&P 500.
** Additional risks are associated with sophisticated investment techniques,
such as futures, options, short selling and leverage. Refer to the prospectus
for a more detailed discussion of these risks.
This material may only be used when preceded or accompanied by the Fund's
prospectus. For more complete information, including charges and expenses,
call for a prospectus. Read it carefully before you invest or send money.
Performance data quoted represents past performance. Investment return and
principal value of an investment will fluctuate, and investor's shares, when
redeemed, may be worth more or less than their original cost.
1
<PAGE> 20
BIG RETURNS FROM SMALL STOCKS
[69 YEARS OF INVESTMENT PERFORMANCE BAR CHART]
A bar chart portrays the compound annual percent return from 1926 through 1994
of six types of investment categories, as well as inflation, as tracked by
Ibbotson Associates, Chicago.
<TABLE>
<CAPTION>
Investment Type Return
--------------- ------
<S> <C>
Small Company Stocks 12.2%
Common Stocks 10.2%
Long Term Corporate Bonds 5.4%
Intermed. Term Gov't Bonds 5.1%
Long Term Gov't Bonds 4.8%
U.S. T-Bills 3.7%
Inflation 3.1%
</TABLE>
Source: "Stocks, Bonds, Bills and Inflation 1995 Yearbook," Ibbotson Associates,
Chicago. Annually updated work by Roger G. Ibbotson and Rex A. Sinquefield. All
rights reserved. The Small Company and the S&P 500 are unmanaged indices of
common stocks. Small company stocks may be more volatile than those of the S&P
500 or bonds, while market values may fluctuate inversely with interest rates,
interest and principal. Interest and principal payments of long-term government
and U.S. Treasury bills are backed by the full faith and credit of the U.S.
Treasury. Past performance is no indication of future investment results and the
illustrated returns are not indicative of the fund's performance.
Over the long-term, small stocks have provided better returns - 12.2% on average
per year. This is 20% greater than common stocks in general which have returned
10.2% per year.
The Small Cap Contrarian Fund, a diversified portfolio of small stocks, seeks to
capture this growth potential and lower risk through low P/E, value investing.
Success in this sector requires patience. Only those with a long-term investment
horizon should be in this Fund.
FOUR TYPICAL FUND POSITIONS*
HOLDINGS
SULLIVAN DENTAL ($9) is a distributor of dental products. The stock dropped 30%
following a disappointing quarterly earnings per shareannouncement. At 11X
earnings and 40% of sales, the stock is a compelling value. We expect that
management will correct short-term problems and get the company back on its
historical growth track.
WORK RECOVERY ($7) manufactures the unique ERGOS rehabilitation system that has
the potential of reducing workers compensation costs by hundreds of millions of
dollars. Heartland began purchasing WORK at $2 when it was virtually unknown to
the investment community, selling at 7X the current year's earnings per share.
On the strength of new contracts, WORK share prices increased by over 200% and
the Fund sold all of its position in July.
SHORTS
CISCO SYSTEMS ($51) is a high-flying manufacturer of networking equipment. The
stock has increased 44% since the beginning of the year and sells for 30X this
year's earnings, 13X book value and 12X sales. Networking equipment is becoming
a commodity item. Cisco's extreme overvaluation, broad analyst coverage and
institutional ownership of 74% make it vulnerable to an earnings disappointment.
ORACLE CORPORATION ($39) designs database software and is one of Wall Street's
favorite high-tech stocks. It is up over 30% for the year and sells for 28X this
year's earnings per share, 19X book value and 9X sales. The Fund has sold this
stock short because its shares could drop precipitously if earnings are
disappointing and large institutional holders, who own 60% of the stock, decide
to sell.
*As of June 30, 1995. These are not recommendations. As an actively managed
fund, portfolio holdings may change at any time.
2
<PAGE> 21
THE BENEFITS OF INVESTING WITH HEARTLAND
CALL 1-800-432-7856 FOR ALL OF THE FOLLOWING SERVICES:
- PERSONAL HEARTLAND REPRESENTATIVE
You can speak to a personal Heartland representative between the hours of
7:00 a.m. and 6:30 p.m. CST Monday through Friday, and 8:30 a.m. to 12:30
p.m. CST on Saturday.
- AUTOMATED SERVICES
Automated options include daily prices, account information including your
last two transactions, and prospectus and literature requests. Call 24 hours
a day.
- AUTOMATIC INVESTMENT PLAN
Make automatic regular investments into any Heartland fund directly from your
checking account on a monthly or twice-monthly basis.
- WEEKLY UPDATES BY PORTFOLIO MANAGERS
Concerned about the financial markets? Wondering how your fund is currently
positioned? Heartland shareholders have free access to weekly updates
recorded by each fund's portfolio manager. Call 24 hours a day.
- FREE INVESTMENT SEMINARS
Heartland sponsors both local and national investment seminars. You can
request free tickets to the various ISI Money Shows we sponsor. There are
usually four shows a year, held in Boston, Orlando, Las Vegas and San
Francisco. The shows are a great opportunity to meet your portfolio managers
and visit with other nationally recognized financial advisors.
- AUTOMATIC REINVESTMENT / CROSS-INVESTMENT OF DIVIDENDS
Dividends can be automatically reinvested into additional shares of the same
fund, or cross-invested into shares of one of the other funds.
- FREE EXCHANGE BETWEEN FUNDS
Exchanges can be made without incurring an exchange fee, redemption fee or
sales charge.
- TELEPHONE PRIVILEGES
Set up your account to allow for telephone exchanges between funds or
redemptions of fund shares.
- SYSTEMATIC WITHDRAWAL PLAN
Establish automatic monthly or quarterly payments from your account.
- LOW MINIMUM INVESTMENT
Open a regular account with a low initial investment of $1000, or an IRA with
$500. Monthly automatic investment plans begin with no initial minimum and
$50/mo. minimum thereafter.
"OUR HIGHEST PRIORITY IS OUR
SHAREHOLDERS WHO WILL BE PROVIDED WITH SUPERIOR PERSONAL SERVICE."
--Mark Ellegard, Manager - Shareholder Services
3
<PAGE> 22
HOW DOES THE SMALL CAP CONTRARIAN FUND COMPARE TO THE VALUE FUND?
<TABLE>
<CAPTION>
A COMPARISON SMALL CAP CONTRARIAN VALUE
<S> <C> <C>
Investment philosophy ................... value value
----------------------------------------------------------------------------------------------------------
Market capitalization ................... under $500 million under $300 million
----------------------------------------------------------------------------------------------------------
Short selling ........................... yes no*
----------------------------------------------------------------------------------------------------------
Leverage ................................ up to 25% of total assets no
----------------------------------------------------------------------------------------------------------
Foreign securities ...................... up to 25% of portfolio up to 15%
----------------------------------------------------------------------------------------------------------
Sales charge ............................ no no
----------------------------------------------------------------------------------------------------------
</TABLE>
* The Value Fund can sell short a security it then owns.
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD COMMON STOCKS - 28.2% NOTE 1(a)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS - 4.1%
1,500 Beverly Bancorporation, Inc. - Community bank serving southwest Chicago .... $ 79,500
1,000 * CB Bancorp, Inc. - Holding company for Community Bank ...................... 12,500
20,000 * Mountain Parks Financial Corporation - Holding company, which owns two
banks in Colorado ......................................................... 355,000
----------
447,000
CONSTRUCTION & HOUSING - 2.3%
25,000 * Belmont Homes, Inc. - Produces and markets single and double section
manufactured homes ........................................................ 253,125
----------
253,125
ENERGY & NATURAL RESOURCES - 4.4%
75,000 * Tuboscope Vetco International Corporation - Provides services and products
to the oil/gas industry ................................................... 478,125
----------
478,125
ENTERTAINMENT - 1.5%
40,000 * Quality Dino Entertainment, Ltd. - Purchases and produces music in
N. America, the U.K. and Australia ......................................... 160,000
----------
160,000
FOOD & BEVERAGE - 2.6%
200,000 * Family Steak Houses of Florida, Inc. - Operates 28 restaurants in northern
and central Florida ....................................................... 168,760
100,000 * Yogen Fruz World-Wide, Inc. - Franchises frozen yogurt stores in Canada and\
internationally ........................................................... 120,000
----------
288,760
HEALTH CARE SERVICES - 4.3%
30,000 ICN Pharmaceuticals, Inc. - Develops, manufactures, and researches
pharmaceutical/nutritional products ....................................... 472,500
----------
472,500
INSURANCE - 0.2%
3,000 Cotton States Life Insurance - Underwrites life, accident and
health insurance .......................................................... 26,625
----------
26,625
MARKETING & CORPORATE SERVICES - 5.9%
5,800 LCS Industries, Inc. - Computerized marketing services ..................... 123,250
280,000 * RCM Technologies, Inc. - Provides temp and full-time professional svcs to
companies in various sectors .............................................. 166,264
50,000 * Work Recovery, Inc. - Supplies advanced rehab. technology; operates test
clinics serving employers ................................................. 353,125
----------
642,639
</TABLE>
4
<PAGE> 23
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS - [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD COMMON STOCKS - [CONT'D] NOTE 1(a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MEDICAL PRODUCTS - 2.0%
8,000 * Orthopedic Technology, Inc. - Designs, manufactures and sells orthopedic
products for the sports medicine mkt............................................. $ 44,000
20,000 * Sullivan Dental Products, Inc. - Distributes consumable dental supplies........... 170,000
-----------
214,000
TECHNOLOGY - 0.9%
50,000 * Norris Communications Corporation - Develops, manufactures, mkts
electronics/telecommunications products.......................................... 100,000
-----------
100,000
-----------
TOTAL COMMON STOCKS (Cost $2,798,447)............................................. $ 3,082,774
-----------
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD WARRANTS - 1.0% NOTE 1(a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
20,000 * Rainforest Cafe, Inc. (exercise price $8.25) - Owns, operates retail/restaurant
facilities with rainforest theme................................................. $ 112,500
-----------
TOTAL WARRANTS (Cost $26,958)..................................................... 112,500
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
PAR AT COST
AMOUNT SHORT-TERM INVESTMENTS - 66.7% COUPON MATURITY NOTE 1(a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DISCOUNT NOTES - 65.3%
$5,000,000 Federal Home Loan Mortgage Corporation................ 5.850 % 07/03/95 $ 4,998,374
1,135,000 Federal National Mortgage Association................. 5.890 07/05/95 1,134,257
100,000 Federal Home Loan Banks............................... 5.900 07/07/95 999,017
-----------
7,131,648
VARIABLE DEMAND NOTES - 1.4%
157,000 Southwestern Bell Telephone Company................... 5.709 07/03/95 157,000
-----------
157,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $7,288,648).................................... $ 7,288,648
-----------
TOTAL INVESTMENTS (Cost $10,114,053) - 95.9% (+)................................. $10,483,922
===========
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
QUOTED
MARKET VALUE
SHARES SHORT SALES NOTE 1(a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3,000 * Cisco Systems, Inc. - Develops, manufactures, markets and supports multi-protocol
internetworking systems.......................................................... $ 151,688
3,000 * Glenayre Technologies, Inc. - Manufactures telecommunications equipment and
software......................................................................... 153,000
6,000 * Informix Corporation - Develops and markets computer software.................... 152,250
4,000 * Oracle Corporation - Designs, develops, markets and supports computer software
products......................................................................... 154,500
4,000 * Vicor Corporation - Designs, manufactures and markets modular power system
components....................................................................... 179,750
-----------
TOTAL SHORT SALES (Proceeds $753,158)............................................. $ 791,188
===========
</TABLE>
* Non-income producing security.
(+) Percentages for the various classifications relate to total
net assets.
The accompanying notes to financial statements are an integral
part of this schedule.
5
<PAGE> 24
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
<TABLE>
--------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at quoted market value (Cost $10,114,053) ....................... $10,483,922
Cash ....................................................................................... 1,330
Deposits with Brokers for securities sold short ............................................ 379,953
Variation margin on open futures contracts (Note 1(e)) ..................................... 1,300
Receivable from fund shares sold ........................................................... 499,302
Receivable from securities sold short ...................................................... 753,158
Accrued interest ........................................................................... 1,575
Deferred organization expense (Note 3) ..................................................... 31,095
-----------
Total Assets ........................................................................... 12,151,635
-----------
LIABILITIES:
Securities sold short, at current market value (proceeds $753,158) (Note 1(f)) ............. 791,188
Payable for investments purchased .......................................................... 391,850
Payable to Advisor for deferred organization expenses (Note 3) ............................. 31,095
Payable to Distributor for distribution fee (Note 2) ....................................... 1,910
Payable for fund shares redeemed ........................................................... 1,088
Other accrued expenses ..................................................................... 277
-----------
Total Liabilities ...................................................................... 1,217,408
-----------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value, 100,000,000 shares authorized, 974,655 shares outstanding) ............... $10,934,227
===========
NET ASSET VALUE PER SHARE
Net asset value, offering price and redemption price per share ($.001 par value, 100,000,000
shares authorized [$10,934,227/974,655 shares outstanding]) ................................ $ 11.22
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the period from April 27, 1995 (commencement of operations)
to June 30, 1995 (Unaudited)
<TABLE>
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net investment income ...................................................................... $ 22,067
Net realized gains on investments .......................................................... 197,217
Net increase in unrealized appreciation on investments (Note 5) ............................ 327,512
-----------
Net increase in net assets resulting from operations ................................... 546,796
-----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (1,012,451 shares) ............................................. 10,807,568
Cost of shares redeemed (37,796 shares) .................................................... (420,137)
-----------
Net increase in net assets derived from Fund share activities .......................... 10,387,431
-----------
TOTAL INCREASE AND NET ASSETS AT JUNE 30, 1995 (Note 5) .................................................. $10,934,227
===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
6
<PAGE> 25
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF OPERATIONS
For the period from April 27, 1995 (commencement of operations)
to June 30, 1995 (Unaudited)
<TABLE>
<S> <C>
-------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest ...................................................... $ 32,728
Dividends ..................................................... 420
--------
Total investment income ................................... 33,148
--------
EXPENSES:
Advisory fees (Note 2) ........................................ 5,732
Distribution fees (Note 2) .................................... 1,910
Transfer agent fees ........................................... 1,888
Amortization of organization expenses (Note 3) ................ 1,072
Custodian fees ................................................ 277
Postage ....................................................... 140
Printing and communications ................................... 31
Other operating expenses ...................................... 31
--------
Total expenses ............................................ 11,081
--------
Net investment income ......................................... 22,067
--------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS-NET:
NET REALIZED GAINS ON INVESTMENTS ............................. 197,217
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS
(Note 5) .................................................... 327,512
--------
NET GAINS ON INVESTMENTS ...................................... 524,729
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $546,796
========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
April 27, 1995(1)
through June 30, 1995
(Unaudited)
---------------------
<S> <C>
Net asset value, beginning of period ........................................ $ 10.00
Income from investment operations:
Net investment income ......................................... 0.02
Net realized and unrealized gains on securities ............... 1.20
--------
Total from investment operations .............................. 1.22
Less distributions:
Dividends from net investment income .......................... --
Distributions from net realized gains ......................... --
--------
Total distributions ........................................... --
Net asset value, end of period .............................................. $ 11.22
========
Total return ................................................................ 12.2% (2)
Supplemental data and ratios:
Net assets, end of period (in thousands) .................................... $ 10,934
Ratio of total expenses to average net assets ............................... 1.40% (3)
Ratio of net investment income to average net assets ........................ 2.78% (3)
Portfolio turnover rate ..................................................... 189% (3)
</TABLE>
(1) Commencement of operations (2) Not annualized (3) Annualized
The accompanying notes to financial statements are an integral
part of these statements.
7
<PAGE> 26
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The Heartland Small Cap Contrarian Fund ("The Fund") is a separate series of
Heartland Group, Inc. The assets and liabilities of each portfolio of Heartland
Group, Inc. are segregated with a shareholder's interest limited to the
portfolio in which the shareholder owns shares. The following is a summary of
significant accounting policies of the Fund:
(a) Each security is valued at the last sale price reported by the
principal security exchange on which the issue is traded, or if no sale is
reported, the latest bid price. Net realized gains and losses on investments are
computed on the specific identification cost method. Short-term investments are
recorded at cost which approximates market. Debt securities having maturities of
60 days or less may be valued at acquisition cost, plus or minus any amortized
discount or premium.
(b) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies.
(c) Net investment income and undistributed capital gains are distributed
to shareholders annually and recorded on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with Federal income tax regulations, which
may differ from generally accepted accounting principles. To the extent these
book and tax differences are permanent in nature, such amounts are re-classified
to paid-in capital in excess of par value.
(d) The Fund records security transactions at cost no later than the first
business day after the trade date. The cost amount as reflected in the Schedule
of Investments is the same for Federal income tax purposes.
(e) The Fund may enter into futures contracts to provide protection against
adverse movements in the prices of securities in the portfolio. Upon entering
into futures contracts, the Fund pledges to the broker stock or U.S. government
securities equal to the minimum "initial margin" requirements of the exchange.
