<PAGE>
[Logo] Heartland Funds
------------------------
AMERICA'S VALUE INVESTOR
Value Report
Second Quarter 1997
Notes on value investing
for investors in
Heartland Funds
Semi-Annual Report
to Shareholders
<PAGE>
VALUE REPORT
Dear Investor
[Photo of
Bill Nasgovitz]
Wow!
How else do you characterize a stock market that surges to one record high after
another...more than doubles in just 31 months...and gains a stunning 20.6% in
the year's first half?
Red flag. That's how.
Based on historic trends, we believe this market's relentless ascent -- and its
bloated valuations -- reflect a collective frenzy that is simply unsustainable.
This doesn't mean we haven't been able to find value opportunities. But it takes
a lot more digging, and our purchase decisions have tended to be defensive.
We've also been practicing caution by selectively taking profits, selling some
disappointing positions, and building up cash reserves.
Should you be cautious as well? We believe you should. First, temper your
expectations; returns are likely to be much lower in coming years. Reassess your
holdings, too; if you're overweighted in growth investments, consider moving to
value. And if you're heavy in equities, consider moving a portion of your assets
to bond funds -- especially those with conservative holdings or short duration.
And remember -- reality, patience and prudence have proven their merit over
time.
Thank you for your confidence in Heartland.
Sincerely,
William J. Nasgovitz
President
August, 1997
<PAGE>
VALUE REPORT
OTHER INVESTORS ARE ALSO URGING
TEMPERED EXPECTATIONS
"The biggest bull market in history rolls on, moving farther above past
valuation extremes. Fueled by continuing strong equity mutual fund demand...the
stock market continues to astound experienced professionals...including this
one."
Steven C. Leuthold, President
The Leuthold Group
July 1997
"Where the most money goes, the risks go up and the returns go down."
Robert Farrell, Chief Investment
Strategist, Merrill Lynch
May 1997
"Caution is trading below book value and yielding 10%. Ditto for prudence and
safety. Doubt is trading on its backside. It is contrarian to be cautious
today."
James Grant, Editor of Grant's
Interest Rate Observer, at the Heartland Symposium on Value Investing
June 1997
"Any adjustment back to average [stock market] performance is bound to be a
painful process. It is far better to avoid this pain by rebalancing your
portfolio now."
Charles Munger, Vice Chairman
Berkshire Hathaway
May 1997
1
<PAGE>
VALUE REPORT
Heartland Large Cap Value Fund
ALTERED SUITS
Our challenge as value investors is to look beyond recent setbacks. Take for
example Owens Corning, a leading global supplier of building materials and
composites. In fact, if you've shopped for home insulation, you've likely seen
the #1 brand with the company's Pink Panther logo.
On a less colorful note, you may also be familiar with the lawsuits -- tens of
thousands of them -- that were brought against the company over asbestos-related
illness. While the company asserts that a large number of the cases are
fraudulent, their sheer enormity served to depress the company's stock in recent
years.
We believe things look brighter today. The quality of management has improved
since CEO Glen Hiner arrived from GE in '92. With the team he assembled, he has
managed costs, raised efficiency and made important acquisitions, repositioning
the company for the future.
The management team has also moved to resolve the problem of the lawsuits.
Between a $2 billion reserve and a $545 million charge in '96, the company
appears prepared to cover all asbestos-related liability. We believe that these
actions should act as a catalyst, helping to raise the stock's depressed
multiple.
At quarter's end, with a share price of $43.13, the stock is selling at a low
P/E of 8.2 -- using our 1998 earnings estimate of $5.25 -- representing a very
large discount to market. Given this, coupled with the strong management team
and a potential catalyst such as the recent lifting of the lawsuits' persistent
uncertainty, we believe that Owens Corning presents a significant value
opportunity.
On June 30, 1997, the Fund held 5,000 shares of Owens Corning valued at
$215,625, representing 3.9% of net assets.
2
<PAGE>
VALUE REPORT
Heartland Large Cap Value Fund
This Fund pursues long-term capital appreciation and is our most conservative
equity offering. Using Heartland's value-investing criteria, it seeks
undervalued opportunities among companies with stock-market capitalizations of
over $1 billion.
<TABLE>
<CAPTION>
Total Returns YTD Since inception (10/11/96)
<S> <C> <C>
Large Cap Value Fund 15.6% 21.4%
S&P 500 Index 20.6 29.2
</TABLE>
The S&P 500 Index is an unmanaged index of 500 stocks representing major U.S.
industries.
COMPARATIVE VALUATIONS
<TABLE>
<CAPTION>
Heartland
Large Cap S&P 500
Value Fund Index**
<S> <C> <C>
Price/Earnings Ratio/1/ 17.6X 18.7X
Price/Book Value Ratio 2.0X 3.3X
Price/Cash Flow Ratio 10.1X 10.9X
</TABLE>
<TABLE>
<CAPTION>
FUND FACTS
<S> <C> <C> <C>
Growth of $10,000 Fund vs. S&P 500/2/
since inception (10/11/96)....... $12,140* Alpha................................2.67
Median market cap..................$4.9 bil. Beta................................. .80
Share price........................ $12.14 R-squared............................ .70
Net assets.........................$5.4 mil. Number of holdings..................... 51
TOP 10 HOLDINGS
Shaw Industries, Inc.....................4.2% Aetna, Inc..............................3.4%
Owens Corning............................3.9 Fort Howard Corporation.................3.3
Unicom Corporation.......................3.6 Reynolds & Reynolds Co. (Class A).......2.9
Louisiana Land & Exploration Co..........3.6 Hanna (M.A.) Company....................2.8
Consolidated Natural Gas Co..............3.6 YPF Sociedad Anonima (ADR)..............2.7
</TABLE>
All statistics are as of June 30, 1997.
* Includes reinvestment of all dividends and capital gains distributions.
**Source: Prudential Securities. /1/'97 estimate. /2/ Since the Fund commenced
operations on 10/11/96, the measurements are based on weekly data, rather than
monthly data, from inception through 6/30/97. Source: Heartland Advisors,
Inc., with data on relevant benchmark index from Russell Analytics.
