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[Logo]
HEARTLAND FUNDS
AMERICA'S VALUE INVESTOR
VALUE REPORT
SECOND QUARTER 1996
Notes on value investing
for investors in
Heartland Funds
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
<PAGE> 2
[Photo of
Bill Nasgovitz]
DEAR INVESTOR
The year's first half saw stock indices reach historic highs, as growth and
momentum investors had their day.
But we value investors did, too. As the popular stocks sizzled and soared,
thousands remained comparatively overlooked, and more than a few former
high-flyers lay smoldering on the ground. And it's there - among the
wallflowers and casualties - that we find bargains, through aggressive research
and rigorous selection based on our value criteria.
On the facing page, we present our value criteria for selecting stocks. On the
pages that follow, you'll find these criteria translated into real-world
portfolio holdings. You'll see, too, how they serve as a framework for what we
believe are original thinking and creative decision-making.
We are also pleased to enclose each Fund's six-month performance summary and
financial information.
If you have a question or comment on this issue of the VALUE REPORT, please
feel free to contact us at 1-800-432-7856.
Sincerely,
William J. Nasgovitz
President
August 10, 1996
1 VALUE REPORT
<PAGE> 3
VALUE INVESTING
OUR VALUE CRITERIA FOR INVESTING IN STOCKS
In selecting stocks, Heartland Advisors considers whether a security is
undervalued relative to a set of factors, including:
1. LOW PRICE/EARNINGS MULTIPLE. Profits make the world go around.
2. HIGH CASH FLOW. Cash is king!
3. INCREASED EARNINGS. A sure sign of growth.
4. DISCOUNT TO BOOK VALUE. Tangible, salable assets at a bargain.
5. FINANCIAL SOUNDNESS. Clean balance sheet - a margin of safety.
6. HIGH INSIDER OWNERSHIP. Management with a vested interest.
7. CAPABLE MANAGEMENT. Competent, respected and ethical.
8. HIDDEN ASSETS. Assets not reflected on the books.
9. POSITIVE TECHNICAL ANALYSIS. Is the stock positioned to appreciate?
10. CATALYST FOR RECOGNITION. Events that will change the market's perception
for the better.
Over the years, this value discipline has served our investors well. If you
would like to know more about it, you can find a detailed explanation in the
Funds' prospectus wrap.
VALUE UPDATE
Changes in holdings highlighted in last quarter's Value Report
- --------------------------------------------------------------------------------
CHANGE SINCE % OF PORTFOLIO
COMPANY FUND MARCH 31, 1996 AS OF 6/30/96
Boca Research, Inc. Small Cap Purchased 141,000
Contrarian additional shares 2.4%
PictureTel Corp. Small Cap Covered entire short position
Contrarian of 25,000 shares at a profit 0%
Forest Oil Co. Value Added 60,000 shares 1.4%
Decorator Value & Income Purchased 15,900
Industries, Inc. additional shares 2.0%
Quantum Health U.S. Government Sold 3,295 bonds for a gain 0.8%
Resources, Inc. Securities Fund
VALUE REPORT 2
<PAGE> 4
HEARTLAND
SMALL CAP CONTRARIAN FUND
A SECOND OPINION
It would appear that ADVANCED TISSUE SCIENCES has a lot going for it. Patented
technology, excellent management, strong sales growth, and an exciting
product...skin replacement tissue made from live human cells, intended for
victims of burns, ulcers and hard-to-heal wounds.
Yet, conversely, Advanced Tissue has something going against it: the company
has never earned a penny. In fact, by this past March - when we started to
"short" its stock - the company had experienced 22 consecutive quarterly
losses...a trend that's expected to continue through 1997.
Nonetheless, because of the company's exceptional potential, speculators had
bid up its stock to 10X book value and 160X sales - valuations that we
considered simply absurd.
Throughout the second quarter, we continued to short Advanced Tissue stock. By
June 30, we had shorted 75,000 shares at an average sales price of $15.78 - a
dollar amount representing over 0.5% of the portfolio's assets.
Will Advanced now decline, producing a profit for the Fund? We'll keep you
posted.
As part of its aggressive approach to value investing, this Fund can take
advantage of stocks that appear overvalued and ready to fall. It sells these
stocks "short," hoping to profit from their decline. An example is Advanced
Tissue Sciences
<TABLE>
<S> <C>
Price ......................... $ 12.75
Revenues ('96 est.) ........... $4.8 mil
Earnings per share ('96 est.).. $ (0.70)
Cash flow per share ........... negative
Book value per share .......... $ 1.56
Sales per share ............... $ 0.13
% of portfolio (short) ........ 0.44%
</TABLE>
(Statistics as of 7/26/96)
3 VALUE REPORT
<PAGE> 5
PORTFOLIO PROFILE
OBJECTIVE
The Heartland Small Cap Contrarian Fund seeks to achieve maximum long-term
growth through an aggressive investment strategy with small company stocks to
take advantage of both rising and, to a lesser degree, declining markets.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
YTD SINCE INCEPTION
6/30/96(1) 1-YEAR 4/27/95
---------- ------ ----------------
<S> <C> <C> <C>
Small Cap Contrarian Fund .. 18.3% 27.4% 35.5%
Russell 2000 ............... 10.4 23.9 27.6 (2)
</TABLE>
1 2
Not annualized. Since 5/1/95. The Russell 2000 Index is an unmanaged
index of stocks considered to be representative of the small-cap market in
general.
<TABLE>
<S> <C>
TOP 10 HOLDINGS
Interdigital
Communications Corp................ 3.8%
ICN Pharmaceuticals................ 3.7
Equity Inns, Inc................... 3.1
Syncor International............... 2.9
Campbell Resources................. 2.8
Boca Research...................... 2.4
London Pacific Group, Ltd.......... 2.2
Crown Book Corp.................... 2.0
Interpore International............ 1.7
Compression Labs................... 1.6
GENERAL INFORMATION
Assets............................. $222.0 mil
Net asset value (NAV).............. $13.95
Median market cap.................. $ 50 mil
P/E ratio ('96 est.)............... 15.8X
Sales load......................... None
Inception.......................... 4/27/95
</TABLE>
PORTFOLIO COMPOSITION
[graphic - A pie chart displays categories of the Heartland Small Cap
Contrarian Fund's portfolio as of 6/30/96: small-cap value stocks at 88.1%;
cash & equivalents at 0.2%; short positions at 11.7%]
All statistics are as of June 30, 1996.
VALUE REPORT 4
<PAGE> 6
HEARTLAND VALUE FUND
DRILLING FOR DOLLARS
What does Heartland have in common with a small international oil and gas
service and equipment company? We both dig deeply for value.
Back in 1994, value was exactly what we discovered in CLIFFS DRILLING. Our
research efforts unearthed a company that met virtually all of our value
criteria.
Houston-based Cliffs Drilling was selling at only 80% of book value, with no
debt, no institutional coverage, strong insider buying, conservative but
innovative management, and a strategy of diversifying into market niches that
provided both higher margins and more predictable sources of income and cash
flow.
In 1994, we made a purchase of 300,000 shares at $12. Since then, we've
continued to buy, eventually accumulating some 400,000 shares, or 7% of the
company.
This past April, Cliffs Drilling purchased a number of mobile offshore drilling
rigs, thus doubling its exploration capacity overnight and expanding its
activities in Venezuela and the Gulf of Mexico.
This aggressive expansion, and the stock issue that financed it, has drawn
investor attention, causing the stock's price to rise smartly. By quarter-end,
we felt the stock was fairly valued at its price of $34; consequently, we
started to lessen our position.
As of July 26, 1996, CLIFFS DRILLING'S price was $28.25, and this stock
represented 0.49% of portfolio assets.
5 VALUE REPORT
<PAGE> 7
PORTFOLIO PROFILE
OBJECTIVE
The Heartland Value Fund seeks capital appreciation through small
company stocks selected on a value basis.
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
Since
YTD inception
6/30/96 (1) 1-year 5-year 10-year 12/28/84
- ---------------------- -------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Value Fund ........... 13.4% 23.3% 24.1% 13.6% 17.0%
Russell 2000 ......... 10.4 23.9 17.5 10.4 13.3(2)
S&P 500 .............. 10.2 26.1 15.8 13.8 16.4(2)
</TABLE>
(1) Not annualized. (2) Since 12/31/84. The Russell 2000 Index is an unmanaged
index of stocks considered to be representative of the small-cap market in
general. The S&P 500 Index is an unmanaged index of 500 stocks representing
major U.S. industries. Small company stocks may be more volatile than those of
the S&P 500.
<TABLE>
<S> <C>
TOP 10 HOLDINGS
ICN Pharmaceuticals, Inc....... 3.8%
CMAC Investment Corp........... 1.5
John Alden Financial Corp. .... 1.5
Forest Oil .................... 1.4
Grancare, Inc.................. 1.4
Maxicare Health Plans, Inc. ... 1.3
Quantum Health
Resources, Inc. ............... 1.2
Presidential Life Corp......... 1.2
Allwaste, Inc.................. 1.2
Interdigital
Communications Corp............ 1.2
GENERAL INFORMATION
Assets ........................ $1.5 bil
Net asset value (NAV) ......... $31.69
Median market cap ............ $76mil
P/E ratio ('96 est.) ......... 14X
Sales load .................... None
Inception .................... 12/28/84
PORTFOLIO COMPOSITION
[graphic - A pie chart displays
categories of the Heartland Value
Fund's portfolio as of 6/30/96:
small-cap value stocks at 83.4%;
short-term and corporate bonds &
convertibles at 3.9%; cash &
equivalents at 12.7%]
All statistics are as of June 30, 1996.
</TABLE>
VALUE REPORT 6
<PAGE> 8
HEARTLAND VALUE & INCOME FUND
A SNAZZY CONVERTIBLE
Our equity research can yield
unexpected dividends. Take for
example the convertible bond
of ICN PHARMACEUTICALS.
ICN is a rapidly growing, very
profitable drug manufacturer
and distributor, with extensive
operations in the U.S. and Eastern
Europe. We first bought its stock
for the Value Fund in 1994 and have
added to our position periodically.
From our average cost of $18, the
stock has risen to $27. But we still
consider it to be a compelling value,
since it sells at only 9X estimated
'96 earnings.
Because we feel confident in this
stock, we've chosen to invest in ICN's
convertible bond for the Value &
Income Fund. This 8.5% bond due in
1999 provides a generous stream of
current income and appreciation
potential - each $1000 bond is
convertible into 45 shares
of ICN stock. At our cost of $980,
this bond yields 8.7%. And its
price, having risen along with
the stock's, was $1,200 at
quarter end.
Convertibles currently represent
16.6% of the Fund's assets, and
account for much of its generous
yield of 3.32%. Thus they make a
healthy contribution to total
return and provide a potential
share-price cushion if the market
turns down.
As of July 26, 1996, the price of
ICN's convertible bond was $1,190,
and it represented 3.1% of the
Value & Income Fund's assets. In
the Value Fund, ICN's common stock
stood at $27.875 and represented
4.11% of the Fund's assets.
Value Report 7
<PAGE> 9
PORTFOLIO PROFILE
OBJECTIVE
The Heartland Value & Income Fund seeks long-term capital growth with
meaningful current income.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
YTD Since inception
6/30/96(1) 1-year 10/26/93
---------- ------ ---------------
<S> <C> <C> <C>
Value & Income Fund ......... 15.5% 21.9% 14.5%
S&P 400 Mid-Cap Index ....... 9.2 21.6 14.4(2)
Lehman Intermediate
Corporate Bond Index ........ -0.9 5.3 5.2(2)
Current Yield(3) ............ 3.3%
</TABLE>
(1) Not annualized. (2) Since 11/1/93. (3) June SEC yield annualized for
the 30 days commencing 6/1/96. The S&P Mid-Cap 400 Index is an unmanaged index
of 400 mid-cap stocks representing major U.S. industries. The Lehman
Intermediate Corporate Bond Index is an unmanaged index of intermediate-term
corporate bonds.
<TABLE>
<S> <C>
TOP 10 HOLDINGS
NovaCare, Inc.................. 5.6%
USX Delhi Group ............... 4.9
Shopko Stores, Inc............. 4.7
Western Gas Resources, Inc..... 4.4
Callon Petroleum
(8.5% preferred) .............. 4.3
Minnesota Power & Light ....... 4.2
Berry Petroleum................ 4.2
Carson Pirie Scott & Co........ 3.9
Toro, Inc...................... 3.6
Regency Health Services, Inc.
(bond 9.875% due 10/15/02)..... 3.5
GENERAL INFORMATION
Assets ................... $ 27.6 mil
Net asset value (NAV) ....... $12.68
Median market cap .......... $220 mil
P/E ratio ('96 est.) ........... 16X
Sales load .................... None
Inception ................. 10/26/93
PORTFOLIO COMPOSITION
[graphic - A pie chart displays
categories of the Heartland
Value & Income Fund's portfolio
as of 6/30/96: common stocks at
57.2%; corporate bonds &
convertibles at 27.2%;
utilities/preferred stocks at
8.5%; cash & equivalents at 7.1%]
All statistics are as of June 30 1996.
</TABLE>
VALUE REPORT 8
<PAGE> 10
HEARTLAND
U.S. GOVERNMENT SECURITIES FUND
INVESTING WITH AUTHORITY
In the 1930s, with the country in the grip of the Great Depression, Congress
created the TENNESSEE VALLEY AUTHORITY. This governmental agency had a noble,
well-defined charter: to improve the economic conditions in Appalachia by
bringing electricity and other elements of infrastructure to this notably poor
region of rural America.
The TVA financed its projects with bonds. Successful from the start, it has
grown to be one of the nation's largest electric utilities, with annual
revenues of over $5 billion and assets exceeding $31 billion.
We recently bought a TVA bond that we believe represents outstanding value.
Until November of 1999, this security functions as a zero coupon bond. At that
point, it may be subject to call at $106.16. Otherwise, it starts paying
dividends at the rate of 8.625% until 2029.
We calculate that this AAA-rated bond will always pay 1.2% - 1.75% over 30-year
Treasuries. Thus, while this issue is callable at many points during its life,
we believe we'll be well compensated for that possibility.
Actually, we believe this bond may well be called in 1999. If it is, we
estimate our annual return will be 8.15%; if not, it carries a yield to
maturity of 8.18%. Contrast this to the 6.9% now offered by 30-year Treasuries
and the 7.6% yield of A-rated long-term corporates.
TVA 0% OF 2029 (6/30/96)
- --------------------------------------------
<TABLE>
<S> <C>
Average cost
of bonds in Fund................ $ 742
Current market value............ $ 813
Total market value.............. $3,251,184
% of portfolio assets........... 5.6%
</TABLE>
VALUE REPORT 9
<PAGE> 11
PORTFOLIO PROFILE
OBJECTIVE
The Heartland U.S. Government Securities Fund seeks a high level of
current income, liquidity and safety of principal.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
Since
YTD inception
6/30/96(1) 1 YR. 5 YR. 4/9/87
---------- ----- ----- ---------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund....... -4.5% 2.6% 8.5% 8.2%
Lipper General
U.S. Government Fund Index............ -2.2 3.7 6.8 7.6(2)
Current Yield(3)...................... 6.7%
</TABLE>
(1) Not annualized. (2) Since 4/1/87. (3) June SEC yield annualized
for the 30 days commencing 6/1/96. The Lipper General U.S. Government Fund
Index is an equally weighted index of the performance of the 30 largest general
U.S. government funds as tracked by Lipper Analytical Services, Inc.
<TABLE>
<S> <C>
TOP 10 HOLDINGS
U.S. Treasury 7.25% 5/15/2004................ 15.3%
U.S. Treasury 0% 11/15/2016.................. 13.9
FNMA-CMO 7% 2/25/20 FNR 1993-2PG............. 10.0
FHLMC 6.4% 1/15/23 FHR 1619 B................ 8.1
FHLM-CMO 7% 1/15/22 FHR 1437 G............... 5.9
TVA 0% 11/15/2029............................ 5.6
Coleman Holdings 0% 5/27/1998................ 5.5
Louis Dreyfus 9.25% 06/15/2004............... 5.3
Grancare 9.375% 9/15/2005.................... 4.6
GENERAL INFORMATION
Assets....................................... $57.6 mil
Net asset value (NAV)........................ $9.22
Ave. weighted
fund maturity................................ 11.4 yrs.
Ave. weighted duration....................... 8.3 yrs.
Sales load................................... None
Inception.................................... 4/9/87
</TABLE>
PORTFOLIO COMPOSITION
[graphic - A pie chart displays categories of the Heartland U.S.
Government Securities Fund's portfolio as of 6/30/96: corporate bonds at
21.3%; treasury & agency bonds at 42.0%; mortgage-backed securities at 33.0%;
cash & equivalents at 3.7%]
All statistics are as of June 30, 1996.