Additionally, the Fund receives from or pays to the broker an amount of cash
equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as "variation margin," and are recorded by the Fund as
unrealized gains or losses. When the futures contract is closed, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The use of futures contracts involves, to varying degrees, elements of
market risk in excess of the amount recognized in the statement of assets and
liabilities. The predominant risk is that the movement of the futures contracts
price may result in a loss which could render the portfolio's hedging strategy
unsuccessful. Futures contracts open at June 30, 1995, were as follows:
<TABLE>
<CAPTION>
Collateral Contracts Expiration Unrealized Depreciation
---------- --------- ---------- -----------------------
<S> <C> <C> <C>
Stock: 2 S&P 500 Sept 1995 $(4,327)
4,000 shs. ICN Pharmaceuticals, Inc. Short
</TABLE>
(f) The Fund is engaged in short-selling securities, which obligates the
Fund to replace the security borrowed by purchasing it at market value at the
time of replacement. The Fund would realize a loss if the price of the security
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. The Fund would realize a gain if the price of
the security declines between those dates. Until the Fund replaces the borrowed
security, the Fund maintains a segregated account with cash or liquid securities
to cover its open short position.
8
<PAGE> 27
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS - [CONT'D]
June 30, 1995 [Unaudited]
--------------------------------------------------------------------------------
2.) INVESTMENT ADVISOR, MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES.
The Fund has a management agreement with Heartland Advisors, Inc. (the
"Advisor") with whom certain officers and directors of the Fund are affiliated,
to serve as investment advisor and manager. Under the terms of the agreement,
the Fund will pay the Advisor a monthly management fee at the annual rate of
.75% of the daily net asset value of the Fund.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The Distributor is Heartland
Advisors, Inc. (the "Distributor") with whom certain officers and directors of
the Fund are affiliated. The Plan requires the Fund to pay the Distributor a
quarterly distribution fee on an annual basis up to .25% of its daily net
assets. In addition, for the period April 27, 1995 (commencement of operations)
to June 30, 1995, the Distributor received $700 from the Fund for brokerage fees
on the execution of purchases and sales of portfolio investments.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the
Board of Directors of the Fund has adopted a plan which will allow the Fund,
under certain conditions described in the Rule, to acquire newly-issued
securities from syndicates in which the Distributor is a member.
3.) DEFERRED ORGANIZATION EXPENSES.
Organization expenses have been deferred and are being amortized on a
straight-line basis over sixty months. Payments for these expenses were advanced
by the Advisor who will be reimbursed by the Fund over the same period. The
proceeds of any redemption of the initial shares by the original shareholders
will be reduced by a pro-rata portion of any then unamortized expenses.
Unamortized deferred organization expenses and the related payable to the
Advisor at June 30, 1995, were $31,095.
4.) INVESTMENT TRANSACTIONS.
For the period from April 27, 1995 (commencement of operations) to June 30,
1995, the cost of purchases and the proceeds from sales of investment securities
(excluding short-term securities) were $3,022,272 and $400,990 respectively.
5.) SOURCES OF NET ASSETS
As of June 30, 1995, the sources of net assets were as follows:
<TABLE>
<S> <C>
Fund shares issued and outstanding ................................ $10,387,431
Net unrealized appreciation on investments and futures contracts... 327,512
Undistributed net realized gains on investments ................... 197,21
Undistributed net income .......................................... 22,067
-----------
$10,934,227
===========
</TABLE>
Aggregate gross unrealized appreciation (depreciation) as of June 30, 1995,
based on investment cost for Federal income tax purposes is as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation ........................ $ 400,364
Aggregate gross unrealized depreciation ........................ (68,525)
Unrealized depreciation on open futures contracts .............. (4,327)
-----------
Net unrealized appreciation on investments and
futures contracts $ 327,512
===========
</TABLE>
9
<PAGE> 28
HEARTLAND
SMALL CAP CONTRARIAN FUND
790 N. Milwaukee Street
Milwaukee, Wisconsin 53202
414-347-7777 or 1-800-HEARTLN
Account Information and Fund Prices
1-800-248-1162 (24 hrs.)
414-287-3702 (8:00 a.m.-7:00 p.m.) M-F, CST
HEARTLAND FAMILY OF FUNDS
SMALL CAP CONTRARIAN FUND
VALUE & INCOME FUND
Capital growth and current income through
investment in stocks and bonds
VALUE FUND
Capital appreciation through small company stocks
selected on a value basis [closed as of 7/1/95]
U.S. GOVERNMENT SECURITIES FUND
Current income, liquidity and safety of principal
WISCONSIN TAX FREE FUND
Current income exempt from federal and
Wisconsin state income taxes
NEBRASKA TAX FREE FUND
Current income exempt from federal and
Nebraska state income taxes
MONEY MARKET FUND
Liquidity and current yield, offered through Portico Funds
BOARD OF DIRECTORS AND OFFICERS
William J. Nasgovitz, President
Hugh F. Denison, Director of Research
Patrick J. Retzer C.P.A., Director of Fixed Income, Treasurer
Willard H. Davidson
Jon D. Hammes
A. Gary Shilling
Linda F. Stephenson
Lois J. Schmatzhagen, Secretary
CUSTODIAN, TRANSFER &
DIVIDEND DISBURSING AGENT
Firstar Trust Company, Milwaukee
SMALL CAP CONTRARIAN FUND
"MAXIMUM LONG-TERM GROWTH
THROUGH AGGRESSIVE
VALUE INVESTING IN
SMALL COMPANY STOCKS"
SEMI-ANNUAL REPORT
JUNE 30, 1995
<PAGE> 29
The Value & Income Fund
<PAGE> 30
Dear Fellow Shareholder: August 9, 1995
The Value & Income Fund had an excellent first half, posting a total return of
17.9%. This performance out-distanced the return of the Lipper Average Balanced
Fund for the year-to-date, as well as the average annual return since the Fund's
inception:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
YTD 1-YEAR SINCE INCEPTION
6/30/95 6/30/95 10/26/93-6/30/95
------- ------- ----------------
<S> <C> <C> <C>
HEARTLAND VALUE & INCOME FUND....... 17.9% 16.2% 10.4%
Lipper Average Balanced Fund........ 13.7 16.0 6.6
</TABLE>
REVIEW. The Fund benefited as interest-sensitive stocks, which were rather
unpopular at the beginning of the year, came back into vogue. Also, as interest
rates declined, our bond holdings and other fixed income securities increased in
value. Finally, two takeovers, Kemper Corporation and Paco Pharmaceutical
Services, at prices substantially above our cost, rounded out a superb
semi-annual performance.
DIVIDENDS. For the six month period the Fund paid dividends of $0.22 per share
-- $0.11 in each of the first and second quarters. The Fund ended the period
with a yield of 4.5%.*
OUTLOOK. Our Fund now has a more conservative portfolio than at the beginning of
the year:
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
------------- -----------------
<S> <C> <C>
Low P/E common stocks................... 47% 76%
Corporate bonds and preferreds.......... 35 22
Money market / other.................... 18 2
</TABLE>
With the stock market surging to record highs and investor sentiment "bullish,"
many stocks have vaulted to excessive valuations. It is now more difficult to
find suitably low P/E bargains. As value investors we prefer to purchase higher
yielding bonds and increase our cash reserve awaiting better buying
opportunities. Thus, the Fund is conservatively positioned in our pursuit of
providing you, our valued shareholder, with long-term capital growth and income.
Thank you for your continued trust and confidence.
Sincerely,
/s/ William J. Nasgovitz
------------------------
William J. Nasgovitz
Portfolio Manager
* June SEC yield annualized for the 30 days commencing 6/1/95. This material may
only be used when preceded or accompanied by the Fund's prospectus. For more
complete information, including charges and expenses, call for a prospectus.
Read it carefully before you invest or send money. Performance data quoted
represents past performance. Investment return and principal value of an
investment will fluctuate, and investor's shares, when redeemed, may be worth
more or less than their original cost.
1
<PAGE> 31
HEARTLAND VALUE & INCOME FUND
- THE FUND'S OBJECTIVE IS TWO-FOLD: LONG-TERM CAPITAL GROWTH AS WELL AS
MEANINGFUL CURRENT INCOME.
LOOKING FOR GROWTH WITH LESS RISK
Through any market cycle, there are periods that clearly favor stocks and others
in which bonds have the upper hand.
The Value & Income Fund is managed to take advantage of the stock market
during growth periods, with income-producing securities helping to stabilize the
Fund's share price during stock market downturns. We adhere to the same value
parameters in the Value & Income Fund that have proven successful in our
flagship Value Fund.
THE STRENGTH OF DIVERSIFICATION (as of 6/30/95*)
[CHART]
Pie chart reflecting portfolio holdings of Value & Income Fund
as of 6/30/95:
<TABLE>
<S> <C>
Common stocks 47.1%
Corporate bonds 13.8%
Money market/other 17.5%
Convertible bonds 12.0%
Preferred stocks 9.6%
</TABLE>
"PRUDENT INVESTORS MAINTAIN A BALANCE OF STOCKS AND BONDS IN THEIR PORTFOLIOS."
--Bill Nasgovitz
THE FUND'S FOUR LARGEST HOLDINGS
(AS OF 7/27/95*)
1. EMPHESYS FINANCIAL GROUP ($28) reflects our value investing approach which
seeks to reduce downside risk while providing growth potential. Emphesys
Financial Group, Inc., a Wisconsin-based healthcare insurer with $1.5 billion
in revenues, was purchased at 7X this year's estimated earnings with a 3%
yield.
2. SHOPKO STORES ($12) operates 128 upscale discount department stores. The
company's year-long restructuring and store upgrade program is beginning to
pay off. The stock sells at 8X 1995 earnings and 3X cash flow and should
perform well in the resurging retail sector.
3. GIBSON GREETINGS ($14) is a large manufacturer of greeting cards and wrapping
paper. A seemingly endless supply of problems cut the stock's price by more
than half since early last year, and allowed us to establish our position at
an average cost of less than $10 a share. The earnings outlook is not clear,
but the stock looks cheap at only 75% of book value.
4. STORAGE TECHNOLOGY ($26) makes data storage devices for computers. The fund
began purchasing the stock at $20 a share when it was selling for 10X 1995
earnings per share and 3X cash flow.
*As an actively managed fund, the holdings may change at any time.
2
<PAGE> 32
THE BENEFITS OF INVESTING WITH HEARTLAND
CALL 1-800-432-7856 FOR ALL OF THE FOLLOWING SERVICES:
- PERSONAL HEARTLAND REPRESENTATIVE
You can speak to a personal Heartland representative between the hours of
7:00 a.m. and 6:30 p.m. CST, Monday through Friday and 8:30 a.m. to 12:30
p.m. CST on Saturday.
- AUTOMATED SERVICES
Automated options include daily prices, account information including your
last two transactions, and prospectus and literature requests. Call 24 hours
a day.
- WEEKLY UPDATES BY PORTFOLIO MANAGERS
Concerned about the financial markets? Wondering how your fund is currently
positioned? Heartland shareholders have free access to weekly updates
recorded by each fund's portfolio manager. Call 24 hours a day.
- FREE INVESTMENT SEMINARS
Heartland sponsors both local and national investment seminars. You can
request free tickets to the various ISI Money Shows we sponsor. There are
usually four shows a year, held in Boston, Orlando, Las Vegas and San
Francisco. The shows are a great opportunity to meet your portfolio managers
and visit with other nationally recognized financial advisors.
- AUTOMATIC INVESTMENT PLAN
Make automatic regular investments into any Heartland fund directly from your
checking account on a monthly or twice-monthly basis.
- AUTOMATIC REINVESTMENT / CROSS-INVESTMENT OF DIVIDENDS
Dividends can be automatically reinvested into additional shares of the same
fund, or cross-invested into shares of one of the other funds.
- FREE EXCHANGE BETWEEN FUNDS
Exchanges can be made without incurring an exchange fee, redemption fee or
sales charge.
- TELEPHONE PRIVILEGES
Set up your account to allow for telephone exchanges between funds or
redemptions of fund shares.
- SYSTEMATIC WITHDRAWAL PLAN
Establish automatic monthly or quarterly payments from your account.
- LOW MINIMUM INVESTMENT
Open a regular account with a low initial investment of $1000, or an IRA with
$500. Monthly automatic investment plans begin with no initial minimum and
$50/mo. minimum thereafter.
"OUR HIGHEST PRIORITY IS OUR
SHAREHOLDERS WHO WILL BE PROVIDED
WITH SUPERIOR PERSONAL SERVICE."
--Mark Ellegard, Manager - Shareholder Services
3
<PAGE> 33
HEARTLAND VALUE & INCOME FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD COMMON STOCKS - 47.1% NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
BANKS AND SAVINGS & LOANS - 10.1%
<S> <C> <C>
20,000 First Federal of Alabama - Operates 4 branches in Central and S.E. Alabama, pays over 5% dividend ...... $ 317,500
21,500 Firstar Corporation - Milwaukee-based bank holding company with assets of over $13 billion ............. 722,938
34,000 Flag Financial Corporation - Georgia savings and loan with $180 million in assets ...................... 399,500
-----------
1,439,938
HEALTH CARE - 4.0%
70,000 * Nova Care, Inc. - Provides contract rehabilitation services to healthcare institutions. ................ 568,750
-----------
568,750
INSURANCE - 4.1%
25,000 Emphesys Financial Group, Inc. - Provides medical group insurance products/admin. svcs for employers ... 590,625
-----------
590,625
RETAIL - 12.2%
60,000 Gibson Greetings, Inc - Manufacturer and retailer of greeting cards and wrapping paper ................. 802,500
20,000 Handleman Company - Distributes music, books & computer software to retail chains in US & Canada ....... 192,500
70,000 Shopko Stores, Inc. - Regional discount store concentrated in the upper Midwest ........................ 752,500
-----------
1,747,500
TECHNOLOGY - 10.6%
80,000 * Data General Corporation - Manufactures and sells general purpose computer and communication systems ... 770,000
30,000 * Storage Technology Corporation - Mnf,distrb. high-performance computer info storage/retrieval systems... 738,750
-----------
1,508,750
UTILITY - 6.1%
15,000 Montana Power Company - Provides electricity and gas throughout Montana ................................ 345,000
16,000 United Illuminating Company - Public utility providing electricity for Bridgeport and New Haven, CT .... 528,000
-----------
873,000
-----------
TOTAL COMMON STOCKS (Cost $6,313,327) .................................................................. $ 6,728,563
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
SHARES MARKET VALUE
HELD PREFERRED STOCKS - 9.6% NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
5,000 NYCOR, Inc. - Manufactures components for heating and cooling systems manufacturers .................... $ 75,000
14,000 Republic Security Financial Series A - Savings and loan holding company operating in Florida ........... 175,000
20,000 Resource Mortgage - Mortgage holding company ........................................................... 490,000
50,000 Westmoreland Coal Company Convertible - Mines and sells coal ........................................... 631,250
-----------
TOTAL PREFERRED STOCKS (Cost $1,408,379)................................................................ $ 1,371,250
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
PAR MARKET VALUE
AMOUNT BONDS - 25.8% COUPON MATURITY NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 12.0%
<S> <C> <C> <C> <C>
$150,000 Greenwich Air Services, Inc. - Repairs, overhauls,refurbishes gas turbine engines . 8.000% 11/15/2000 $ 140,250
500,000 Hector Communication Corp. - Owns/operates five rural tel.exch. co. in WI & MI .... 8.500 02/15/2002 490,000
630,000 ICN Pharmaceuticals, Inc. - Manufactures and markets a broad range of drugs ....... 8.500 11/15/1999 615,038
500,000 Professional Bancorp, Inc. - Bank holding company engaged in comm. banking ........ 8.500 03/01/2004 475,000
-----------
1,720,288
</TABLE>
4
<PAGE> 34
HEARTLAND VALUE & INCOME FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS - [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
PAR MARKET VALUE
AMOUNT BONDS - [CONT'D] COUPON MATURITY NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS - 13.8%
$ 525,000 ADT Limited - World-wide leader of electronic security systems, auto auctions..... 9.250% 08/01/2003 $ 543,375
500,000 Engle Homes - Designs, constructs and markets housing units in SE Florida......... 11.750 12/15/2000 470,000
500,000 Hillhaven Corporation - One of nations lgst. nursing hms with over 400 locations.. 10.125 09/01/2001 515,000
500,000 Long Island Lighting Company - New York public electric and gas utility........... 8.200 03/15/2023 437,500
------------
1,965,875
------------
TOTAL BONDS (Cost $3,671,155).......................................................................... $ 3,686,163
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PAR AT COST
AMOUNT SHORT-TERM INVESTMENTS - 22.8% COUPON MATURITY NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DISCOUNT NOTES - 17.5%
$2,500,000 Federal Home Loan Mortgage Corporation............................................ 5.890% 07/07/1995 $ 2,497,545
-----------
2,497,545
VARIABLE DEMAND NOTES - 5.3%
451,000 Eli Lilly......................................................................... 5.709 07/03/1995 451,000
308,000 Southwestern Bell Telephone Company .............................................. 5.709 07/03/1995 308,000
-----------
759,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $3,256,545)......................................................... $ 3,256,545
-----------
TOTAL INVESTMENTS - 105.3% (Cost $14,649,406) (+)...................................................... $15,042,521
===========
* Non-income producing security
(+) Percentages for the various classifications relate to total net assets.