3
<PAGE>
VALUE REPORT
Heartland Mid Cap Value Fund
A STERLING OPPORTUNITY
Software stands in sharp contrast to the relatively mundane industries that
typify mid-cap stocks. Moreover, from a value investor's perspective, software
companies tend to be unattractive.
But Sterling Software, Inc. struck us as an exception. In an industry where
companies sell for 30-50X earnings, or more, Sterling's '97 estimated P/E was
only 12.9 when we first purchased it in June at $32. And the other fundamentals
were equally compelling: No debt...$600 million in cash, or nearly $20 per
share...25 successive quarters of increasing earnings...operating margins of
14%...a return on equity of 39%...and a price-to-book of only 1.3X, vs. the S&P
500's P/B of approximately 4X. Add to this a global presence--70 offices
worldwide--in software creation and distribution, and significant management
ownership of the company's stock.
So why, you might ask, was Sterling selling at a discount and not a premium?
First, there is relatively low institutional ownership. Also, some investors
wonder how effectively Sterling will manage both its cash hoard and its recent
acquisition of Texas Instruments' software division. On both counts, we're
optimistic. We believe the management team is a deep pool of talent. And based
on steps they have already taken, we're confident the acquisition will add to
earnings much more quickly than is generally believed.
On 6/30/97, the Fund held 11,000 shares of Sterling Software, Inc. valued at
$343,750, representing 1.3% of net assets.
4
<PAGE>
Value Report
Heartland Mid Cap Value Fund
This Fund pursues long-term capital appreciation. Using intensive research and
Heartland's value criteria, it seeks undervalued opportunities among companies
with stock-market capitalizations between $500 million and $3.5 billion.
<TABLE>
<CAPTION>
Total Returns YTD Since inception (10/11/96)
<S> <C> <C>
Mid Cap Value Fund 13.5% 21.0%
S&P Mid-Cap Index 13.0 19.3
</TABLE>
The S&P Mid-Cap Index is an unmanaged index of 400 stocks generally considered
representative of the mid-cap market.
COMPARATIVE VALUATIONS
<TABLE>
<CAPTION>
Heartland S&P
Mid Cap Mid-Cap
Value Fund Index**
<S> <C> <C>
Price/Earnings Ratio/1/ 14.9X 19.2X
Price/Book Value Ratio 2.0X 3.3X
Price/Cash Flow Ratio 8.4X 12.5X
</TABLE>
<TABLE>
<CAPTION>
FUND FACTS
<S> <C> <C>
Growth of $10,000 Fund vs. S&P Mid-Cap Index/2/
since inception (10/11/96)........ $12,100* Alpha.................................2.65
Median market cap................... $1.3 bil. Beta.................................. .78
Share price......................... $12.10 R-squared............................. .78
Net assets..........................$25.2 mil. Number of holdings...................... 58
TOP 10 HOLDINGS
Lennar Corporation.......................2.2% Wellpoint Health Networks, Inc...........1.9%
Lehman Brothers Holdings, Inc............2.2 Bowater, Inc.............................1.9
AGCO Corporation.........................2.1 Ohio Casualty Corporation................1.8
Trigon Healthcare, Inc...................2.1 Reliance Group Holdings, Inc.............1.8
Mid Ocean Ltd............................2.1 Protective Life Corporation..............1.8
</TABLE>
All statistics are as of June 30, 1997.
* Includes reinvestment of all dividends and capital gains distributions.
** Source: StockVal.
/1/'97 estimate. /2/Since the Fund commenced operations on 10/11/96, the
measurements are based on weekly data, rather than monthly data, from
inception through 6/30/97. Source: Heartland Advisors, Inc., with data on
relevant benchmark index from Russell Analytics.
5
<PAGE>
Value Report
Heartland U.S. Government Securities Fund
ON THE MOVE WITH "RELOs"
As part of our risk-reduction strategy, we attempt to identify security types
that have the potential to enhance returns without increasing their variability.
To us, this represents value. Recently, we have found such value in mortgage
pass-through securities backed by relocation loans, or "RELOs."/1/
When a company asks one of its managers to transfer elsewhere in the country, it
may offer special benefits as an incentive to move. A subsidized home loan is
often one of those benefits. It may take the form of a favorable rate for one to
three years, for example, or a reduction in points, or both.
These RELOs are typically larger than the average conventional home loan, and
the borrowers tend to be more sophisticated. Thus, there is greater likelihood
of refinancing once the loans outlive their function as incentives. In 1996, for
instance, pass-throughs backed by RELOs were prepaid at a rate 120% to 300%
faster than other pass-throughs./2/
We prefer to buy RELO pass-throughs at a discount to par value. This feature
offers us the potential for greater returns. And because they tend to be prepaid
rapidly, RELOs command a premium in down markets, when their shorter effective
maturities -- relative to conventional loans -- provide investors a cushioning
effect.
/1/ As with other mortgage-related securities, RELOs are subject to risks
associated with changes in the anticipated rate of prepayment on the
underlying loans. Refer to the prospectus for a more detailed discussion of
these risks.
/2/ Morgan Stanley Mortgage Research, March 6, 1997.
On June 30, 1997, the Fund held RELOs--FNMA Pass-Through #365472 RI 6.5% due
11/01/2011--valued at $2,340,730, representing 5.2% of net assets.
6
<PAGE>
Value Report
Heartland U.S. Government Securities Fund
This Fund seeks a high level of current income, liquidity, and safety of
principal. It works to minimize credit risk by investing virtually all its
assets in securities issued or guaranteed by the U.S. Government or its
agencies./1/ And although its duration is unrestricted, the Fund generally looks
to limit price fluctuation by managing within a narrow, intermediate duration
range of 3 to 6 years.
JUNE YIELD............................................................6.5%/2/
SEC yield annualized for the 30 days ending 6/30/97.