VALUE REPORT 10
<PAGE> 12
TABLE OF CONTENTS
SCHEDULES OF INVESTMENTS AND FINANCIAL STATEMENTS
Page Fund
---- ----
12 Small Cap Contrarian Fund
23 Value Fund
39 Value & Income Fund
46 U.S. Government Securities Fund
11 VALUE REPORT
<PAGE> 13
HEARTLAND SMALL CAP CONTRARIAN FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
HELD COMMON STOCKS - 86.9% NOTE 1(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS - 4.5%
20,000 * BankUnited Financial Corp. (Class A)- Operates nine banking offices in south Florida .................... $ 145,000
8,400 Beverly Bancorporation - Community bank serving southwest Chicago........................................ 571,200
37,800 * CB Bancorp, Inc. - Savings bank in northern Indiana...................................................... 670,950
50,000 * Community Financial Corp. - Savings bank operating in five southern Illinois counties.................... 637,500
60,000 First Savings Bank of Washington - Savings bank in southeast Washington.................................. 937,500
50,600 Foothill Independent Bancorp - Bank holding company operating in suburban L.A............................ 430,100
104,167 * Highland Federal Bank - Savings bank in Los Angeles, California.......................................... 1,666,672
50,000 * Mountain Parks Financial Corp. - Holding company, which owns two banks in CO............................. 1,350,000
50,000 North Central Bancshares, Inc. - Savings bank in Fort Dodge, Iowa........................................ 550,000
18,375 * Professional Bancorp, Inc. - Bank specializing in servicing the medical industry......................... 197,531
35,000 Security Capital Corporation - Holding company for Security Bank S.S.B. in Wisconsin..................... 2,082,500
60,000 * Union Bankshares, Ltd. - Offers commercial banking services in Denver (Note 6)........................... 750,000
-----------
9,988,953
CHEMICALS - 0.2%
127,600 * High Plains Corporation - Manufacturer of fuel grade ethanol............................................. 494,450
-----------
494,450
COMMERCIAL SERVICES - 2.0%
110,000 * Business Resource Group - Workspace services and products in northern California........................ 543,125
358,600 * Children's Discovery Centers of America - Child care and preschool programs (Note 6)..................... 2,420,550
200,000 ICTS Holland Production - Provides aviation security services and security training...................... 1,425,000
-----------
4,388,675
COMMUNICATIONS - 5.7%
280,000 * Communications Central, Inc. - Operator of pay phones and inmate phones................................. 2,170,000
500,000 * Executone Information Systems - Telecommunications systems and equipment................................. 1,312,500
1,000,000 * Interdigital Communications Corporation - Markets digital radio telephone systems ....................... 8,500,000
85,000 * TCI International, Inc. - Manufactures special purpose communications equipment ......................... 605,625
-----------
12,588,125
ELECTRONICS - 0.6%
300,000 * Micro Component Technology - Test equipment for semiconductor industries................................. 1,087,500
10,000 * Ultralife Batteries, Inc. - Manufacturer and marketer of lithium batteries............................... 142,500
-----------
1,230,000
ENERGY & NATURAL RESOURCES - 11.5%
400,000 * Alta Gold Co. - Explores for and produces precious metals and minerals................................... 1,425,000
700,000 * Arakis Energy Corp. - Domestic natural gas; oil explorations in the Sudan................................ 3,281,250
5,000,000 * Campbell Resources, Inc. - Explores, produces gold and minerals in N. America............................ 6,250,000
200,000 * Callon Petroleum Company - Gulf of Mexico oil and gas producer........................................... 2,500,000
200,000 * COHO Energy, Inc. - Develops, produces, explores for oil and gas reserves in LA and MS................... 1,375,000
100,000 * Geomaque Explorations - Exploration & development operating in Mexico & Quebec .......................... 199,440
300,000 * Gothic Energy Corporation - Interests in oil and gas properties in OK, TX, AK, KS ....................... 750,000
220,000 * Key Production Company Inc. - Operates oil and gas properties in OK and TX............................... 1,705,000
115,000 * Lomak Petroleum, Inc. - Oil and gas properties, primarily in Appalachea, TX and OK ...................... 1,638,750
300,000 * Solid State Geophysical, Inc. - 3D seismic services for the petroleum industry (Note 6) ................. 371,760
460,000 * Serv-Tech, Inc. - Offers maintenance services to petroleum refining industry (Note 6) .................. 2,645,000
700,000 * Tipperary Corporation - Explores, develops and produces oil and gas in Australia (Note 6) ............... 2,909,410
95,000 * TRC Companies Inc. - Environmental engineering & consultation to industry & gov't. ...................... 558,125
-----------
25,608,735
</TABLE>
12
<PAGE> 14
HEARTLAND SMALL CAP CONTRARIAN FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
HELD COMMON STOCKS - 86.9% [CONT'D] NOTE 1(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENTERTAINMENT - 0.4%
197,500 * Quality Dino Entertainment, Ltd. - Music distributor in N. America, U.K.& Australia...................... $ 999,844
-----------
999,844
ENVIRONMENTAL SERVICES - 3.9%
27,500 BHA Group Inc. (Class A) - Manufactures industrial air pollution control equipment...................... 364,375
70,000 Dames & Moore, Inc. - Comprehensive environmental & specialized consulting services..................... 848,750
600,000 * GNI Group, Inc. - Recycles, reclaims, treats and disposes hazardous wastes (Note 6)...................... 3,150,000
400,000 * Harding Associates, Inc. - Remediator of contamination sites (Note 6).................................... 2,350,000
100,000 * O. I. Corporation - Produces devices for pollution detection............................................. 375,000
650,000 * Vectra Technologies, Inc. - Products, services to nuclear facilities worldwide (Note 6).................. 1,625,000
-----------
8,713,125
FINANCE - 3.6%
100,000 * ACC Consumer Finance Corp. - Indirect financing of automobile installment contracts...................... 750,000
100,000 * Autoinfo, Inc. - Computer and information services for vehicle collision and repair shops................ 312,500
200,000 * Dignity Partners, Inc. - Provides viatical settlements for terminally ill people........................ 1,850,000
169,200 Fahnestock Viner Holdings, Inc. - Full service regional brokerage........................................ 2,220,750
300,000 * Payco American Corporation - Nationwide accounts receivable manager..................................... 2,625,000
12,500 * Resource Bancshares Mortgage Corp. - Originates, secures residential mortgage loans...................... 151,563
-----------
7,909,813
FOOD & BEVERAGE - 0.9%
700,000 * Family Steak Houses of Florida, Inc. - Operates 28 restaurants in N. and Cen. FL (Note 6)................ 481,250
250,000 * Lion Brewery, Inc. - Brews and bottles specialty beers and soft drinks (Note 6).......................... 1,437,500
-----------
1,918,750
HEALTH CARE SERVICE - 9.9%
500,000 American Biomedica Corp. - Manufactures/markets drug screening test strips (Note 6)...................... 1,625,000
240,000 * Hanger Orthopedic Group, Inc. - Patient care services for orthotic and prosthetic rehab................. 1,470,000
180,000 * Health Fitness Physical Therapy - Acquires and develops physical therapy clinics......................... 540,000
350,000 ICN Pharmaceuticals, Inc. - Pharmaceutical and nutritional products...................................... 8,137,500
600,000 * Interpore International - Manufactures bone graft material for orthopedic market (Note 6)................ 3,675,000
500,000 * Syncor International Corporation - Distributes radio-pharmaceuticals on prescription..................... 6,500,000
-----------
21,947,500
HOME HEALTH - 0.3%
39,700 * Help at Home, Inc. - General housekeeping services to elderly and disabled persons....................... 307,675
186,000 * In Home Health, Inc. - A national provider of home health care services.................................. 406,875
-----------
714,550
INSURANCE - 3.8%
85,000 Cotton States Life & Health Insurance - Underwrites life, accident, health insurance.................... 935,000
4,000 * Financial Industries Corporation - Life and health insurance products................................... 238,000
300,000 London Pacific Group Ltd. (ADR) - Offers insurance and trust services.................................... 4,762,500
41,500 * Motor Club of America - Provides a wide range of insurance, finance and related services................. 295,688
38,700 * Transport Holdings, Inc. (Class A) - Underwrites, distributes supplemental health insurance.............. 1,780,200
75,000 Unico American Corporation - Commercial multi-peril insurance........................................... 543,750
-----------
8,555,138
LEISURE - 1.0%
62,500 * NTN Canada, Inc. - 24 hour entertainment network programming throughout Canada........................... 460,938
140,000 * Vacation Break USA, Inc. - Vacation ownership interests in premium resorts............................... 1,802,500
-----------
2,263,438
MANUFACTURING - 8.8%
100,000 * Astrotech International Corp. - Storage tanks for oil, paper and agricultural products................... 562,500
50,000 * Bonded Motors, Inc - Remanufactures and distributes replacement engines for cars......................... 400,000
335,000 * Consep, Inc. - Develops and produces environmentally safe pest control products.......................... 1,298,125
48,100 * Deflecta Shield Corp. - Accessories for light and heavy duty trucks...................................... 306,638
55,200 Donnelly Corp. - Glass related and plastic molded products for the auto industry......................... 883,200
</TABLE>
13
<PAGE> 15
HEARTLAND SMALL CAP CONTRARIAN FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
HELD COMMON STOCKS - 86.9% [CONT'D] NOTE 1 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING [CONT'D]
250,000 * Dynamic Materials Corp. - Produces chemical processing materials (Note 6)................................ $ 1,187,500
62,900 Friedman Industries - Processes and distributes steel products to manufacturers.......................... 290,913
75,000 * JPM Company - Cable assemblies and wire harnesses for the electronics industry........................... 628,125
95,000 * K-Tron International, Inc. - Gravimetric feeders & blenders and process control equip.................... 807,500
110,000 * Northwest Pipe Company - Welded steel pipe for water transmission........................................ 1,870,000
200,000 Oregon Steel Mills, Inc. - Produces a variety of specialty and commodity steel products.................. 2,750,000
151,200 * Portec, Inc. - Produces railroad, construction and materials handling equipment.......................... 1,512,000
150,000 Shelter Components Corp. - Distributes products to mfd. housing and RV industries........................ 2,531,250
150,000 * Shiloh Industries, Inc. - Steel processor supplying automotive and other industries...................... 2,418,750
350,000 * Winsloew Furniture, Inc. - Designs, distributes and manufactures casual furniture........................ 2,012,500
-----------
19,459,000
MARKETING/CORP SERVICES - 2.2%
200,000 * Personnel Management, Inc. - Temporary service in Midwest and Southeast (Note 6)......................... 1,750,000
180,000 * RCM Technologies, Inc. - Temporary and full-time professional services.................................. 1,620,000
342,600 * Speizman Industries, Inc. - Sells hosiery and knitting manufacturing equipment (Note 6).................. 1,541,700
-----------
4,911,700
MEDICAL PRODUCTS - 4.9%
140,000 * Autonomous Technologies - Excimer laser instruments for laser vision correction.......................... 822,500
100,000 * Isomedix, Inc. - Irradiation services to manufacturers of medical supplies............................... 1,487,500
250,000 * Life Medical Services - Develops medical products using tissue culturing technology...................... 2,187,500
150,000 Medex, Inc. - Manufactures disposable hospital products for life support systems......................... 1,931,250
1,000,000 * Mednet, MPC Corp. - Pharmacy benefits management and prescription mail service.......................... 1,937,500
58,000 * Moore Medical Corp. - Pharmaceutical and medical products distributor................................... 703,250
231,105 New Brunswick Scientific, Inc. - Manufactures and markets biotechnology equipment (Note 6)............... 1,704,399
-----------
10,773,899
REAL ESTATE - 3.1%
596,200 Equity Inns, Inc. - Real estate investment trust company with equity interests in hotels................. 6,856,300
-----------
6,856,300
RETAIL - 10.5%
408,100 * Allou Health & Beauty, Inc. (Class A) - Health and beauty products (Note 6).............................. 2,805,688
123,000 * Catherines Stores Corporation - Specialty apparel retailer of women's clothing........................... 1,214,625
28,300 Dart Group Corporation (Class A) - Auto parts stores, bookstores and grocery store....................... 2,518,700
200,000 * Chico's Fas, Inc. - Operates retail women's clothing stores.............................................. 2,025,000
250,000 * Coast Distribution System - Recreational vehicle accessories & marine parts.............................. 1,531,250
325,000 * Crown Book Corp. - 247 retail book stores offering discount prices (Note 6)............................. 4,387,500
300,000 Fred's, Inc. (Class A) - Operates 188 discount general merchandise stores................................ 3,300,000
700,000 * Harmony Brook, Inc. - Manufactures, distributes, operates water filtering equip. (Note 6)................ 700,000
320,000 * Hyde Athletic Industries (Class B) - Athletic shoes, outdoor recreational products....................... 1,800,000
400,000 * Little Switzerland, Inc. - Retailer in the Caribbean Islands............................................. 2,100,000
139,800 * Strouds, Inc. - Specialty retailer of home textile products.............................................. 524,250
104,000 * Universal International - Buys and sells consumer goods on a close-out basis............................. 468,000
-----------
23,375,013
TECHNOLOGY - 8.9%
291,000 * Boca Research - Manufactures computer enhancement products............................................... 5,310,750
100,000 * Burr - Brown Corp. - High-performance analog and mixed-signal integrated circuits........................ 1,775,000
600,000 * Compression Labs - Markets and produces visual communications systems.................................... 3,450,000
75,000 * Diehl Graphsoft, Inc. - Develops and publishes computer software products................................ 590,625
125,000 * GaSonics Inter Corp. - Photoresist removal equipment for integrated circuits............................. 1,312,500
10,000 * Hutchinson Technologies - Manufactures components for computer disk drives............................... 355,000
110,000 * Jaco Electronics, Inc. - Distributes electronic components and subsystems................................ 1,113,750
65,000 * M-Wave Inc. - Manufactures microwave circuitboards....................................................... 296,563
</TABLE>
14
<PAGE> 16
HEARTLAND SMALL CAP CONTRARIAN FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
HELD COMMON STOCKS - 86.9% [CONT'D] NOTE 1 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY [CONT'D]
100,000 Orthologic Corp. - Produces advanced orthopedic devices................................................ $ 1,275,000
(20,000) Orthologic Corp........................................................................................ (255,000)
55,000 * Praegitzer Industries, Inc. - Produces multilayer printed circuitboards................................ 591,250
126,000 * Reptron Electronics - Contract manufacturing services for electronic products.......................... 2,220,750
280,000 * Triad Systems Corp. - Designs computer systems for automotive parts aftermarket....................... 1,785,000
------------
19,821,188
TRANSPORTATION - 0.2%
25,000 * Airnet Systems, Inc. - Air transportation network for delivery of time-critical shipments.............. 400,000
------------
400,000
TOTAL COMMON STOCKS (Cost $171,624,490)................................................................ $192,918,196
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
HELD PREFERRED STOCKS - 1.1% NOTE 1(A)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
22,500 Drypers Corporation (7.5% Senior Cumulative Convertible Preferred) - Disposable baby diapers........... $ 2,543,479
------------
TOTAL PREFERRED STOCKS (Cost $2,250,000)............................................................... $ 2,543,479
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT SHORT-TERM INVESTMENTS - 14.1% COUPON MATURITY NOTE 1 (A)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. TREASURY SECURITIES - 8.9%
$20,075,000 U. S. Treasury Bill....................................... 5.120% 09/05/1996 $ 19,888,265
------------
19,888,265
DISCOUNT NOTES - 3.6%
8,000,000 Federal Home Loan Bank.................................... 5.130 07/29/1996 7,967,953
------------
7,967,953
VARIABLE RATE DEMAND NOTES - 1.6%
3,500,000 Warner - Lambert Company.................................. 5.115 07/01/1996 3,500,000
------------
3,500,000
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $31,356,218).................................................. 31,356,218
------------
TOTAL - INVESTMENTS - 102.2% (Cost $205,230,708) (+)............................................. $226,817,893
============
</TABLE>
15
<PAGE> 17
HEARTLAND SMALL CAP CONTRARIAN FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUE
SHARES SHORT SALES NOTE 1 (A)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
75,000 Advanced Tissue Sciences, Inc. - Technology to replicate bone marrow and skin cells........................... $ 1,209,375
20,000 Chesapeake Energy Corporation - Produces crude oil and natural gas in TX and OK............................... 1,797,500
67,500 Dollar Tree Stores, Inc. - Operates 400 discount variety stores in 20 states.................................. 2,143,125
100,000 Drypers Corporation - Manufactures and markets disposable baby diapers........................................ 325,000
100,000 Employee Solutions - Provides lease staffing.................................................................. 3,150,000
100,000 Gentex Corp. - Manufactures automatic rearview mirrors and fire protection equipment.......................... 1,950,000
80,000 Just for Feet - Operates a chain of stores specializing in brand-name footwear................................ 4,230,000
25,000 Identix, Inc. - Designs and manufactures a fingerprint identification system.................................. 365,625
75,000 The Men's Wearhouse - National retailer of men's business attire............................................. 2,418,750
25,000 Organogenesis - Manufactures living tissue for replacement skin............................................... 506,250
30,000 PHP Healthcare, Inc - A full-service managed care organization................................................ 945,000
65,000 Pentair Inc. - Manufactures enclosures for various types of equipment......................................... 1,950,000
20,000 Presstek - Licenses direct imaging technology to printing press manufacturers................................. 1,290,000
30,000 Qualcomm, Inc. - Manufactures and operates communications systems............................................. 1,593,750
80,000 Sunglass Hut International - Specialty retailer of non-prescription sunglasses................................ 1,950,000
-----------
TOTAL SHORT SALES (Proceeds $22,979,398) (Note 1(f)).......................................................... $25,824,375
===========
</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.
16
<PAGE> 18
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at quoted market value
-non-affiliated companies (Cost $170,740,972) ....................................... $189,300,636
-affiliated companies (Cost $34,489,736) (Note 6) ................................... 37,517,257
Deposits with brokers for investments sold short ........................................ 1,481,790
Receivable from fund shares sold ........................................................ 395,070
Receivable from investments sold ........................................................ 2,040,253
Receivable from investments sold short .................................................. 23,491,433
Accrued dividends and interest .......................................................... 52,762
Deferred organization expense (Note 3) .................................................. 37,799
------------
Total assets ........................................................................ 254,317,000
------------
LIABILITIES:
Securities sold short, at current market value (proceeds $22,979,398) ................... 25,824,375
Payable for investments purchased ....................................................... 5,290,817
Payable for fund shares redeemed ........................................................ 812,901
Payable to Distributor for distribution fees (Note 2) ................................... 110,018
Payable to Advisor for management fee (Note 2) .......................................... 126,421
Payable to transfer agent ............................................................... 101,643
Payable to Advisor for deferred organization expense (Note 3) ........................... 37,799
------------
Total liabilities ................................................................... 32,303,974
------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value, 100,000,000 shares authorized, 15,917,525 shares outstanding) ......... $222,013,026
NET ASSET VALUE PER SHARE
Net asset value and offering price per share ($.001 par value,
100,000,000 shares authorized [$222,013,026 divided by 15,917,525 shares outstanding])... $ 13.95
============
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
17
<PAGE> 19
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF OPERATIONS
For the six months ending June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest .............................................................. $ 145,801
Dividends ............................................................. 712,566
------------
Total investment income ........................................... 858,367
------------
EXPENSES:
Management fees (Note 2) .............................................. 533,942
Distribution fees (Note 2) ............................................ 177,672
Transfer agent fees ................................................... 164,857
Registration fees ..................................................... 63,426
Custodian fees ........................................................ 23,130
Postage ............................................................... 22,060
Printing and communications ........................................... 13,136
Amortization of organization expenses (Note 3) ........................ 4,930
Audit fees ............................................................ 3,988
Directors' fees ....................................................... 2,086
Legal fees ............................................................ 1,332
Other operating expenses .............................................. 43,070
------------
Total expenses ..................................................... 1,053,629
------------
Net investment income ................................................. (195,262)
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS-NET:
NET REALIZED GAINS ON INVESTMENTS (Long transactions) ................. 4,343,464
NET REALIZED LOSSES ON INVESTMENTS (Short transactions) ............... (1,002,075)
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS ................ 18,226,595
------------
NET GAINS ON INVESTMENTS ........................................... 21,567,984
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. $ 21,372,722
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ending June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATIONS:
Net investment income ................................................. $ (195,262)
Net realized gains on investments ..................................... 3,341,389
Net increase in unrealized appreciation on investments ................ 18,226,595
------------
Net increase in net assets resulting from operations ............... 21,372,722
------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (11,277,326 shares) ....................... 149,308,079
Cost of shares redeemed (2,616,050 shares) ............................ (34,216,346)
------------
Net increase in net assets derived from Fund share activities ...... 115,091,733
------------
TOTAL INCREASE ........................................................ 136,464,455
NET ASSETS AT DECEMBER 31, 1995 ........................................... 85,548,571
------------
NET ASSETS AT JUNE 30, 1996 (Note 4) ...................................... $222,013,026
============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
18
<PAGE> 20
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the six months April 27, 1995(1)
ending June 30, 1996 through
(Unaudited) December 31, 1995
<S> <C> <C>
Net asset value, beginning of period............................ $ 11.79 $ 10.00
Income from investment operations:
Net investment income (loss) .................................. (0.01) 0.03
Net realized and unrealized gains (losses)
on securities ................................................. 2.17 2.05
-------- -------
Total from investment operations .............................. 2.16 2.08
Less distributions:
Dividends from net investment income .......................... -- (0.03)
Distributions from net realized gains ......................... -- (0.26)
-------- -------
Total distributions ........................................... -- (0.29)
Net asset value, end of period ................................. $ 13.95 $ 11.79
======== =======
Total return ................................................... 18.3%(2) 20.8%(2)
Supplemental data and ratios:
Net assets, end of period (in thousands) ...................... $222,013 $85,549
Ratio of total expenses to average net assets ................. 1.46%(3) 1.44%(3)
Ratio of net investment income (loss) to average net assets ... (.27)%(3) 1.01%(3)
Portfolio turnover rate ....................................... 30% 45%
</TABLE>
(1) Commencement of operations
(2) Not annualized
(3) Annualized
The accompanying notes to financial statements are an integral part of this
statement.
19
<PAGE> 21
HEARTLAND SMALL CAP CONTRARIAN FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (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 Fund's investment objective is maximum long-term growth. The Fund
seeks to achieve its objective through aggressive, yet flexible value
investing in small company stocks. 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 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.
The Fund may invest up to 10% of its total assets in securities
that are not readily marketable or that would require registration
under the Securities Act of 1933 upon disposition. At June 30,
1996, the Fund held common stock of Tipperary Corporation and
Senior Convertible Cumulative 7.5% Preferred Stock of Drypers
Corporation; valued at 1.3% and 1.1% of the Funds total net assets,
respectively. Prior to registration, these securities are valued
at a discount to the market value of the issuer's registered common
stock, in accordance with the guidelines and procedures adopted by
the Fund's Board of Directors.
(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 reclassified
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. The
Fund had no open futures contracts at June 30, 1996.
(f) The Fund may enter into transactions where it will sell a security
short (sell a security which the Fund does not own, then owe for
delivery at a future date) and borrow the same security from a
broker or other institution to complete the sale. The predominant
risk is that the market price may decrease or increase between the
date of the short sale and the date on which the Fund must replace
the borrowed security. As collateral for its short positions, the
Fund is required under the 1940 Act to maintain segregated assets
consisting of cash or equity securities. These segregated assets
are required to be adjusted daily to reflect changes in the value
of the securities sold short.
The Fund may also 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. Similarly, the Fund may also engage in short
sales of securities of an issuer
20
<PAGE> 22
HEARTLAND SMALL CAP CONTRARIAN FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
("acquiror") that has publicly announced a proposed or pending
transaction in which a portfolio security of the Fund will be
converted into securities of the acquiror. These techniques are
intended to hedge protectively against anticipated declines in the
market price of the Fund's portfolio securities or to defer any
unrealized gain.
(g) The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from the estimates.
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 six month period ending June 30,
1996, the Distributor received $133,992 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, 1996 were $37,799.
4) INVESTMENT TRANSACTIONS.
For the six month period ending June 30, 1996, the cost of purchases and
the proceeds from sales of investment securities (excluding short-term
securities) were $149,136,679 and $39,592,980 respectively.
5) SOURCES OF NET ASSETS.
<TABLE>
<S> <C>
As of June 30, 1996, the sources of net assets were as follows:
Fund shares issued and outstanding ......................................... $199,612,657
Net unrealized appreciation on investments ................................. 19,254,242
Accumulated net realized gains on investments .............................. 3,341,389
Accumulated net investment income (loss) ................................... (195,262)
------------
$222,013,026
============
Aggregate gross unrealized appreciation (depreciation) as of June 30, 1996,
based on investment cost for Federal income tax purposes is as follows:
Aggregate gross unrealized appreciation .................................... $ 28,678,886
Aggregate gross unrealized depreciation .................................... (9,424,644)
------------
Net unrealized appreciation on investments ................................. $ 19,254,242
============
</TABLE>
21
<PAGE> 23
HEARTLAND SMALL CAP CONTRARIAN FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
6) 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.