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments in securities, at quoted market value (cost $14,649,406)................................... $15,042,521
Receivable from fund shares sold....................................................................... 43,100
Accrued dividends and interest......................................................................... 139,284
Deferred organization expense (Note 3)................................................................. 25,415
-----------
Total Assets....................................................................................... 15,250,320
-----------
LIABILITIES:
Payable for investments purchased...................................................................... 735,000
Payable for fund shares redeemed....................................................................... 174,275
Variation margin on open futures contract (Note 1(f)).................................................. 11,719
Payable to transfer agent.............................................................................. 9,790
Payable to Distributor for distribution fees (Note 2).................................................. 8,206
Dividends payable...................................................................................... 1,731
Payable to Advisor for deferred organization expenses (Note 3)......................................... 25,415
-----------
Total Liabilities.................................................................................. 966,136
-----------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value, 100,000,000 shares authorized, 1,297,697 shares outstanding)......................... $14,284,184
===========
NET ASSET VALUE PER SHARE
Net asset value and offering price per share ($.001 par value, 100,000,000 shares authorized
[$14,284,184 divided by 1,297,697 shares outstanding])................................................. $ 11.01
===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
5
<PAGE> 35
HEARTLAND VALUE & INCOME FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF CHANGES IN NET ASSETS
For the six months ending June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................................................................. $ 265,265
Net realized gains on investments...................................................................... 654,455
Net increase in unrealized appreciation on investments................................................. 1,069,638
-----------
Net increase in net assets resulting from operations............................................... 1,989,358
-----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.22 per share).............................................. (265,265)
-----------
Total Distributions................................................................................ (265,265)
-----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (492,289 shares)........................................................... 5,019,292
Net asset value of shares issued in reinvestment of distributions
from net investment income and net realized gains (22,241 shares)...................................... 234,288
Cost of shares redeemed (253,952 shares)............................................................... (2,577,631)
-----------
Net increase in net assets derived from Fund share activities...................................... 2,675,949
-----------
TOTAL INCREASE......................................................................................... 4,400,042
NET ASSETS AT DECEMBER 31, 1994...................................................................................... 9,884,142
-----------
NET ASSETS AT JUNE 30, 1995 (Note 5)................................................................................. $14,284,184
===========
</TABLE>
STATEMENT OF OPERATIONS
For the six months ending June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................................................................... $ 182,335
Dividends.............................................................................................. 175,731
-----------
Total investment income............................................................................ 358,066
-----------
EXPENSES:
Management fees (Note 2)............................................................................... 40,220
Distribution fees (Note 2)............................................................................. 14,509
Registration fees...................................................................................... 10,088
Transfer agent fees.................................................................................... 8,529
Amortization of organization expenses (Note 3)......................................................... 3,812
Custodian fees......................................................................................... 3,584
Legal fees............................................................................................. 3,055
Postage................................................................................................ 2,505
Printing and communications............................................................................ 2,334
Professional fees...................................................................................... 1,800
Directors' fees........................................................................................ 1,100
Other operating expenses............................................................................... 1,265
-----------
Total expenses..................................................................................... 92,801
-----------
Net investment income.................................................................................. 265,265
-----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS-NET:
NET REALIZED GAINS ON INVESTMENTS...................................................................... 654,455
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS................................................. 1,069,638
-----------
NET GAINS ON INVESTMENTS............................................................................... 1,724,093
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................... $ 1,989,358
===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
6
<PAGE> 36
HEARTLAND VALUE & INCOME FUND
(A Series of Heartland Group, Inc.)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
For the six months Year Oct. 26, 1993(1)
ending June 30, 1995 ended through
(Unaudited) Dec. 31, 1994 Dec. 31, 1993
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period...................................... $ 9.53 $10.45 $10.00
Income from investment operations:
Net investment income....................................... 0.22 0.41 0.07
Net realized and unrealized gains (losses) on securities.... 1.48 (0.92) 0.45
------- ------ ------
Total from investment operations............................ 1.70 (0.51) 0.52
Less distributions:
Dividends from net investment income........................ (0.22) (0.41) (0.07)
Distributions from net realized gains....................... -- -- --
------- ------ ------
Total distributions......................................... (0.22) (0.41) (0.07)
Net asset value, end of period............................................ $ 11.01 $ 9.53 $10.45
======= ====== ======
Total return(2)............................................. 17.92%(3) (4.95)% 5.21%(3)
Supplemental data and ratios
Net assets, end of period (in thousands).................... $14,284 $9,884 $5,811
Ratio of expenses to average net assets..................... 1.58%(4) 1.80% 1.30%(4)
Ratio of net investment income to average net assets........ 4.54%(4) 4.39% 6.52%(4)
Portfolio turnover rate..................................... 160%(4) 127% 6%
</TABLE>
(1) Commencement of operations
(2) The contingent deferred sales charge in effect for the Fund prior to June 1,
1994 is not reflected in Total Return as set forth in the table.
(3) Not annualized
(4) Annualized
The accompanying notes to financial statements are an integral part of this
statement.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The Heartland Value & Income Fund ("The Fund") is a separate series of Heartland
Group, Inc. The assets and liabilities of each portfolio of Heartland Group,
Inc. are segregated with a shareholder's interest limited to the portfolio in
which the shareholder owns shares. The following is a summary of significant
accounting policies of the Fund:
(a) Each equity security is valued at the last sale price reported by the
principal security exchange on which the issue is traded, or if no sale is
reported, the latest bid price. Each debt security is valued using bid side
market quotations, prices provided by market makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Net realized gains and losses on investments are
computed on the first-in, first-out cost method. Short-term investments are
recorded at cost which approximates market. Debt securities having
maturities of 60 days or less may be valued at acquisition cost, plus or
minus any amortized discount or premium.
(b) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies. As of June 30, 1995, the Fund has a Federal income tax
capital loss carry forward of $154,439 expiring in 2002.
7
<PAGE> 37
HEARTLAND VALUE & INCOME FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS - [CONT'D]
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
(c) Net investment income is distributed on a quarterly basis and net capital
gains are distributed on an annual basis. The amount of dividends and
distributions from net investment income and net realized capital gains are
determined in accordance with Federal income tax regulations, which may
differ from generally accepted accounting principles. To the extent these
book and tax differences are permanent in nature, such amounts are
re-classified to paid-in capital in excess of par value.
(d) The Fund records security transactions at cost no later than the first
business day after the trade date. The cost amount as reflected in the
Schedule of Investments is the same for Federal income tax purposes. The
Fund amortizes all premiums and accretes all discounts on debt instruments
utilizing the effective interest method.
(e) Dividends to shareholders are recorded on the ex-dividend date.
(f) The Fund may enter into futures contracts to provide protection against
adverse movements in the prices of securities in the portfolio. Upon
entering into futures contracts, the Fund pledges to the broker stock or
U.S. government securities equal to the minimum "initial margin"
requirements of the exchange. Additionally, the Fund receives from or pays
to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin," and
are recorded by the Fund as unrealized gains or losses. When the futures
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
The use of futures contracts involves, to varying degrees, elements of
market risk in excess of the amount recognized in the statement of assets
and liabilities. The predominant risk is that the movement of the futures
contracts price may result in a loss which could render the portfolio's
hedging strategy unsuccessful. Futures contracts open at June 30, 1995 were
as follows:
<TABLE>
<CAPTION>
COLLATERAL CONTRACTS EXPIRATION UNREALIZED APPRECIATION
---------- --------- ---------- -----------------------
<S> <C> <C> <C>
Stock 25 U.S. Treasury September 1995 $32,266
16,000 United Illuminating Co. Short
</TABLE>
2) INVESTMENT ADVISOR, MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES.
The Fund has a management agreement with Heartland Advisors, Inc. (the
"Advisor") with whom certain officers and directors of the Fund are affiliated,
to serve as investment advisor and manager. Under the terms of the agreement,
the Fund will pay the Advisor a monthly management fee at the annual rate of
.70% of the daily net asset value of the Fund. The Fund has adopted a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The Distributor is Heartland Advisors, Inc. (The
"Distributor") with whom certain officers and directors of the Fund are
affiliated. The plan requires the Fund to pay the Distributor a quarterly
distribution fee on an annual basis up to .25% of its daily net assets. In
addition, for the six month period ended June 30, 1995, Heartland Advisors,
Inc., as Distributor of the Fund, received $9,383 from investors representing
commissions for Fund share redemptions and $19,128 from the Fund for brokerage
fees on the execution of purchases and sales of portfolio investments.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the Board
of Directors of the Fund has adopted a plan which will allow the Fund, under
certain conditions described in the Rule, to acquire newly-issued securities
from syndicates in which the Distributor is a member.
3) DEFERRED ORGANIZATION EXPENSES.
Organization expenses have been deferred and are being amortized on a
straight-line basis over sixty months. Payments for these expenses were advanced
by the Advisor who will be reimbursed by the Fund over the same period. The
proceeds of any redemption of the initial shares by the original shareholders
will be reduced by a pro-rata portion of any then unamortized expenses.
Unamortized deferred organization expenses and the related payable to the
Advisor at June 30, 1995 were $25,415.
4) INVESTMENT TRANSACTIONS.
For the six month period ending June 30, 1995, the cost of purchases and the
proceeds from sales of investment securities (excluding short-term securities)
were $9,636,369 and $9,139,398, respectively.
8
<PAGE> 38
HEARTLAND VALUE & INCOME FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS - [CONT'D]
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
5) SOURCES OF NET ASSETS.
<TABLE>
<S> <C>
As of June 30, 1995, the sources of net assets were as follows:
Fund shares issued and outstanding.............................................. $13,358,793
Net unrealized appreciation on investments and futures contracts................ 425,380
Accumulated net realized gains on investments................................... 500,011
-----------
$14,284,184
===========
Aggregate gross unrealized appreciation (depreciation) as of June 30, 1995,
based on investment cost for Federal income tax purposes is as follows:
Aggregate gross unrealized appreciation......................................... $ 740,370
Aggregate gross unrealized depreciation......................................... (347,256)
Unrealized appreciation on open futures contracts............................... 32,266
-----------
Net unrealized appreciation on investments and futures contracts................ $ 425,380
===========
</TABLE>
--------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS:
An annual meeting of the Heartland Funds' shareholders was held on April 27,
1995 for purposes of electing directors and ratifying the selection of
independent accountants for Heartland. Shareholders of all of Heartland's funds
voted together on these matters. All nominees for director were elected and the
accountants were ratified by the following vote:
1. ELECTION OF DIRECTORS: Willard Davidson 25,587,705 For (326,010 Withheld);
Hugh F. Denison 25,636,356 For (277,360 Withheld); Jon D. Hammes 25,601,196 For
(312,520 Withheld); William J. Nasgovitz 25,638,105 For (275,611 Withheld);
Patrick J. Retzer 25,629,732 For (283,983 Withheld); A. Gary Shilling 25,469,580
For (444,136 Withheld); Linda F. Stephenson 25,460,045 For (453,670 Withheld).
2. ARTHUR ANDERSEN LLP: 25,364,947 For; 134,849 Against; 413,920 Abstain.
--------------------------------------------------------------------------------
ISI SHOW UPDATE: CALL 1-800-432-7856
Heartland Funds is sponsoring the ISI Boston Money Show, October 1-3, 1995.
CALL TODAY to find out how you can attend - space is limited!
9
<PAGE> 39
HEARTLAND
VALUE & INCOME FUND
790 N. Milwaukee Street
Milwaukee, Wisconsin 53202
414-347-7777 or 1-800-HEARTLN
Account Information and Fund Prices
1-800-248-1162 (24 hrs.)
414-287-3702 (8:00 a.m.-7:00 p.m.) M-F, CST
HEARTLAND FAMILY OF FUNDS
VALUE & INCOME FUND
SMALL CAP CONTRARIAN FUND
Maximum long-term growth through aggressive value
investing in small company stocks
VALUE FUND
Capital appreciation through small company stocks
selected on a value basis [closed as of 7/1/95]
U.S. GOVERNMENT SECURITIES FUND
Current income, liquidity and safety of principal
WISCONSIN TAX FREE FUND
Current income exempt from federal and
Wisconsin state income taxes
NEBRASKA TAX FREE FUND
Current income exempt from federal and
Nebraska state income taxes
MONEY MARKET FUND
Liquidity and current yield, offered through Portico Funds
BOARD OF DIRECTORS AND OFFICERS
William J. Nasgovitz, President
Hugh F. Denison, Director of Research
Patrick J. Retzer C.P.A., Director of Fixed Income,
Treasurer
Willard H. Davidson
Jon D. Hammes
A. Gary Shilling
Linda F. Stephenson
Lois J. Schmatzhagen, Secretary
CUSTODIAN, TRANSFER &
DIVIDEND DISBURSING AGENT
Firstar Trust Company, Milwaukee
HEARTLAND
VALUE & INCOME
FUND
"Capital growth and current
income through investment in
stocks and bonds"
SEMI-ANNUAL
REPORT
JUNE 30, 1995
<PAGE> 40
Heartland U.S. Government Securities Fund
<PAGE> 41
August 14, 1995
Dear Fellow Shareholder:
The second quarter of 1995 was an excellent period for the Heartland U.S.
Government Securities Fund. Our Fund's net asset value rose from $9.29 to $9.56
in the three month period, while paying dividends of $0.15 per share. The Fund's
total return was 4.6% for the quarter and 10.8% for the first half of the year,
extending our long-term record of superior performance:
<TABLE>
<CAPTION>
Cumulative Average Cumulative
5-year 5-years annual since
average ended since inception inception
annual return 6/30/95 4/9/87 4/9/87
------------- ------- ------ ------
<S> <C> <C> <C> <C>
HEARTLAND U.S. GOVERNMENT SECURITIES FUND.......... 10.1% 62.0% 8.9% 101.6%
Lipper Average U.S. Government Fund*............... 8.3 48.7 7.5 81.9
Lehman Intermediate Treasury Index*................ 8.3 49.2 8.1 89.9
</TABLE>
(The Heartland U.S. Government Securities Fund's average annual return for
the 1-year period ended 6/30/95 was 9.3%.)
INVESTMENT OUTLOOK. With the economy showing many signs of slowing, the dollar
stabilizing, inflation not a problem, and the Federal Reserve Board now cutting
interest rates, we continue to have a favorable outlook for the bond market.
IN SUMMARY. Our goal is to maintain our long-term record of superior
performance. We believe our strategy of active management to maximize total
return will serve our shareholders well in the second half of 1995 and beyond.
Sincerely,
/s/ PATRICK J. RETZER
--------------------
Patrick J. Retzer
Director of Fixed Income
* The Lipper Average U.S. Government Fund benchmark reflects the performance
of 196 general U.S. government funds as tracked by Lipper Analytical
Services, Inc. The Lehman Intermediate Treasury Index is an unmanaged
index of the performance of U.S. Treasury bills, which are backed by the full
faith and credit of the U.S. Treasury.
This material may only be used when preceded or accompanied by the Fund's
prospectus. For more complete information, including charges and expenses, call
for a prospectus. Read it carefully before you invest or send money. Performance
data quoted represents past performance. Investment return and principal value
of an investment will fluctuate, and investor's shares, when redeemed, may be
worth more or less than their original cost.
1
<PAGE> 42
[PHOTO IN UPPER RIGHT CORNER OF PATRICK RETZER]
"OUR U.S. GOVERNMENT SECURITIES FUND HAS OUTPERFORMED BOTH THE AVERAGE GENERAL
U.S. GOVERNMENT FUND AND THE NEW YORK STOCK EXCHANGE COMPOSITE BY SUBSTANTIAL
MARGINS OVER THE PAST FIVE YEARS."
-- PATRICK RETZER
PORTFOLIO MANAGER
HOW DO WE STACK UP?
[GRAPH]
Performance Graph
A performance graph reflects the growth of $10,000 invested July 1, 1990 through
June 30, 1995 in the Heartland U.S. Government Securities Fund, the New York
Stock Exchange Composite and the average general U.S. government fund as tracked
by Morningstar Mutual Funds OnDisc.
<TABLE>
<CAPTION>
July 1, 1990 June 30, 1991 June 30, 1992 June 30, 1993 June 30, 1994 June 30, 1995
<S> <C> <C> <C> <C> <C> <C>
Heartland U.S. $10,000 $11,039 $12,758 $15,427 $14,815 $16,200
Government
Securities Fund
New York $10,000 $10,408 $11,476 $12,741 $12,542 $14,932
Stock
Exchange
Composite
Average $10,000 $10,936 $12,307 $13,511 $13,262 $14,513
General
Government
Fund
</TABLE>
For the five years ending June 30, 1995, $10,000 invested in our U.S. Government
Securities Fund would have grown to $16,200, a return of 25% more than the New
York Stock Exchange Composite and 37% more than the average general U.S.
Government Fund.
We believe the Heartland U.S. Government Securities Fund is an excellent choice
for investors looking for a total return bond fund to provide attractive yield,
credit safety and diversification from the stock market.
Source: Morningstar Mutual Funds OnDisc
* The New York Stock Exchange Composite is an unmanaged index of publicly traded
stocks. The average general government fund benchmark reflects the performance
of 91 general U.S. government funds over the 5-year period ended 6/30/95 as
tracked by Morningstar Mutual Funds OnDisc. The average annual returns for the
1-year, 5-year and since inception on 4/9/87 were 9.3%, 10.1% and 8.9%,
respectively, each period ended 6/30/95.