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
Since inception
YTD* 1-year 5-year 10-year 12/28/84
<S> <C> <C> <C> <C> <C>
Heartland U.S. Gov't
Securities Fund 2.9% 9.9% 7.4% 8.6% 8.4%
Lipper General
U.S Gov't Fund Index 2.6 7.1 5.7 7.3 7.0
</TABLE>
/*/Not annualized. The Lipper General U.S. Government Fund Index is an equally
weighted index of the performance of the 30 largest U.S. general government
funds as tracked by Lipper Analytical Services, Inc.
<TABLE>
<CAPTION>
FUND FACTS
<S> <C>
Growth of $10,000
since inception (4/9/87)........................................$22,726/3/
Net assets.....................................................$44.7 mil.
Share price.........................................................$9.52
Avg. weighted duration............................................4.8 yrs
Avg. weighted credit quality..........................................AAA
Dividends..............................Declared daily, distributed monthly
Sales commission.....................................................None
TOP 5 HOLDINGS
FHLMC CMO-SEQ 1921 B 6.5% 5/15/21...................................12.9%
US Treasury Note 7.3% 5/15/04.......................................11.7
US Treasury Bond 8.1% 8/15/19.......................................11.4
VA Vendee CMO-SEQ 1992-2F 7.0% 2/15/18..............................11.1
FNMA Pass-through #361493 GL 9.0% 1/1/25.............................7.0
</TABLE>
All statistics are as of June 30, 1997.
/1/ The Government guarantee of interest and principal payment applies only to
the portfolio's underlying securities, not to the Fund's share price.
/2/ Without fee waivers in effect during the period, SEC yield would have been
6.1% and total return would be lower.
/3/ Includes reinvestment of all dividends and capital gains distributions.
7
<PAGE>
VALUE REPORT
Heartland Value Plus Fund
POWER PLAY
As value investors, we believe uncertainty can spell opportunity. A recent
example would be Rochester Gas and Electric Corporation. Uncertainty over
electric utility deregulation in New York took a heavy toll on the stock. From a
September '93 high of $29 3/4, it fell to $17 7/8 in October '96.
In our view, however, investors have overreacted. In fact, for the reasons that
follow, we believe this utility is likely to benefit once a resolution is
reached, and here are a few reasons why:
. Because it is one of the state's low-cost producers, Rochester Gas &
Electric is well positioned to prosper in a competitive environment.
. In 1993, the company's management team successfully guided it through New
York's natural gas deregulation process. The same capable team is in place
today.
. Since November '96, insider purchases of stock have been significant.
In addition, the stock's valuations are compelling. When we started buying this
stock in March '97, its estimated '97 P/E was 8.5, and its dividend was 9.35%.
By contrast, the S&P Utility Index's P/E was 13.47, and its dividend yield was
5.18%. We believe the undervalued nature of the stock may increase its potential
as a buyout candidate as the industry consolidates.
On 6/30/97, the Fund held 200,000 shares of Rochester Gas and Electric
Corporation valued at $4,212,500, representing 2.5% of net assets.
8
<PAGE>
VALUE REPORT
Heartland Value Plus Fund
An equity-income investment, this Fund seeks both capital appreciation and
current income. By investing chiefly in income-producing equity securities of
smaller companies, it pursues capital appreciation and a dividend yield higher
than the yield of the S&P 500. Income producing securities can enhance the
potential for total return and help support the share price in downward markets.
<TABLE>
<CAPTION>
JUNE YIELD
<S> <C>
Value Plus Fund.................................................3.5%
S&P 500 Index...................................................1.8%
SEC yield annualized for the 30 days ending 6/30/97.
AVERAGE ANNUAL RETURNS Since inception
YTD* 1-year 3-year 10/26/93
<S> <C> <C> <C> <C>
Heartland Value Plus Fund 10.6% 28.1% 21.9% 18.1%
Russell 2000 10.2 16.3 20.1 14.9
</TABLE>
*Not annualized. The Russell 2000 Index is an unmanaged index of stocks
considered representative of the small cap market. 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.
COMPARATIVE VALUATIONS
<TABLE>
<CAPTION>
Heartland
Value Plus Russell
Fund 2000**
<S> <C> <C>
Price/Earnings Ratio/1/ 13.2X 21.3X
Price/Book Value Ratio 1.3X 3.0X
Price/Cash Flow Ratio 8.1X 12.5X
</TABLE>
<TABLE>
<CAPTION>
FUND FACTS
<S> <C>
Growth of $10,000
since inception (10/26/93).........................$18,408***
Median market cap.......................................$172 mil.
Share price................................................$14.95
Net assets............................................$167.8 mil.
Fund vs. Russell 2000/2/
Alpha....................................................5.57
Beta..................................................... .43
R-squared................................................ .42
Number of holdings........................................... 83
TOP 10 HOLDINGS
USX - Delhi Group.............................................3.1%
Lawyers Title Corporation.....................................2.8
Dames & Moore, Inc. ..........................................2.6
Central Hudson Gas & Electric Corp. ..........................2.6
Rochester Gas and Electric Corp...............................2.5
Equity Inns, Inc. ............................................2.4%
Outboard Marine Corp. 7% 7/1/02...............................2.4
Gryphon Holdings, Inc. .......................................2.3
Integon Corporation Conv. Pfd. Stock..........................2.2
N.Y. State Electric & Gas Corp. ..............................2.2
</TABLE>
All statistics are as of June 30, 1997.
**Source: Prudential Securities. ***Includes reinvestment of all dividends and
capital gains distributions.
/1/'97 estimate. /2/Based on monthly data for the 3-year period ending 6/30/97.
Source: Heartland Advisors, Inc., with data on relevant benchmark index from
Russell Analytics.
9
<PAGE>
VALUE REPORT
Heartland Small Cap Contrarian Fund
IS COKE IT?
At the start of the second quarter, the Fund was less than 10% short. But
reflecting the market's relentless and steepening ascent, we ended the quarter
at 24% of net assets in short positions.
Talk about contrarian thinking, one of our shorts is The Coca Cola Company. By
quarter end, we had shorted 60,000 shares at an average sale price of $61.70.
If you're wondering why, we don't blame you. After all, Coke is the world's most
recognized brand, the leader in its industry, and one of the world's most
profitable, best managed corporations.