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Dividends Gains
Security Name Dec. 31, 1995 Purchases Sales June 30, 1996 Received (Losses)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allou Health & Beauty, Inc. (Class A) 355,400 52,700 0 408,100 $0 $0
American Bio Medica Corporation 0 500,000 0 500,000 0 0
Children's Discovery Centers of America 0 358,600 0 358,600 0 0
Crown Book Corporation 35,700 289,300 0 325,000 0 0
Dynamic Materials Corporation 20,000 230,000 0 250,000 0 0
Family Steak Houses of Florida, Inc. 360,000 340,000 0 700,000 0 0
GNI Group, Inc. 138,000 462,000 0 600,000 0 0
Harding Associates, Inc. 200,000 200,000 0 400,000 0 0
Harmony Brook, Inc. 700,000 0 0 700,000 0 0
Interpore International 516,700 83,300 0 600,000 0 0
Lion Brewery, Inc. 0 250,000 0 250,000 0 0
New Brunswick Scientific, Inc. 132,100 (1) 88,000 0 231,105 0 0
Personnel Management, Inc. 200,000 0 0 200,000 0 0
Serv-Tech, Inc. 446,400 13,600 0 460,000 0 0
Solid State Geophysical, Inc. 100,000 200,000 0 300,000 0 0
Speizman Industries, Inc. 0 342,600 0 342,600 0 0
Tipperary Corporation 0 700,000 0 700,000 0 0
Union Bankshares, Ltd. 60,000 0 0 60,000 0 0
Vectra Technologies, Inc. 502,000 148,000 0 650,000 0 0
--------- --------
$0 $0
========= ========
</TABLE>
(1) Adjusted for 5% stock dividend
22
<PAGE> 24
HEARTLAND VALUE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
HELD COMMON STOCKS 83.1% NOTE 1(a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AEROSPACE - 2.2%
115,000 * Aeroflex, Inc. - Designs electrical and magnetic products for defense contractors ............ $ 704,375
175,000 * Banner Aerospace, Inc. - Distributes replacement parts to aviation/aerospace industries ...... 1,465,625
700,000 * ECC International Corporation - Produces flight simulators and vending machines (Note 5) ..... 6,387,500
212,700 * Esterline Technologies Corporation - Mfg. aerospace/defense and instrumentation products ..... 5,317,500
354,000 * FLIR Systems, Inc. - Mfg. thermal imaging systems that detect infrared radiation (Note 5) .... 4,336,500
450,000 Mercury Air Group, Inc. - Ground services to commercial airlines and the US military (Note 5). 3,600,000
300,000 * Sifco Industries, Inc. - Forgings for aerospace, auto and defense industries (Note 5) ........ 2,587,500
1,100,000 * UNC, Inc. - Manufactures engine and airframe parts (Note 5) .................................. 9,212,500
-----------
33,611,500
AUTOMOTIVE - 1.8%
850,100 * Cherry Corp. (Class A) - Mfg. mech/elec switches and semiconductor products (Note 5) ........... 9,138,575
100,000 * Rush Enterprises, Inc. - Largest Peterbilt truck dealership in U.S. ............................ 1,237,500
358,200 * Starcraft Corporation - Converter of vans, sport utility vehicles and trucks (Note 5) .......... 1,791,000
200,000 * Strattec Security Corp. - Designs, develops, manufactures and markets automotive locks ......... 3,550,000
417,500 Wescast Industries, Inc. (Class A) - Exhaust manifolds for cars and trucks to "big 3" automakers 7,515,000
388,200 Winnebago Industries, Inc - Manufactures recreational vehicles ................................. 3,202,650
-----------
26,434,725
BANKS AND SAVINGS & LOANS - 6.6%
102,500 Alabama National Bancorporation - Alabama bank expanding through acquisitions .................. 1,306,875
30,000 Banknorth Group, Inc. - Operates 44 banking offices in Vermont and New Hampshire ............... 1,027,500
44,126 Beverly Bancorporation - Community bank serving southwest Chicago (Note 5) ..................... 3,000,568
30,000 BSB Bancorp, Inc. - Savings bank in the southern tier of New York .............................. 780,000
91,100 California State Bank - Provides banking services through 14 branches in CA .................... 1,457,600
78,900 * Calumet Bancorp, Inc. - Chicago thrift that generates residential mortgages in several states .. 2,209,200
200,000 Coastal Bancorp, Inc. - Texas based savings and loan association ............................... 3,600,000
200,000 Commercial Federal Corp. - S & L serving Nebraska, Colorado, Kansas and Oklahoma ............... 7,650,000
400,000 * D & N Financial Corp. - Operates full service branch offices in N. and Cen. MI (Note 5) ........ 5,600,000
110,500 Eagle Financial Corp. - Savings bank operating 24 offices in Connecticut ....................... 2,790,125
204,500 First Federal Bancshares of Eau Claire - Operates 13 retail banking offices in central WI ...... 3,144,187
626,500 First Financial Corp. - Serves Wisconsin and S. Illinois from approx. 124 locations ............ 14,096,250
141,750 Franklin Bank National Association - Business bank serving suburbs of Detroit, MI .............. 1,488,375
55,000 * Hallmark Capital Corp. - One bank holding company in West Allis, WI ............................ 825,000
250,000 * HMN Financial, Inc. - Recently converted thrift serving Rochester, MN market ................... 4,125,000
129,000 Home Federal Bank - Provides banking services to portions of southeastern Indiana (Note 5) ..... 3,354,000
314,870 MAF Bancorp, Inc. - Market share leader in Dupage County, IL ................................... 7,714,315
100,000 Massbank Corp. - Serves customers in the Middlesex county area in eastern MA .................. 3,275,000
327,100 * Metropolitan Bancorp - Holding co. for Seattle-based Metropolitan Federal S&L (Note 5) ......... 4,415,850
90,000 Northwest Equity Corp. - WI holding company for Northwest Savings Bank (Note 5) ................ 922,500
67,800 Pinnacle Bank - Operates four branches in Central and S.E. Alabama (Note 5) .................... 1,101,750
224,000 * Redwood Empire Bancorp - Holding co. for a bank and thrift in N. San Francisco (Note 5) ........ 2,296,000
36,500 SJNB Financial Corporation - Commercial banking services to San Francisco area ................. 611,375
134,000 St. Francis Capital Corporation - Wisconsin holding company for St. Francis State Bank ......... 3,350,000
81,600 State Financial Services Corporation - Milwaukee area multi-bank holding company ............... 1,387,200
275,000 * Sterling Financial Corporation - Multi-branch savings bank serving WA and OR (Note 5) .......... 4,056,250
176,775 * Transworld Bancorp - Commercial bank serving north suburbs of Los Angeles (Note 5) ............. 2,563,238
100,000 Trans Financial, Inc. - Bank holding co. operating 54 branch offices in KY and TN .............. 1,750,000
80,700 United Federal Savings Bank - Provides commercial banking services to customers in SC .......... 645,600
154,930 * United Security Bancorp - Banking services through 8 branches located in E. WA (Note 5) ........ 1,859,160
</TABLE>
23
<PAGE> 25
HEARTLAND VALUE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
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SHARES VALUE
HELD COMMON STOCKS - 83.1% [CONT'D] NOTE 1(a)
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BANKS AND SAVINGS & LOANS - [CONT'D]
264,000 Virginia First Financial Corp. - Provides banking services through 8 offices in Spokane area......... $ 3,630,000
100,000 Webster Financial Corporation - Serves over 140,000 customers in CT ................................. 2,800,000
100,000 Westerfed Financial Corporation - Thrift holding company in Montana ................................. 1,487,500
------------
100,320,418
COMMUNICATION/SECURITY - 2.9%
4,100,000 * Automated Security Holdings, PLC. (ADR) - Sells and services electrical security sys. (Note 5) ...... 4,612,500
500,000 * Cobra Electronics Corporation - Communications and audio electronics products (Note 5) .............. 1,437,500
115,000 * Comdial Corporation - Manufactures business communication systems ................................... 991,875
2,060,000 * Interdigital Communications Corp. - Markets digital radio-telephone systems ........................ 17,510,000
276,000 * Norstan, Inc. - Distributes and services private telephone systems (Note 5) ......................... 10,281,000
1,500,000 * Peoples Telephone Co., Inc. - Markets, operates, maintains privately owned pay-phones (Note 5) ...... 4,312,500
144,500 * Total Tel USA Communications, Inc. - A discount long distance telephone company (Note 5) ............ 5,238,125
------------
44,383,500
CONSTRUCTION/HOUSING - 3.9%
134,600 * American Buildings Company - Constructs and sells pre-engineered metal buildings ................... 3,937,050
325,000 * Cameron Ashley Building Products - Distributor of building products to independent dealers .......... 3,737,500
239,500 * Castle & Cooke Inc. - Builds homes in Hawaii, California and Arizona ................................ 3,832,000
25,500 * Christiana Companies - Constructs and sells pre-engineered metal buildings ......................... 541,875
200,000 * Crossmann Communities, Inc. - Builds single family homes in Indianapolis/Lafayette, IN .............. 3,900,000
500,000 Engle Homes, Inc. - Florida homebuilder and developer (Note 5) ...................................... 4,125,000
200,000 * Fortress Group, Inc. - Builds homes in metropolitan areas surrounding Las Vegas ..................... 1,750,000
750,000 Grupo Tribasa SA (ADR) - Mexican construction company which builds mainly highways .................. 4,312,500
500,000 MDC Holdings, Inc. - Constructs and sells residential housing ....................................... 3,375,000
300,000 MYR Group, Inc. - Constructs transmission systems for electric utilities (Note 5) ................... 3,375,000
100,000 * Miller Building Systems, Inc. - Builder and marketer of modular structures .......................... 637,500
750,000 * Morgan Products, Ltd. - Manufactures and distributes specialty building products (Note 5) ........... 4,781,250
300,000 Patrick Industries, Inc. - Wholesale distributor of building products and materials (Note 5) ........ 4,087,500
75,000 Republic Group, Inc. - Manufactures and sells gypsum wallboard ...................................... 1,068,750
218,000 * Rottlund Company, Inc. - Minneapolis-based single family home builder ............................... 1,430,625
350,000 Schult Homes Corporation - Designs and builds manufactured homes (Note 5) ........................... 6,606,250
1,000,000 * URS Corporation - Architectural, engineering services to local and state governments (Note 5) ....... 7,875,000
------------
59,372,800
EDUCATION - 0.0%
405,000 * American Educational Products, Inc. - Sells educational materials to teachers and schools (Note 5) .. 455,625
------------
455,625
ENERGY & NATURAL RESOURCES - 8.0%
118,000 * Abraxas Petroleum Corp - Oil producer primarily in the Rockies and the Permian Basin, TX ............ 767,000
58,100 * Alamco, Inc. - Produces oil and gas in the Appalachian Basin ........................................ 653,625
500,000 * American Oilfield Divers, Inc - Undersea construction/repair for offshore oil/gas industry (Note 5) . 4,500,000
305,000 * Box Energy Corporation (Class B) - Independent oil and gas exploration and production co ............ 2,783,125
300,000 * Chieftain International, Inc. - Explores/produces oil/natural gas in the Gulf of Mexico ............. 6,037,500
600,000 * Clayton Williams Energy, Inc. - Acquires, explores, produces oil and natural gas in TX (Note 5) .... 5,925,000
300,000 * Cliffs Drilling Company - Provides contract drilling services in the Gulf of Mexico ................. 10,200,000
300,000 * Dreco Energy Services, Ltd. (Class A) - Mfg./market downhole products ............................... 8,250,000
688,182 * ERC Industries, Inc - Manufactures and services oilfield wellhead equipment ......................... 623,699
560,000 * Evergreen Resources, Inc - Gas exploration, development and production in CO (Note 5) ............... 3,220,000
1,560,000 * Forest Oil Co. - Explores/produces oil/natural gas in Gulf of Mexico and Canada (Note 5) ............ 21,255,000
100,000 * Hallwood Consolidated Resources Corp - Owns interest in 2,000 oil and gas wells (Note 5) ............ 4,700,000
200,000 Howell Corporation - Explores/produces/refines oil and natural gas, processes chemicals ............. 2,675,000
1,070,000 * International Colin Energy Corp - Explores/produces oil and natural gas (Note 5) .................... 6,286,250
</TABLE>
24
<PAGE> 26
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS [CONT'D]
June 30, 1996 (Unaudited)
<TABLE>
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SHARES VALUE
HELD COMMON STOCKS - 83.1% [CONT'D] NOTE 1 (a)
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<S> <C> <C> <C>
ENERGY & NATURAL RESOURCES - [CONT'D]
123,755 Mining Services International Corp. - Develops explosives technology for mining industry............... $ 1,732,570
500,000 * Morgan Hydrocarbons, Inc. - Canadian oil and gas producer ............................................. 1,484,800
100,000 * Offshore Logistics, Inc. - Worldwide transportation svcs to offshore oil explor. companie.............. 1,387,500
500,000 St. Mary Land & Exploration Co. - Oil and gas co. with diversified interests around the world (Note 5) 8,375,000
400,000 Snyder Oil Corporations - Acquires, produces and develops domestic oil and gas properties ............ 4,050,000
350,000 * 3-D Geophysical, Inc. - 3-D seismic data acquisition services to oil and gas companies (Note 5) ....... 3,762,500
1,000,000 * Tesoro Petroleum Corporation - Refines, markets and transports crude oil products ..................... 11,500,000
549,500 * Tipperary Corporation - Explores, develops and produces oil and gas in Australia ...................... 2,404,063
500,000 * Tuboscope Vetco International Corp - Provides services and products to the oil/gas industry ........... 5,562,500
400,000 * Universal Seismic, Inc. - Provides scientific seismic data to oil and gas companies (Note 5) .......... 2,100,000
------------
120,235,132
ENVIRONMENTAL SERVICES - 1.7%
3,800,000 * Allwaste, Inc. - Provides industrial waste handling, processing, and transportation (Note 5) .......... 17,575,000
400,000 * Biosys, Inc. - Develops natural bioinsecticides for state and local governments (Note 5) .............. 1,950,000
372,700 * GZA GeoEnvironmental Technologies, Inc. - Environmental consulting services (Note 5) ................. 1,397,625
2,008,800 * Mid American Waste Systems, Inc. - Non-hazardous solid waste management (Note 5) ..................... 1,883,250
723,500 * Vectra Technologies, Inc. - Provides products, services to nuclear facilities worldwide (Note 5) ...... 1,808,750
218,800 * Weston Roy F. (Class A) - Environmental consulting, engineering and project mgmt. services ............ 1,039,300
------------
25,653,925
FINANCE - 4.4%
322,100 Advest Group, Inc. - Brokerage, trading, investment banking, leasing/asset mgmt. ...................... 3,261,263
200,000 Atlanta/Sosnoff Capital Corp. - Investment mgmt. firm with over $3.6 billion in client assets ......... 1,925,000
1,350,000 Cash America International, Inc. - Operates pawnshops with locations throughout the U.S. .............. 8,775,000
350,000 Eaton Vance Corporation - Advisor to mutual funds .................................................... 12,687,500
300,000 * EZCorp, Inc (Class A) - Operates pawn shops in Southern U.S. .......................................... 2,025,000
350,000 Inter-Regional Financial Group, Inc. - Full service securities broker operating through 83 offices .... 9,100,000
222,704 Kinnard Investments, Inc. - Brokerage services with 22 offices and affiliated banks and S&Ls .......... 1,030,006
1,000,000 * Payco American Corporation - Nation wide accounts receivable manager (Note 5) ......................... 8,750,000
300,000 Phoenix Duff & Phelps - Investment mgr. for mutual funds and institutional investors ................. 2,250,000
450,000 Raymond James Financial, Inc. - Brokerage, investment banking and financial planning ................. 10,181,250
210,000 Stifel Financial Corporation - Securities brokerage with 64 offices in Central U.S ................... 1,601,250
99,600 Student Loan Corporation - Originates, holds and services guaranteed student loans .................... 3,585,600
400,000 * Sunrise Resources, Inc. - Leasing of new/used electronic data processing equipment (Note 5)............ 1,475,000
------------
66,646,869
FOOD & BEVERAGE - 1.6%
100,000 Eskimo Pie Corporation - Markets a broad range of frozen novelty food items ............................ 1,775,000
200,000 * Grist Mill Company - Manufactures cereal, snack and confectionery products .............................. 1,275,000
50,500 Hanover Foods, Inc. - Produces and markets prepared foods (Note 5) ...................................... 1,767,500
700,000 * North Star Universal, Inc. - Holding co. with major interest in Michael Foods and Corvel Corp. .......... 5,425,000
430,000 * Summit Family Restaurant, Inc. - Family style restaurants (Note 5) ...................................... 2,096,250
800,000 * Stokely USA, Inc. - A leading domestic producer of canned vegetables (Note 5) ........................... 2,800,000
276,100 Thorn Apple Valley, Inc. - Slaughters hogs/provides packaged meat and poultry products .................. 3,037,100
250,000 * Timber Lodge Steakhouse, Inc. - Operates restaurants in the Minneapolis/St. Paul area (Note 5) .......... 1,093,750
490,000 * Todhunter International, Inc. - Produces citrus-based brandy, distilled spirits and wine (Note 5) ....... 4,287,500
100,000 * Vicorp Restaurants, Inc. - Operates "Bakers Square" and "Village Inn" restaurants ....................... 1,225,000
-----------
24,782,100
HEALTH CARE SERVICE - 13.9%
500,000 * AHI Healthcare Systems, Inc. - Integrates physicians into managed health care networks ................. 3,500,000
105,500 * American Healthcorp, Inc. - Comprehensive diabetes treatment services through 65 centers ................ 1,318,750
</TABLE>
25
<PAGE> 27
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS [CONT'D]
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
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SHARES VALUE
HELD COMMON STOCKS - 83.1% [CONT'D] NOTE 1(a)
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<S> <C> <C> <C>
HEALTH CARE SERVICE - [CONT'D]
500,000 * Applied Bioscience International, Inc. - Conducts toxicological studies.................................... $ 5,250,000
308,900 * Caretenders Healthcorp - Provides home nursing and rehabilitative services (Note 5) ....................... 2,316,750
2,000,000 * Coastal Physicians Group, Inc. - Medical group mgmt. services throughout the U.S. (Note 5) ................ 13,750,000
927,400 * Community Psychiatric Centers - Alcoholic rehabilitation, drug and occupational therapy ................... 8,810,300
1,042,000 * Grancare, Inc. - Operates 80 long-term health care facilities ............................................. 20,709,750
300,000 * Health Power, Inc. - Managed health care holding company (Note 5) ......................................... 2,175,000
290,000 Hooper Holmes, Inc. - Provides health information to the insurance industry ............................... 3,842,500
618,700 * Hospital Staffing Services, Inc. - Provides interim duty medical staff to hospitals (Note 5) .............. 2,088,112
2,500,000 ICN Pharmaceuticals, Inc. - Develops, mfgs. pharmaceutical/nutritional products (Note 5) .................. 58,125,000
500,000 Integrated Health Services, Inc. - Operates 192 facilities for rehabilitation/pharmacy svcs ............... 11,875,000
1,000,000 * Maxicare Health Plans, Inc. - Diversified medical products manufacturer and supplier (Note 5) ............. 18,875,000
186,666 * Meadowbrook Rehabilitation Group, Inc. - Provides rehabilitation services (Note 5) ........................ 198,332
1,074,500 * Quantum Health Resources, Inc. - Deliver alternate site therapies and services (Note 5) ................... 18,266,500
520,000 * Ramsay Health Care, Inc. - One of the largest psychiatric services companies (Note 5) ..................... 1,560,000
250,000 * Ramsay Managed Health Care, Inc. - Provides managed behavioral health services ............................ 421,875
364,000 * Regency Health Services, Inc. - Operator of California healthcare facilities .............................. 4,140,500
925,200 * RightChoice Managed Care (Class A) - Offers managed health care products and services ..................... 11,449,350
500,000 * Scios, Inc. - Develops drugs for cardiopulmonary diseases and tissue repair ............................... 3,312,500
213,802 * Star Multi Care Services, Inc. - Proprietary and custodial health care svcs. / staffing (Note 5) ......... 2,044,482
600,000 United Wisconsin Services, Inc. - Group health insurance and HMO operator ................................. 15,600,000
400,000 * Zynaxis, Inc. - Biotechnology company engaged in new therapeutic delivery systems ......................... 375,000
-----------
210,004,701
HOME APPLIANCES - 0.6%
750,000 Toastmaster, Inc. - Makes small electrical household appliances (Note 5) .................................. 3,375,000
446,300 Windmere-Durable Holdings, Inc. - Mfgs./distributes small electric appliances ............................. 5,857,688
-----------
9,232,688
INSURANCE - 8.5%
441,500 American Eagle Group, Inc. - Property/casualty coverage to aviation/trucking industries (Note 5) .......... 2,041,938
200,000 Amwest Insurance Group, Inc. - Underwrites a variety of surety bonds (Note 5) ............................. 2,350,000
500,000 AmVestors Financial Corporation - Writer of single-premium deferred annuities ............................. 7,875,000
200,000 Capital RE Corporation - Specialty reinsurance emphasizing the mortgage guaranty market ................... 7,350,000
400,000 CMAC Investment Corporation - Provides private mortgage insurance coverage ................................ 23,000,000
151,000 * Delphi Financial Group (Class A) - Life, long-term disability and personal accident insurance ............. 4,077,000
1,012,400 John Alden Financial Corporation - Group health/life insurance and managed care services .................. 22,399,350
100,000 Kaye Group, Inc. - Underwrites property and casualty insurance ............................................ 562,500
1,000,000 * Life USA Holding Inc. - Writes/sells universal life insurance and annuity products in 40 states ........... 8,875,000
200,000 * Picom Insurance Co. - Liability insurance for doctors/dentists/health care professionals (Note 5) ......... 5,000,000
500,000 Pioneer Financial Services, Inc. - Underwrites health, accident, life and annuities ....................... 8,312,500
1,700,000 Presidential Life Corporation - Writes annuities, whole life, universal life and term policies (Note 5) ... 17,637,500
250,000 Renaissance Re Holdings Ltd. - Property catastrophe reinsurance and short-tail reinsurance ................ 7,687,500
300,000 Transnational Re Corporation (Class A) - Property catastrophe reinsurance in U.S. and abroad .............. 7,387,500
500,000 * Westbridge Capital Corp. - Underwrites/sells individual accident and health insurance (Note 5) ............ 3,937,500
-----------
128,493,288
LEISURE - 4.2%
226,900 American Recreation Centers, Inc. - Operates 41 bowling centers in six states ............................. 1,474,850
325,000 * Baldwin Piano & Organ Company - Manufactures pianos and electric organs (Note 5) .......................... 4,793,750
500,000 Barefoot, Inc. - Provides residential lawn care services .................................................. 5,500,000