2
<PAGE> 43
NO-LOAD
HEARTLAND
U.S. GOVERNMENT SECURITIES FUND
[GRAPH]
Total Return box and mountain chart
June Yield 6.4%*
Average Annual Total Return
since inception 8.9%
five year 10.1%
one year 9.3%
A mountain chart reflects the growth of a $10,000 investment in the Heartland
U.S. Government Securities Fund from 4/9/87 through 6/30/95 with $10,147 in
dividends and distributions reinvested and without reinvestment.
<TABLE>
<CAPTION>
Without Dividends Dividends Total Value
Reinvested Reinvested of Investment
<S> <C> <C> <C>
4/9/87 10,000 0 10,000
12/31/87 9,654 537 10,191
12/31/88 9,466 1,380 10,846
12/31/89 9,686 2,386 12,072
12/31/90 9,832 3,445 13,277
12/31/91 10,440 5,089 15,529
12/31/92 10,398 6,697 17,095
12/31/93 10,995 9,146 20,141
12/31/94 9,330 8,869 18,199
06/30/95 10,010 10,147 20,157
</TABLE>
ACTIVELY MANAGED FOR TOTAL RETURN!
* June SEC Yield annualized for the 30 days commencing 6/1/95. The chart
illustrates the results of an assumed investment of $10,000 in shares of the
Heartland U.S. Government Securites Fund made on April 9, 1987 (the fund's
inception). As of June 30, 1995, your investment would be worth $20,157. This
amount assumes that all dividends were reinvested. The returns shown are based
on historical results and are not intended to indicate future performance.
3
<PAGE> 44
THE BENEFITS OF INVESTING WITH HEARTLAND
CALL 1-800-432-7856 FOR ALL OF THE FOLLOWING SERVICES:
- PERSONAL HEARTLAND REPRESENTATIVE
You can speak to a personal Heartland representative between the hours of
7:00 a.m. and 6:30 p.m. CST, Monday through Friday and 8:30 a.m. to 12:30
p.m. CST on Saturday.
- AUTOMATED SERVICES
Automated options include daily prices, account information including your
last two transactions, and prospectus and literature requests. Call 24 hours
a day.
- AUTOMATIC INVESTMENT PLAN
Make automatic regular investments into any Heartland fund directly from your
checking account on a monthly or twice-monthly basis.
- WEEKLY UPDATES BY PORTFOLIO MANAGERS
Concerned about the financial markets? Wondering how your fund is currently
positioned? Heartland shareholders have free access to weekly updates
recorded by each fund's portfolio manager. Call 24 hours a day.
- FREE INVESTMENT SEMINARS
Heartland sponsors both local and national investment seminars. You can
request free tickets to the various ISI Money Shows we sponsor. There are
usually four shows a year, held in Boston, Orlando, Las Vegas and San
Francisco. The shows are a great opportunity to meet your portfolio managers
and visit with other nationally recognized financial advisors.
- AUTOMATIC REINVESTMENT/CROSS-INVESTMENT OF DIVIDENDS
Dividends can be automatically reinvested into additional shares of the same
fund, or cross-invested into shares of one of the other funds.
- FREE EXCHANGE BETWEEN FUNDS
Exchanges can be made without incurring an exchange fee, redemption fee or
sales charge.
- TELEPHONE PRIVILEGES
Set up your account to allow for telephone exchanges between funds or
redemptions of fund shares.
- SYSTEMATIC WITHDRAWAL PLAN
Establish automatic monthly or quarterly payments from your account.
- LOW MINIMUM INVESTMENT
Open a regular account with a low initial investment of $1000, or an IRA with
$500. Monthly automatic investment plans begin with no initial minimum and
$50/mo. minimum thereafter.
"OUR HIGHEST PRIORITY IS OUR
SHAREHOLDERS WHO WILL BE PROVIDED
WITH SUPERIOR PERSONAL SERVICE."
-- Mark Ellegard, Manager -- Shareholder Services
4
<PAGE> 45
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF NET ASSETS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
QUOTED
PAR MARKET VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1(a)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM INVESTMENTS - 95.5%
U.S. TREASURY AND AGENCY SECURITIES - 52.8%
$17,900,000 U.S. Treasury Note.............................. 7.250% 05/15/2004 $19,108,250
3,000,000 Federal Farm Credit Bank........................ 7.210 09/30/1997 3,015,468
2,000,000 Federal Home Loan Bank.......................... 8.000 04/11/2001 2,007,500
2,500,000 Federal Home Loan Bank.......................... 7.500 07/29/2009 2,484,375
2,200,000 Federal Home Loan Mortgage Corporation.......... 7.990 03/23/2005 2,266,000
3,000,000 Federal National Mortgage Association........... 7.550 04/22/2002 3,199,218
4,000,000 Tennessee Valley Authority...................... 0.000 11/15/2029 3,066,860
-----------
35,147,671
MORTGAGE-BACKED SECURITIES - 21.6%
1,225,200 Federal Housing Administration.................. 8.875 THRU 2030 1,258,893
43,734 Federal National Mortgage Association........... 10.000 THRU 2017 47,506
1,200,000 Federal National Mortgage Association (CMO)..... 7.500 THRU 2006 1,207,171
6,000,000 Federal National Mortgage Association (CMO)..... 7.000 THRU 2020 5,856,558
3,574,000 Federal Home Loan Mortgage Corporation (CMO).... 7.000 THRU 2022 3,454,632
2,448,227 Government National Mortgage Association........ 9.125 THRU 2030 2,562,987
-----------
14,387,747
CORPORATE SECURITIES - 21.1%
3,895,000 ADT Operations.................................. 9.250 08/01/2003 4,031,327
3,025,000 Louis Dreyfus Natural Gas....................... 9.250 06/15/2004 3,193,858
3,000,000 Oryx Energy Company............................. 10.000 04/01/2001 3,276,768
3,300,000 Unisys Corporation.............................. 10.625 10/01/1999 3,539,250
-----------
14,041,203
-----------
TOTAL LONG-TERM INVESTMENTS (Cost $62,510,754)........................ $63,576,621
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
PAR AT COST
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1(a)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS - 3.7%
VARIABLE DEMAND NOTES - 3.7%
$ 2,445,000 Southwestern Bell Telephone Company.................. 5.709% 07/03/1995 $ 2,445,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $2,445,000)............................. 2,445,000
TOTAL INVESTMENTS - 99.2% (Cost $64,955,754)............................... 66,021,621
Cash and receivables, less liabilities - .8%............................... 518,483
-----------
TOTAL NET ASSETS (Note 4) (+).............................................. $66,540,104
===========
Net asset value and offering price per share ($.001
par value, 100,000,000 shares authorized,
[$66,540,104 divided by 6,960,600 shares outstanding])..................... $ 9.56
===========
<FN>
(+) Percentages for the various classifications relate to total net assets.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement
5
<PAGE> 46
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF OPERATIONS
For the six months ending June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................. $ 2,446,510
-----------
EXPENSES:
Management fees (Note 2).................................. 212,568
Distribution expense (Note 2)............................. 81,757
Transfer agent fees....................................... 41,662
Registration fees......................................... 10,097
Custodian fees............................................ 9,619
Printing and communications............................... 7,483
Legal fees................................................ 7,283
Postage................................................... 5,991
Professional fees......................................... 2,781
Directors' fees........................................... 1,932
-----------
Total expenses............................................ 381,173
-----------
Less expenses reimbursed by Advisor (Note 2).............. (49,054)
-----------
Net expenses......................................... 332,119
-----------
Net investment income................................ 2,114,391
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS-NET:
NET REALIZED LOSSES ON INVESTMENTS........................ (1,050,495)
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS... 5,684,185
-----------
NET GAINS ON INVESTMENTS.................................. 4,633,690
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $ 6,748,081
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ending June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATIONS:
Net investment income...................................... $ 2,114,391
Net realized losses on investments......................... (1,050,495)
Net increase in unrealized appreciation on investments..... 5,684,185
------------
Net increase in net assets resulting from operations.. 6,748,081
------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.30 per share).. (2,114,391)
------------
Total distributions................................... (2,114,391)
------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (682,103 shares)............... 6,333,409
Net asset value of shares issued in reinvestment
of distributions from net investment income and
net realized gains (153,664 shares)........................ 1,436,846
Cost of shares redeemed (1,150,482 shares)................. (10,670,915)
------------
Net decrease in net assets derived from Fund
share activities...................................... (2,900,660)
------------
TOTAL INCREASE............................................. 1,733,030
NET ASSETS AT DECEMBER 31, 1994..................................... 64,807,074
------------
NET ASSETS AT JUNE 30, 1995 (Note 4)................................ $ 66,540,104
============
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
6
<PAGE> 47
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
(A Series of Heartland Group, Inc.)
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six
months ending Year ended December 31
June 30, 1995 ----------------------------------------------------------
(Unaudited) 1994 1993 1992 1991 1990 1989
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $8.91 $10.50 $9.93 $9.97 $9.39 $9.25 $9.04
Income from investment operations:
Net investment income............................. 0.30 0.59 0.56 0.66 0.69 0.73 0.77
Net realized and unrealized gains
(losses) on securities............................ 0.65 (1.59) 1.18 0.30 0.83 0.14 0.21
------- ------- ------- ------- ------- ------- -------
Total from investment operations.................. 0.95 (1.00) 1.74 0.96 1.52 0.87 0.98
Less distributions:
Dividends from net investment income.............. (0.30) (0.59) (0.56) (0.66) (0.69) (0.73) (0.77)
Distributions from net realized gains............. -- -- (0.61) (0.34) (0.25) -- --
------- ------- ------- ------- ------- ------- -------
Total distributions............................... (0.30) (0.59) (1.17) (1.00) (0.94) (0.73) (0.77)
Net asset value, end of period...................... $9.56 $8.91 $10.50 $9.93 $9.97 $9.39 $9.25
======= ======= ======= ======= ======= ======= =======
Total return (1).................................... 10.8%(2) (9.6)% 17.8% 10.1% 17.0% 10.0% 11.3%
Supplemental data and ratios:
Net assets, end of period (in thousands).......... $66,540 $64,807 $66,789 $28,378 $29,101 $16,424 $11,595
Ratio of net expenses to average net assets (4)... 1.02%(3) 1.07% 1.06% 0.92% 0.92% 0.86% 0.89%
Ratio of net investment income to
average net assets................................ 6.48%(3) 6.30% 5.09% 6.71% 7.06% 7.98% 8.45%
Portfolio turnover rate........................... 74%(3) 95% 200% 149% 185% 127% 142%
(1) Contingent deferred and initial sales charges in effect for the fund prior
to June 1, 1994 are not reflected in Total Return as set forth in the table.
(2) Not annualized.
(3) Annualized.
(4) Heartland Advisors, Inc. voluntarily waived the management fee in its
entirety from May 7, 1988 through November 30, 1990. Effective December 1,
1990, Heartland Advisors, Inc. partially reinstated a portion of the fee at
the rate of .25 of 1% of average net assets and, effective January 20, 1992
and January 1, 1993, respectively, reinstated additional portions of the fee
resulting in a rate of .35 of 1% and .50 of 1% of average daily net assets,
respectively.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The Heartland U.S. Government Securities Fund, ("The Fund") is a separate series
of Heartland Group, Inc. The assets and liabilities of each portfolio of
Heartland Group, Inc. are segregated with a shareholder's interest limited to
the portfolio in which the shareholder owns shares. The following is a summary
of significant accounting policies of the Fund:
7
<PAGE> 48
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS - [CONT'D]
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
(a) Each security is valued using bid side market quotations, prices provided
by market makers or estimates of market values obtained from yield data
relating to instruments or securities with similar characteristics.
Short-term investments are recorded at cost which approximates market. Debt
securities having maturities of 60 days or less may be valued at acquisition
cost, plus or minus any amortized discount or premium.
(b) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies. As of June 30, 1995, the Fund has a Federal income tax
capital loss carry forward of $6,648,159 expiring in 2003.
(c) The Fund declares daily and pays monthly distributions from net investment
income. Net capital gains, if any, are distributed annually. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting principles.
To the extent these book and tax differences are permanent in nature, such
amounts are re-classified to paid-in capital in excess of par value.
(d) The Fund records security transactions at cost no later than the first
business day after the trade date. Net realized gains and losses on
investments are computed on the specific identification cost method.
Interest income is recorded on the accrual basis. The cost amounts as
reflected in the Statement of Net Assets are the same for Federal income tax
purposes. The Fund amortizes premiums and accretes discounts on investments
utilizing the effective interest method.
(e) Dividends to shareholders are recorded on the ex-dividend date.
(f) The Fund may enter into futures contracts to provide protection against
adverse movements in the prices of securities in the portfolio. Upon
entering into futures contracts, the Fund pledges to the broker U.S.
government securities equal to the minimum "initial margin" requirements of
the exchange. Additionally, the Fund receives from or pays to the broker an
amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin," and are recorded by
the Fund as unrealized gains or losses. When the futures contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it
was closed.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statement of assets and
liabilities. The predominant risk is that the movement of the futures contracts
price may result in a loss which could render the portfolio's hedging strategy
unsuccessful. Futures contracts open at June 30, 1995 were as follows:
<TABLE>
<CAPTION>
COLLATERAL CONTRACTS EXPIRATION UNREALIZED DEPRECIATION
---------- --------- ---------- -----------------------
<S> <C> <C> <C>
3,000,000 par 50 U.S. Treasury Bond September 1995 $(80,344)
FNMA 7.55% 4/22/2002 Short
</TABLE>
2.) INVESTMENT ADVISOR, MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES.
The Fund has a management agreement with Heartland Advisors, Inc. (the
"Advisor") with whom certain officers and directors of the Fund are affiliated,
to serve as investment advisor and manager. Under the terms of the agreement,
the Fund will pay the Advisor a monthly management fee at the annual rate of
.65% of the first $100 million of the Fund's average daily net assets, .50% of
the next $400 million of net assets, and .40% on net assets in excess of $500
million. The Advisor voluntarily waived the management fee in its entirety from
May 7, 1988 through November 30, 1990, and effective December 1, 1990, the
Advisor partially reinstated a portion of the fee at the annual rate of .25% of
average daily net assets and also effective January 20, 1992,
8
<PAGE> 49
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS - [CONT'D]
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
the Advisor began collecting a partial fee at the annual rate of .35% of the
Fund's average daily net assets. As of January 1, 1993, the Advisor began
collecting a partial fee at the annual rate of .50% of the Fund's average daily
net assets. The Advisor may reinstate any portion or all of the management fee
at any time. The Fund has adopted a Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The Distributor is
Heartland Advisors, Inc. (The "Distributor") with whom certain officers and
directors of the Fund are affiliated. The Plan requires the Fund to pay the
Distributor a quarterly distribution fee on an annual basis up to .25% of its
average daily net assets. In addition, for the six months ending June 30, 1995,
the Distributor received $52,150 from investors representing commissions for
Fund share redemptions. As of June 30, 1995, the amount due the Advisor for
second quarter distribution fees was $21,450.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the Board
of Directors of the Fund has adopted a plan which will allow the Fund, under
certain conditions described in the Rule, to acquire newly-issued securities
from syndicates in which the Distributor is a member.
3.) INVESTMENT TRANSACTIONS.
For the six months ending June 30, 1995, the cost of purchases and the proceeds
from sales of investment securities (excluding short-term securities) were
$22,622,923 and $24,425,210 respectively.
4.) SOURCES OF NET ASSETS.
As of June 30, 1995, the sources of net assets were as follows:
<TABLE>
<S> <C>
Fund shares issued and outstanding................................. $72,202,740
Net unrealized appreciation on investments and futures contracts... 985,523
Undistributed net realized losses on investments................... (6,648,159)
-----------
$66,540,104
===========
</TABLE>
Aggregate gross unrealized appreciation (depreciation) as of June 30, 1995,
based on investment cost for Federal income tax purposes is as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation............................ $ 1,862,708
Aggregate gross unrealized depreciation............................ (796,841)
Unrealized depreciation on futures contracts....................... (80,344)
-----------
Net unrealized appreciation on investments and futures contracts... $ 985,523
===========
</TABLE>
-------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS:
An annual meeting of the Heartland funds' shareholders was held on April 27,
1995, for purposes of electing directors and ratifying the selection of
independent accountants for Heartland. Shareholders of all of Heartland's funds
voted together on these matters. All nominees for director were elected and the
accountants were ratified by the following vote:
1. ELECTION OF DIRECTORS: Willard Davidson 25,587,705 For (326,010 Withheld);
Hugh F. Denison 25,636,356 For (277,360 Withheld); Jon D. Hammes 25,601,196 For
(312,520 Withheld); William J. Nasgovitz 25,638,105 For (275,611 Withheld);
Patrick J. Retzer 25,629,732 For (283,983 Withheld); A. Gary Shilling 25,469,580
For (444,136 Withheld); Linda F. Stephenson 25,460,045 For (453,670 Withheld).
2. ARTHUR ANDERSEN LLP: 25,364,947 For; 134,849 Against; 413,920 Abstain.
-------------------------------------------------------------------------------
9
<PAGE> 50
HEARTLAND
U.S. GOVERNMENT SECURITIES FUND
790 N. Milwaukee Street
Milwaukee, Wisconsin 53202
414-347-7777 or 1-800-HEARTLN
Account Information and Fund Prices
1-800-248-1162 (24 hrs.)