Nonetheless, we saw this stock as grossly overvalued. With Coke's six-month
sales down 3% and an estimated growth rate of about 15% a year, its stock hardly
seemed to merit a P/E of 44. That's an astronomical 3X the growth rate and over
twice the average P/E of the S&P 500. To us, fizz like this has to fizzle sooner
or later.
Regrettably, it looks like later. Coke closed the quarter at $67.50, causing an
unrealized loss of about 10% on this investment.
The moral: In the face of a bull market mania, skepticism may not pay. At least
not right away. We remain convinced that valuations matter in the long run, and
that regression to the mean will eventually cause the tumble that refreshes.
On June 30, 1997, the Fund's short position in The Coca Cola Company represented
(1.6)% of net assets.
10
<PAGE>
VALUE REPORT
Heartland Small Cap Contrarian Fund
With a focus on small company stocks, this Fund seeks maximum long-term growth
through an aggressive value-based strategy. It seeks to take advantage of both
undervalued and overvalued stocks, as well as both rising and declining markets.
The Fund can short stocks it regards as overvalued, use leverage -- or borrow --
to enhance returns, and use options and futures to hedge the portfolio. In
exchange for potentially greater returns, these sophisticated techniques involve
additional risks.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS YTD* 1-year Since inception (4/27/95)
<S> <C> <C> <C>
Heartland Small Cap Contrarian Fund 6.2% 6.7% 21.4%
Russell 2000 10.2 16.3 22.4
</TABLE>
*Not annualized. The Russell 2000 Index is an unmanaged index of stocks
considered to be representative of the small cap market in general.
COMPARATIVE VALUATIONS
<TABLE>
<CAPTION>
Heartland
Small Cap Russell
Contrarian Fund 2000**
<S> <C> <C>
Price/Earnings Ratio/1/ 16.0X 21.3X
Price/Book Value Ratio 1.6X 3.0X
Price/Cash Flow Ratio 9.0X 12.5X
</TABLE>
<TABLE>
<CAPTION>
FUND FACTS
<S> <C> <C> <C>
Growth of $10,000 Fund vs. Russell 2000/2/
since inception (4/27/95)................ $15,251*** Alpha......................................... 4.69
Number of holdings Beta........................................... .59
Long positions............................... 109 R-squared...................................... .43
Short positions............................... 20 Net assets................................... $262 mil.
</TABLE>
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
<S> <C> <C> <C>
ICN Pharmaceuticals, Inc. ....................... 5.5% Custom Chrome, Inc. .............................. 2.5%
Cabot Oil & Gas Corporation...................... 3.4 Shiloh Industries, Inc. .......................... 2.3
London Pacific Group Ltd. (ADR).................. 3.1 OrthoLogic Corporation, Inc. ..................... 2.3
Drypers Corp. 7.5% Sr. Conv. Cum. Pfd. Stock..... 3.0 Charter Power Systems, Inc. ...................... 2.2
SCPIE Holdings, Inc. ............................ 2.7 Interdigital Communications Corp. ................ 2.1
</TABLE>
All statistics are as of June 30, 1997.
**Source: Prudential Securities. ***Includes reinvestment of all dividends
and capital gains distributions.
/1/'97 estimate. /2/Based on monthly data for the period from 4/27/95 through
6/30/97. Source: Heartland Advisors, Inc., with data on relevant benchmark
index from Russell Analytics.
11
<PAGE>
Value Report
Heartland Value Fund
VALUE: ALIVE AND WELL
With the S&P 500 having more than doubled in the past 31 months, one would think
this rampaging bull had trampled every value opportunity in sight. But our
research indicates otherwise. Consider a few of the stocks we purchased this
quarter.
In Southeast Asia, where infrastructure development is booming, Asia Pacific
Wire & Cable Corporation, Ltd. is a leading provider of cable for communications
and power transmission. But the company is relatively unknown here -- despite
its presence on NASDAQ -- because it lacks major Wall Street coverage. So we
were able to buy this stock at an average cost of $10.92 -- below book value and
only 7X estimated '97 earnings.
Catalina Lighting Inc., which manufactures and distributes residential lighting
fixtures, was a classic wallflower. Shunned because of lower earnings, its stock
had fallen from $14 in '94 to $2.50 this year. We accumulated stock at an
average cost of $3.50 -- less than 60% of book value. This price was also just
3.5X cash flow and 7X estimated '98 earnings per share -- both about 70%
discounts to the S&P's valuations.
In 1995, manufactured housing was one of the market's hottest industries. But
overcapacity changed all that. Which is why we found ourselves attracted to
Southern Energy Homes, Inc., one of the industry's leaders. This company has no
long-term debt, was selling at only 8X estimated '97 earnings, and is pursuing
an aggressive program of repurchasing its own shares. An affordable home, it
seemed to us, for a portion of the Fund's assets.
On June 30, 1997, the Fund held 727,600, 221,200 and 660,000 shares,
respectively, in Asia Pacific Wire & Cable Corporation, Ltd. Catalina Lighting,
Inc. and Southern Energy Homes, Inc., representing 0.4%, 0.04% and 0.3%, respec-
tively, of net assets.
12
<PAGE>
Value Report
Heartland Value Fund
This Fund seeks capital appreciation through small company stocks selected on
a value basis. It invests chiefly in the equity securities of companies with
market capitalizations of less than $500 million. (Closed to new investors since
7/1/95)
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
Since inception
YTD* 1-year 5-year 10-year 12/28/84
<S> <C> <C> <C> <C> <C>
Heartland Value Fund 14.1% 21.7% 22.8% 14.5% 17.4%
Russell 2000 10.2 16.3 17.9 11.1 13.7
</TABLE>
*Not annualized. The Russell 2000 Index is an unmanaged index of stocks
considered representative of the small cap market.