150,000 * Buckhead America Corp. - Mortgage servicing and hotel management services (Note 5) ........................ 918,750
420,500 * ERO, Inc. - Markets children's products which feature popular licensed characters ......................... 2,628,125
500,000 * Grand Casinos, Inc. - Develops, manages land-based and dockside casinos and bingo facilities .............. 12,875,000
</TABLE>
26
<PAGE> 28
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS [CONT'D]
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
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SHARES VALUE
HELD COMMON STOCKS - 83.1% [CONT'D] NOTE 1(a)
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<S> <C> <C>
LEISURE - [CONT'D]
400,000 * Iwerks Entertainment, Inc. - Movie-based specialty theaters for the entertainment market ................ $ 3,950,000
285,000 * Johnson Worldwide (Class A) - Recreational products for fishing, camping and marine activities .......... 3,918,750
120,000 La Crosse Footwear, Inc. - Develops/mfgs. protective, industrial and recreational footwear .............. 1,245,000
75,000 Marcus Corporation - Operates restaurants, theaters, hotels and motels .................................. 1,884,375
200,000 Matthews International Corporation (Class A) - Custom-made identity products ............................ 5,500,000
800,000 * NTN Communications, Inc. - 24 hr. entertainment network programming throughout Canada ................... 4,700,000
400,000 * Players International, Inc. - Operates casinos in regional markets ...................................... 3,900,000
300,000 * Sholodge, Inc. - Franchiser/operator of Shoney's Inn and Sumner Suites hotels ........................... 3,750,000
700,000 * Stratosphere Corporation - Owns and operates Stratosphere Tower Casino in Las Vegas ..................... 4,200,000
400,000 * Trimark Holdings, Inc. - Distributor of home videos and feature films ................................... 2,150,000
----------
63,388,600
MANUFACTURING - 5.8%
1,050,000 * Alpine Group, Inc. - Mfg. copper wire & cable for telecomm. and refractory products (Note 5) ............ 5,250,000
650,000 * Arden Industrial Products, Inc. - Nat'l distributor of specialty and standard fasteners (Note 5) ........ 3,412,500
1,000,000 * Astec Industries, Inc. - Designs, mfgs., markets asphalt plants, milling and paving equip. (Note 5) ..... 9,250,000
100,000 Badger Meter, Inc. - Producer of fluid meters and flow valves (Note 5) .................................. 2,787,500
208,500 * Dakotah, Inc. - Designs, manufactures and markets home fashion furnishings (Note 5) ..................... 899,156
692,500 * Devlieg-Bullard, Inc. - Mfgs., upgrades, automates precision engineered machine tools (Note 5) .......... 1,558,125
300,000 * Encore Wire Corp. - Produces copper elec. building wire for commercial / residential uses ............... 3,150,000
401,500 * Gehl Company - Manufactures/markets agricultural and construction equipment (Note 5) .................... 3,362,563
700,000 General Chemical Group, Inc. - Manufactures and supplies inorganic chemicals ............................ 14,175,000
97,000 * Hampshire Group Ltd. - Produces classically-styled fashion sweaters ..................................... 1,139,750
373,000 * Kentucky Electric Steel Company, Inc. - Owns and operates a mini steel mill (Note 5) .................... 3,030,625
310,300 Martin Industries, Inc. - Mfgs. gas space heaters, gas logs, fireplaces and metal office furniture ...... 2,792,700
300,000 * MFRI, Inc. - Manufacturer and marketer of filter bags, related parts and accessories (Note 5) ........... 2,137,500
230,080 Mosinee Paper Corporation - Industrial specialty and tissue paper products producer .................... 6,154,640
387,200 * NYCOR, Inc. - Manufactures components for heating and cooling systems (Note 5) .......................... 2,274,800
341,400 * NYCOR, Inc. (Class A) - (Note 5) ........................................................................ 1,920,375
600,000 * Powell Industries, Inc. - Designs/manufs/sells electrical power generation products (Note 5) ............ 6,975,000
153,500 Reliance Steel & Aluminum Company - Full-line distributor/processor of steel and aluminum ............... 5,602,750
185,500 * Rexworks, Inc. - Manufactures and sells concrete and waste disposal equipment (Note 5) .................. 626,063
108,000 Salem Corporation - Designs and installs heavy industrial equipment (Note 5) ............................ 2,403,000
500,000 Spartech Corporation - Manufactures and markets single and multi-layer plastic sheet .................... 5,312,500
250,000 * Specialty Paperboard, Inc. - Largest domestic supplier of heavyweight pressboard (Note 5) ............... 3,656,250
----------
87,870,797
MARKETING/CORPORATE SERVICE - 1.5%
300,000 Cyrk International, Inc. - Designs products that promote brand names and corp. identities ............... 4,087,500
300,000 * LCS Industries, Inc. - Provides computer related direct response marketing svcs (Note 5) ................ 3,600,000
1,300,000 Luminart, Inc. - Develops products for visual effects in signage display (Note 5) ....................... 3,336,320
250,000 * M/A/R/C, Inc. - Provides market research, database marketing and consulting services (Note 5) ........... 5,437,500
150,000 Norwood Promotional Products, Inc. - Custom promo products to distributors nationwide ................... 3,375,000
430,000 * Outlook Group Corporation - Print./pack./dist. sports cards, food and consumer printing (Note 5) ........ 2,042,500
----------
21,878,820
MEDICAL PRODUCTS - 3.0%
450,000 * Aequitron Medical, Inc. - Manufactures home health care and hospital products (Note 5) .................. 3,375,000
400,000 Allied Healthcare Products, Inc. - Mfgs./markets medical gas / respiratory therapy equip. (Note 5) ...... 3,700,000
40,000 * Electroscope, Inc. - Electrosurgical shielding system and integrated electrosurgical instruments ........ 400,000
395,000 * Female Health Co. - Manufactures chemical and branded consumer health products (Note 5) ................. 2,049,063
200,000 * Gish Biomedical, Inc - Offers devices for use in cardiovascular and orthopedic surgery (Note 5) ......... 1,150,000
357,000 * Hauser Chemical Research, Inc. - Processes chemicals for use in drugs ................................... 2,409,750
</TABLE>
27
<PAGE> 29
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS [CONT'D]
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
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SHARES VALUE
HELD COMMON STOCKS - 83.1% [CONT'D] NOTE 1(a)
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<S> <C> <C>
MEDICAL PRODUCTS - [CONT'D]
500,000 * MDT Corp. - Develops, manufactures, markets and services sterility assurance systems (Note 5)........... $ 2,265,650
403,500 * Marquette Electronics, Inc. (Class A) - Mfg. of medical electronic monitoring equipment ................ 6,960,375
227,800 * Maxxim Medical, Inc. - Manufactures and distributes physical therapy equipment ......................... 3,901,075
243,700 * Medical Graphics Corp. - Computerized diagnostic sys. to detect heart and lung disease (Note 5) ........ 1,976,261
600,000 * OEC Medical Systems, Inc. - Mfgs. computer based medical instruments ................................... 8,175,000
400,000 * Rehabilicare, Inc. - Dsgns./mfgs./markets electromed. rehab. and pain mgmt. products (Note 5) .......... 1,600,000
540,000 * Sullivan Dental Products, Inc. - Distributes consumable dental supplies and equipment (Note 5) ......... 5,467,500
100,000 Sterile Concepts Holdings - Produces surgical and clinical custom procedure trays ...................... 1,987,500
-----------
45,417,174
RETAIL - 6.7%
550,000 * Action Industries, Inc. - Merchandising programs (Note 5) .............................................. 1,134,375
76,000 * Amrion, Inc. - Markets dietary supplements and other consumer products ................................. 1,178,000
450,000 * Dairy Mart Convenience Stores, Inc. - Operates over 1,000 convenience stores (Note 5) .................. 2,643,750
850,000 * Damark International, Inc. (Class A) - Information-based, direct mktr of brnd name merch. (Note 5) ..... 11,900,000
1,100,000 * Designs, Inc. - Operates 120 specialty retail stores selling Levi Strauss merchandise (Note 5) ......... 6,600,000
330,000 * Duckwall-ALCO Stores, Inc. - Discount retailer operating throughout the central U.S. (Note 5) .......... 4,867,500
168,900 * Funco, Inc. - Interactive home entertainment from purchase and resale of video games ................... 1,456,763
1,200,600 * Gibson Greetings, Inc. - Manufacturer and retailer of greeting cards (Note 5) .......................... 16,508,250
80,000 * Good Guys, Inc. - Consumer electronics retailer in California .......................................... 700,000
720,000 * Harmony Brook, Inc. - Develops, mfgs., distributes and operates water filtering equipment (Note 5) ..... 720,000
403,000 * HealthRite, Inc. - Sells vitamins, dietary supplements, sports nutritions, personal care products
(Note 5) ............................................................................................... 806,000
900,000 * Hi-Lo Automotive, Inc. - Retails automotive replacement parts (Note 5) ................................. 4,162,500
675,000 * Oneita Industries, Inc. - Manufactures, sells high quality blank t-shirts for screenprinting (Note 5)... 2,109,375
510,000 * Rhodes, Inc. - Retailer of brand-name furniture to a broad base of middle-income customers (Note 5) 5,673,750
400,000 * Roberds, Inc. - Operates retail outlets of home furnishing products (Note 5) ........................... 4,250,000
1,000,000 Shopko Stores, Inc. - Regional discount store concentrated in the upper Midwest ........................ 16,125,000
575,000 * Sports & Recreation, Inc. - Sells sporting goods through 80 "Sports Unlimited" superstores ............. 5,246,875
1,000,000 * Supercuts, Inc. - Nationwide franchiser and operator of haircare stores (Note 5) ....................... 8,500,000
366,500 * Trak Auto Corporation - Retail auto parts stores (Note 5) .............................................. 5,864,000
25,000 Weyco Group, Inc. - Manufacturer and retailer of quality shoes ......................................... 1,012,500
-----------
101,458,638
TECHNOLOGY - 4.7%
479,000 * Align-Rite International, Inc. - Mfg. of photomasks used to produce integrated circuits (Note 5) ....... 5,568,375
250,000 * BancTec, Inc. - Manufacturer of computerized check processing systems .................................. 5,062,500
280,000 * CSP, Inc. - Manufacturer of array processors to enhance computer speed (Note 5) ........................ 2,310,000
1,000,000 * Computer Products, Inc. - Designs / manufactures products for industrial data processing ............... 17,125,000
785,000 * Digital Biometrics, Inc. - Produces fingerprint recording and identification products (Note 5) ......... 4,710,000
350,000 * Effective Management Systems, Inc. - Dvlp., mfg and svc. business mgmt software (Note 5) ............... 2,406,250
40,000 FDP Corporation - Sells and supports computer applications software systems ............................ 530,000
1,000,000 * FSI International, Inc. - Mfgs surfacing conditioning equipment for processing silicon wafers .......... 12,625,000
700,000 * IEC Electronics Corp. - Mfgs complex printed circuit boards and electronic products (Note 5) ........... 5,075,000
301,200 * Mizar, Inc. - Manufactures computer subsystems used in real-time image processing (Note 5) ............. 1,957,800
457,500 Netframe Systems, Inc. - Produces specialized computer systems for local area networks ................. 2,058,750
100,000 * Odetics, Inc. (Class A) - Dvlp, mfg/mkt intelligent mach. to collect digital/analog data ............... 1,525,000
249,400 * Perle Systems, Ltd - Designs proprietary data communication networking hardware / software ............. 1,059,950
565,000 * PolyVision Corporation - Mfg custom dsgnd display products for schools, banks and offices (Note 5) ..... 600,313
564,000 Quixote Corporation - Manufactures compact and optical discs (Note 5) .................................. 3,807,000
125,000 * Read-Rite Corporation - Produces magnetic recording heads for disk drives .............................. 1,765,625
500,000 Technology Research Corporation - Control/measurement devices for elec. power distrib. (Note 5) ........ 2,687,500
-----------
70,874,063
</TABLE>
28
<PAGE> 30
HEARTLAND VALUE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
HELD COMMON STOCKS - 83.1% [CONT'D] NOTE 1(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION - 1.1%
540,200 * Amtran, Inc - Provides charter and selective scheduled airline services to leisure travelers ..........$ 4,456,650
212,000 * Marten Transport, Ltd. - Long-haul refrigerated motor carrier (Note 5) 3,392,000
300,000 * MTL, Inc. - Transports industrial chemicals and bulk food products by tank truck (Note 5) ............. 5,100,000
348,700 * Tower Air, Inc. - Provider of long-haul scheduled and charter passenger air services .................. 1,743,500
294,700 * Trism, Inc. - Trucking co. carrying heavy machinery, explosives, and radioactive materials (Note 5) ... 1,657,688
--------------
16,349,838
--------------
TOTAL COMMON STOCKS (Cost $1,035,808,624) ............................................................$1,256,865,201
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
HELD PREFERRED STOCKS - 0.3% NOTE 1(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
4,000,000 Automated Security PFD 6.0% - Sells and services electrical security systems ..........................$ 4,553,600
TOTAL PREFERRED STOCKS (Cost $2,530,007) ..............................................................$ 4,553,600
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT CORPORATE BONDS - 0.6% COUPON MATURITY NOTE 1(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS - 0.2%
$ 400,000 Fort Bend Holding Corporation ................................ 8.000% 01/01/2005 $ 393,000
1,000,000 ICN Pharmaceutical, Inc ...................................... 8.500 11/15/1999 1,200,000
750,000 Mercury Air Group, Inc ....................................... 7.750 02/01/2006 772,500
1,000,000 Professional Bancorp ......................................... 8.500 03/01/2004 1,025,000
--------------
3,390,500
NON-CONVERTIBLE BONDS - 0.4%
6,335,000 Engle Homes, Inc ............................................. 11.750 12/15/2000 6,152,869
--------------
6,152,869
--------------
TOTAL CORPORATE BONDS (Cost $9,174,938) ................................................................$ 9,543,369
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT U.S. GOVERNMENT SECURITIES - 3.3% COUPON MATURITY NOTE 1(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$50,000,000 US Treasury Note .............................................. 5.875% 08/15/1998 $ 49,703,100
--------------
TOTAL U.S. GOVERNMENT SECURITIES (Cost $49,769,483) ................................................. $ 49,703,100
</TABLE>
29
<PAGE> 31
HEARTLAND VALUE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT SHORT -TERM INVESTMENTS - 13.2% COUPON MATURITY NOTE 1(a)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES - 6.7%
$50,000,000 US Treasury Note ............................ 7.250% 11/30/1996 $50,343,750
50,000,000 US Treasury Note ............................ 6.500 05/15/1997 50,296,850
-----------
100,640,600
DISCOUNT NOTES - 5.1%
12,000,000 Federal Home Loan Mortgage Corporation........ 5.250 07/15/1996 11,975,500
20,000,000 Federal Home Loan Mortgage Corporation ....... 5.360 07/12/1996 19,968,161
15,000,000 Federal Home Loan Banks ...................... 5.307 07/15/1996 14,969,796
10,700,000 Federal Home Loan Mortgage Corporation ....... 5.359 09/04/1996 10,698,600
20,000,000 Federal Home Loan Banks ...................... 5.270 09/25/1996 19,748,232
----------
77,360,289
VARIABLE RATE DEMAND NOTES - 1.4%
21,679,000 Warner - Lambert Company ................... 5.115 07/01/1996 21,679,000
----------
21,679,000
----------
TOTAL SHORT-TERM INVESTMENTS (Cost $199,495,475) ......................... 199,679,889
-----------
TOTAL INVESTMENTS - 100.5% (Cost $1,296,778,527) (+) ..................... $1,520,345,159
==============
<CAPTION> VALUE
- -------------------------------------------------------------------------------------------
SHARES SHORT-SALES Note 1(a)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
155,900 Fedders Corporation - Room air conditioner manufacturer that publicly
announced a pending merger with NYCOR, Inc., a portfolio holding $ 1,110,787
-----------
TOTAL SHORT SALES (Proceeds $977,643) (Note 1(f)) ............... 1,110,787
===========
</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.
30
<PAGE> 32
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at quoted market value
-non-affiliated companies (Cost $772,625,020) ................................. $ 922,343,361
-affiliated companies (Cost $524,153,507) (Note 5) ............................ 598,001,798
Cash ............................................................................. 184,082
Receivable from investments sold ................................................. 1,196,614
Receivable from fund shares sold ................................................. 226,633
Accrued dividends and interest ................................................... 2,629,826
-------------
Total assets .................................................................. 1,524,582,314
-------------
LIABILITIES:
Securities sold short, at current market value (proceeds $977,643) ............... 1,110,757
Payable for investments purchased ................................................ 9,704,679
Payable for fund shares redeemed ................................................. 492,090
Payable to Distributor for distribution fees (Note 2) ............................ 902,180
Payable to transfer agent ........................................................ 123,895
Other accrued expense ............................................................ 352,559
-------------
Total liabilities ............................................................. 12,686,160
-------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value,100,000,000 shares authorized 47,713,214 shares outstanding) .... $1,511,896,154
==============
NET ASSET VALUE PER SHARE
Net asset value and offering price per share ($.001 par value,
100,000,000 shares authorized [$1,511,896,154 / 47,713,214 shares outstanding]) .. $ 31.69
==============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ending June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATIONS:
Net investment income ............................................... $ 1,967,544
Net realized gains on investments. .................................. 92,722,211
Net increase in unrealized appreciation on investments .............. 73,419,688
--------------
Net increase in net assets resulting from operations ........... 168,109,443
--------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (9,651,037 shares) ...................... 287,758,766
Cost of shares redeemed (4,550,834 shares) .......................... (134,898,063)
--------------
Net increase in net assets derived from Fund share activities .. 152,860,703
--------------
TOTAL INCREASE ...................................................... 320,970,146
NET ASSETS AT DECEMBER 31, 1995 ........................................ 1,190,926,008
--------------
NET ASSETS AT JUNE 30, 1996 (Note 4) ................................... $1,511,896,154
==============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
31
<PAGE> 33
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF OPERATIONS
For the six months ending June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $ 7,453,006
Dividends-non affiliated companies................................. 2,384,980
Dividends-affiliated companies (Note 5)............................ 904,038
------------
Total investment income....................................... 10,742,024
------------
EXPENSES:
Management fees (Note 2)........................................... 5,057,240
Distribution fees (Note 2)......................................... 1,685,746
Transfer agent fees................................................ 961,610
Registration fees.................................................. 333,493
Postage............................................................ 300,570
Custodian fees..................................................... 142,277
Printing and communications........................................ 126,821
Legal fees......................................................... 62,800
Audit fees......................................................... 32,448
Directors' fees.................................................... 2,000
Other expenses..................................................... 69,475
------------
Total expenses................................................ 8,774,480
------------
Net investment income.............................................. 1,967,544
------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS-NET:
NET REALIZED GAINS ON INVESTMENTS - non-affiliated companies....... 94,515,178
NET REALIZED LOSSES ON INVESTMENTS - affiliated companies (Note 5). (1,792,967)
------------
TOTAL NET REALIZED GAINS ON INVESTMENTS............................ 92,722,211
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS............. 73,419,688
------------
NET GAINS ON INVESTMENTS....................................... 166,141,899
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $168,109,443
============
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
32
<PAGE> 34
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31
ENDING JUNE 30, 1996 --------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, at beginning of period ... $27.95 $ 22.72 $ 23.22 $ 20.41 $ 16.06 $ 11.32
Income from investment operations:
Net investment income (loss) ........... 0.04 0.13 (0.09) (0.12) (0.09) (0.08)
Net realized and unrealized
gains (losses) on securities ........... 3.70 6.63 0.47 3.95 6.91 5.66
---- ---- ---- ---- ---- ----
Total from investment operations ....... 3.74 6.76 0.38 3.83 6.82 5.58
Less distributions:
Dividends from net investment income ... -- (0.13) -- -- -- --
Distributions from net realized gains .. -- (1.40) (0.88) (1.02) (2.47) (0.84)
------- ------- -------- -------- ------- -------
Total distributions .................... -- (1.53) (0.88) (1.02) (2.47) (0.84)
Net asset value, end of year .............. $31.69 $ 27.95 $ 22.72 $ 23.22 $ 20.41 $ 16.06
====== ========== ======== ======== ======= =======
Total Return (1) .......................... 13.4%(2) 29.8% 1.7% 18.8% 42.5% 49.4%
Supplemental data and ratios:
Net assets, end of period
(in thousands).......................... $1,511,896 $1,190,926 $339,364 $186,518 $48,391 $29,880
Ratio of total expenses
to average net assets .................. 1.29%(3) 1.29% 1.39% 1.51% 1.48% 1.69%
Ratio of net investment income
(loss) to average net assets ........... 0.29%(3) 0.61% (0.52)% (0.71)% (0.49)% (0.54)%
Portfolio turnover rate ................ 15% 31% 35% 51% 76% 79%
</TABLE>
(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
The accompanying notes to financial statements are an integral part of this
statement.