414-287-3702 (8:00 a.m.-7:00 p.m.) M-F, CST
HEARTLAND FAMILY OF FUNDS
U.S. GOVERNMENT SECURITIES FUND
SMALL CAP CONTRARIAN FUND
Maximum long-term growth through aggressive
value investing in small company stocks
VALUE & INCOME FUND
Capital growth and current income through
investment in stocks and bonds
VALUE FUND
Capital appreciation through small company stocks
selected on a value basis [closed as of 7/1/95]
WISCONSIN TAX FREE FUND
Current income exempt from federal and
Wisconsin state income taxes
NEBRASKA TAX FREE FUND
Current income exempt from federal and
Nebraska state income taxes
MONEY MARKET FUND
Liquidity and current yield, offered through Portico Funds
BOARD OF DIRECTORS AND OFFICERS
William J. Nasgovitz, President
Hugh F. Denison, Director of Research
Patrick J. Retzer C.P.A., Director of Fixed Income,
Treasurer
Willard H. Davidson
Jon D. Hammes
A. Gary Shilling
Linda F. Stephenson
Lois J. Schmatzhagen, Secretary
CUSTODIAN, TRANSFER &
DIVIDEND DISBURSING AGENT
Firstar Trust Company, Milwaukee
HEARTLAND
U.S. GOVERNMENT SECURITIES FUND
"HIGH LEVEL OF CURRENT INCOME, LIQUIDITY AND SAFETY
OF PRINCIPAL"
SEMI-ANNUAL
REPORT
June 30, 1995
<PAGE> 51
Heartland Wisconsin Tax Free Fund
<PAGE> 52
August 7, 1995
Dear Fellow Shareholder:
The first half of 1995 has proven to be a prosperous year for tax-free bond
investors. Our Fund's net asset value increased from $9.21 to $9.83, while
paying dividends of $0.25 per share, for a six month total return of 9.6%. On
June 30, 1995, the Fund had total net assets of $112 million, 3,415 shareholders
and was invested in 201 issues.
We believe the Fund is an excellent investment for the following reasons:
1. 5.4% YIELD.* Free from both federal and Wisconsin income tax. To an
investor in the maximum tax bracket, this is equivalent to a taxable
return of 9.7%. (*June SEC yield annualized for the 30 days commencing
6/1/95. Up to 20% of income may be subject to alternative minimum tax.
The average annual returns ending 6/30/95 for the 1-year period and
since inception on 4/3/92 were 7.9% and 5.7%, respectively.)
2. THE FEDERAL RESERVE IS CUTTING INTEREST RATES. With the economy
slowing, the dollar stable, inflation not a problem, and the Federal
Reserve Board now cutting interest rates, we have a favorable outlook
for the bond market.
3. TAX-FREE BONDS HAVE BEGUN "CATCHING UP" TO TREASURIES. Even though
tax-free bonds have performed well over the past six months,
Treasuries have done even better. Talk of a flat tax has held tax-free
bonds back, but as explained on pages 2 and 3, this trend has recently
changed. The tax-free market has already factored in a flat tax and in
the process, overreacted to the possibility of it being enacted.
We believe that with an attractive yield, a favorable environment for bonds, and
tax-free bonds beginning to outperform Treasuries, the Heartland Wisconsin Tax
Free Fund is an excellent investment. If you have any questions about
Wisconsin's largest, most diversified and only no-load double tax-free fund,
please call us at 1-800-432-7856.
Sincerely,
/S/ PATRICK J. RETZER
-----------------------------
Patrick J. Retzer
Portfolio Manager
This material may only be used when preceded or accompanied by the Fund's
prospectus. For more complete information, including charges and expenses, call
for a prospectus. Read it carefully before you invest or send money. Performance
data quoted represents past performance. Investment return and principal value
of an investment will fluctuate, and investor's shares, when redeemed, may be
worth more or less than their original cost.
1
<PAGE> 53
HIGH RELATIVE TAX-FREE YIELDS
CREATE EXCELLENT INVESTMENT OPPORTUNITY
Talk of a flat tax and problems in Orange County cast shadows over the tax-free
bond market during the second quarter of 1995, causing Treasury yields to fall
much faster than those on tax-free bonds. For taxpayers in substantial brackets,
we believe this has created a buying opportunity.
The graph at right shows the yield on long-term "Aa" rated municipal bonds
as a percentage of the long-term Treasury yield. A rising line means municipal
yields are higher (relative to Treasuries) making municipal bonds a more
attractive investment.
The graph illustrates two important points:
1) Earlier in 1995, municipal yields approximated 80% of Treasury yields, but
municipal yields have recently risen to about 92%, THE MOST ATTRACTIVE
LEVEL IN SEVEN YEARS.
(Source: Lehman Brothers)
--------------------------------------------------------------------------------
THE VALUE OF DOUBLE TAX-FREE INCOME
While tax-free bonds have had good performance during the first half of 1995,
they have lagged Treasury bonds. Much of this lagging performance has been
attributed to fears of a flat tax, which would decrease the relative value of
tax-free bonds. The table below, however, shows that CURRENT TAX-FREE YIELDS
TRANSLATE INTO ATTRACTIVE TAXABLE EQUIVALENT YIELDS, EVEN IF A 20% FLAT TAX IS
PASSED.
Currently, a 5.4% double tax-free yield is equivalent to a taxable yield up to
9.7%, depending on your tax bracket. If a 20% flat tax is passed, a 5.4% double
tax-free yield is equivalent to a 7.2% taxable yield, about 10% higher than that
currently available on 30-year Treasuries!
ON THIS TABLE, FIND YOUR TAX RATE AND LOOK DOWN THE COLUMN TO FIND THE TAXABLE
EQUIVALENT YIELD YOU WOULD NEED TO MATCH THE FUND'S JUNE YIELD ON AN AFTER-TAX
BASIS:
<TABLE>
<CAPTION>
Proposed
Flat Tax
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal Bracket ............. 28.0% 31.0% 36.0% 39.6% 20.0%
Effective Federal Tax Rates.. 29.4 32.6 37.8 40.8 20.0
Wisconsin Tax Rate .......... 6.9 6.9 6.9 6.9 6.9
Combined Rates .............. 34.3 37.2 42.1 44.9 25.5
</TABLE>
<TABLE>
<CAPTION>
HEARTLAND TAX-FREE YIELD T A X E Q U I V A L E N T Y I E L D S
<S> <C> <C> <C> <C> <C>
5.4% (June yield)* .......... 8.1% 8.5% 9.2% 9.7% 7.2%
</TABLE>
*June SEC yield annualized for the 30 days commencing 6/1/95.
2
<PAGE> 54
2) The line has recently turned down, meaning MUNICIPALS HAVE BEGUN
OUTPERFORMING Treasuries. We believe the bond market has overreacted to the
flat tax talk and Orange County, and that municipals will outperform
Treasuries in the foreseeable future.
With municipal yields at their most attractive level relative to Treasuries
in seven years, we believe this is a good time for tax-free investors to
consider adding to their positions.
Yield Graph
A graph reflecting the trends in the Long Aa Municipal Revenue Bond Yield as a
Percentage of Long Treasury Yield from 1/3/95 through 7/7/95, as tracked by
Lehman Brothers, shows the yield on Long Aa municipal bonds at approximately
84.5% of the yield on Long Treasury Bonds as of January 3, 1995. The graph
shows that over the five weeks following January 3, 1995, the relative yield on
Long Aa municipal revenue bonds fell to 80% of the Long Treasury yield. For
the next two months, the relative yield moved between 80% and 83%, before
beginning a steady climb to 92%, which it reached in late June. After peaking
at 92%, the relative yield turned down and was approximately 90% on July 7,
1995.
--------------------------------------------------------------------------------
THE BENEFITS OF INVESTING WITH HEARTLAND
CALL 1-800-432-7856 FOR ALL OF THE FOLLOWING SERVICES:
- PERSONAL HEARTLAND REPRESENTATIVE
You can speak to a personal Heartland representative between the hours of 7:00
a.m. and 6:30 p.m. CST Monday through Friday, and 8:30 a.m. to 12:30 p.m. CST on
Saturday.
- AUTOMATED SERVICES
Automated options include daily prices, account information including your last
two transactions, and prospectus and literature requests. Call 24 hours a day.
- WEEKLY UPDATES BY PORTFOLIO MANAGERS
Concerned about the financial markets? Wondering how your fund is currently
positioned? Heartland shareholders have free access to weekly updates, recorded
by each fund's portfolio manager. Call 24 hours a day.
- FREE INVESTMENT SEMINARS
Heartland sponsors both local and national investment seminars. You can request
free tickets to the various ISI Money Shows we sponsor. There are usually four
shows a year, held in Boston, Orlando, Las Vegas and San Francisco. The shows
are a great opportunity to meet your portfolio managers and visit with other
nationally recognized financial advisors.
- AUTOMATIC INVESTMENT PLAN
Make automatic regular investments into any Heartland fund directly from your
checking account on a monthly or bi-monthly basis.
- AUTOMATIC REINVESTMENT /
CROSS-INVESTMENT OF DIVIDENDS
Dividends can be automatically reinvested into additional shares of the same
fund, or cross-invested into shares of one of the other funds.
- FREE EXCHANGE BETWEEN FUNDS
Exchanges can be made without incurring an exchange fee, redemption fee or sales
charge.
- TELEPHONE PRIVILEGES
Set up your account to allow for telephone exchanges between funds or
redemptions of fund shares.
- SYSTEMATIC WITHDRAWAL PLAN
Establish automatic monthly or quarterly payments from your account.
- LOW MINIMUM INVESTMENT
Open a regular account with a low initial investment of $10,000. Monthly
automatic investment plans begin with no initial minimum and $100/mo. minimum
thereafter.
3
<PAGE> 55
HEARTLAND WISCONSIN TAX FREE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
MARKET
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1(a)
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS - 98.6%
<S> <C> <C> <C> <C>
WISCONSIN - 69.4%
$ 125,000 Barron, WI Housing Authority - Maplecroft Project - Series 1993.................... 0.000 % 10/01/2004 $ 72,366
35,000 Barron, WI Housing Authority - Maplecroft Project - Series 1993.................... 0.000 10/01/2005 18,885
130,000 Barron, WI Housing Authority - Maplecroft Project - Series 1993.................... 0.000 10/01/2006 66,196
85,000 Barron, WI Housing Authority - Maplecroft Project - Series 1993.................... 0.000 10/01/2007 40,214
130,000 Barron, WI Housing Authority - Maplecroft Project - Series 1993.................... 0.000 10/01/2008 58,013
520,000 Barron, WI Housing Authority - Maplecroft Project - Series 1993.................... 5.375 10/01/2011 481,650
3,280,000 Brown County, WI Housing Authority - River Park Terrace Project.................... 6.500 06/01/2019 3,325,100
75,000 Dane County, WI Housing Authority - Forest Harbor Apartments Project............... 5.950 07/01/2013 73,313
25,000 Dane County, WI Housing Authority - Forest Harbor Apartments Project............... 6.000 07/01/2014 24,308
685,000 Eau Claire, WI Housing Authority - London Hill Townhouses - Series A............... 6.250 05/01/2015 685,000
550,000 Elkhart Lake, WI Community Development Authority - Lease Revenue................... 6.000 04/01/2015 529,375
10,000 Franklin, WI Community Development Authority - Series B............................ 5.400 04/01/2003 10,000
250,000 Franklin, WI Community Development Authority - Series B............................ 5.850 04/01/2006 255,848
1,000,000 Franklin, WI Community Development Authority - Series B............................ 6.050 04/01/2008 1,023,750
890,000 Franklin, WI Community Development Authority - Series B............................ 6.100 04/01/2010 912,508
250,000 Franklin, WI Community Development Authority - Series B............................ 6.150 04/01/2012 254,688
3,105,000 Green Bay, WI Housing Authority - Pheasant Run Project............................. 6.500 09/01/2019 3,112,763
100,000 Hartford, WI Community Development Authority - Lease Revenue....................... 5.450 12/01/2002 102,375
200,000 Hartford, WI Community Development Authority - Lease Revenue....................... 5.800 12/01/2005 205,500
210,000 Hartford, WI Community Development Authority - Lease Revenue....................... 6.000 12/01/2007 215,250
225,000 Hartford, WI Community Development Authority - Lease Revenue....................... 6.100 12/01/2008 231,188
10,000 Hudson, WI Housing Authority Christian Community Home of Hudson, Inc............... 8.000 07/01/2005 10,000
55,000 Hudson, WI Housing Authority Christian Community Home of Hudson, Inc............... 6.700 05/01/2008 55,279
75,000 Hudson, WI Housing Authority Christian Community Home of Hudson, Inc............... 6.800 05/01/2009 75,268
65,000 Hudson, WI Housing Authority Christian Community Home of Hudson, Inc............... 6.900 05/01/2010 65,244
250,000 Hudson, WI Housing Authority Christian Community Home of Hudson, Inc............... 7.000 05/01/2023 249,375
160,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 6.500 12/01/2006 167,211
105,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 6.600 12/01/2007 110,643
180,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 6.700 12/01/2008 190,800
260,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 6.800 12/01/2009 278,034
285,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 6.900 12/01/2010 296,124
350,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 7.000 12/01/2012 369,250
390,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 7.000 12/01/2013 410,963
430,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 7.000 12/01/2014 452,575
345,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 7.000 12/01/2015 362,681
515,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 7.000 12/01/2016 540,750
500,000 Jackson, WI Community Development Authority - Revenue Bonds - Series 1994.......... 7.000 12/01/2017 524,375
945,000 La Crosse, WI Housing Authority - Ping Manor Project - Series A.................... 6.000 04/01/2005 929,644
1,100,000 La Crosse, WI Housing Authority - Ping Manor Project - Series A.................... 6.375 04/01/2012 1,100,000
1,760,000 La Crosse, WI Housing Authority - Forest Park Project - Series A................... 6.375 12/01/2018 1,729,200
45,000 Madison, WI Community Development Authority - Monticello Apartments Project........ 7.125 04/01/2009 45,281
1,000,000 Madison, WI Community Development Authority - Meriter Retirement Project........... 6.125 12/01/2019 1,013,750
95,000 Madison, WI Community Development Authority - Greentree Project - Series A......... 7.300 09/01/2032 95,356
1,435,000 Madison, WI Community Development Authority - Edgewood College - Student Housing... 6.250 04/01/2014 1,402,713
</TABLE>
4
<PAGE> 56
HEARTLAND WISCONSIN TAX FREE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
MARKET
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1 (a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN - [CONT'D]
$ 100,000 Marinette, WI Housing Authority - Multifamily - Series A........................... 6.750% 02/01/2024 $ 102,375
100,000 Menomonee Falls, WI Community Development Authority - Village Square Project....... 5.200 09/01/2009 90,375
950,000 Menomonee Falls, WI Community Development Authority - Village Square Project....... 5.350 09/01/2016 827,688
215,000 Milwaukee, WI Housing Authority - Blatz Apartments Project......................... 7.500 12/01/2028 222,794
50,000 Milwaukee, WI New Public Housing Authority......................................... 5.000 09/01/2010 46,894
10,000 Milwaukee, WI Redevelopment Authority - School Improvement Revenue Bonds........... 0.000 03/01/2004 6,013
100,000 Milwaukee, WI Redevelopment Authority - Campus Town Project - Series A............. 5.550 11/01/2012 96,125
3,000,000 Milwaukee, WI Redevelopment Authority - Campus Town Project - Series A............. 5.700 11/01/2018 2,898,750
55,000 Milw., WI Redevelopment Authority - Dynapro Thin Film Products, Inc.
Project - Series 1993............................................................ 5.300 12/01/2007 53,556
65,000 Milw., WI Redevelopment Authority - Dynapro Thin Film Products, Inc.
Project - Series 1993........................................................... 5.350 12/01/2008 62,969
55,000 Milw., WI Redevelopment Authority - Dynapro Thin Film Products, Inc.
Project - Series 1993............................................................ 5.400 12/01/2010 54,106
225,000 Milw., WI Redevelopment Authority - Dynapro Thin Film Products, Inc.
Project - Series 1993............................................................ 5.500 12/01/2013 220,781
1,955,000 Milwaukee, WI Redevelopment Authority - Milwaukee School of Engineering - Series A 6.000 10/01/2017 1,942,781
1,385,000 Milwaukee, WI Redevelopment Authority - Milwaukee School of Engineering - Series B 6.000 10/01/2017 1,376,344
500,000 Milwaukee, WI Redevelopment Authority - Schlitz Park II............................ 5.000 01/01/2015 499,375
1,300,000 Milw., WI Redevelopment Authority - Wisconsin Ave & Martin Luther King Jr.
Dr. Projects..................................................................... 5.500 03/01/2008 1,294,553
1,705,000 Milw., WI Redevelopment Authority - Wisconsin Ave & Martin Luther King Jr.
Dr. Projects..................................................................... 5.600 03/01/2009 1,697,941
1,755,000 Milw., WI Redevelopment Authority - Wisconsin Ave & Martin Luther King Jr.