<TABLE>
<CAPTION>
COMPARATIVE VALUATIONS Heartland Russell
Value Fund 2000**
<S> <C> <C>
Price/Earnings Ratio/1/ 17.9X 21.3X
Price/Book Value Ratio 1.8X 3.0X
Price/Cash Flow Ratio 9.1X 12.5X
</TABLE>
<TABLE>
<CAPTION>
FUND FACTS
<S> <C> <C> <C>
Growth of $10,000 Fund vs. Russell 2000/2/
since inception (12/28/84)..... $74,008*** Alpha........................ 3.27
Net assets....................... $1.95 bil. Beta......................... .61
Median market cap................ $99 mil. R-squared.................... .54
Avg. weighted market cap......... $323 mil. Number of holdings............. 2.73
TOP 10 HOLDINGS
ICN Pharmaceuticals, Inc......... 4.6% Maxicare Health Plans, Inc..... 1.3%
Grand Casinos, Inc............... 1.6 Tesoro Petroleum Corporation... 1.1
Presidential Life Corporation.... 1.5 Forest Oil Corporation......... 1.1
John Alden Financial Corporation. 1.3 First Financial Corporation.... 1.1
ShopKo Stores, Inc............... 1.3 United Wisconsin Services, Inc. 1.0
</TABLE>
All statistics are as of June 30, 1997.
**Source: Prudential Securities. ***Includes reinvestment of all dividends and
capital gains distributions.
/1/ '97 estimate. /2/ Based on monthly data for the 3-year period ending
6/30/97. Source: Heartland Advisors, Inc., with data on relevant benchmark
index from Russell Analytics.
13
<PAGE>
Value Report
Definitions
PLEASE NOTE...
Defined below are the Alpha, Beta and R-Squared measurements presented for
our equity funds. These definitions were provided by Russell Analytics, a
division of the Frank Russell Company, highly regarded specialists in
investment information and statistics. When calculating these measurements
for each Heartland equity fund, we have substituted the Fund's benchmark
index for a "market return" as indicated in the presentation for each fund.
Alpha. A measure of a portfolio's return in excess of the market return,
both adjusted for risk. It is a measure of the manager's contribution to
performance due to security selection. A positive Alpha indicates that the
portfolio outperformed the market on a risk-adjusted basis, and a negative
Alpha indicates the portfolio did worse than the market.
Beta. A measure of the sensitivity of a portfolio's rates of return against
those of the market. A Beta greater than 1.00 indicates volatility greater
than that of the market.
R-Squared. A measure that indicates the extent to which fluctuations in
portfolio returns are correlated with those of the general market. An R-
Squared of .75 indicates that 75% of the fluctuation in a portfolio's
return is explained by the fluctuation of the market.
14
<PAGE>
Value Report
Heartland Value Research
#1 THE CASE FOR LOW P/E AT MARKET TOPS
#2 OVER TIME, THERE'S BEEN NOTHING
LIKE VALUE
#3 USING A MID-CAP VALUE STRATEGY TO HEDGE THE LARGE CAP/SMALL CAP CYCLE
#4 WHY INTERMEDIATE MATURITIES?
#5 A REVEALING LOOK AT PRICE-TO-BOOK
For a reprint of any Heartland research piece,
please call shareholder services at 1-800-432-7856.
A Heartland representative will be happy to help you.
15
<PAGE>
V A L U E R E P O R T
Dear Investor
We are here to help you meet your investment needs.
If you have a question, please call Heartland Shareholder Services. We're
confident you'll find our representatives to be knowledgeable and responsive.
[Photo of Heartland Shareholder Services Representative]
1-800-432-7856
[Logo] Heartland Funds
America's Value Investor
<PAGE>
<TABLE>
<CAPTION>
Schedules of Investments and
Financial Statements
Table of Contents
----------------------------
<C> <S>
1...................................................................................................Small Cap Contrarian Fund
4..................................................................................................................Value Fund
10..........................................................................................................Mid Cap Value Fund
12....................................................................................................... Large Cap Value Fund
14.............................................................................................................Value Plus Fund
17.............................................................................................U.S. Government Securities Fund
18........................................................................................Statements of Assets and Liabilities
20....................................................................................................Statements of Operations
22.........................................................................................Statements of Changes in Net Assets
26........................................................................................................Financial Highlights
31...............................................................................................Notes to Financial Statements
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
HEARTLAND SMALL CAP CONTRARIAN FUND
SCHEDULE OF INVESTMENTS . June 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS--97.9% Shares Industry Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