33
<PAGE> 35
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 1996 (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 Fund's Investment
objectives is long-term capital appreciation. The Fund seeks to achieve
its objective through investment in small company stocks selected on a
value basis. The following is a summary of significant accounting policies
of the Fund:
(a) Securities for which exchange quotations are readily 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. Securities for which exchange quotations are not readily
available are valued primarily using dealer-supplied valuations or at
their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of
Directors. 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. The fund had no open futures
contracts at June 30, 1996.
(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. Similarly, the Fund may also engage in short
sales of securities of an issuer "(acquiror") that has publicly
announced a proposed or pending transaction in which a portfolio
security of the Fund will be converted into securities of the acquiror.
These techniques are intended to hedge protectively against
anticipated declines in the market price of the Fund's 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. During the six month period
ending June 30, 1996 the fund did not engage in any option related
activities and no options were owned at the end of the period.
(h) The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from the estimates.
34
<PAGE> 36
HEARTLAND VALUE FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 1996 (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 six months ended June 30,
1996, the Distributor received $64,219 from investors representing
commissions for Fund share redemptions and $181,296 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, 1996, the cost of purchases and the
proceeds from sales of investment securities (excluding short-term
securities) were $488,964,387 and $169,809,050 respectively, of which
purchases of government and government agency obligations were $49,756,641.
4) Sources of Net Assets
<TABLE>
<S> <C>
As of June 30, 1996, the sources of net assets were as follows:
Fund shares issued and outstanding ........................................ $1,193,772,911
Accumulated net realized gains of investments ............................. 92,722,211
Net unrealized appreciation on investments ................................ 223,433,488
Accumulated net investment income ......................................... 1,967,544
--------------
$1,511,896,154
==============
Aggregate gross unrealized appreciation (depreciation) as of June 30, 1996,
based on investment cost for Federal income tax purposes is as follows:
Aggregate gross unrealized appreciation ................................... $ 299,615,640
Aggregate gross unrealized depreciation ................................... (76,182,152)
--------------
Net unrealized appreciation on investments ................................ $ 223,433,488
==============
</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.
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Dividends Gains
Security Name Dec. 31, 1995 Purchases Sales June 30, 1996 Received (Losses)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3-D Geophysical, Inc. 0 350,000 0 350,000 $ 0 $0
Action Industries, Inc. 550,000 0 0 550,000 0 0
Aequitron Medical, Inc. 450,000 0 0 450,000 0 0
Align-Rite International, Inc. 0 479,000 0 479,000 0 0
Allied Healthcare Products, Inc. 181,200 218,800 0 400,000 56,000 0
Allwaste, Inc. 2,843,300 956,700 0 3,800,000 0 0
Alpine Group, Inc. 1,000,000 50,000 0 1,050,000 0 0
American Eagle Group, Inc. 300,000 141,500 0 441,500 29,660 0
American Educational Products, Inc. 405,000 0 0 405,000 0 0
</TABLE>
35
<PAGE> 37
HEARTLAND VALUE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS - [CONT'D] - JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Share Share Realized
Balance at Balance at Dividends Gains
Security Name Dec. 31, 1995 Purchases Sales June 30, 1996 Received (Losses)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amwest Insurance Group, Inc. 200,000 10,000 10,000 200,000 $ 42,900 $ 995
Arden Industrial Products, Inc.. 206,500 443,500 0 650,000 0 0
Astec Industries, Inc. 1,000,000 0 0 1,000,000 0 0
Automated Security Holdings,
PLC. (ADR) 2,000,000 2,100,000 0 4,100,000 0 0
Badger Meter, Inc. 100,000 0 0 100,000 42,000 0
Baldwin Piano & Organ Company 325,000 0 0 325,000 0 0
Beverly Bancorporation 44,126(1) 0 0 44,126 21,394 0
Biosys, Inc. 400,000(2) 0 0 400,000 0 0
Buckhead America Corporation 116,000 34,000 0 150,000 0 0
Caretenders Healthcorp 243,900 65,000 0 308,900 0 0
Cherry Corporation (Class A) 500,000 400,100 50,000 850,100 0 (218,750)
Clayton Williams Energy, Inc. 505,000 95,000 0 600,000 0 0
Coastal Physicians Group, Inc. 1,000,000 1,000,000 0 2,000,000 0 0
Cobra Electronics Corporation 481,000 19,000 0 500,000 0 0
CSP, Inc. 280,000 0 0 280,000 0 0
D & N Financial Corporation 169,600 230,400 0 400,000 0 0
Dairy Mart Convenience Stores, Inc.
(Class A) 450,000 0 0 450,000 0 0
Dakotah, Inc. 150,500 58,000 0 208,500 0 0
Damark International, Inc. (Class A) 900,000 0 50,000 850,000 0 217,113
Designs, Inc. 978,200 121,800 0 1,100,000 0 0
Devlieg-Bullard, Inc. 692,500 0 0 692,500 0 0
Digital Biometrics, Inc. 0 840,000 55,000 785,000 0 89,764
Duckwall-ALCO Stores, Inc. 290,000 40,000 0 330,000 0 0
ECC International Corporation 504,900 195,100 0 700,000 0 0
Effective Management Systems, Inc. 350,000 0 0 350,000 0 0
Engle Homes, Inc. 500,000 0 0 500,000 40,000 0
Evergreen Resources, Inc. 518,500 41,500 0 560,000 0 0
Female Health Company 0 395,000 0 395,000 0 0
FLIR Systems, Inc. 155,600 198,400 0 354,000 0 0
Forest Oil Company 0 1,560,000 0 1,560,000 0 0
Gehl Company 311,500 90,000 0 401,500 0 0
Gibson Greetings, Inc. 1,200,600 0 0 1,200,600 0 0
Gish Biomedical, Inc. 200,000 0 0 200,000 0 0
GZA GeoEnvironmental
Technologies, Inc. 363,300 9,400 0 372,700 0 0
Hallwood Consolidated
Resources Corporation 100,000 0 0 100,000 0 0
Hanover Foods, Inc. 34,500 16,000 0 50,500 20,900 0
Harmony Brook, Inc. 720,000 0 0 720,000 0 0
Health Power, Inc. 242,400 57,600 0 300,000 0 0
HealthRite, Inc. 365,000 38,000 0 403,000 0 0
Hi-Lo Automotive, Inc. 850,000 50,000 0 900,000 0 0
Home Federal Bank 0 129,000 0 129,000 16,125 0
Hospital Staffing Services, Inc. 620,000 0 1,300 618,700 0 1,230
ICN Pharmaceuticals, Inc. 2,100,005 399,995 0 2,500,000 166,489 0
IEC Electronics Corporation 653,100 46,900 0 700,000 0 0
International Colin Energy Corp. 1,070,000 0 0 1,070,000 0 0
Kentucky Electric Steel Co., Inc. 240,000 133,000 0 373,000 0 0
LCS Industries, Inc. 368,500 0 68,500 300,000 0 394,588
</TABLE>
36
<PAGE> 38
HEARTLAND VALUE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS - [CONT'D] - JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Share Share Realized
Balance at Balance at Dividends Gains
Security Name Dec. 31, 1995 Purchases Sales June 30, 1996 Received (Losses)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Luminart, Inc. 1,300,000 0 0 1,300,000 $ 0 $ 0
Marten Transport, Ltd. 212,000 0 0 212,000 0 0
Maxicare Health Plans, Inc. 750,000 400,000 150,000 1,000,000 0 1,955,400
MDT Corporation 500,000 0 0 500,000 0 0
Meadowbrook Rehab Group, Inc. 177,500(3) 9,166 0 186,666 0 0
Medical Graphics Corporation 243,700 0 0 243,700 0 0
Mercury Air Group, Inc. 233,530(4) 216,470 0 450,000 6,498 0
Metropolitan Bancorp 327,100 0 0 327,100 0 0
MFRI, Inc. 300,000 0 0 300,000 0 0
Mid American Waste Systems, Inc. 2,750,000 150,000 973,100 1,926,900 0 (4,567,174)
Mizar, Inc. 175,000 126,200 0 301,200 0 0
Morgan Products, Ltd. 418,800 331,200 0 750,000 0 0
MTL, Inc. 150,000 150,000 0 300,000 0 0
MYR Group, Inc. 260,000 40,000 0 300,000 30,000 0
M/A/R/C, Inc. 269,000 0 19,000 250,000 0 243,238
Norstan, Inc. 276,000 0 0 276,000 0 0
North Star Universal, Inc. 700,000 0 0 700,000 0 0
Northwest Equity Corporation 100,000 0 10,000 90,000 9,000 13,375
NYCOR, Inc. 728,600 0 0 728,600 0 0
Oneita Industries, Inc. 322,900 352,100 0 675,000 0 0
Outlook Group Corporation 300,000 130,000 0 430,000 0 0
Patrick Industries, Inc. 250,000 50,000 0 300,000 22,000 0
Payco American Corporation 943,000 57,000 0 1,000,000 0 0
Peoples Telephone Company, Inc. 1,500,000 0 0 1,500,000 0 0
Picom Insurance Company 185,700 14,300 0 200,000 0 0
Pinnacle Bank (1) 67,800 0 0 67,800 24,408 0
(formerly 1st Federal of Alabama F.S.B.) 0
PolyVision Corporation 320,000 245,000 0 565,000 0 0
Powell Industries, Inc. 600,000 0 0 600,000 0 0
Presidential Life Corporation 1,700,000 0 0 1,700,000 119,000 0
Quantum Health Resources, Inc. 916,500 158,000 0 1,074,500 0 0
Quixote Corporation 424,400 139,600 0 564,000 63,600 0
Ramsay Health Care, Inc. 520,000 0 0 520,000 0 0
Redwood Empire Bancorp 224,000 0 0 224,000 0 0
Rehabilicare, Inc. 438,000 0 38,000 400,000 0 77,255
Rexworks, Inc. 185,500 0 0 185,500 0 0
Rhodes, Inc. 0 510,000 0 510,000 0 0
Roberds, Inc. 400,000 0 0 400,000 0 0
Salem Corporation 87,500 20,500 0 108,000 29,700 0
Schult Homes Corporation 350,000 0 0 350,000 35,000 0
Sifco Industries, Inc. 266,300 33,700 0 300,000 0 0
Specialty Paperboard, Inc. 250,000 0 0 250,000 0 0
Star Multi Care Services, Inc. 213,802 0 0 213,802 0 0
Starcraft Corporation 315,500 42,700 0 358,200 0 0
Sterling Financial Corporation 275,000 0 0 275,000 0 0
Stokely USA, Inc. 457,000 343,000 0 800,000 0 0
St. Mary Land & Exploration Co. 490,000 10,000 0 500,000 40,000 0
Sullivan Dental Products, Inc. 540,000 0 0 540,000 0 0
Summit Family Restaurant, Inc. 430,000 0 0 430,000 0 0
Sunrise Resources, Inc. 400,000 0 0 400,000 0 0
Supercuts, Inc. 516,000 484,000 0 1,000,000 0 0
</TABLE>
37
<PAGE> 39
HEARTLAND VALUE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS - [CONT'D] - JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Share Share Realized
Balance at Balance at Dividends Gains
Security Name Dec. 31, 1995 Purchases Sales June 30, 1996 Received (Losses)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Technology Research Corporation 500,000 0 0 500,000 $ 60,000 $ 0
Timber Lodge Steakhouse, Inc. 250,000 0 0 250,000 0 0
Toastmaster, Inc. 591,400 158,600 0 750,000 29,364 0
Todhunter International, Inc. 490,000 0 0 490,000 0 0
Total Tel USA Communications, Inc. 144,500 0 0 144,500 0 0
Trak Auto Corporation 366,500 0 0 366,500 0 0
Transworld Bancorp 176,775(5) 0 0 176,775 0 0
Trimark Holdings, Inc. 400,000 0 0 400,000 0 0
Trism, Inc. 294,700 0 0 294,700 0 0
UNC, Inc. 1,100,000 0 0 1,100,000 0 0
United Security Bancorp 149,930(6) 5,000 0 154,930 0 0
Universal Seismic, Inc. 370,000 30,000 0 400,000 0 0
URS Corporation 700,100 299,900 0 1,000,000 0 0
Vectra Technologies, Inc. 700,000 23,500 0 723,500 0 0
Westbridge Capital Corporation 500,000 0 0 500,000 0 0
-------- -----------
$904,038 $(1,792,967)
======== ===========
</TABLE>
(1) Adjusted for 5% stock dividend
(2) Adjusted for 2 for 5 reverse stock split
(3) Adjusted for 1 for 3 reverse stock split
(4) Adjusted for 10% stock dividend
(5) Adjusted for 25% stock dividend
(6) Adjusted for 10% stock dividend
38
<PAGE> 40
HEARTLAND VALUE & INCOME FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
HELD COMMON STOCKS - 61.4% NOTE 1(a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANKS AND SAVINGS & LOANS - 2.4%
50,000 Teche Holding Company - Holding company for Teche Federal Savings Bank................................. $ 656,250
-----------
656,250
ENERGY & NATURAL RESOURCES - 15.5%
100,000 Berry Petroleum Company (Class A) - Explores and produces oil and natural gas.......................... 1,137,500
50,000 * Tesoro Petroleum Corporation - Refines and transports crude oil products............................... 575,000
110,000 USX Delhi Group - Sells natural gas to distribution companies and electric utilities................... 1,347,500
75,000 Western Gas Resources, Inc - Natural gas gathering and processing facilities........................... 1,218,750
-----------
4,278,750
ENTERTAINMENT - 2.7%
100,000 Intrav, Inc. - Designs, markets and operates escorted, international travel programs................... 737,500
-----------
737,500
FINANCIAL SERVICES - 1.6%
35,000 * Medallion Financial Corp. - Finance company specializing in taxi medallions............................ 437,500
-----------
437,500
HEALTH CARE - 5.5%
200,000 * Nova Care, Inc. - Provides contract rehabilitation services to health care institutions................ 1,525,000
-----------
1,525,000
MANUFACTURING - 13.0%
66,667 Decorator Industries, Inc. - Design, printing and sale of fabric for home furnishings.................. 550,003
26,000 Knape & Vogt Manufacturing, Inc. - Storage products.................................................... 409,500
100,000 Tab Products Co. - Office filing and furniture systems and computer related products................... 737,500
30,000 Toro Company - Consumer and commercial lawn and snow removal equipment................................. 993,750
10,000 Woodward Governor Company - Controls and accessory products for prime movers........................... 885,000
-----------
3,575,753
RETAIL - 13.0%
20,000 Blair Corp. - Direct-mail retailer of men's and women's apparel and home furnishings................... 472,500
40,000 * Carson Pirie Scott Company - Department store retailer concentrated in the upper Midwest.............. 1,070,000
17,100 Flexsteel Indust., Inc. - Upholstered furniture for various markets.................................... 200,925
40,000 * Gibson Greetings, Inc. - Manufacturer and retailer of greeting cards................................... 550,000
80,000 Shopko Stores, Inc. - Regional discount store concentrated in the upper Midwest........................ 1,290,000
-----------
3,583,425
TRANSPORTATION - 3.5%
30,000 * Midwest Express Holdings, Inc. - All first-class airline from Omaha and Milwaukee...................... 963,750
-----------
963,750
UTILITY - 4.2%
40,000 Minnesota Power & Light Company - Provides electric service in central and northern MN................. 1,160,000
-----------
1,160,000
-----------
TOTAL COMMON STOCKS (Cost $15,002,986)................................................................ $16,917,928
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE
HELD PREFERRED STOCKS - 4.3% NOTE 1(A)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
37,500 Callon Petroleum Company - Interests in 1,500 oil wells................................................ $ 1,190,625
-----------
TOTAL PREFERRED STOCKS (Cost $937,500).................................................................. $ 1,190,625
</TABLE>
39
<PAGE> 41
HEARTLAND VALUE & INCOME FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT BONDS - 27.2% COUPON MATURITY Note 1(a)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS - 16.6%
$ 750,000 Chock Ful O' Nuts Corporation -
Produces coffees, teas, shell peanuts and peanut products ................... 8.000% 09/15/2006 $ 690,000
750,000 Complete Management, Inc -
Management and support services to medical practices ........................ 5.000 08/15/2003 780,000
500,000 Hector Communication Corporation -
Operates rural telephone exchange companies in WI and MN .................... 8.500 02/15/2002 505,000
700,000 ICN Pharmaceuticals, Inc. -
Manufactures and markets a broad range of drugs ............................. 8.500 11/15/1999 840,000
560,000 NYCOR, Inc. -
Manufactures components for heating and cooling systems ..................... 8.500 06/15/2012 448,000
500,000 Professional Bancorp, Inc.-
Bank holding company engaged in commercial banking .......................... 8.500 03/01/2004 512,500
570,000 Sierra Tahoe Bancorp -
Bank holding company located in Lake Tahoe, CA .............................. 8.500 02/01/2004 798,000
-----------
4,573,500
CORPORATE BONDS - 10.6%
525,000 ADT, Ltd. -
Security systems and auto auctions .......................................... 9.250 08/01/2003 545,343
825,000 Engle Homes, Inc. -
Designs, constructs and markets housing units in Florida .................... 11.750 12/15/2000 801,281
121,000 Medalist Industries, Inc. - Produces industrial fasteners ................... 7.500 07/01/2001 120,698
1,000,000 Regency Health Services, Inc. -
Operator of California health care facilities ............................... 9.875 10/15/2002 965,000
500,000 UNC, Inc. -
Manufactures and remanufactures engine and airframe parts ................... 9.125 07/15/2003 485,000
-----------
2,917,322
-----------
TOTAL BONDS (Cost $7,023,252) .............................................. $ 7,490,822
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT SHORT-TERM INVESTMENTS - 7.8% COUPON MATURITY Note 1(a)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VARIABLE RATE DEMAND NOTES - 7.8%
$ 822,000 Eli Lilly Corporation ....................................................... 4.980% 07/01/1996 $ 822,000
1,336,000 Warner-Lambert Company ...................................................... 5.115 07/01/1996 1,336,000
-----------
2,158,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $2,158,000) .............................. 2,158,000
-----------
TOTAL INVESTMENTS - 100.7% (Cost $25,121,738) (+) ........................... $27,757,375
===========
</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.
40
<PAGE> 42
HEARTLAND VALUE & INCOME FUND
(A SERIES OF HEARTLAND GROUP, INC.)
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at quoted market value (Cost $25,121,738) ............ $27,757,375
Receivable from fund shares sold ................................................ 120,500
Accrued dividends and interest .................................................. 191,033
Deferred organization expense (Note 3) .......................................... 17,789
-----------
Total assets ................................................................ 28,086,697
-----------
LIABILITIES:
Payable for investments purchased ............................................... 436,462
Payable for fund shares redeemed ................................................ 8,401
Payable to Distributor for distribution fees (Note 2) ........................... 15,290
Payable to Advisor for management fee (Note 2) .................................. 13,832
Payable to transfer agent ....................................................... 34,185
Dividends payable ............................................................... 520
Payable to Advisor for deferred organization expense (Note 3) ................... 17,789
-----------
Total liabilities ........................................................... 526,479
-----------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value, 100,000,000 shares authorized, 2,173,931 shares outstanding) .. $27,560,218
===========
NET ASSET VALUE PER SHARE
Net asset value and offering price per share ($.001 par value,
100,000,000 shares authorized [$27,560,218 / 2,173,931 shares outstanding]) ..... $ 12.68
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
41
<PAGE> 43
HEARTLAND VALUE & INCOME FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF OPERATIONS
For the six months ending June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.............................................. $ 393,675
Dividends............................................. 229,418
----------
Total investment income............................ 623,093
----------
EXPENSES:
Management fees (Note 2).............................. 80,246
Distribution fees (Note 2)............................ 28,583
Transfer agent fees................................... 27,106
Registration fees..................................... 21,318
Postage............................................... 5,368
Audit fees............................................ 4,855
Amortization of organization expenses (Note 3)........ 3,812
Custodian fees........................................ 2,943
Printing and communications........................... 2,447
Directors' fees....................................... 2,014
Legal fees............................................ 1,800
Other operating expenses.............................. 2,555
----------
Total expenses..................................... 183,047
----------
Net investment income................................. 440,046
----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS-NET:
NET REALIZED GAINS ON INVESTMENTS....................... 1,253,188
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS.. 1,626,009
----------
NET GAINS ON INVESTMENTS.............................. 2,879,197
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $3,319,243
==========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ending June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATIONS:
Net investment income..................................... $ 440,046
Net realized gains on investments......................... 1,253,188
Net increase in unrealized appreciation on investments.... 1,626,009
-----------
Net increase in net assets resulting from operations... 3,319,243
-----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.22 per share). (440,046)
-----------
Total distributions.................................... (440,046)
-----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (872,225 shares)............... 10,444,255
Net asset value of shares issued in reinvestment of
distributions fromnet investment income
(32,539 shares)......................................... 398,962
Cost of shares redeemed (443,102 shares)................... (5,284,890)
-----------
Net increase in net assets derived from Fund share
activities............................................. 5,558,327
-----------
TOTAL INCREASE............................................. 8,437,524
NET ASSETS AT DECEMBER 31, 1995................................. 19,122,694
-----------
NET ASSETS AT JUNE 30, 1996 (Note 5)............................ $27,560,218
===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
42
<PAGE> 44
HEARTLAND VALUE & INCOME FUND
(A Series of Heartland Group, Inc.)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six months 10/26/93(1)
ending June 30, 1996 For the year ended Dec. 31 through
---------------------------
(Unaudited) 1995 1994 12/31/93
<S> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $ 11.17 $ 9.53 $ 10.45 $ 10.00
Income from investment operations:
Net investment income ........................................ 0.22 0.41 0.41 0.07
Net realized and unrealized gains (losses)
on securities ................................................ 1.51 1.89 (0.92) 0.45
------- ------- ------- -------
Total from investment operations ............................. 1.73 2.30 (0.51) 0.52
Less distributions:
Dividends from net investment income ......................... (0.22) (0.41) (0.41) (0.07)
Distributions from net realized gains ........................ -- (0.25) -- --
------- ------- ------- -------
Total distributions ........................................... (0.22) (0.66) (0.41) (0.07)
Net asset value, end of period ................................ $ 12.68 $ 11.17 $ 9.53 $ 10.45
======= ======= ======= =======
Total return (2) .............................................. 15.5% (3) 24.4% (4.9)% 5.2% (3)
Supplemental data and ratios:
Net assets, end of period (in thousands) ..................... $27,560 $19,123 $9,884 $5,811
Ratio of total expenses to average net assets ................ 1.58% (4) 1.54% 1.80% 1.30% (4)
Ratio of net investment income to average
net assets .................................................. 3.79% (4) 3.90% 4.39% 6.52% (4)
Portfolio turnover rate ...................................... 47% 150% 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.