Dr. Projects..................................................................... 5.600 09/01/2009 1,739,644
11,000,000 Milw., WI Redevelopment Authority - Wisconsin Ave & Martin Luther King Jr.
Dr. Projects..................................................................... 5.500 09/01/2012 10,505,000
65,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 11/01/2003 40,381
65,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 11/01/2004 37,489
70,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 05/01/2005 39,200
65,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 11/01/2005 35,343
70,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 05/01/2006 36,518
65,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 11/01/2006 32,906
70,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 05/01/2007 34,390
65,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 11/01/2007 30,657
70,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 05/01/2009 29,870
65,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 11/01/2009 26,896
70,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 0.000 05/01/2010 28,088
1,210,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 6.700 11/01/2017 1,246,300
650,000 New Berlin, WI Housing Authority - Apple Glen - Series A........................... 6.700 11/01/2020 669,500
125,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.400 05/01/2008 128,778
125,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.400 11/01/2008 128,874
105,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.500 05/01/2009 108,167
125,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.600 05/01/2010 129,375
150,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.700 05/01/2011 156,617
155,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.700 11/01/2011 160,653
165,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.800 11/01/2012 172,671
160,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.850 05/01/2013 167,552
165,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.850 11/01/2013 172,013
135,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.900 05/01/2014 141,160
190,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 6.900 11/01/2014 198,788
1,000,000 New Berlin, WI Housing Authority - Pinewood Creek Project.......................... 7.125 05/01/2024 1,047,500
10,000 Oak Creek, WI Housing Authority - Multifamily Springbrook Circle................... 7.750 03/01/2031 10,438
</TABLE>
5
<PAGE> 57
HEARTLAND WISCONSIN TAX FREE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
MARKET
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1 (a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN - [CONT'D]
$ 80,000 Oak Creek, WI Housing Authority - Country Oaks II Project.......................... 6.000% 08/01/2010 $ 77,600
1,440,000 Oak Creek, WI Housing Authority - Country Oaks II Project.......................... 6.200 08/01/2017 1,387,800
2,980,000 Oak Creek, WI Housing Authority - Country Oaks II Project.......................... 6.300 08/01/2028 2,991,175
100,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 27.750 07/20/1998 163,250
50,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 0.000 07/20/2007 24,268
35,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 0.000 01/20/2010 14,306
125,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 0.000 01/20/2011 47,705
125,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 0.000 07/20/2011 46,250
65,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 0.000 01/20/2012 23,317
125,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 0.000 01/20/2013 41,719
125,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 0.000 07/20/2013 40,863
60,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 0.000 01/20/2014 18,675
1,000,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 5.500 07/20/2019 948,750
2,130,000 Oak Creek, WI Housing Authority - Wood Creek Project - Series 1993................. 5.625 07/20/2029 1,930,313
50,000 Omro, WI Community Development Authority - Revenue Bonds........................... 5.750 12/01/2006 51,563
335,000 Omro, WI Community Development Authority - Revenue Bonds........................... 5.875 12/01/2011 340,863
200,000 Outagamie, WI Housing Authority - First Mortgage................................... 5.000 11/15/2003 190,500
5,000 Racine, WI Elderly Housing Authority - Lincoln Lutheran Racine Project............. 7.100 10/01/2004 5,000
50,000 Reedsville, WI - New Public Housing Authority - 5th Issue.......................... 5.125 04/01/2011 47,412
315,000 Sheboygan, WI Housing Authority - Multifamily Housing.............................. 6.900 02/01/2024 320,119
175,000 Sheboygan, WI Housing Authority - Rocky Knoll Project.............................. 5.250 12/01/2013 159,469
125,000 Sheboygan, WI Housing Authority - Rocky Knoll Project.............................. 5.300 12/01/2016 111,094
35,000 Slinger, WI Redevelopment Authority Lease Revenue - Series 1995A................... 5.800 09/01/2007 35,474
95,000 Slinger, WI Redevelopment Authority Lease Revenue - Series 1995A................... 5.850 09/01/2008 96,544
540,000 Slinger, WI Redevelopment Authority Lease Revenue - Series 1995A................... 6.250 09/01/2017 548,775
105,000 St. Croix Falls, WI Community Development Authority Lease Revenue.................. 5.900 12/01/2006 104,655
115,000 St. Croix Falls, WI Community Development Authority Lease Revenue.................. 6.000 12/01/2007 115,000
1,190,000 St. Croix Falls, WI Community Development Authority Lease Revenue.................. 6.400 12/01/2014 1,185,538
100,000 Stevens Point, WI Community Development Authority - Mortgage
Refunding - Edgewater Project.................................................... 6.500 09/01/2006 105,125
560,000 Stevens Point, WI Community Development Authority - Mortgage
Refunding - Edgewater Project.................................................... 6.625 09/01/2009 582,400
435,000 Sturtevant, WI Community Development Authority - Redevelopment Lease............... 5.700 12/01/2009 421,158
375,000 Sturtevant, WI Community Development Authority - Redevelopment Lease............... 5.800 12/01/2010 366,289
200,000 Sturtevant, WI Community Development Authority - Redevelopment Lease............... 5.900 12/01/2011 196,000
1,000,000 Sturtevant, WI Community Development Authority - Redevelopment Lease............... 6.000 12/01/2015 986,250
200,000 Sturtevant, WI Community Development Authority - Redevelopment Lease............... 6.500 12/01/2015 206,750
305,000 Superior, WI Redevelopment Authority - Superior Memorial Hospital Mortgage........ 5.700 05/01/2009 304,238
1,900,000 Sussex, WI Community Development Authority - Revenue Bond.......................... 6.100 04/01/2015 1,885,750
270,000 Two Rivers, WI Community Development Authority - Arch Forest Project............... 6.350 12/15/2012 280,125
10,000 Waukesha, WI Housing Authority - Multifamily - The Court Apartments Project........ 6.300 12/01/2013 10,000
20,000 Waukesha, WI Housing Authority - Westgrove Woods III Project Series C.............. 8.000 12/01/2020 20,650
15,000 Waukesha, WI Housing Authority - Westgrove Woods II Project........................ 8.250 12/01/2020 15,000
5,000 Waukesha, WI Housing Authority - Multifamily - Summit Woods Project................ 7.375 12/01/2024 5,000
500,000 Waukesha, WI Housing Authority - Multifamily - Brookfield Woods Project............ 6.750 12/01/2034 495,000
1,000,000 Waukesha, WI Housing Authority - Multifamily - The Court Apartments Project........ 6.000 04/01/2036 875,000
95,000 Waupaca, WI Community Development Authority - Series A............................. 6.100 10/01/2008 96,774
</TABLE>
6
<PAGE> 58
HEARTLAND WISCONSIN TAX FREE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
MARKET
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1 (a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WISCONSIN - [CONT'D]
$ 100,000 Waupaca, WI Community Development Authority - Series A............................. 6.100% 10/01/2009 $ 101,668
100,000 Waupaca, WI Community Development Authority - Series A............................. 6.200 10/01/2010 101,742
110,000 Waupaca, WI Community Development Authority - Series A............................. 6.200 10/01/2011 112,109
120,000 Waupaca, WI Community Development Authority - Series A............................. 6.200 10/01/2012 122,250
75,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 05/01/2003 47,943
100,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 11/01/2003 62,125
105,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 05/01/2004 63,395
100,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 11/01/2004 57,675
70,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 05/01/2005 39,200
100,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 11/01/2005 54,374
105,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 05/01/2006 54,776
100,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 11/01/2006 50,625
105,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 05/01/2007 51,584
100,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 11/01/2007 47,165
105,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 05/01/2008 48,038
100,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 11/01/2008 44,377
105,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 05/01/2009 44,806
100,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 11/01/2009 41,379
105,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 05/01/2010 42,131
100,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 0.000 11/01/2010 38,909
1,200,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 6.700 11/01/2015 1,201,500
1,060,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 6.700 11/01/2019 1,056,025
670,000 Wauwatosa, WI Housing Authority - Hawthorne Terrace Project - Series A............. 6.700 11/01/2022 667,488
2,720,000 West Allis, WI Community Development Authority - Poblocki Investments.............. 6.100 05/01/2007 2,730,200
10,000 Winnebago County, WI Housing Authority - Series A.................................. 6.000 03/01/1999 10,225
10,000 Winnebago County, WI Housing Authority - Series A.................................. 6.100 03/01/2000 10,263
10,000 Winnebago County, WI Housing Authority - Series A.................................. 6.200 03/01/2001 10,313
15,000 Winnebago County, WI Housing Authority - Series A.................................. 6.300 03/01/2002 15,525
100,000 Winnebago County, WI Housing Authority - 1st Mortgage Revenue Bonds................ 5.625 05/01/2005 97,625
105,000 Winnebago County, WI Housing Authority - 1st Mortgage Revenue Bonds................ 5.625 05/01/2006 101,841
115,000 Winnebago County, WI Housing Authority - 1st Mortgage Revenue Bonds................ 5.625 05/01/2007 110,759
120,000 Winnebago County, WI Housing Authority - 1st Mortgage Revenue Bonds................ 5.625 05/01/2008 114,978
125,000 Winnebago County, WI Housing Authority - 1st Mortgage Revenue Bonds................ 5.625 05/01/2009 118,810
135,000 Winnebago County, WI Housing Authority - 1st Mortgage Revenue Bonds................ 5.625 05/01/2010 127,238
140,000 Winnebago County, WI Housing Authority - Multifamily Housing Ecumenical Project.... 6.750 10/01/2020 141,750
195,000 Winnebago County, WI Housing Authority - Series A.................................. 6.875 03/01/2012 198,656
380,000 Winnebago County, WI Housing Authority - Series A.................................. 7.125 03/01/2022 388,075
30,000 Wisconsin Housing Finance Authority - Series A..................................... 9.875 11/01/2003 30,525
140,000 Wisconsin Housing Finance Authority - Issue 1...................................... 10.000 11/01/2010 140,700
5,000 Wisconsin Housing Finance Authority - Issue 1...................................... 9.125 12/01/2011 5,000
130,000 Wisconsin Housing and Economic Development Authority - Home Ownership.............. 0.000 12/01/2007 39,488
20,000 Wisconsin Housing and Economic Development Authority - Home Ownership.............. 7.375 09/01/2017 20,350
255,000 Wisconsin Housing and Economic Development Authority - Home Ownership.............. 6.100 06/01/2021 269,344
60,000 Wittenberg, WI Housing Authority - Multifamily - Forest Park Project............... 7.200 06/20/2030 61,050
----------
77,734,499
----------
</TABLE>
7
<PAGE> 59
HEARTLAND WISCONSIN TAX FREE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
QUOTED
MARKET
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1 (a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PUERTO RICO - 21.2%
$ 400,000 Puerto Rico Commonwealth - Public Improvement...................................... 5.850% 07/01/2011 $ 394,170
420,000 Puerto Rico Commonwealth - Public Improvement...................................... 5.500 07/01/2013 396,287
4,450,000 Puerto Rico Commonwealth - Public Improvement...................................... 5.250 07/01/2018 3,962,503
635,000 Puerto Rico Commonwealth Highway and Transportation Authority - Series V........... 6.375 07/01/2008 663,562
5,455,000 Puerto Rico Commonwealth Highway and Transportation Authority - Series W........... 5.500 07/01/2017 5,011,781
2,915,000 Puerto Rico Commonwealth Highway and Transportation Authority - Series V........... 5.750 07/01/2018 2,754,413
1,150,000 Puerto Rico Commonwealth Highway and Transportation Authority - Series W........... 5.250 07/01/2020 1,008,504
990,000 Puerto Rico Electric Power Authority - Series O.................................... 0.000 07/01/2017 246,758
3,350,000 Puerto Rico Electric Power Authority............................................... 6.250 07/01/2017 3,352,546
280,000 Puerto Rico Electric Power Authority............................................... 7.000 07/01/2021 297,296
1,560,000 Puerto Rico Housing Bank and Finance Agency - Commonwealth Appropriations Bond..... 5.250 12/01/2006 1,476,150
135,000 Puerto Rico Housing Finance Corporation - Multifamily Mortgage - Portfolio A-I..... 7.500 10/01/2015 142,930
365,000 Puerto Rico Housing Finance Corporation - Single Family Mortgage - Portfolio 1..... 6.850 10/15/2024 378,688
250,000 Puerto Rico Industrial, Medical, & Environmental Authority......................... 6.000 06/01/2000 257,500
1,625,000 Puerto Rico Municipal Finance Agency - Series A.................................... 5.875 07/01/2007 1,637,188
2,000,000 Puerto Rico Public Buildings Authority - Series M.................................. 5.500 07/01/2021 1,811,200
------------
23,791,476
------------
GOVERNMENT OF GUAM - 8.0%
3,400,000 Guam Power Authority - Series A.................................................... 6.300 10/01/2012 3,323,500
250,000 Guam Power Authority - Series A.................................................... 5.250 10/01/2013 217,500
1,000,000 Guam Power Authority - Series A.................................................... 5.250 10/01/2023 826,250
1,000,000 Guam Government G.O. - Series A.................................................... 5.375 11/15/2013 868,600
3,000,000 Guam Government G.O. - Series A.................................................... 5.400 11/15/2018 2,636,250
1,000,000 Guam Airport Authority - Series B.................................................. 6.400 10/01/2005 1,037,460
------------
8,909,560
------------
NEW PUBLIC HOUSING AUTHORITIES - 0.0%
35,000 Burleigh County, ND - New Public Housing Authority................................. 4.875 01/01/2011 32,316
------------
32,316
------------
TOTAL INVESTMENTS - 98.6% (Cost $112,447,462)........................................................... 110,467,851
Cash and receivables, less liabilities - 1.4%........................................................... 1,528,305
------------
TOTAL NET ASSETS (Note 5) (+)........................................................................... $111,996,156
============
(+) Percentages for the various classifications use total net assets as a basis.
The accompanying notes to financial statements are an integral part of this schedule.
</TABLE>
--------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS:
An annual meeting of the Heartland Funds' shareholders was held on April 27,
1995 for purposes of electing directors and ratifying the selection of
independent accountants for Heartland. Shareholders of all of Heartland's funds
voted together on these matters. All nominees for director were elected and the
accountants were ratified by the following vote:
1. ELECTION OF DIRECTORS: Willard Davidson 25,587,705 For (326,010 Withheld);
Hugh F. Denison 25,636,356 For (277,360 Withheld); Jon D. Hammes 25,601,196 For
(312,520 Withheld); William J. Nasgovitz 25,638,105 For (275,611 Withheld);
Patrick J. Retzer 25,629,732 For (283,983 Withheld); A. Gary Shilling 25,469,580
For (444,136 Withheld); Linda F. Stephenson 25,460,045 For (453,670 Withheld).
2. ARTHUR ANDERSEN LLP: 25,364,947 For; 134,849 Against; 413,920 Abstain.
--------------------------------------------------------------------------------
8
<PAGE> 60
HEARTLAND WISCONSIN TAX FREE FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at quoted market value (Cost $112,447,462)............. $110,467,851
Receivable from investments sold.................................................. 853,057
Receivable from Fund shares sold.................................................. 20,000
Accrued interest.................................................................. 1,936,212
Deferred organization expense (Note 3)............................................ 5,308
------------
Total Assets................................................................. 113,282,428
------------
LIABILITIES:
Payable to transfer agent......................................................... 703,969
Payable for investments purchased................................................. 551,204
Payable for Fund shares redeemed.................................................. 25,791
Payable to Advisor for deferred organization expenses (Note 3).................... 5,308
------------
Total Liabilities............................................................ 1,286,272
------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value, 100,000,000 shares authorized, 11,388,169 shares outstanding)... $111,996,156
============
NET ASSET VALUE PER SHARE
Net asset value and redemption price per share ($.001 par value, 100,000,000
shares authorized [$111,996,156 divided by 11,388,169 shares outstanding])........ $ 9.83
============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
For the six months April 3, 1992(1)
ending June 30, 1995 For the year ended December 31 through
(Unaudited) 1994 1993 Dec. 31, 1993
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period............. $ 9.21 $ 10.38 $ 9.85 $ 9.70
Income from investment operations:
Net investment income..................... .25 .51 .49 .37
Net realized and unrealized gains
(losses) on securities.................. .62 (1.17) .55 .15
-------- -------- -------- --------
Total from investment operations.......... .87 (.66) 1.04 .52
Less distributions:
Dividends from net investment income...... (.25) (.51) (.49) (.37)
Distributions from net realized gains..... -- -- (.02) --
-------- -------- -------- --------
Total distributions....................... (.25) (.51) (.51) (.37)
-------- -------- -------- --------
Net asset value at end of period................... $ 9.83 $ 9.21 $ 10.38 $ 9.85
======== ======== ======== ========
Total return(2).................................... 9.56%(3) (6.49)% 10.80% 7.32%(4)
Supplemental data and ratios:
Net assets, end of period (in thousands).. $111,996 $101,749 $ 99,349 $ 36,304
Ratio of expenses to average net assets... 0.86%(4) 0.85% 0.84% 0.82%(4)
Ratio of net investment income to average
net assets.............................. 5.28%(4) 5.28% 4.81% 4.87%(4)
Portfolio turnover rate................... 19%(4) 22% 6% 7%
</TABLE>
(1) Commencement of operations
(2) The front-end sales charge in effect for the Fund prior to June 1,
1994 is not reflected in Total Return as set forth in the table.