Advocat, Inc. (a)(b)(c) 300,000 Drugs & Medicine $ 3,412,500 1.3%
Allou Health & Beauty Care, Inc. (Class A) (a)(b) 525,000 Drugs & Medicine 3,675,000 1.4
American Physicians Service Group, Inc. 55,000 Insurance - Specialty 336,875 0.1
Astro-Med, Inc. 100,000 Business Machines 881,250 0.3
Astrotech International Corporation (a) 100,000 Construction 637,500 0.2
Business Resource Group (a)(b) 400,000 Business Services 1,500,000 0.6
Control Devices, Inc. (a) 92,000 Electronics 1,173,000 0.4
Cotton States Life Insurance Company 125,000 Insurance 2,078,125 0.8
Craftmade International, Inc. 50,000 Construction 387,500 0.2
Custom Chrome, Inc. (a)(b)(c) 400,000 Motor Vehicles 6,450,000 2.5
Friedman Industries, Inc. 210,000 Steel 1,233,750 0.5
Health Fitness Corporation (a) 195,000 Travel & Recreation 511,875 0.2
ICN Pharmaceuticals, Inc (c) 500,000 Drugs & Medicine 14,343,750 5.5
ICTS International N.V. (a)(b)(c) 351,500 Business Services 2,724,125 1.0
Jaco Electronics, Inc. (a)(b)(c) 380,000 Electronics 2,731,250 1.0
K-Tron Int'l Inc. (a) 122,000 Electronics 1,830,000 0.7
London Pacific Group Ltd. (ADR) 600,000 Insurance 8,175,000 3.1
Moore Medical Corporation (a)(b) 200,000 Drugs & Medicine 2,575,000 1.0
Motor Club of America (a)(b) 146,000 Insurance 1,861,500 0.7
Northwest Pipe Company (a)(c) 220,000 Steel 4,042,500 1.5
Omni Insurance Group, Inc. (a) 129,100 Insurance 1,581,475 0.6
O. I. Corporation (a)(b) 317,800 Optical & Photo Equipment 1,310,925 0.5
Personnel Management, Inc. (a)(b) 200,000 Business Services 2,000,000 0.8
Resource Bancshares Mortgage Group, Inc. (c) 100,000 Miscellaneous Financial 1,975,000 0.8
Safety Components International, Inc. (a)(b)(c) 269,300 Non-Durables & Entertainment 2,693,000 1.0
SCPIE Holdings, Inc. (c) 250,000 Insurance 6,953,125 2.7
Shiloh Industries, Inc. (a)(c) 300,000 Producer Goods 6,056,250 2.3
Speizman Industries, Inc. (a)(b) 290,000 Producer Goods 1,558,750 0.6
Sterling Electronics Corporation (a) 64,800 Consumer Durables 826,200 0.3
Superior Telecom, Inc. (a)(c) 50,000 Producer Goods 1,575,000 0.6
Tech-Sym Corporation (a)(c) 150,000 Aerospace 5,006,250 1.9
Unico American Corporation (a) 100,000 Insurance 1,062,500 0.4
Union Bankshares, Ltd. (a)(b) 57,500 Banks 977,500 0.4
Winsloew Furniture, Inc. (a)(c) 300,000 Consumer Durables 3,281,250 1.3
------------ ----
$ 97,417,725 37.2%
Low Price to Book Value
Alta Gold Company (a)(c) 400,000 Gold $ 987,520 0.4%
Apex Silver Mines, Ltd. (d) 187,500 Gold 1,500,000 0.6
Autonomous Technologies Corporation (a)(b) 525,000 Drugs & Medicine 2,165,625 0.8
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND SMALL CAP CONTRARIAN FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 97.9% [CONT'D] Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Low Price to Book Value [cont'd]
<S> <C> <C> <C> <C>
Bio-Vascular, Inc. (a)(b) 500,000 Drugs & Medicine $ 2,062,500 0.8%
Campbell Resources, Inc. (a)(b) 8,000,000 Gold 5,000,000 1.9
Community Financial Corporation (a) 50,000 Banks 725,000 0.3
Crown Books Corporation (a)(b) 325,000 Retail 3,331,250 1.3
Dart Group Corporation (Class A) 40,000 Retail 4,110,000 1.6
Geomaque Explorations, Ltd. (a) 702,700 Gold 1,629,069 0.6
Harcor Energy, Inc. (c) 200,000 Domestic Oil 1,200,000 0.5
Harding Lawson Associates Group, Inc. (a)(b) 475,000 Business Services 3,317,590 1.3
HCO Energy, Ltd. (a)(c) 750,000 Domestic Oil 1,141,050 0.4
Hyde Athletic Industries, Inc. (Class B) (a) 610,000 Apparel 3,088,125 1.2
ICU Medical, Inc. (a) 400,000 Drugs & Medicine 3,050,000 1.2
Isomedix, Inc. (a)(c) 248,700 Drugs & Medicine 3,901,481 1.5
Kentek Information Systems, Inc. 250,000 Business Machines 1,937,500 0.7
Little Switzerland, Inc. (a)(c) 400,000 Retail 2,400,000 0.9
M-Wave, Inc. (a)(b) 277,000 Electronics 796,375 0.3
New Brunswick Scientific Company (a)(b) 254,217 Electronics 1,779,519 0.7
North Central Bancshares, Inc. 35,000 Banks 542,500 0.2
NTN Canada, Inc. (a)(b) 169,000 Media 612,625 0.2
Oregon Steel Mills, Inc. 146,900 Steel 2,928,819 1.1
OrthoLogic Corporation, Inc. (a) 1,100,000 Drugs & Medicine 6,050,000 2.3
PIA Merchandising Services, Inc. (a)(b) 460,000 Business Services 2,645,000 1.0
Programmer's Paradise, Inc. (a) 150,000 Business Machines 1,425,000 0.5
TCI International, Inc. (a) 100,000 Electronics 637,500 0.2
Tipperary Corporation (a)(b) 1,000,000 Energy & Raw Materials 4,000,000 1.5
Vectra Technologies, Inc. (a)(b) 650,000 Business Services 325,000 0.1
Vital Images, Inc. (a) 210,000 Medical Products 315,000 0.1
VTEL Corporation (a) 600,000 Telecommunications 3,600,000 1.4
------------ ----
$ 67,204,048 25.6%
Below Average Price/Cash Flow Ratio
Beau Canada Exploration, Ltd. (a) 600,000 Energy & Raw Materials $ 1,347,540 0.5%
Belmont Homes, Inc. (a) 116,800 Construction 803,000 0.3
Cabot Oil & Gas Corporation (c) 500,000 Domestic Oil 8,812,500 3.4
Callon Petroleum Company (a)(c) 100,000 Domestic Oil 1,600,000 0.6
Catherines Stores Corporation (a)(b)(c) 600,000 Apparel 2,250,000 0.9
Children's Discovery Centers
of America, Inc. (a)(b) 455,500 Business Services 3,074,625 1.2
Communications Central, Inc. (a) 265,000 Telephone 2,915,000 1.1
Deflecta-Shield Corporation (a) 100,000 Motor Vehicles 875,000 0.3