43
<PAGE> 45
HEARTLAND VALUE & INCOME FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (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 Fund
seeks to obtain capital growth and current income through investment in
stocks and bonds. 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.
(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 is 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 reclassified
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
statements 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.
The Fund had no open futures contracts at June 30, 1996.
(g) The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting
period. Actual results could differ from the estimates.
44
<PAGE> 46
HEARTLAND VALUE & INCOME FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS [CONT'D]
JUNE 30, 1996 (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 .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 ending June 30,
1996, the Distributor received $1,555 from investors representing
commissions for Fund share redemptions and $4,028 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, 1996 were $17,789.
4) INVESTMENT TRANSACTIONS.
For the six month period ending June 30, 1996, the cost of purchases and
the proceeds from sales of investment securities (excluding short-term
securities) were $16,876,522 and $9,745,275, respectively.
5) SOURCES OF NET ASSETS.
<TABLE>
<S> <C>
As of June 30, 1996, the sources of net assets were as follows:
Fund shares issued and outstanding........................................ $ 23,679,858
Net unrealized appreciation on investments................................ 2,627,172
Accumulated net realized gains on investment.............................. 1,253,188
------------
$ 27,560,218
============
</TABLE>
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation (depreciation) as of June 30, 1996,
based on investment cost for Federal income tax purposes is as follows:
Aggregate gross unrealized appreciation................................... $ 2,880,004
Aggregate gross unrealized depreciation................................... (252,832)
------------
Net unrealized appreciation on investments................................ $ 2,627,172
============
</TABLE>
45
<PAGE> 47
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
(A SERIES OF HEARTLAND GROUP, INC.)
STATEMENT OF NET ASSETS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1(A)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG TERM INVESTMENTS - 96.3%
U.S. TREASURY AND AGENCY SECURITIES - 42.0%
$ 8,500,000 U.S. Treasury Note..................................... 7.250% 05/15/2004 $ 8,812,885
15,000,000 U.S. Treasury Bond..................................... 0.000 11/15/2014 4,111,650
34,000,000 U.S. Treasury Bond..................................... 0.000 11/15/2016 8,031,140
4,000,000 Tennessee Valley Authority............................. 0.000 11/15/2029 3,251,184
-----------
24,206,859
MORTGAGE-BACKED SECURITIES - 33.0%
5,000,000 Federal Home Loan Mortgage Corporation................. 6.400 THRU 2023 4,664,250
3,574,000 Federal Home Loan Mortgage Corporation (CMO)........... 7.000 THRU 2022 3,370,425
1,225,200 Federal Housing Administration......................... 8.875 THRU 2030 1,268,464
30,867 Federal National Mortgage Association.................. 10.000 THRU 2017 33,481
1,373,428 Federal National Mortgage Association.................. 7.000 THRU 2035 1,305,615
6,000,000 Federal National Mortgage Association (CMO)............ 7.000 THRU 2020 5,776,860
2,438,884 Government National Mortgage Association............... 9.125 THRU 2030 2,578,357
-----------
18,997,452
CORPORATE SECURITIES - 21.3%
3,800,000 Coleman Holdings, Inc.................................. 0.000 05/27/1998 3,187,250
2,750,000 Grancare, Inc.......................................... 9.375 09/15/2005 2,646,875
500,000 Integrated Health Services, Inc........................ 9.625 05/31/2002 497,500
2,389,000 IMC Fertilizer Group, Inc.............................. 9.450 12/15/2011 2,454,697
2,940,000 Louis Dreyfus Natural Gas Corporation.................. 9.250 06/15/2004 3,046,575
513,000 Quantum Health Resources, Inc.......................... 4.750 10/01/2000 460,417
-----------
12,293,314
-----------
TOTAL LONG-TERM INVESTMENTS (Cost $57,423,683) ................................. $55,497,625
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1(A)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS - 1.5%
VARIABLE DEMAND NOTES - 1.5%
$ 835,000 Warner - Lambert Company............................... 5.115% 07/01/1996 $ 835,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $835,000).................................... 835,000
TOTAL INVESTMENTS - 97.8% (Cost $58,258,681).................................... 56,332,625
Cash and receivables, less liabilities - 2.2%.................................. 1,290,872
-----------
TOTAL NET ASSETS (NOTE 4) (+)................................................... $57,623,497
===========
Net asset value and offering price per share ($.001 par value, 100,000,000
shares authorized [$57,623,497 + 6,248,456 shares outstanding])................... $ 9.22
===========
(+) Percentages for the various classifications use total net assets as a basis.
The accompanying notes to financial statements are an integral part of this statement.
</TABLE>
46
<PAGE> 48
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
(A SERIES OF HEARTLAND GROUP, INC.)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDING JUNE 30, 1996 (UNAUDITED)
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest .............................................................. $ 2,236,333
============
EXPENSES:
Management fees (Note 2) .............................................. 199,255
Distribution expense (Note 2) ......................................... 76,637
Transfer agent fee .................................................... 36,693
Registration fees ..................................................... 17,042
Professional fees ..................................................... 10,520
Custodian fees ........................................................ 8,489
Printing and communications ........................................... 6,822
Postage ............................................................... 6,378
Legal fees ............................................................ 4,400
Directors' fees ....................................................... 2,000
Other operating expenses .............................................. 9,017
------------
Total expenses ........................................................ 377,253
Less expenses reimbursed by Advisor (Note 2) .......................... (45,982)
------------
Net expenses ....................................................... 331,271
------------
Net investment income ................................................. 1,905,062
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS-NET:
NET REALIZED LOSSES ON INVESTMENTS .................................... (62,800)
NET INCREASE IN UNREALIZED DEPRECIATION ON INVESTMENTS ................ (4,839,989)
------------
NET LOSS ON INVESTMENTS ............................................ (4,902,789)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. $ (2,997,727)
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDING JUNE 30, 1996 (UNAUDITED)
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net investment income ................................................ $ 1,905,062
Net realized losses on investments. .................................. (62,800)
Net increase in unrealized depreciation on investments ............... (4,839,989)
------------
Net decrease in net assets resulting from operations ............. (2,997,727)
------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.29 per share) ........... (1,905,062)
------------
Total distributions .............................................. (1,905,062)
------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (627,949 shares) ......................... 5,937,110
Net asset value of shares issued in reinvestment of distributions from
net investment income (143,176 shares) ............................... 1,344,737
Cost of shares redeemed (1,173,226 shares) ........................... (11,016,359)
------------
Net decrease in net assets derived from Fund share activities .... (3,734,512)
------------
TOTAL DECREASE ...................................................... (8,637,301)
NET ASSETS AT DECEMBER 31, 1995 ..................................... 66,260,798
------------
NET ASSETS AT JUNE 30,1996 (Note 4) ................................. $ 57,623,497
============
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
47
<PAGE> 49
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
(A SERIES OF HEARTLAND GROUP, INC.)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31
ENDING JUNE 30, 1996 ------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................ $ 9.96 $ 8.91 $10.50 $ 9.93 $ 9.97 $ 9.39
Income from investment operations:
Net investment income ............................. 0.29 0.60 0.59 0.56 0.66 0.69
Net realized and unrealized
gains (losses) on securities ...................... (0.74) 1.05 (1.59) 1.18 0.30 0.83
------ ------ ------ ------ ------ ------
Total from investment operations .................. (0.45) 1.65 (1.00) 1.74 0.96 1.52
Less distributions:
Dividends from net investment income .............. (0.29) (0.60) (0.59) (0.56) (0.66) (0.69)
Distributions from net realized gain .............. -- -- -- (0.61) (0.34) (0.25)
------ ------ ------ ------ ------ ------
Total distributions .............................. (0.29) (0.60) (0.59) (1.17) (1.00) (0.94)
Net asset value, end of period ...................... $ 9.22 $ 9.96 $ 8.91 $10.50 $ 9.93 $ 9.97
====== ====== ====== ====== ====== ======
Total return (1) .................................... (4.5)% (2) 19.0% (9.6)% 17.8% 10.1% 17.0%
Supplemental data and ratios:
Net assets, end of period (in thousands) .......... $57,623 $66,261 $64,807 $66,789 $28,378 $29,101
Ratio of net expenses to average net assets(3) .... 1.08% (4) 1.07% 1.07% 1.06% 0.92% 0.92%
Ratio of net investment income to
average net asset ................................. 6.22% (4) 6.31% 6.30% 5.09% 6.71% 7.06%
Portfolio turnover rate ........................... 14% 97% 95% 200% 149% 185%
</TABLE>
(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) 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.
(4) Annualized.
The accompanying notes to financial statements are an integral part of this
statement.
48
<PAGE> 50
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (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 Fund's investment
objectives are a high level of current income, liquidity and safety of
principal. 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
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, 1996 the Fund has a
Federal income tax capital loss carry forward of $5,030,226 expiring in
2002, $858,457 expiring in 2003 and $62,800 expiring in 2004.
(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 reclassified 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
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. The Fund had no open futures
contracts at June 30, 1996.
(g) The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from the estimates.
49
<PAGE> 51
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS [CONT'D]
JUNE 30, 1996 (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 .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, 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 ended June 30, 1996 the
Distributor received $29,039 from investors representing commissions for
Fund share redemptions. 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, 1996 the cost of purchases and the
proceeds from sales of investment securities (excluding short-term
securities) were $8,644,480 and $14,591,230 respectively, of which sales of
U.S. government and government agency obligations aggregated $6,132,912.
4) SOURCES OF NET ASSETS.
<TABLE>
<S> <C>
As of June 30, 1996, the sources of net assets were as follows:
Fund shares issued and outstanding................................. $65,501,036
Net unrealized depreciation on investments......................... (1,926,056)
Accumulated net realized losses on investments..................... (5,951,483)
-----------
$57,623,497
===========
</TABLE>
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation (depreciation) as of June 30, 1996,
based on investment cost for Federal income tax purposes is as follows:
Aggregate gross unrealized appreciation................................. $ 366,551
Aggregate gross unrealized depreciation................................. (2,292,607)
-----------
Net unrealized depreciation on investments.............................. $(1,926,056)
===========
</TABLE>
50
<PAGE> 52
[LOGO] HEARTLAND FUNDS
AMERICA'S VALUE INVESTOR
SMALL CAP CONTRARIAN FUND
VALUE FUND
(CLOSED TO NEW INVESTORS 7/1/95)
VALUE & INCOME FUND
U.S. GOVERNMENT SECURITIES FUND
WISCONSIN TAX FREE FUND
NEBRASKA TAX FREE FUND
TO LEARN MORE ...
PLEASE CALL A HEARTLAND REPRESENTATIVE.
1-800-432-7856
These are not recommendations to buy or sell the securities discussed, but
rather illustrations of our value investment strategy. Statements regarding
particular securities represent the portfolio manager's views when made and are
subject to change at any time based on market and other considerations.
The performance data quoted represents past performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
This material may only be used when preceded or accompanied by the Fund's
prospectus
<PAGE> 53
[LOGO]
HEARTLAND FUNDS
-------------------------
AMERICA'S VALUE INVESTOR
Value Report
Second Quarter 1996
Notes on value investing
for investors in the Heartland Wisconsin Tax Free Fund
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
<PAGE> 54
DEAR INVESTOR
[photo of
Pat Retzer]
Dear Wisconsin Investor:
For bond investors, the year's first half was trying.
As interest rates rose, bonds declined, and municipals were
not spared. Your Fund's price declined from $10.30 on January
1 to $9.95 on June 30.
We believe, however, that the worst is over, and that the case
for municipal bonds is now compelling.
- We find current tax-exempt yields to be very attractive -
not only on their own merit, but also relative to long-term
Treasuries, their classic benchmark.
- Talk of a flat tax has pretty much evaporated.
- The supply/demand ratio of municipals seems favorable.
Last year, the outstanding supply of municipal bonds shrank
by $76 billion, or 6%. In 1996, the shrinkage in supply is
estimated to be about $12 billion.
On the following pages, you'll find details on your Fund: its
performance history, advantages, and portfolio composition, as
well as a look into our thought process behind a recent
investment.
Thank you for your continued support.
Sincerely,
Patrick J. Retzer
Portfolio Manager August 10, 1996
1 VALUE REPORT
<PAGE> 55
HEARTLAND WISCONSIN TAX FREE FUND
OBJECTIVE
The Heartland Wisconsin Tax Free Fund seeks a high level of current income that
is exempt from Wisconsin and federal personal income taxes.
INVESTMENT PERFORMANCE
- --CURRENT YIELD......................................................... 5.36%
July SEC yield for the 30 days commencing 7/1/96.
- --AVERAGE ANNUAL RETURNS AS OF 6-30-96
<TABLE>
<CAPTION>
YTD(1) Since
6/30/96 1-year 3-year inception 4-3-92
------- ------ ------ ----------------
<S> <C> <C> <C>
-0.9% 6.5% 4.3% 5.9%
</TABLE>
(1) Not annualized. Performance is historical. Investment returns and
principal value fluctuate, so that your shares when redeemed may be worth
more or less than their original cost. Up to 20% of the Fund's assets may be
invested with income subject to alternative minimum tax.
- --WE BELIEVE YOUR FUND OFFERS COMPELLING VALUE TODAY.
Consider its advantages over the other Wisconsin tax-free funds:
- It is the only no-load - so your entire investment works for you.
- It is the largest - enjoying major clout in the Wisconsin market.
- It is the most broadly diversified - which helps reduce risk.
- It has the highest proportion of Wisconsin bonds - investments
where Heartland Advisors' understanding of the state's economy can
make an important difference.
- We invite you to compare its current yield to that of any similar
investment.
VALUE REPORT 2
<PAGE> 56
HEARTLAND WISCONSIN TAX FREE FUND
AN UNCONVENTIONAL VALUE OPPORTUNITY
Milwaukee would like a larger share of the nation's multi-billion dollar
convention business. To earn it, the city must improve its image among meeting
planners. The WISCONSIN CENTER, now under construction, is critical to this
effort.
Scheduled for completion in 1999, the Wisconsin Center will accommodate up to
10,000 conventioneers, in a 700,000 square-foot facility with state-of-the-art
amenities.
This January, when its bonds were issued, we bought $14 million worth - about
$12 million of it in A-rated bonds yielding 5.55% to 5.7%. The rest was in
AAA-rated insured zero coupon bonds. Because the issue was $180 million - too
large for Wisconsin investors to absorb - the bonds carried yields intended to
appeal to national tax-free funds, which invested heavily.
But the bond market soon fell steeply, causing some national funds to panic and
sell the bonds at a loss. Fortunately, our Fund had the resources to buy
aggressively at a significant discount to the issue price, thus earning much
higher yields - up to 0.45% higher - than we did at issue.
We have often mentioned the advantages we enjoy of being both the largest
double tax-free fund in Wisconsin and only one of two such funds that are
actually managed in this state. Our Wisconsin Center investment serves as an
example. Along with the size of our asset base, our intimate knowledge of the
Wisconsin municipal market enabled us to capitalize on this compelling value
opportunity.
As of June 30, 1996, the Fund's WISCONSIN CENTER bonds were valued at $16.8
million and represented 13.8% of the portfolio.
3 VALUE REPORT
<PAGE> 57
PORTFOLIO PROFILE
------------------------------------------------------------
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
Since
YTD inception
6/30/96(1) 1-year 3-year 4/3/92
----------------------- -------- ------ ------ ---------
<S> <C> <C> <C> <C>
Heartland
Wisconsin Tax Free Fund.... -0.9% 6.5% 4.3% 5.9%
Lehman 20-Year
Municipal Bond Index....... -1.1 7.5 5.3 7.4(2)
</TABLE>
(1) Not annualized. (2) Since 4/1/92. The Lehman 20-Year Municipal Bond Index is
an unmanaged index of certain investment grade municipal securities with
maturities between 17 and 22 years. Performance is historical. Investment
returns and principal value fluctuate, so that your shares when redeemed may be
worth more or less than their original cost.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GENERAL INFORMATION
<S> <C>
Inception......................... 4/3/92
Assets............................ $ 122 mil
Net asset value (NAV)............. $9.95
Number of issues.................. 214
Weighted average maturity......... 19.2 yrs.
Weighted average duration......... 11.3 yrs.
Current yield..................... 5.36%
July SEC yield annualized for the
30 days commencing 7/1/96.
Sales load........................ None
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
% OF NET
TOP 5 HOLDINGS COUPON MATURITY ASSETS
----------------------------------------- -------- ---------- --------
<S> <C> <C> <C>
Wisconsin Center............................ 5.7% 12/15/2020 8.9%
Milwaukee Redevelopment..................... 5.5 09/12/2012 8.8
Puerto Rico Authority....................... 5.5 07/01/2017 3.6
Guam Power Authority........................ 6.3 10/01/2012 2.8
Brown County HSG Authority.................. 6.5 07/01/2019 2.7
- --------------------------------------------------------------------------------
</TABLE>
PORTFOLIO COMPOSITION BY REGION
[graphic - A pie chart displays composition by region of the Heartland
Wisconsin Tax Free Fund's portfolio as of 6/30/96: Wisconsin at 81.5%; Guam at
7.4%; Puerto Rico at 9.3%; cash & equivalents at 1.8%]
All statistics are as of June 30, 1996.
VALUE REPORT 4
<PAGE> 58
HEARTLAND WISCONSIN TAX FREE FUND
(A Series of Heartland Group, Inc.)