(3) Not annualized
(4) Annualized
The accompanying notes to financial statements are an integral part of
these statements.
9
<PAGE> 61
HEARTLAND WISCONSIN TAX FREE FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF OPERATIONS
For the six months ending June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest.......................................................... $ 3,341,628
-----------
EXPENSES:
Management fees (Note 2).......................................... 352,812
Transfer agent fees............................................... 37,208
Professional and legal fees....................................... 18,947
Printing and communications....................................... 10,624
Postage expense................................................... 8,206
Custodian fees.................................................... 4,698
Amortization of organization expenses (Note 3).................... 1,517
Registration fees................................................. 1,500
Directors' fees................................................... 900
Other operating expenses.......................................... 35,409
-----------
Total expenses............................................... 471,821
-----------
Net investment income............................................. 2,869,807
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS - NET:
NET REALIZED LOSSES ON INVESTMENTS................................ (511,818)
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS (Note 5)... 7,397,532
-----------
NET GAINS ON INVESTMENTS.......................................... 6,885,714
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $ 9,755,521
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ending June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net investment income................................................ $ 2,869,807
Net realized losses on investments................................... (511,818)
Net increase in unrealized appreciation on investments............... 7,397,532
-------------
Net increase in net assets resulting from operations............ 9,755,521
-------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.25 per share)............ (2,869,807)
-------------
Total distributions............................................. (2,869,807)
-------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (954,348 shares)......................... 9,248,910
Net asset value of shares issued in reinvestment of distributions
from net investment income and net realized gains
(204,460 shares, respectively).................................. 1,997,611
Cost of shares redeemed (812,741 shares)............................. (7,884,897)
-------------
Net increase in net assets derived from Fund share activities... 3,361,624
-------------
TOTAL INCREASE....................................................... 10,247,338
NET ASSETS AT DECEMBER 31, 1994............................................... 101,748,818
-------------
NET ASSETS AT JUNE 30, 1995 (Note 5).......................................... $ 111,996,156
=============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
10
<PAGE> 62
HEARTLAND WISCONSIN TAX FREE FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The Heartland Wisconsin Tax Free Fund ("The Fund") is a separate series of
Heartland Group, Inc. The assets and liabilities of each portfolio of Heartland
Group, Inc. are segregated, with a shareholder's interest limited to the
portfolio in which the shareholder owns shares. The following is a summary of
significant accounting policies of the Fund:
(a) Each security is valued using bid side market quotations, prices
provided by market makers or estimates of market values obtained from
pricing services or yield data relating to instruments or securities with
similar characteristics. Short-term investments are recorded at cost which
approximates market.
(b) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise
comply with the provisions of the Internal Revenue Code applicable to
regulated investment companies. As of June 30, 1995, the Fund has a Federal
income tax capital loss carry forward of $890,718 expiring in 2003.
(c) The Fund declares daily and pays monthly distributions from net
investment income. Net capital gains, if any, are distributed annually. The
amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting
principles. To the extent these book and tax differences are permanent in
nature, such amounts are re-classified to paid-in capital in excess of par
value.
(d) The Fund records security transactions at cost no later than the first
business day after the trade date. Net realized gains and losses on
investments are computed on the specific identification cost method.
Interest income is recorded on the accrual basis. The cost amounts as
reflected in the Schedule of Investments are the same for Federal income
tax purposes. The Fund amortizes discounts on original issue discount
securities, and all premiums using the effective interest method.
(e) Dividends to shareholders are recorded on the ex-dividend date.
2.) INVESTMENT ADVISOR, MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES.
The Fund has a management agreement with Heartland Advisors, Inc. (the
"Advisor") with whom certain officers and directors of the Fund are affiliated,
to serve as investment advisor and manager. Under the terms of the agreement,
the Fund will pay the Advisor a monthly management fee at the annual rate of .65
of 1% of the Fund's average daily net assets.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the
Board of Directors of the Fund has adopted a plan which will allow the Fund,
under certain conditions described in the Rule, to acquire newly-issued
securities from syndicates in which the Distributor is a member.
3.) DEFERRED ORGANIZATION EXPENSES.
Organization expenses have been deferred and are being amortized on a
straight-line basis over sixty months. Payments for these expenses were advanced
by the Advisor who will be reimbursed by the Fund over the same period. The
proceeds of any redemption of the initial shares by the original shareholders
will be reduced by a pro-rata portion of any then unamortized expenses.
Unamortized deferred organization expenses and the related payable to the
Advisor at June 30, 1995 were $5,308.
4.) INVESTMENT TRANSACTIONS.
For the six month period ending June 30, 1995, the cost of purchases and the
proceed from sales of investment securities (excluding short-term securities)
were $11,576,390 and $10,451,390, respectively.
5.) SOURCES OF NET ASSETS.
<TABLE>
<S> <C>
As of June 30, 1995 the sources of net assets were as follows:
Fund shares issued and outstanding .................................. $ 114,866,485
Net unrealized depreciation on investments .......................... (1,979,611)
Accumulated net realized losses on investments ...................... (890,718)
-------------
$ 111,996,156
=============
Aggregate gross unrealized appreciation (depreciation) as of June 30,
1995, based on investment cost for Federal income tax purposes is as
follows:
Aggregate gross unrealized appreciation ............................. $ 920,627
Aggregate gross unrealized depreciation ............................. (2,900,238)
-------------
Net unrealized depreciation on investments .......................... $ (1,979,611)
=============
</TABLE>
11
<PAGE> 63
HEARTLAND
Wisconsin Tax Free Fund
790 N. Milwaukee Street
Milwaukee, Wisconsin 53202
414-347-7777 or 1-800-HEARTLN
Account Information and Fund Prices
1-800-248-1162 (24 hrs.)
414-287-3702 (8:00 a.m.-7:00 p.m.) M-F, CST
HEARTLAND FAMILY OF FUNDS
WISCONSIN TAX FREE FUND
SMALL CAP CONTRARIAN FUND
Maximum long-term growth through aggressive
value investing in small company stocks
VALUE & INCOME FUND
Capital growth and current income through
investment in stocks and bonds
VALUE FUND
Capital appreciation through small company stocks
selected on a value basis [closed as of 7/1/95]
U.S. GOVERNMENT SECURITIES FUND
Current income, liquidity and safety of principal
NEBRASKA TAX FREE FUND
Current income exempt from federal and
Nebraska state income taxes
MONEY MARKET FUND
Liquidity and current yield, offered through Portico Funds
BOARD OF DIRECTORS AND OFFICERS
William J. Nasgovitz, President
Hugh F. Denison, Director of Research
Patrick J. Retzer C.P.A., Director of Fixed Income,
Treasurer
Willard H. Davidson
Jon D. Hammes
A. Gary Shilling
Linda F. Stephenson
Lois J. Schmatzhagen, Secretary
CUSTODIAN, TRANSFER &
DIVIDEND DISBURSING AGENT
Firstar Trust Company, Milwaukee
HEARTLAND
WISCONSIN
TAX FREE FUND
"High level of current income that
is exempt from federal income tax
and Wisconsin state income tax"
SEMI-ANNUAL
REPORT
JUNE 30, 1995
<PAGE> 64
Heartland Nebraska Tax Free Fund
<PAGE> 65
August 7, 1995
Dear Fellow Shareholder:
The first half of 1995 has proven to be a prosperous year for tax-free bond
investors. Our Fund's net asset value increased from $8.23 to $8.86, while
paying out dividends of $0.22 per share for a six month total return of 10.4%.
On June 30, 1995, the Fund had total net assets of $13.4 million, 601
shareholders and was invested in 69 issues.
We believe the Fund is an excellent investment for the following reasons:
1. 5.4% YIELD*. Free from both federal and Nebraska income tax. To an
investor in the maximum tax bracket, this is equivalent to a taxable
return of 9.7%. (*June SEC yield annualized for the 30 days commencing
6/1/95. Up to 20% of income may be subject to alternative minimum tax.
The average annual returns ending 6/30/95 for the 1-year period and
since inception on 9/27/93 were 8.32% and -.10%, respectively.)
2. THE FEDERAL RESERVE IS CUTTING INTEREST RATES. With the economy slowing
down, the dollar stable, inflation not a problem, and the Federal
Reserve Board now cutting interest rates, we have a favorable outlook
for the bond market.
3. TAX-FREE BONDS HAVE BEGUN "CATCHING UP" TO TREASURIES. Even though
tax-free bonds have performed well over the past six months, Treasuries
have done even better. Talk of a flat tax has held tax-free bonds back,
but as explained on pages 2 and 3, this trend has recently changed. The
tax-free market has already factored in a flat tax and in the process,
overreacted to the possibility of it being enacted.
We believe that with an attractive yield, a favorable environment for bonds, and
tax-free bonds beginning to outperform Treasuries, the Heartland Nebraska Tax
Free Fund is an excellent investment. If you have any questions about Nebraska's
most diversified and only no-load double tax-free fund, please call us at
1-800-432-7856.
Sincerely,
/S/ Patrick J. Retzer
-------------------------
Patrick J. Retzer
Portfolio Manager
This material may only be used when preceded or accompanied by the Fund's
prospectus. For more complete information, including charges and expenses, call
for a prospectus. Read it carefully before you invest or send money. Performance
data quoted represents past performance. Investment return and principal value
of an investment will fluctuate, and investor's shares, when redeemed, may be
worth more or less than their original cost.
1
<PAGE> 66
HIGH RELATIVE TAX-FREE YIELDS
CREATE EXCELLENT INVESTMENT OPPORTUNITY
Talk of a flat tax and problems in Orange County cast shadows over the tax-free
bond market during the second quarter of 1995, causing Treasury yields to fall
much faster than those on tax-free bonds. For taxpayers in substantial brackets,
we believe this has created a buying opportunity.
The graph at right shows the yield on long-term "Aa" rated municipal bonds
as a percentage of the long-term Treasury yield. A rising line means municipal
yields are higher (relative to Treasuries) making municipal bonds a more
attractive investment.
The graph illustrates two important points:
1) Earlier in 1995, municipal yields approximated 80% of Treasury yields, but
municipal yields have recently risen to about 92%, THE MOST ATTRACTIVE LEVEL
IN SEVEN YEARS.
(Source: Lehman Brothers)
--------------------------------------------------------------------------------
THE VALUE OF DOUBLE TAX-FREE INCOME
While tax-free bonds have had good performance during the first half of 1995,
they have lagged Treasury bonds. Much of this lagging performance has been
attributed to fears of a flat tax, which would decrease the relative value of
tax-free bonds. The table below, however, shows that CURRENT TAX-FREE YIELDS
TRANSLATE INTO ATTRACTIVE TAXABLE EQUIVALENT YIELDS, EVEN IF A 20% FLAT TAX IS
PASSED.
Currently, a 5.4% double tax-free yield is equivalent to a taxable yield up to
9.7%, depending on your tax bracket. If a 20% flat tax is passed, a 5.4% double
tax-free yield is equivalent to a 7.2% taxable yield, about 10% higher than that
currently available on 30-year Treasuries!
ON THIS TABLE, FIND YOUR TAX RATE AND LOOK DOWN THE COLUMN TO FIND THE TAXABLE
EQUIVALENT YIELD YOU WOULD NEED TO MATCH THE FUND'S JUNE YIELD ON AN AFTER-TAX
BASIS:
<TABLE>
<CAPTION>
Proposed
Flat Tax
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal Bracket ...................... 28.0% 31.0% 36.0% 39.6% 20.0%
Effective Federal Tax Rates .......... 29.4 32.6 37.8 40.8 20.0
Nebraska Tax Rate .................... 6.9 6.9 6.9 6.9 6.9
Combined Rates ....................... 34.3 37.2 42.1 44.9 25.5
</TABLE>
<TABLE>
<CAPTION>
HEARTLAND TAX-FREE YIELD T A X E Q U I V A L E N T Y I E L D S
<S> <C> <C> <C> <C> <C>
5.4% (June yield)* ................... 8.2% 8.6% 9.3% 9.7% 7.2%
</TABLE>
*June SEC yield annualized for the 30 days commencing 6/1/95.
2
<PAGE> 67
2) The line has recently turned down, meaning MUNICIPALS HAVE BEGUN
OUTPERFORMING Treasuries. We believe the bond market has overreacted to the
flat tax talk and Orange County, and that municipals will outperform
Treasuries in the foreseeable future.
With municipal yields at their most attractive level relative to Treasuries
in seven years, we believe this is a good time for tax-free investors to
consider adding to their positions.
Yield Graph
A graph reflecting the trends in the Long Aa Municipal Revenue Bond Yield as a
Percentage of Long Treasury Yield from 1/3/95 through 7/7/95, as tracked by
Lehman Brothers, shows the yield on Long Aa municipal bonds at approximately
84.5% of the yield on Long Treasury Bonds as of January 3, 1995. The graph
shows that over the five weeks following January 3, 1995, the relative yield on
Long Aa municipal revenue bonds fell to 80% of the Long Treasury yield. For
the next two months, the relative yield moved between 80% and 83%, before
beginning a steady climb to 92%, which it reached in late June. After peaking
at 92%, the relative yield turned down and was approximately 90% on July 7,
1995.
--------------------------------------------------------------------------------
THE BENEFITS OF INVESTING WITH HEARTLAND
CALL 1-800-432-7856 FOR ALL OF THE FOLLOWING SERVICES:
- PERSONAL HEARTLAND REPRESENTATIVE
You can speak to a personal Heartland representative between the hours of 7:00
a.m. and 6:30 p.m. CST Monday through Friday, and 8:30 a.m. to 12:30 p.m. CST on
Saturday.
- AUTOMATED SERVICES
Automated options include daily prices, account information including your last
two transactions, and prospectus and literature requests. Call 24 hours a day.
- WEEKLY UPDATES BY PORTFOLIO MANAGERS
Concerned about the financial markets? Wondering how your fund is currently
positioned? Heartland shareholders have free access to weekly updates, recorded
by each fund's portfolio manager. Call 24 hours a day.
- FREE INVESTMENT SEMINARS
Heartland sponsors both local and national investment seminars. You can request
free tickets to the various ISI Money Shows we sponsor. There are usually four
shows a year, held in Boston, Orlando, Las Vegas and San Francisco. The shows
are a great opportunity to meet your portfolio managers and visit with other
nationally recognized financial advisors.
- AUTOMATIC INVESTMENT PLAN
Make automatic regular investments into any Heartland fund directly from your
checking account on a monthly or bi-monthly basis.
- AUTOMATIC REINVESTMENT/CROSS-INVESTMENT OF DIVIDENDS
Dividends can be automatically reinvested into additional shares of the same
fund, or cross-invested into shares of one of the other funds.
- FREE EXCHANGE BETWEEN FUNDS
Exchanges can be made without incurring an exchange fee, redemption fee or sales
charge.
- TELEPHONE PRIVILEGES
Set up your account to allow for telephone exchanges between funds or
redemptions of fund shares.
- SYSTEMATIC WITHDRAWAL PLAN
Establish automatic monthly or quarterly payments from your account.
- LOW MINIMUM INVESTMENT
Open a regular account with a low initial investment of $10,000. Monthly
automatic investment plans begin with no initial minimum and $100/mo. minimum
thereafter.