Diehl Graphsoft, Inc. (a) 75,000 Business Services 300,000 0.1
Dignity Partners, Inc. (a)(b) 400,000 Miscellaneous Financial 1,325,000 0.5
Donnelly Corporation 200,000 Construction 3,350,000 1.3
Executone Information Systems, Inc. (a)(c) 1,575,000 Business Services 2,657,812 1.0
Fahnestock Viner Holdings, Inc. (c) 200,000 Miscellaneous Financial 3,775,000 1.4
Family Steak Houses of Florida, Inc. (a)(b) 700,000 Non-Durables & Entertainment 481,250 0.2
Globe Business Resources, Inc. (a)(c) 195,000 Consumer Durables 2,291,250 0.9
The GNI Group, Inc. (a)(b)(c) 600,000 Business Services 3,600,000 1.4
Gothic Energy Corporation (a)(b)(c) 700,000 Domestic Oil 1,312,500 0.5
Harmony Brook, Inc. (a)(b) 700,000 Business Services 350,000 0.1
High Plains Corporation (a)(c) 700,000 Chemicals 2,887,500 1.1
In Home Health, Inc. (a)(b) 900,000 Drugs and Medicine 1,350,000 0.5
Key Production Company, Inc. (a) 75,000 Domestic Oil 759,375 0.3
KTI, Inc. (a) 105,000 Miscellaneous & Conglomerates 918,750 0.3
Portec, Inc. (c) 200,000 Railroads & Shipping 2,350,000 0.9
Riviera Tool Company (a)(b) 130,000 Producer Goods 650,000 0.3
Serv-Tech, Inc. (a)(c) 28,000 Producer Goods 168,000 0.1
Shelter Components Corporation 274,600 Construction 3,260,875 1.3
Spectrum Control, Inc. (a) 500,000 Electronics 2,156,250 0.8
Summit Resources, Ltd. (a) 250,000 Energy & Raw Materials 1,086,725 0.4
Syncor International Corporation (a)(c) 310,000 Drugs & Medicine 3,255,000 1.2
------------ ----
$ 59,962,952 22.9%
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND SMALL CAP CONTRARIAN FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 97.9% [CONT'D] Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Situations
Airnet Systems, Inc. (a) 87,500 Air Transport $ 1,432,813 0.5%
Bolder Technologies Corporation (a) 250,000 Electronics 3,500,000 1.3
Butler International, Inc. (a)(c) 151,000 Business Services 2,047,938 0.8
Charter Power Systems, Inc. (c) 150,000 Electronics 5,625,000 2.2
Chico's Fas, Inc. (a)(b)(c) 460,000 Apparel 2,443,750 0.9
Consep, Inc. (a) 292,500 Food & Agriculture 731,250 0.3
Drypers Corporation (a)(b)(d) 228,929 Paper & Forest Products 1,759,892 0.7
Dynamic Materials Corporation (a) 125,900 Chemicals 1,463,588 0.6
Interdigital Communications Corp. (a)(c) 1,000,000 Telephone 5,500,000 2.1
Lunar Corporation (a)(c) 101,400 Drugs & Medicine 2,205,450 0.8
Motorcar Parts & Accessories, Inc. (a)(c) 125,000 Motor Vehicles 2,125,000 0.8
Polyvision Corporation (a)(b) 600,000 Construction 412,500 0.2
RCM Technologies, Inc. (a) 250,000 Business Services 2,656,250 1.0
------------ ----
31,903,431 12.2%
------------
TOTAL COMMON STOCKS (Cost $236,344,040) $256,488,156
- ----------------------------------------------------------------------------------------------------------------------------------
Percent of
PREFERRED STOCKS - 3.8% Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Drypers Corp. 7.5% Senior
Conv. Cumulative (b)(d) 20,250 Paper & Forest Products $ 7,944,618 3.0%
Excelsior-Henderson Motorcycle Mfg. Company
Series A Conv. (a)(b)(d) 460,000 Motor Vehicles 1,725,000 0.7
National Mercantile Bancorp 6.5% Conv. 15,002 Banks 150,000 0.1
------------
TOTAL PREFERRED STOCKS (Cost $3,900,000) $ 9,819,618
TOTAL INVESTMENTS - (Cost $240,244,040)..................................................................$266,307,774 101.7%
Liabilities, less cash and receivables................................................................... (4,419,415) (1.7)
------------ -----
TOTAL NET ASSETS.........................................................................................$261,888,359 100.0%
============ =====
</TABLE>
(a) Non-income producing security.
(b) Affiliated company. See Note 7 in Notes to Financial Statements.
(c) All or part of security committed as collateral for short sales. See Note
2(f) in Notes to Financial Statements.
(d) Restricted security. See Note 2(g) in Notes to Financial Statements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Percent of
SHORT SALES - (23.9%) Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adflex Solutions, Inc. 15,000 Electronics $ 225,000 (0.1)%
Alydaar Software Corporation 6,000 Business Services 120,750 (0.1)
BMC Industries, Inc. 100,000 Electronics 3,425,000 (1.3)
Cisco Systems, Inc. 40,000 Business Machines 2,685,000 (1.0)
The Coca-Cola Company 60,000 Food & Agriculture 4,050,000 (1.6)
Consolidated Graphics, Inc. 100,000 Media 4,175,000 (1.6)
Data Dimensions, Inc. 20,000 Business Services 440,000 (0.2)
Dell Computer Corporation 40,000 Business Machines 4,697,500 (1.8)
Dollar Tree Stores, Inc. 125,000 Retail 6,296,875 (2.4)
Drypers Corporation 450,000 Paper & Forest Products 3,459,375 (1.3)
Fastenal Company 30,000 Construction 1,470,000 (0.6)
Gentex Corporation 125,000 Construction 2,468,750 (0.9)
The Gillette Company 50,000 Soaps & Cosmetics 4,737,500 (1.8)
HBO & Company 75,000 Media 5,165,625 (2.0)
Oracle Corporation 100,000 Business Services 5,037,500 (1.9)
Oxford Health Plans, Inc. 60,000 Insurance 4,305,000 (1.6)
Pentair, Inc. 100,000 Producer Goods 3,287,500 (1.3)
Safeskin Corporation 20,000 Tires & Rubber Goods 588,750 (0.2)