SCHEDULE OF INVESTMENTS
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1(a)
- --------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS - 98.2%
<S> <C> <C> <C> <C>
WISCONSIN - 81.5%
$ 20,000 Amery, WI Housing Authority - Revenue Bonds............ 7.375% 05/01/2005 $ 21,050
125,000 Barron, WI Housing Authority - Maplecroft Project...... 0.000 10/01/2004 77,248
35,000 Barron, WI Housing Authority - Maplecroft Project...... 0.000 10/01/2005 20,350
130,000 Barron, WI Housing Authority - Maplecroft Project...... 0.000 10/01/2006 71,071
85,000 Barron, WI Housing Authority - Maplecroft Project...... 0.000 10/01/2007 43,669
130,000 Barron, WI Housing Authority - Maplecroft Project...... 0.000 10/01/2008 62,725
520,000 Barron, WI Housing Authority - Maplecroft Project...... 5.375 10/01/2011 490,750
1,000,000 Bristol, WI CDA - Lease Revenue........................ 6.125 03/01/2012 995,000
3,220,000 Brown County, WI Housing Auth. - R.P. Terrace Project.. 6.500 06/01/2019 3,292,450
75,000 Dane County, WI Housing Auth. - Forest Harbor Apt...... 5.950 07/01/2013 74,156
25,000 Dane County, WI Housing Auth. - Forest Harbor Apt...... 6.000 07/01/2014 24,601
265,000 De Forest, WI Redev. Auth. - Lease Revenue Bonds....... 6.200 02/01/2014 270,963
435,000 De Forest, WI Redev. Auth. - Lease Revenue Bonds....... 6.250 02/01/2018 443,156
685,000 Eau Claire, WI Housing Auth. - London Hill Townhouses.. 6.250 05/01/2015 687,569
550,000 Elkhart Lake, WI CDA................................... 6.000 04/01/2015 537,625
10,000 Franklin, WI CDA....................................... 5.400 04/01/2003 10,000
250,000 Franklin, WI CDA....................................... 5.850 04/01/2006 258,095
1,000,000 Franklin, WI CDA....................................... 6.050 04/01/2008 1,035,000
890,000 Franklin, WI CDA....................................... 6.100 04/01/2010 924,060
250,000 Franklin, WI CDA....................................... 6.150 04/01/2012 250,000
3,055,000 Green Bay, WI Housing Authority - Pheasant Run Project. 6.500 09/01/2019 3,093,188
100,000 Hartford, WI CDA....................................... 5.450 12/01/2002 103,250
200,000 Hartford, WI CDA....................................... 5.800 12/01/2005 208,750
210,000 Hartford, WI CDA....................................... 6.000 12/01/2007 217,440
225,000 Hartford, WI CDA....................................... 6.100 12/01/2008 233,719
10,000 Hudson, WI Christian Community Home.................... 8.000 07/01/2005 10,000
55,000 Hudson, WI Christian Community Home.................... 6.700 05/01/2008 55,455
75,000 Hudson, WI Christian Community Home.................... 6.800 05/01/2009 75,533
65,000 Hudson, WI Christian Community Home.................... 6.900 05/01/2010 65,488
250,000 Hudson, WI Christian Community Home.................... 7.000 05/01/2023 250,938
160,000 Jackson, WI CDA - Revenue Bonds........................ 6.500 12/01/2006 168,557
105,000 Jackson, WI CDA - Revenue Bonds........................ 6.600 12/01/2007 111,600
180,000 Jackson, WI CDA - Revenue Bonds........................ 6.700 12/01/2008 192,600
260,000 Jackson, WI CDA - Revenue Bonds........................ 6.800 12/01/2009 280,818
285,000 Jackson, WI CDA - Revenue Bonds........................ 6.900 12/01/2010 298,928
350,000 Jackson, WI CDA - Revenue Bonds........................ 7.000 12/01/2012 373,188
390,000 Jackson, WI CDA - Revenue Bonds........................ 7.000 12/01/2013 415,350
430,000 Jackson, WI CDA - Revenue Bonds........................ 7.000 12/01/2014 457,413
345,000 Jackson, WI CDA - Revenue Bonds........................ 7.000 12/01/2015 366,563
515,000 Jackson, WI CDA - Revenue Bonds........................ 7.000 12/01/2016 546,544
500,000 Jackson, WI CDA - Revenue Bonds........................ 7.000 12/01/2017 530,000
1,760,000 La Crosse, WI Housing Authority - Forest Park Project.. 6.375 12/01/2018 1,753,400
880,000 La Crosse, WI Housing Authority - Ping Manor Project... 6.000 04/01/2005 876,700
1,100,000 La Crosse, WI Housing Authority - Ping Manor Project... 6.375 04/01/2012 1,109,625
305,000 Madison, WI CDA - Dempsey Manor Project................ 6.400 10/01/2018 305,763
160,000 Madison, WI CDA - Dempsey Manor Project................ 6.650 10/01/2025 157,800
</TABLE>
5 Value Report
<PAGE> 59
HEARTLAND WISCONSIN TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1(a)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN - [CONT'D]
$ 1,435,000 Madison, WI CDA - Edgewood College........................ 6.250% 04/01/2014 $ 1,429,619
95,000 Madison, WI CDA - Greentree Project - Series A............ 7.300 09/01/2032 95,238
1,000,000 Madison, WI CDA - Meriter Retirement Project.............. 6.125 12/01/2019 1,022,500
45,000 Madison, WI CDA - Monticello Apartments Project........... 7.125 04/01/2009 45,169
100,000 Marinette, WI Housing Authority - Multifamily - Series A.. 6.750 02/01/2024 103,000
165,000 Markesan, WI CDA - Elderly Housing Revenue Bonds.......... 6.750 10/01/2009 163,715
190,000 Markesan, WI CDA - Elderly Housing Revenue Bonds.......... 6.900 10/01/2011 189,525
100,000 Menomonee Falls, WI CDA - Village Square Project.......... 5.200 09/01/2009 92,125
950,000 Menomonee Falls, WI CDA - Village Square Project.......... 5.350 09/01/2016 845,500
215,000 Milwaukee, WI Housing Authority - Blatz Apartments........ 7.500 12/01/2028 221,719
50,000 Milwaukee, WI New Public Housing Authority................ 5.000 09/01/2010 47,632
100,000 Milwaukee, WI Redevelopment Auth. - Campus Town........... 5.550 11/01/2012 98,250
3,000,000 Milwaukee, WI Redevelopment Auth. - Campus Town........... 5.700 11/01/2018 2,970,000
55,000 Milwaukee, WI Redevelopment Auth. Dynapro, Inc............ 5.300 12/01/2007 54,656
65,000 Milwaukee, WI Redevelopment Auth. Dynapro, Inc............ 5.350 12/01/2008 64,269
55,000 Milwaukee, WI Redevelopment Auth. Dynapro, Inc............ 5.400 12/01/2010 53,144
225,000 Milwaukee, WI Redevelopment Auth. Dynapro, Inc............ 5.500 12/01/2013 216,000
1,955,000 Milwaukee, WI Redevelopment Authority - MSOE.............. 6.000 10/01/2017 1,947,669
1,385,000 Milwaukee, WI Redevelopment Authority - MSOE.............. 6.000 10/01/2017 1,379,806
500,000 Milwaukee, WI Redevelopment Authority - Schlitz Park II... 5.000 01/01/2015 503,125
10,000 Milwaukee, WI RDA - School Improvement.................... 0.000 03/01/2004 6,375
1,300,000 Milwaukee, WI RDA - Wis.Ave./M.L.King, Jr. Dr............. 5.500 03/01/2008 1,314,573
1,705,000 Milwaukee, WI RDA - Wis.Ave./M.L.King, Jr. Dr............. 5.600 03/01/2009 1,725,272
1,755,000 Milwaukee, WI RDA - Wis.Ave./M.L. King, Jr. Dr............ 5.600 09/01/2009 1,769,075
11,000,000 Milwaukee, WI RDA - Wis.Ave./M.L. King, Jr. Dr............ 5.500 09/01/2012 10,738,750
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2003 43,225
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2004 40,412
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2005 42,088
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2005 37,872
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2006 39,484
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2006 35,506
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2007 37,020
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2007 33,175
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2009 32,547
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2009 29,277
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2010 30,538
1,210,000 New Berlin, WI Housing Authority - Apple Glen............. 6.700 11/01/2017 1,259,913
650,000 New Berlin, WI Housing Authority - Apple Glen............. 6.700 11/01/2020 676,813
125,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.400 05/01/2008 129,428
125,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.400 11/01/2008 129,556
105,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.500 05/01/2009 108,783
125,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.600 05/01/2010 130,156
150,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.700 05/01/2011 157,710
155,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.700 11/01/2011 161,873
165,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.800 11/01/2012 174,006
160,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.850 05/01/2013 168,890
165,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.850 11/01/2013 173,456
135,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.900 05/01/2014 142,316
</TABLE>
VALUE REPORT 6
<PAGE> 60
HEARTLAND WISCONSIN TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1(a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN - [CONT'D]
$ 190,000 New Berlin, WI Housing Authority - Pinewood Creek........ 6.900% 11/01/2014 $ 200,450
1,015,000 New Berlin, WI Housing Authority - Pinewood Creek........ 7.125 05/01/2024 1,072,094
80,000 Oak Creek, WI Housing Authority - Country Oaks II........ 6.000 08/01/2010 78,900
1,440,000 Oak Creek, WI Housing Authority - Country Oaks I......... 6.200 08/01/2017 1,414,800
2,980,000 Oak Creek, WI Housing Authority - Country Oaks II........ 6.300 08/01/2028 3,017,250
10,000 Oak Creek, WI Housing Authority - Multifamily............ 7.750 03/01/2031 10,363
100,000 Oak Creek, WI Housing Authority - Wood Creek.............27.750 07/20/1998 143,625
50,000 Oak Creek, WI Housing Authority - Wood Creek............. 0.000 07/20/2007 26,017
35,000 Oak Creek, WI Housing Authority - Wood Creek............. 0.000 01/20/2010 15,400
125,000 Oak Creek, WI Housing Authority - Wood Creek............. 0.000 01/20/2011 51,389
125,000 Oak Creek, WI Housing Authority - Wood Creek............. 0.000 07/20/2011 49,844
65,000 Oak Creek, WI Housing Authority - Wood Creek............. 0.000 01/20/2012 25,139
125,000 Oak Creek, WI Housing Authority - Wood Creek............. 0.000 01/20/2013 45,156
125,000 Oak Creek, WI Housing Authority - Wood Creek............. 0.000 07/20/2013 44,115
60,000 Oak Creek, WI Housing Authority - Wood Creek............. 0.000 01/20/2014 20,175
1,000,000 Oak Creek, WI Housing Authority - Wood Creek............. 5.500 07/20/2019 970,000
2,130,000 Oak Creek, WI Housing Authority - Wood Creek............. 5.625 07/20/2029 1,975,575
50,000 Omro, WI CDA - Revenue Bonds............................. 5.750 12/01/2006 52,313
335,000 Omro, WI CDA - Revenue Bonds............................. 5.875 12/01/2011 344,631
200,000 Outagamie, WI Housing Authority - First Mortgage......... 5.000 11/15/2003 193,250
5,000 Racine, WI Elderly Housing Authority - Lincoln Lutheran.. 7.100 10/01/2004 5,000
50,000 Reedsville, WI - New Public Housing Authority............ 5.125 04/01/2011 47,936
170,000 Schofield, WI CDA Lease Revenue.......................... 6.000 10/01/2012 169,031
500,000 Schofield, WI CDA Lease Revenue.......................... 6.200 10/01/2017 497,500
315,000 Sheboygan, WI Housing Authority - Multifamily Housing.... 6.900 02/01/2024 322,088
175,000 Sheboygan, WI Housing Authority - Rocky Knoll Project.... 5.250 12/01/2013 157,281
125,000 Sheboygan, WI Housing Authority - Rocky Knoll Project.... 5.300 12/01/2016 113,594
35,000 Slinger, WI Redevelopment Authority...................... 5.800 09/01/2007 35,719
95,000 Slinger, WI Redevelopment Authority...................... 5.850 09/01/2008 97,256
540,000 Slinger, WI Redevelopment Authority...................... 6.250 09/01/2017 546,750
100,000 Stevens Point, WI CDA - Mortgage Refunding............... 6.500 09/01/2006 105,125
560,000 Stevens Point, WI CDA - Mortgage Refunding............... 6.625 09/01/2009 583,100
435,000 Sturtevant, WI CDA - Redevelopment Lease................. 5.700 12/01/2009 428,853
375,000 Sturtevant, WI CDA - Redevelopment Lease................. 5.800 12/01/2010 373,069
200,000 Sturtevant, WI CDA - Redevelopment Lease................. 5.900 12/01/2011 199,750
1,000,000 Sturtevant, WI CDA - Redevelopment Lease................. 6.000 12/01/2015 1,000,000
200,000 Sturtevant, WI CDA - Redevelopment Lease................. 6.500 12/01/2015 208,000
105,000 St. Croix Falls, WI CDA Lease Revenue.................... 5.900 12/01/2006 105,895
115,000 St. Croix Falls, WI CDA Lease Revenue.................... 6.000 12/01/2007 116,438
1,190,000 St. Croix Falls, WI CDA Lease Revenue.................... 6.400 12/01/2014 1,200,413
305,000 Superior, WI RA - Superior Memorial Hospital Mortgage.... 5.700 05/01/2009 306,144
195,000 Sussex, WI CDA - Revenue Bond............................ 5.700 04/01/2007 193,538
1,900,000 Sussex, WI CDA - Revenue Bond............................ 6.100 04/01/2015 1,890,500
270,000 Two Rivers, WI CDA - Arch Forest Project................. 6.350 12/15/2012 277,088
500,000 Waukesha, WI HA - Multifamily - Brookfield Woods......... 6.750 12/01/2034 502,500
5,000 Waukesha, WI HA - Multifamily - Summit Woods............. 7.375 12/01/2024 5,000
10,000 Waukesha, WI HA - Multifamily - Court Apartments......... 6.300 12/01/2013 10,000
1,000,000 Waukesha, WI HA - Multifamily - Court Apartments......... 6.000 04/01/2036 895,000
25,000 Waukesha, WI HA - Westgrove Woods II Project............. 8.250 12/01/2020 25,000
</TABLE>
7 VALUE REPORT
<PAGE> 61
HEARTLAND WISCONSIN TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1(a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN - [CONT'D]
$ 20,000 Waukesha, WI HA - Westgrove Woods III Project......... 8.000% 12/01/2020 $ 20,450
405,000 Waukesha, WI HA - Multifamily - Court Apartments...... 5.800 04/01/2025 390,825
5,000 Waukesha, WI RA - Barstow Associates.................. 4.875 08/01/2010 5,000
95,000 Waupaca, WI CDA....................................... 6.100 10/01/2008 96,245
100,000 Waupaca, WI CDA....................................... 6.100 10/01/2009 101,103
100,000 Waupaca, WI CDA....................................... 6.200 10/01/2010 101,153
110,000 Waupaca, WI CDA....................................... 6.200 10/01/2011 111,436
120,000 Waupaca, WI CDA....................................... 6.200 10/01/2012 121,500
75,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 05/01/2003 51,377
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 11/01/2003 66,500
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 05/01/2004 67,620
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 11/01/2004 62,173
70,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 05/01/2005 42,088
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 11/01/2005 58,265
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 05/01/2006 59,225
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 11/01/2006 54,625
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 05/01/2007 55,530
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 11/01/2007 51,038
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 05/01/2008 51,844
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 11/01/2008 47,839
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 05/01/2009 48,820
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 11/01/2009 45,041
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 05/01/2010 45,806
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 0.000 11/01/2010 42,158
1,200,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 6.700 11/01/2015 1,215,000
1,060,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 6.700 11/01/2019 1,069,275
670,000 Wauwatosa, WI HA - Hawthorne Terrace Project.......... 6.700 11/01/2022 675,863
2,720,000 West Allis, WI CDA - Poblocki Investments Project..... 6.100 05/01/2007 2,740,400
150,000 Whitewater, WI Multifamily Housing - Rev. Bonds....... 5.375 11/15/2005 148,875
100,000 Winnebago County, WI HA - 1st Mortgage Rev. Bonds..... 5.625 05/01/2005 98,875
105,000 Winnebago County, WI HA - 1st Mortgage Rev. Bonds..... 5.625 05/01/2006 103,273
115,000 Winnebago County, WI HA - 1st Mortgage Rev. Bonds..... 5.625 05/01/2007 112,448
120,000 Winnebago County, WI HA - 1st Mortgage Rev. Bonds..... 5.625 05/01/2008 116,869
125,000 Winnebago County, WI HA - 1st Mortgage Rev. Bonds..... 5.625 05/01/2009 120,894
135,000 Winnebago County, WI HA - 1st Mortgage Rev. Bonds..... 5.625 05/01/2010 129,600
140,000 Winnebago County, WI HA - Multifamily Housing......... 6.750 10/01/2020 140,434
10,000 Winnebago County, WI HA - Series A.................... 6.000 03/01/1999 10,213
195,000 Winnebago County, WI HA - Series A.................... 6.875 03/01/2012 199,631
380,000 Winnebago County, WI HA - Series A.................... 7.125 03/01/2022 389,975
10,000 Winnebago County, WI HA - Series A.................... 6.100 03/01/2000 10,263
10,000 Winnebago County, WI HA - Series A.................... 6.200 03/01/2001 10,325
15,000 Winnebago County, WI HA - Series A.................... 6.300 03/01/2002 15,544
2,750,000 Wisconsin Center District - Rev. Bonds - Public Imp... 0.000 12/15/2012 1,045,000
3,395,000 Wisconsin Center District - Rev. Bonds - Public Imp... 0.000 12/15/2013 1,222,200
155,000 Wisconsin Center District - Rev. Bonds - Public Imp... 5.400 12/15/2013 148,219
1,325,000 Wisconsin Center District - Rev. Bonds - Public Imp... 0.000 12/15/2015 415,719
2,000,000 Wisconsin Center District - Rev. Bonds - Public Imp... 5.550 12/15/2015 1,920,000
</TABLE>
VALUE REPORT 8
<PAGE> 62
HEARTLAND WISCONSIN TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE1(a)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN - [CONT'D]
$ 850,000 Wisconsin Center District - Rev. Bonds - Public Imp... 5.550% 12/15/2016 $ 809,370
2,000,000 Wisconsin Center District - Rev. Bonds - Public Imp... 0.000 12/15/2019 487,500
11,150,000 Wisconsin Center District - Rev. Bonds - Public Imp... 5.700 12/15/2020 10,787,625
15,000 WHEDA Home Ownership.................................. 7.375 09/01/2017 15,206
365,000 WHEDA Home Ownership.................................. 6.100 06/01/2021 382,794
130,000 WHEDA Home Ownership.................................. 0.000 12/01/2007 42,900
5,000 Wisconsin Rapids, WI HA - River Run Project........... 7.625 05/01/2009 5,000
60,000 Wittenberg, WI Housing Authority...................... 7.200 06/20/2030 61,050
------------
99,374,936
------------
PUERTO RICO - 9.3%
400,000 Puerto Rico Commonwealth - Public Improvement.......... 5.850 07/01/2011 401,360
420,000 Puerto Rico Commonwealth - Public Improvement.......... 5.500 07/01/2013 404,741
635,000 Puerto Rico Commonwealth Hwy/Transp. Authority......... 6.375 07/01/2008 673,672
4,705,000 Puerto Rico Commonwealth Hwy/Transp. Authority......... 5.500 07/01/2017 4,434,463
2,915,000 Puerto Rico Commonwealth Hwy/Transp. Authority......... 5.750 07/01/2018 2,810,147
990,000 Puerto Rico Electric Power Authority - Series O........ 0.000 07/01/2017 274,309
280,000 Puerto Rico Electric Power Authority - Series P........ 7.000 07/01/2021 312,740
135,000 Puerto Rico Housing Finance Corporation................ 7.500 10/01/2015 141,750
250,000 Puerto Rico Industrial, Medical & Environmental
Authority.............................................. 6.000 06/01/2000 257,500
1,625,000 Puerto Rico Municipal Finance Agency................... 5.875 07/01/2007 1,647,344
------------
11,358,026
------------
GUAM - 7.4%
3,400,000 Guam Power Authority - Series A..................... 6.300 10/01/2012 3,387,250
250,000 Guam Power Authority - Series A..................... 5.250 10/01/2013 221,563
1,000,000 Guam Power Authority - Series A..................... 5.250 10/01/2023 847,500
1,000,000 Guam Government G.O. - Series A..................... 5.375 11/15/2013 880,750
3,000,000 Guam Government G.O. - Series A..................... 5.400 11/15/2018 2,621,250
1,000,000 Guam Airport Authority - Series B................... 6.400 10/01/2005 1,023,100
------------
8,981,413
------------
NEW PUBLIC HOUSING AUTHORITIES - 0.0%
35,000 Burleigh County, ND - New Public Housing Authority........ 4.875 01/01/2011 32,810
------------
32,810
------------
TOTAL INVESTMENTS - 98.2% (Cost $120,599,023)........................... $ 119,747,185
Cash and receivables, less liabilities - 1.8%........................... 2,204,388
------------
TOTAL NET ASSETS (NOTE 5) (+)........................................... $121,951,573
============
</TABLE>
(+) 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.
9 VALUE REPORT
<PAGE> 63
HEARTLAND WISCONSIN TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDING JUNE 30, 1996 (UNAUDITED)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net investment income............................................................ $ 3,012,994
Net realized gains on investments................................................ 190,962
Net increase in unrealized depreciation on investments........................... (4,249,796)
-------------
Net decrease in net assets resulting from operations.......................... (1,045,840)
-------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.25 per share)........................ (3,012,994)
-------------
Total distributions.......................................................... (3,012,994)
-------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (1,439,716 shares)..................................... 14,384,005
Net asset value of shares issued in reinvestment of distributions from net
investment income (208,655 shares)................................................. 2,093,460
Cost of shares redeemed (897,517 shares)........................................... (8,980,178)
-------------
Net increase in net assets derived from Fund share activities.................. 7,497,287
-------------
TOTAL INCREASE..................................................................... 3,438,453
NET ASSETS AT DECEMBER 31, 1995......................................................... 118,513,120
-------------
NET ASSETS AT JUNE 30, 1996 (NOTE 5).................................................... $121,951,573
=============
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at quoted market value (Cost $120,599,023)............... $119,747,185
Cash................................................................................ 609,587
Accrued interest.................................................................... 1,631,371
Receivable from investments sold.................................................... 109,525
Deferred organization expense (Note 3).............................................. 2,275
-------------
Total assets.................................................................... 122,099,943
-------------
LIABILITIES:
Payable for Fund shares redeemed.................................................... 17,969
Payable to Advisor for management fee............................................... 59,856
Payable to transfer agent........................................................... 68,270
Payable to Advisor for deferred organization expense (Note 3)....................... 2,275
-------------
Total liabilities............................................................... 148,370
-------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value, 100,000,000 shares authorized, 12,255,514 shares outstanding)..... $121,951,573
=============
NET ASSET VALUE PER SHARE
Net asset value and offering price per share ($.001 par value,
100,000,000 shares authorized [$121,951,573 / 12,255,514 shares outstanding])....... $ 9.95
=============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
VALUE REPORT 10
<PAGE> 64
HEARTLAND WISCONSIN TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDING JUNE 30, 1996 (UNAUDITED)
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest................................................. $ 3,490,204
-----------
EXPENSES:
Management fees (Note 2)................................. 383,549
Transfer agent fees...................................... 40,115
Postage.................................................. 7,317
Audit fees............................................... 6,269
Custodian fees........................................... 5,942
Printing and communications.............................. 3,586
Registration fees........................................ 3,525
Directors' fees.......................................... 2,066
Amortization of organization expenses (Note 3)........... 1,517
Legal fees............................................... 450
Other operating expenses................................. 22,874
-----------
Total expenses......................................... 477,210
-----------
Net investment income.................................... 3,012,994
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS-NET:
NET REALIZED GAINS ON INVESTMENTS 190,962
NET INCREASE IN UNREALIZED DEPRECIATION ON INVESTMENTS
(NOTE 5) .............................................. (4,249,796)
-----------
NET LOSSES ON INVESTMENTS ............................. (4,058,834)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .... $(1,045,840)
===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
For the six months Year ended December 31 April 3, 1992(1)
ending June 30, 1996 --------------------------- through
(UNAUDITED) 1995 1994 1993 December 31, 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period ........... $ 10.30 $ 9.21 $ 10.38 $ 9.85 $ 9.70
Income from investment operations:
Net investment income ........................... .25 .51 .51 .49 .37
Net realized and unrealized gains (losses)
on securities ................................... (.35) 1.09 (1.17) .55 .15
-------- -------- -------- -------- --------
Total from investment operations ................ (.10) 1.60 (.66) 1.04 .52
Less distributions:
Dividends from net investment income ............ (.25) (.51) (.51) (.49) (.37)
Distributions from net realized gains ........... -- -- -- (.02) --
-------- -------- -------- -------- --------
Total distributions ............................. (.25) (.51) (.51) (.51) (.37)
Net asset value, end of period ................... $ 9.95 $ 10.30 $ 9.21 $ 10.38 $ 9.85
======== ======== ========= ======== ========
Total return(3) .................................. (.9)%(4) 17.8% (6.5)% 10.8% 7.3%(2)
Supplemental data and ratios:
Net assets, end of period (in thousands) ........ $121,952 $118,513 $101,749 $99,350 $36,304
Ratio of total expenses to average net assets ... 0.80%(2) 0.84% 0.85% 0.84% 0.82%(2)
Ratio of net investment income to average
net assets .................................... 5.08%(2) 5.23% 5.28% 4.81% 4.87%(2)
Portfolio turnover rate ......................... 11% 11% 22% 6% 7%(2)
</TABLE>
(1) Commencement of operations
(2) Annualized
(3) 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.