3
<PAGE> 68
HEARTLAND NEBRASKA TAX FREE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
QUOTED
MARKET
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1 (a)
---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS - 98.8%
<S> <C> <C> <C> <C>
$ 25,000 Antelope County, NE School District - Series A............................. 5.250% 12/15/2012 $ 23,033
40,000 Antelope County, NE School District - Series B............................. 5.250 12/15/2012 36,853
20,000 Antelope County, NE School District - Series A............................. 5.300 12/15/2013 18,383
45,000 Antelope County, NE School District - Series B............................. 5.300 12/15/2013 41,363
25,000 Antelope County, NE School District - Series A............................. 5.350 12/15/2014 23,063
45,000 Antelope County, NE School District - Series B............................. 5.350 12/15/2014 41,513
55,000 Arapahoe, NE Various Purpose Bonds......................................... 5.400 11/15/2008 53,486
25,000 Arapahoe, NE Various Purpose Bonds......................................... 5.450 11/15/2009 23,969
70,000 Arapahoe, NE Various Purpose Bonds......................................... 5.500 11/15/2013 65,538
150,000 Boone County, NE - Boone County Health Center Project...................... 5.400 12/15/2013 137,063
300,000 Cass County, NE School District #1......................................... 6.250 12/01/2014 310,212
245,000 Cedar County, NE School District #45....................................... 5.250 11/15/2010 227,238
100,000 Cedar County, NE School District #45....................................... 5.350 11/15/2014 91,750
15,000 Consumer's Public Power District........................................... 5.100 01/01/2003 15,000
25,000 David City, NE Industrial Development Revenue.............................. 6.400 12/15/2002 26,031
125,000 Dawson County, NE Sanitation and Improvement District...................... 6.950 02/01/2005 127,500
55,000 Dixon County, NE School District #001 (AKA Ponca Public Schools)........... 4.800 12/01/2005 52,388
40,000 Hall County, NE Hospital Authority Regency Retirement Project.............. 5.450 12/01/2008 36,312
35,000 Hall County, NE Hospital Authority Regency Retirement Project.............. 5.500 12/01/2009 31,627
45,000 Hall County, NE Hospital Authority Regency Retirement Project.............. 5.500 12/01/2010 40,275
85,000 Hall County, NE Hospital Authority Regency Retirement Project.............. 6.000 12/01/2018 77,031
520,000 Hastings, NE Electrical Systems............................................ 5.200 01/01/2013 470,600
25,000 Hastings, NE Various Purpose Bonds - Series 1993........................... 5.550 07/15/2011 24,031
115,000 Hemingford, NE Refunding Bonds (General Obligation)........................ 5.600 02/15/2012 110,975
100,000 Kearney County, NE School District #503.................................... 6.150 12/15/2012 100,314
200,000 Kearney, NE Combined Utility Revenue Bonds................................. 6.100 06/01/2014 203,908
40,000 La Vista, NE Facilities Corporation Revenue Bonds (Golf Course Project).... 5.400 12/15/2010 38,114
65,000 La Vista, NE Facilities Corporation Revenue Bonds (Golf Course Project).... 5.400 12/15/2011 61,506
960,000 Lincoln, NE Electrical Systems - Series A.................................. 5.250 09/01/2015 881,347
170,000 Lincoln, NE Parking Revenue Bonds.......................................... 5.100 08/15/2012 154,459
285,000 Lincoln, NE Parking Revenue Bonds.......................................... 5.200 08/15/2013 259,795
215,000 Lincoln, NE Parking Revenue Bonds.......................................... 5.200 08/15/2014 194,306
115,000 Malcolm, NE Water Bonds.................................................... 5.700 02/15/2006 116,294
45,000 Merrick County, NE School District #49..................................... 6.200 07/01/2010 44,908
50,000 Merrick County, NE School District #49..................................... 6.250 07/01/2014 49,813
100,000 Merrick County, NE School District #4...................................... 5.350 01/15/2011 91,324
100,000 Merrick County, NE School District #4...................................... 5.350 01/15/2012 91,000
500,000 Municipal Energy Agency of Nebraska........................................ 6.000 04/01/2017 497,410
100,000 Nebraska Educational Finance Authority - Midland Lutheran College.......... 6.250 06/15/2015 100,000
350,000 Nebraska Higher Education Loan Program - Series A.......................... 6.250 06/01/2018 343,256
1,350,000 Nebraska Higher Education Loan Program - Series B.......................... 5.875 06/01/2014 1,253,813
150,000 Nebraska Investment Finance Authority - Revenue - Great Plains
Regional Med. Cntr......................................................... 6.500 05/15/2014 151,125
15,000 Nebraska Investment Finance Authority - Single Family Mortgage
Revenue - Series 1......................................................... 7.900 08/15/2014 15,450
295,000 Nebraska Investment Finance Authority - FHA-Muirfield Greens
Apartments - Series A...................................................... 6.800 12/01/2015 305,694
525,000 Nebraska Investment Finance Authority - FHA-Muirfield Greens
Apartments - Series A...................................................... 6.850 12/01/2025 541,406
200,000 Nebraska Public Power District Series C.................................... 5.000 01/01/2009 186,880
600,000 Nebraska Public Power District Series B.................................... 5.250 01/01/2013 556,878
110,000 Nebraska Public Power District............................................. 6.125 01/01/2015 110,752
1,000,000 Nebraska Public Power District Series C.................................... 5.000 01/01/2017 880,470
300,000 Nebraska State Colleges Board of Trustees.................................. 5.700 07/01/2011 281,250
450,000 Nebraska State Educational Services Unit #3................................ 5.500 06/01/2013 424,125
</TABLE>
4
<PAGE> 69
HEARTLAND NEBRASKA TAX FREE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS - [CONT'D]
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
QUOTED
MARKET
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1 (a)
---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS - [CONT'D]
<S> <C> <C> <C> <C>
$ 80,000 Omaha, NE Public Power District - Series B................................. 5.600% 02/01/2012 $ 78,053
390,000 Omaha, NE Public Power District............................................ 5.250 02/01/2013 364,077
590,000 Omaha, NE Public Power District............................................ 5.300 02/01/2016 541,903
200,000 Omaha, NE Public Power District............................................ 5.700 02/01/2017 192,168
310,000 Omaha, NE School District #001 (AKA Douglas County School)................. 5.000 12/15/2011 286,434
105,000 Papillion, NE Various Purpose Bonds (Series 1994B)......................... 6.150 07/01/2012 105,525
75,000 Saunders County, NE School District #9..................................... 5.400 12/01/2014 69,194
235,000 Saunders County, NE School District #9..................................... 5.450 12/01/2016 217,274
125,000 Saunders County, NE School District #9..................................... 5.450 12/01/2017 115,361
25,000 Saunders County, NE School District #9..................................... 5.500 12/01/2018 23,188
200,000 Stanton County, NE School District #003.................................... 5.300 11/15/2012 185,500
100,000 University of Nebraska-Omaha Student Center................................ 5.300 05/15/2012 95,665
350,000 University of Nebraska-Omaha Student Center................................ 5.350 05/15/2013 336,140
200,000 University of Nebraska-Omaha Student Center................................ 5.250 05/15/2014 187,500
100,000 Washington County School District.......................................... 5.800 07/15/2011 100,000
40,000 Washington County, NE General Obligation Courthouse Bonds.................. 5.200 01/01/2008 38,950
125,000 Washington County, NE General Obligation Courthouse Bonds.................. 5.350 01/01/2011 117,840
160,000 Washington County, NE General Obligation Courthouse Bonds.................. 5.450 01/01/2014 150,600
-----------
13,246,203
-----------
TOTAL INVESTMENTS - 98.8% (Cost $14,041,065).................................................... 13,246,203
Cash and receivables, less liabilities - 1.2%................................................... 154,536
-----------
TOTAL NET ASSETS (NOTE 5)(+).................................................................... $13,400,739
===========
</TABLE>
(+) Percentages for the various classifications use total net
assets as a basis.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
<TABLE>
---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at quoted market value (Cost $14,041,065)............................ $13,246,203
Receivable from securities sold................................................................. 114,326
Accrued interest................................................................................ 200,199
Deferred organization expense (Note 3).......................................................... 10,953
-----------
Total Assets 13,571,681
-----------
LIABILITIES:
Payable for securities purchased................................................................ 100,193
Payable to transfer agent....................................................................... 45,222
Payable for fund shares redeemed................................................................ 14,574
Payable to Advisor for deferred organization expenses (Note 3).................................. 10,953
-----------
Total Liabilities 170,942
-----------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value, 100,000,000 shares authorized, 1,511,774 shares outstanding).................. $13,400,739
===========
NET ASSET VALUE PER SHARE
Net asset value and offering price per share ($.001 par value 100,000,000 shares
authorized [$13,400,739 divided by 1,511,774 shares outstanding])............................... $ 8.86
===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
5
<PAGE> 70
HEARTLAND NEBRASKA TAX FREE FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF CHANGES IN NET ASSETS
For the six months ending June 30, 1995 (Unaudited)
<TABLE>
------------------------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net investment income................................................... $ 335,177
Net realized losses on investments...................................... (30,924)
Net increase in unrealized appreciation on investments.................. 984,560
------------
Net increase in net assets resulting from operations............... 1,288,813
------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.22 per share)............... (335,177)
------------
Total distributions................................................ (335,177)
------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (82,752 shares )............................ 727,942
Net asset value of shares issued in reinvestment of distributions from
net investment income (28,346 shares)................................. 248,899
Cost of shares redeemed (121,475 shares)................................ (1,056,025)
------------
Net decrease in net assets derived from Fund share activities...... (79,184)
------------
TOTAL INCREASE.......................................................... 874,452
NET ASSETS AT DECEMBER 31, 1994......................................... 12,526,287
------------
NET ASSETS AT JUNE 30, 1995 (NOTE 5).................................... $ 13,400,739
============
------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
For the six months ending June 30, 1995 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................ $ 385,104
-----------
EXPENSES:
Management fees (Note 2)................................................ 42,439
Transfer agent fees..................................................... 12,145
Professional and legal fees............................................. 3,767
Printing and communications............................................. 2,096
Amortization of organization expenses (Note 3).......................... 1,685
Postage................................................................. 1,428
Directors' fees......................................................... 1,100
Custodian fees.......................................................... 772
Registration fees....................................................... 10
Other operating expenses................................................ 5,705
-----------
Total expenses.......................................................... 71,147
Less expenses reimbursed by Advisor (Note 2)............................ (21,220)
-----------
Net expenses....................................................... 49,927
-----------
Net investment income................................................... 335,177
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS - NET:
NET REALIZED LOSSES ON INVESTMENTS...................................... (30,924)
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS.................. 984,560
-----------
NET GAINS ON INVESTMENTS................................................ 953,636
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $ 1,288,813
===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
6
<PAGE> 71
HEARTLAND NEBRASKA TAX FREE FUND
(A Series of Heartland Group, Inc.)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
For the six months Sept. 27, 1993(1)
ending June 30, 1995 Year ended through
(Unaudited) Dec. 31, 1994 Dec. 31, 1993
-------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period......................... $ 8.23 $ 9.56 $ 9.70
Income from investment operations:
Net investment income................................. .22 .45 .11
Net realized and unrealized gains on securities....... .63 (1.33) (.14)
------ ------ ------
Total from investment operations...................... .85 (.88) (.03)
Less distributions:
Dividends from net investment income.................. (.22) (.45) (.11)
Distributions from net realized gains................. -- -- --
------ ------ ------
Total distributions................................... (.22) (.45) (.11)
Net asset value, end of period................................. $ 8.86 $ 8.23 $ 9.56
====== ====== ======
Total return(2)................................................ 10.41%(3) (9.33)% (.29)%(3)
Supplemental data and ratios:
Net assets, end of period (in thousands).............. $13,401 $12,526 $8,998
Ratio of expenses to average net assets(4)............ 0.76%(5) 0.81% 0.13%(5)
Ratio of net investment income to average net assets.. 5.12%(5) 5.23% 4.65%(5)
Portfolio turnover rate............................... 10%(5) 33% 3%(5)
</TABLE>
(1) Commencement of operations.
(2) The front-end sales charge in effect for the Funds prior to June 1,
1994 is not reflected in Total Return as set forth in the table.
(3) Not annualized.
(4) Heartland Advisors voluntarily waived the management fee in its
entirety from September 27, 1993 through December 31, 1993.
Effective January 1, 1994, Heartland Advisors partially reinstated
a portion of the fee at a rate of .325 of 1% of average net assets.
(5) Annualized.
The accompanying notes to financial statements are an integral part of
this statement.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The Heartland Nebraska Tax Free Fund ("The Fund") is a separate series of
Heartland Group, Inc. The assets and liabilities of each portfolio of Heartland
Group, Inc. are segregated, with a shareholder's interest limited to the
portfolio in which the shareholder owns shares. The following is a summary of
significant accounting policies of the Fund:
(a) Each security is valued using bid side market quotations, prices
provided by market makers or estimates of market values obtained from
pricing services or yield data relating to instruments or securities with
similar characteristics. Short-term investments are recorded at cost which
approximates market.
(b) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise
comply with the provisions of the Internal Revenue Code applicable to
regulated investment companies. As of June 30, 1995, the Fund has Federal
income tax capital loss carry forward of $197,670 expiring in 2003.
(c) The Fund declares daily and pays monthly distributions from net
investment income. Net capital gains, if any, are distributed annually. The
amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting
principles. To the extent these book and tax differences are permanent in
nature, such amounts are re-classified to paid-in capital in excess of par
value.
7
<PAGE> 72
HEARTLAND NEBRASKA TAX FREE FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS - [CONT'D]
June 30, 1995 (Unaudited)
--------------------------------------------------------------------------------
(d) The Fund records security transactions at cost no later than the first
business day after the trade date. Net realized gains and losses on
investments are computed on the specific identification cost method.
Interest income is recorded on the accrual basis. The cost amounts as
reflected in the Schedule of Investments are the same for Federal income
tax purposes. The Fund amortizes discounts on original issue discount
securities, and all premiums using the effective interest method.
(e) Dividends to shareholders are recorded on the ex-dividend date.
2.) INVESTMENT ADVISOR, MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES.
The Fund has a management agreement with Heartland Advisors, Inc. (the
"Advisor") with whom certain officers and directors of the Fund are affiliated,
to serve as investment advisor and manager. Under the terms of the agreement,
the Fund will pay the Advisor a monthly management fee at the annual rate of .65
of 1% of the Fund's average daily net assets. The Advisor voluntarily waived the
management fee in its entirety from September 27, 1993 (commencement of
operations) to December 31,1993. As of January 1, 1994, the Advisor began
collecting a partial fee at the annual rate of .325% of the Fund's average daily
net assets. The Advisor may reinstate any portion or all of the management fee
at any time.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the
Board of Directors of the Fund has adopted a plan which will allow the Fund,
under certain conditions described in the Rule, to acquire newly-issued
securities from syndicates in which the Distributor is a member.
3.) DEFERRED ORGANIZATION EXPENSES.
Organization expenses have been deferred and are being amortized on a
straight-line basis over sixty months. Payments for these expenses were advanced
by the Advisor who will be reimbursed by the Fund over the same period. The
proceeds of any redemption of the initial shares by the original shareholders
will be reduced by a pro-rata portion of any then unamortized expenses.
Unamortized deferred organization expenses and the related payable to the
Advisor at June 30, 1995, were $10,953.
4.) INVESTMENT TRANSACTIONS.
For the six month period ending June 30, 1995, the cost of purchases and the
proceeds from sales of investment securities (excluding short-term securities)
were $665,578 and $663,095, respectively.
5.) SOURCES OF NET ASSETS.
<TABLE>
<S> <C>
As of June 30, 1995, the sources of net assets were as follows:
Fund shares issued and outstanding.......................................... $ 14,393,271
Net unrealized depreciation on investments.................................. (794,862)
Accumulated net realized losses on investments.............................. (197,670)
------------
$ 13,400,739
============
Aggregate gross unrealized appreciation (depreciation) as of June 30, 1995,
based on investment cost for Federal income tax purposes is as follows:
Aggregate gross unrealized appreciation..................................... $ 18,478
Aggregate gross unrealized depreciation..................................... (813,340)
------------
Net unrealized depreciation on investments.................................. $ (794,862)
============
</TABLE>
8
<PAGE> 73
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SHAREHOLDER MEETING RESULTS:
An annual meeting of the Heartland Funds' shareholders was held on April 27,
1995 for purposes of electing directors and ratifying the selection of
independent accountants for Heartland. Shareholders of all of Heartland's funds
voted together on these matters. All nominees for director were elected and the
accountants were ratified by the following vote:
1. ELECTION OF DIRECTORS: Willard Davidson 25,587,705 For (326,010 Withheld);
Hugh F. Denison 25,636,356 For (277,360 Withheld); Jon D. Hammes 25,601,196 For
(312,520 Withheld); William J. Nasgovitz 25,638,105 For (275,611 Withheld);
Patrick J. Retzer 25,629,732 For (283,983 Withheld); A. Gary Shilling 25,469,580
For (444,136 Withheld); Linda F. Stephenson 25,460,045 For (453,670 Withheld).
2. ARTHUR ANDERSEN LLP: 25,364,947 For; 134,849 Against; 413,920 Abstain.
--------------------------------------------------------------------------------
"In a volatile environment for stocks, tax-free bond funds offer stability,
diversification and attractive tax-free yields."
--PATRICK RETZER
Portfolio Manager
9
<PAGE> 74
HEARTLAND
NEBRASKA TAX FREE FUND
790 N. Milwaukee Street
Milwaukee, Wisconsin 53202
414-347-7777 or 1-800-HEARTLN
Account Information and Fund Prices
1-800-248-1162 (24 hrs.)
414-287-3702 (8:00 a.m.-7:00 p.m.) M-F, CST
HEARTLAND FAMILY OF FUNDS
NEBRASKA TAX FREE FUND
SMALL CAP CONTRARIAN FUND
Maximum long-term growth through aggressive
value investing in small company stocks
VALUE & INCOME FUND
Capital growth and current income through
investment in stocks and bonds
VALUE FUND
Capital appreciation through small company stocks
selected on a value basis [closed as of 7/1/95]
U.S. GOVERNMENT SECURITIES FUND
Current income, liquidity and safety of principal
WISCONSIN TAX FREE FUND
Current income exempt from federal and
Wisconsin state income taxes
MONEY MARKET FUND
Liquidity and current yield, offered through Portico Funds
BOARD OF DIRECTORS AND OFFICERS
William J. Nasgovitz, President
Hugh F. Denison, Director of Research
Patrick J. Retzer C.P.A., Director of Fixed Income, Treasurer
Willard H. Davidson
Jon D. Hammes
A. Gary Shilling
Linda F. Stephenson
Lois J. Schmatzhagen, Secretary
CUSTODIAN, TRANSFER &
DIVIDEND DISBURSING AGENT
Firstar Trust Company, Milwaukee
HEARTLAND
NEBRASKA
TAX FREE FUND
"High level of current income that
is exempt from federal income tax and
Nebraska state income tax"
SEMI-ANNUAL REPORT
JUNE 30, 1995