(4) Not annualized.
The accompanying notes to financial statements are an integral part of these
statements.
11 VALUE REPORT
<PAGE> 65
HEARTLAND WISCONSIN TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (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 Fund's investment objective is to
provide a high level of current income that is exempt from federal
and Wisconsin personal income taxes. 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,
1996, the Fund has a Federal income tax capital loss carry forward
of $176,538 expiring in 2002, and $537,926 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
reclassified 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.
(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 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. The
Fund had no open futures contracts at June 30, 1996.
(g) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting
period. Actual results could differ from the estimates.
VALUE REPORT 12
<PAGE> 66
HEARTLAND WISCONSIN TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS [CONT'D]
JUNE 30, 1996 (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 .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, 1996 were $2,275.
4) INVESTMENT TRANSACTIONS.
For the six-month period ending June 30, 1996, the cost of purchases
and the proceeds from sales of investment securities (excluding
short-term securities) were $19,258,862 and $12,562,047 respectively.
5) SOURCES OF NET ASSETS.
<TABLE>
<S> <C>
As of June 30, 1996, the sources of net assets were as follows:
Fund shares issued and outstanding.............................. $123,517,876
Net unrealized depreciation on investments...................... (851,839)
Accumulated net realized losses on investments.................. (714,464)
-------------
$121,951,573
=============
Aggregate gross unrealized appreciation (depreciation) as of June 30, 1996,
based on investment cost for Federal income tax purposes is as follows:
Aggregate gross unrealized appreciation.......................... $ 1,326,866
Aggregate gross unrealized depreciation.......................... (2,178,705)
-------------
Net unrealized depreciation on investments....................... $ (851,839)
=============
</TABLE>
13 VALUE REPORT
<PAGE> 67
[LOGO] HEARTLAND FUNDS
----------------------------
AMERICA'S VALUE INVESTOR
SMALL CAP CONTRARIAN FUND
VALUE FUND
(CLOSED TO NEW INVESTORS 7/1/95)
VALUE & INCOME FUND
U.S. GOVERNMENT SECURITIES FUND
WISCONSIN TAX FREE FUND
NEBRASKA TAX FREE FUND
TO LEARN MORE ...
PLEASE CALL A HEARTLAND REPRESENTATIVE.
1-800-432-7856
These are not recommendations to buy or sell the securities discussed, but
rather illustrations of our value investment strategy. Statements regarding
particular securities represent the portfolio manager's views when made and are
subject to change at any time based on market and other considerations.
The performance data quoted represents past performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
This material may only be used when preceded or accompanied by the Fund's
prospectus. Heartland Advisors, Inc. - Distributor. Member SIPC, NASD.
<PAGE> 68
[LOGO] HEARTLAND FUNDS
AMERICA'S VALUE INVESTOR
VALUE REPORT
SECOND QUARTER 1996
NOTES ON VALUE INVESTING
FOR INVESTORS IN THE HEARTLAND
NEBRASKA TAX FREE FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
<PAGE> 69
DEAR INVESTOR
[Photo of
Pat Retzer]
Dear Nebraska Investor:
For bond investors, the year's first half was trying.
As interest rates rose, bonds declined, and municipals
were not spared. Your Fund's price declined from $9.37
on January 1 to $9.00 on June 30.
We believe, however, that the worst is over, and that
the case for municipal bonds is now compelling.
-We find current tax-exempt yields to be very attractive -
not only on their own merit, but also relative to long-term
Treasuries, their classic benchmark.
-Talk of a flat tax has pretty much evaporated.
-The supply/demand ratio of municipals seems favorable. Last
year, the outstanding supply of municipal bonds shrank by
$76 billion, or 6%. In 1996, the shrinkage in supply is
estimated to be about $12 billion.
On the following pages, you'll find details on your
Fund: its performance history, advantages, and portfolio
composition.
Thank you for your continued support.
Sincerely,
Patrick J. Retzer
Portfolio Manager August 10, 1996
1 VALUE REPORT
<PAGE> 70
HEARTLAND NEBRASKA TAX FREE FUND
OBJECTIVE
The Heartland Nebraska Tax Free Fund seeks a high level of current income that
is exempt from Nebraska and federal personal income taxes.
AVERAGE ANNUAL RETURNS
Since
YTD inception
6/30/96(1) 1-year 9/27/93
---------- ------ ---------
Heartland
Nebraska Tax Free Fund.. -1.5% 6.7% 2.3%
Lehman 20-Year
Municipal Bond Index.... -1.1 7.5 4.3(2)
(1) Not annualized. (2) Since 10/1/93. The Lehman 20-Year Municipal Bond Index
is an unmanaged index of certain investment grade municipal securities with
maturities between 17 and 22 years. Performance is historical. Investment
returns and principal value fluctuate, so that your shares when redeemed may be
worth more or less than their original cost.
For the Fund's current yield - double
tax-free* - as well as its equivalent taxable yield, call
1-800-432-7856 and speak with a Heartland representative.
* Up to 20% of the Fund's assets may be invested with income
subject to alternative minimum tax.
VALUE REPORT 2
<PAGE> 71
PORTFOLIO PROFILE
GENERAL INFORMATION
Inception.................... 9/27/93
Assets....................... $12.0 mil
Net asset value (NAV)........ $9.00
Number of issues............. 63
Weighted average maturity.... 18.1 yrs.
Weighted average duration.... 11.1 yrs.
Current yield................ 5.42%
July SEC yield annualized for the 30 days
commencing 7/1/96.
Sales load................... None
<TABLE>
<CAPTION>
TOP 5 HOLDINGS % OF NET
COUPON MATURITY ASSETS
------ ---------- ---------
<S> <C> <C> <C>
Nebraska Higher Education.............. 5.8% 06/01/2014 10.9%
Lincoln Electric....................... 5.3 09/01/2015 7.4
Nebraska Public Power District......... 5.0 01/01/2017 7.4
Nebraska Public Power District......... 5.3 01/01/2013 4.7
NE Investment Finance Authority........ 6.9 12/01/2025 4.6
</TABLE>
PORTFOLIO COMPOSITION BY REGION
[graphic - A pie chart displays composition by region of the Heartland Nebraska
Tax Free Fund's portfolio as of 6/30/96: Nebraska at 99.1%; cash equivalents at
0.9%]
All statistics are as of June 30, 1996.
3 VALUE REPORT
<PAGE> 72
HEARTLAND NEBRASKA TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1 (a)
- ------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS - 99.1%
<S> <C> <C> <C> <C>
$ 25,000 Antelope County, NE School District - Series A....... 5.250% 12/15/2012 $ 23,311
40,000 Antelope County, NE School District - Series B....... 5.250 12/15/2012 37,297
20,000 Antelope County, NE School District - Series A....... 5.300 12/15/2013 18,609
45,000 Antelope County, NE School District - Series B....... 5.300 12/15/2013 41,869
25,000 Antelope County, NE School District - Series A....... 5.350 12/15/2014 23,344
45,000 Antelope County, NE School District - Series B....... 5.350 12/15/2014 42,019
55,000 Arapahoe, NE Various Purpose Bonds................... 5.400 11/15/2008 55,910
25,000 Arapahoe, NE Various Purpose Bonds................... 5.450 11/15/2009 25,156
70,000 Arapahoe, NE Various Purpose Bonds................... 5.500 11/15/2013 66,588
150,000 Boone County, NE - Health Center Project............. 5.400 12/15/2013 139,500
300,000 Cass County, NE School District #1................... 6.250 12/01/2014 310,950
245,000 Cedar County, NE School District #45................. 5.250 11/15/2010 245,306
100,000 Cedar County, NE School District #45................. 5.350 11/15/2014 92,875
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 25,938
125,000 Dawson County, NE Sanitation and Imprv. District..... 6.950 02/01/2005 126,408
55,000 Dixon County, NE Ponca Public Schools................ 4.800 12/01/2005 52,456
40,000 Hall County, NE Hospital Auth. Regency Retirement.... 5.450 12/01/2008 36,752
35,000 Hall County, NE Hospital Auth. Regency Retirement.... 5.500 12/01/2009 32,014
45,000 Hall County, NE Hospital Auth. Regency Retirement.... 5.500 12/01/2010 40,781
85,000 Hall County, NE Hospital Auth. Regency Retirement.... 6.000 12/01/2018 78,094
270,000 Hastings, NE Electrical Systems...................... 5.200 01/01/2013 247,388
25,000 Hastings, NE Various Purpose Bonds - Series 1993..... 5.550 07/15/2011 25,002
115,000 Hemingford, NE Refunding Bonds (General Obligation).. 5.600 02/15/2012 112,700
100,000 Kearney County, NE School District #503.............. 6.150 12/15/2012 99,873
200,000 Kearney, NE Combined Utility Revenue Bonds........... 6.100 06/01/2014 203,048
40,000 La Vista, NE Facilities Corporation Revenue Bonds.... 5.400 12/15/2010 37,731
65,000 La Vista, NE Facilities Corporation Revenue Bonds.... 5.400 12/15/2011 60,856
960,000 Lincoln, NE Electrical Systems - Series A............ 5.250 09/01/2015 890,410
170,000 Lincoln, NE Parking Revenue Bonds.................... 5.100 08/15/2012 156,613
285,000 Lincoln, NE Parking Revenue Bonds.................... 5.200 08/15/2013 263,269
215,000 Lincoln, NE Parking Revenue Bonds.................... 5.200 08/15/2014 196,994
45,000 Merrick County, NE School District #49............... 6.200 07/01/2010 45,100
50,000 Merrick County, NE School District #49............... 6.250 07/01/2014 50,063
100,000 Merrick County, NE School District #4................ 5.350 01/15/2011 92,800
100,000 Merrick County, NE School District #4................ 5.350 01/15/2012 92,500
500,000 Municipal Energy Agency of Nebraska.................. 6.000 04/01/2017 505,660
100,000 NE Educational Finance Auth.- Midland Lutheran College 6.250 06/15/2015 97,147
50,000 Nebraska Higher Education LN Program - Series A...... 6.250 06/01/2018 49,720
1,350,000 Nebraska Higher Education LN Program - Series B...... 5.875 06/01/2014 1,302,750
150,000 NE Investment Finance Auth. - Gr. Plains Med. Center. 6.500 05/15/2014 153,188
10,000 NE Investment Finance Auth. - Single Family Mtg ..... 7.900 08/15/2014 10,000
290,000 NE Investment Finance Auth. - FHA - Muirfield Greens. 6.800 12/01/2015 304,138
525,000 NE Investment Finance Auth. - FHA - Muirfield Greens. 6.850 12/01/2025 547,969
100,000 Nebraska Public Power District - Series C............ 5.000 01/01/2009 94,659
600,000 Nebraska Public Power District - Series B............ 5.250 01/01/2013 562,146
</TABLE>
VALUE REPORT 4
<PAGE> 73
HEARTLAND NEBRASKA TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
SCHEDULE OF INVESTMENTS [CONT'D]
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PAR VALUE
AMOUNT DESCRIPTION COUPON MATURITY NOTE 1 (a)
- --------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS - [CONT'D]
<S> <C> <C> <C> <C>
$1,000,000 Nebraska Public Power District - Series C.......... 5.000% 01/01/2017 $889,210
300,000 Nebraska State Colleges Board of Trustees.......... 5.700 07/01/2011 287,250
450,000 Nebraska State Educational Services Unit #3........ 5.500 06/01/2013 430,875
80,000 Omaha, NE Public Power District - Series B......... 5.600 02/01/2012 78,759
390,000 Omaha, NE Public Power District.................... 5.250 02/01/2013 367,805
590,000 Omaha, NE Public Power District.................... 5.300 02/01/2016 547,455
105,000 Papillion, NE Various Purpose Bonds - Series 1994B. 6.150 07/01/2012 105,919
75,000 Saunders County, NE School District #9............. 5.400 12/01/2014 70,020
235,000 Saunders County, NE School District #9............. 5.450 12/01/2016 219,887
125,000 Saunders County, NE School District #9............. 5.450 12/01/2017 116,764
25,000 Saunders County, NE School District #9............. 5.500 12/01/2018 23,469
200,000 Stanton County, NE School District #003............ 5.300 11/15/2012 188,500
350,000 University of Nebraska-Omaha Student Center........ 5.350 05/15/2013 339,224
200,000 University of Nebraska-Omaha Student Center........ 5.250 05/15/2014 195,000
100,000 Washington County, NE School District.............. 5.800 07/15/2011 100,125
40,000 Washington County, NE GO Courthouse Bonds.......... 5.200 01/01/2008 39,350
160,000 Washington County, NE GO Courthouse Bonds.......... 5.450 01/01/2014 152,200
----------
11,883,707
----------
TOTAL INVESTMENTS - 99.1% (Cost $12,410,715)................................. $11,883,707
Cash and receivables, less liabilities - .9%................................. 105,175
-----------
TOTAL NET ASSETS (NOTE 5) (+)................................................ $11,988,882
===========
(+) Percentages for the various classifications use total net assets as a basis.
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
- --------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at quoted market value (Cost $12,410,715).......... $11,883,707
Accrued interest.............................................................. 182,335
Deferred organization expense (Note 3)........................................ 7,583
-----------
Total assets............................................................. 12,073,625
-----------
LIABILITIES:
Payable for Fund shares redeemed.............................................. 48,661
Payable to Advisor for management fee......................................... 2,966
Payable to transfer agent..................................................... 25,533
Payable to Advisor for deferred organization expense (Note 3)................. 7,583
-----------
Total liabilities........................................................ 84,743
-----------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value, 100,000,000 shares authorized, 1,332,381 shares outstanding) $11,988,882
===========
NET ASSET VALUE PER SHARE
Net asset value and offering price per share ($.001 par value,
100,000,000 shares authorized [$11,988,882 / 1,332,381 shares outstanding])... $ 9.00
===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
5 VALUE REPORT
<PAGE> 74
HEARTLAND NEBRASKA TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDING JUNE 30, 1996 (UNAUDITED)
<TABLE>
- --------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest............................................. $ 353,038
---------
EXPENSES:
Management fees (Note 2)............................. 40,118
Audit fees........................................... 5,194
Transfer agent fees.................................. 3,629
Printing and communications.......................... 2,737
Directors' fees...................................... 2,007
Amortization of organization expenses (Note 3)....... 1,685
Postage.............................................. 1,146
Custodian fees....................................... 712
Legal fees........................................... 450
Registration fees.................................... 381
Other operating expenses............................. 3,593
---------
Total expenses....................................... 61,652
Less expenses reimbursed by Advisor (Note 2)......... (20,059)
---------
Net expenses..................................... 41,593
---------
Net investment income................................ 311,445
---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS-NET:
NET REALIZED LOSSES ON INVESTMENTS..................... (12,016)
NET INCREASE IN UNREALIZED DEPRECIATION ON INVESTMENTS. (499,671)
---------
NET LOSSES ON INVESTMENTS........................... (511,687)
---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS... $(200,242)
=========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDING JUNE 30, 1996 (UNAUDITED)
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C>
OPERATIONS:
Net investment income.............................................. $ 311,445
Net realized losses on investments................................. (12,016)
Net increase in unrealized depreciation on investments............. (499,671)
-----------
Net decrease in net assets resulting from operations........... (200,242)
-----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($.23 per share).......... (311,445)
-----------
Total distributions............................................ (311,445)
-----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (40,794 shares)........................ 371,854
Net asset value of shares issued in reinvestment of distributions
from net investment income (24,888 shares)......................... 226,447
Cost of shares redeemed (152,405 shares)........................... (1,394,900)
-----------
Net decrease in net assets derived from Fund share activities.. (796,599)
-----------
TOTAL DECREASE..................................................... (1,308,286)
NET ASSETS AT DECEMBER 31, 1995......................................... 13,297,168
-----------
NET ASSETS AT JUNE 30, 1996 (Note 5).................................... $11,988,882
===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
VALUE REPORT 6
<PAGE> 75
HEARTLAND NEBRASKA TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS YEAR ENDED 9/27/93(1)
ENDING JUNE 30, 1996 DECEMBER 31 TO
(UNAUDITED) 1995 1994 12/31/93
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 9.37 $ 8.23 $ 9.56 $9.70
Income from investment operations:
Net investment income.................................. .23 .45 .45 .11
Net realized and unrealized gains (losses)
on securities.......................................... (.37) 1.14 (1.33) (.14)
------- ------- ------- -----
Total from investment operations....................... (.14) 1.59 (.88) (.03)
Less distributions:
Dividends from net investment income................... (.23) (.45) (.45) (.11)
Distributions from net realized gains.................. -- -- -- --
------- ------- ------- -----
Total distributions..................................... (.23) (.45) (.45) (.11)
Net asset value, end of period.......................... $ 9.00 $ 9.37 $ 8.23 $9.56
======= ======= ======= =====
Total return (2)........................................ (1.5)%(3) 19.7% (9.3)% (.3)%(3)
Supplemental data and ratios:
Net assets, end of period (in thousands)............... $11,989 $13,297 $12,526 $8,998
Ratio of net expenses to average net assets (4)........ 0.67%(5) 0.76% 0.81% 0.13%(5)
Ratio of net investment income to average net assets... 5.00%(5) 5.06% 5.23% 4.65%(5)
Portfolio turnover rate................................ 0% 5% 33% 3%
</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.
7 VALUE REPORT
<PAGE> 76
HEARTLAND NEBRASKA TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (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 Fund's investment objective is to provide a high level of current
income that is exempt from federal and Nebraska personal income taxes.
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, 1996, the Fund has a Federal income tax
capital loss carry forward of $165,027 expiring in 2002, $60,376
expiring in 2003, and $12,016 expiring in 2004.
(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 reclassified 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.
(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 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.
The Fund had no open futures contracts at June 30, 1996.
(g) The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting
period. Actual results could differ from the estimates.
VALUE REPORT 8
<PAGE> 77
HEARTLAND NEBRASKA TAX FREE FUND
(A SERIES OF HEARTLAND GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS [CONT'D]
JUNE 30, 1996 (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 .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, 1996 were $7,583.
4) INVESTMENT TRANSACTIONS.
For the six month period ending June 30, 1996, the cost of
purchases and the proceeds from sales of investment securities
(excluding short-term securities) were $61,231 and $712,764,
respectively.
5) SOURCES OF NET ASSETS.
As of June 30, 1996, the sources of net assets were as follows:
Fund shares issued and outstanding................ $ 12,753,309
Net unrealized depreciation on investments........ (527,008)
Accumulated net realized losses on investments.... (237,419)
------------
$ 11,988,882
============
Aggregate gross unrealized appreciation (depreciation) as of June
30, 1996, based on investment cost for Federal income tax
purposes is as follows:
Aggregate gross unrealized appreciation........... $ 20,708
Aggregate gross unrealized depreciation........... (547,716)
---------
Net unrealized depreciation on investments........ $(527,008)
=========
9 VALUE REPORT
<PAGE> 78
[LOGO] HEARTLAND FUNDS
AMERICA'S VALUE INVESTOR
Small Cap Contrarian Fund
Value Fund
(closed to new investors 7/1/95)
Value & Income Fund
U.S. Government Securities Fund
Wisconsin Tax Free Fund
Nebraska Tax Free Fund
TO LEARN MORE ...
PLEASE CALL A HEARTLAND REPRESENTATIVE.
1-800-432-7856
These are not recommendations to buy or sell the securities discussed, but
rather illustrations of our value investment strategy. Statements regarding
particular securities represent the portfolio manager's views when made and are
subject to change at any time based on market and other considerations.
The performance data quoted represents past performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
This material may only be used when preceded or accompanied by the Fund's
prospectus. Heartland Advisors, Inc. - Distributor. Member SIPC, NASD.