Starbucks Corporation 65,000 Food & Agriculture 2,530,938 (1.0)
Sykes Enterprises, Inc. 135,000 Business Services 3,512,600 (1.3)
------------
TOTAL SHORT SALES (Proceeds $52,725,901) $ 62,678,663
============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
3
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS . June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS -- 76.6% Shares Industry Value Net Assets
- -------------------------------------------------------------------------------------------------------------------------
Below Average Price/Earnings Ratio
<S> <C> <C> <C> <C>
Alabama National Bancorporation 110,000 Banks $ 2,461,250 0.1%
Align-Rite International, Inc. (a)(b) 300,000 Electronics 3,900,000 0.2
American Buildings Company (a)(b) 500,000 Construction 13,500,000 0.7
AmVestors Financial Corporation 500,000 Insurance 9,375,000 0.5
Amwest Insurance Group, Inc. (b) 200,000 Insurance 3,000,000 0.2
Astec Industries, Inc. (a)(b) 965,000 Construction 12,002,188 0.6
Atalanta/Sosnoff Capital Corporation (a) 250,000 Miscellaneous Finance 2,765,625 0.1
Baldwin Piano & Organ Company (a)(b) 325,000 Non Durables & Entertainment 4,468,750 0.2
BancTec, Inc. (a) 228,100 Business Machines 5,916,344 0.3
Banknorth Group, Inc. 50,000 Banks 2,312,500 0.1
Beverly Bancorporation 231,661 Banks 4,459,474 0.2
Cameron Ashley Building Products, Inc. (a) 400,000 Construction 5,550,000 0.3
Capital RE Corporation 200,000 Insurance 10,700,000 0.5
Commercial Federal Corporation 300,000 Banks 11,137,500 0.6
Conmed Corporation (a) 495,000 Drugs & Medicine 8,415,000 0.4
Crossmann Communities, Inc. (a) 200,000 Construction 4,250,000 0.2
D & N Financial Corporation (a)(b) 400,000 Banks 7,700,000 0.4
Dakotah, Inc. (a)(b) 300,000 Non Durables & Entertainment 937,500 0.0
Discount Auto Parts, Inc. (a) 200,000 Motor Vehicles 3,900,000 0.2
Eagle Financial Corporation 110,500 Banks 3,356,438 0.2
Effective Management Systems, Inc. (a)(b) 350,000 Business Machines 1,750,000 0.1
Engle Homes, Inc. (b) 581,500 Construction 5,524,250 0.3
Esterline Technologies Corporation (a) 300,000 Electronics 10,687,500 0.6
Fibermark, Inc. (a)(b) 375,000 Paper & Forest Products 7,828,125 0.4
Filene's Basement Corporation (a) 430,000 Retail 2,848,750 0.1
FLIR Systems, Inc. (a) 34,800 Electronics 548,100 0.0
FPIC Insurance Group, Inc. (a) 200,000 Insurance 4,500,000 0.2
Franklin Bank NA 148,837 Banks 2,120,927 0.1
Gehl Company (a)(b) 400,000 Producer Goods 6,700,000 0.3
The General Chemical Group, Inc. 634,400 Chemicals 16,970,200 0.9
Global Industrial Technologies, Inc. (a) 290,000 Construction 5,945,000 0.3
Home Federal Bancorp (b) 193,500 Banks 5,514,750 0.3
Hospital Staffing Services, Inc. (a)(b) 620,000 Drugs & Medicine 1,472,500 0.1
ICN Pharmaceuticals, Inc. (b) 3,150,000 Drugs & Medicine 90,365,625 4.6
Interra Financial, Inc. 300,000 Miscellaneous Finance 12,581,250 0.6
LaCrosse Footwear, Inc. 213,900 Apparel 2,780,700 0.1
Life USA Holding, Inc. 1,000,000 Insurance 14,250,000 0.7
LSI Industries, Inc. 359,200 Construction 4,849,200 0.3
MAF Bancorp, Inc. 400,000 Banks 16,750,000 0.9
Magal Security Systems Ltd. (a)(b) 300,000 Business Services 1,425,000 0.1
Marisa Christina, Inc. (a) 238,700 Apparel 2,237,813 0.1
Maxicare Health Plans, Inc. (a)(b) 1,100,000 Drugs & Medicine 24,612,500 1.3
M.D.C. Holdings, Inc. 750,000 Construction 6,796,875 0.4
Meadow Valley Corporation (a) 35,000 Construction 192,500 0.0
Mednet, MPC Corporation (a)(b) 1,868,400 Drugs & Medicine 582,941 0.0
Mercury Air Group, Inc. (b) 633,700 Chemicals 4,000,231 0.2
MFRI, Inc. (a)(b) 300,000 Producer Goods 2,850,000 0.2
Midwest Express Holdings, Inc. (a) 150,000 Air Transport 4,106,250 0.2
Mining Services International Corporation (a) 152,649 Energy & Raw Materials 1,526,490 0.1
Nu Horizons Electronics Corporation (a) 400,000 Electronics 3,275,000 0.2
Optek Technology, Inc. (a) 60,000 Electronics 877,500 0.0
Penn Engineering & Manufacturing
Corporation 235,500 Producer Goods 4,621,688 0.2
Phoenix Duff & Phelps Corporation 620,000 Miscellaneous Finance 4,572,500 0.2
Powell Industries, Inc. (a)(b) 600,000 Electronics 9,150,000 0.5
Professionals Insurance Co. Mgt. Group (a)(b) 220,000 Insurance 6,215,000 0.3
PXRE Corporation 600,000 Insurance 18,450,000 1.0
</TABLE>
4
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS (CONT'D) . June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS -- 76.6% (CONT'D] Shares Industry Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Below Average Price/Earnings Ratio [CONT'D]
<S> <C> <C> <C> <C>
Raymond James Financial, Inc. 439,500 Miscellaneous Finance $ 12,031,313 0.6%
Reliance Steel & Aluminum Company 334,350 Non-Ferrous Metals 8,693,100 0.5
The Seibels Bruce Group, Inc. (a) 300,000 Insurance 2,362,500 0.1
Sholodge, Inc. 200,000 Travel & Recreation 2,962,500 0.2
Skymall, Inc. (a) 100,000 Retail 775,000 0.0
Southern Energy Homes, Inc. (a) 660,000 Construction 6,022,500 0.3
Strattec Security Corporation (a)(b) 500,000 Producer Goods 10,312,500 0.5
Student Loan Corporation 49,800 Miscellaneous Finance 2,113,388 0.1
Superior Telecom, Inc. (a) 158,900 Producer Goods 5,005,350 0.3
Unionbancorp, Inc. 70,000 Banks 892,500 0.0
United Security Bancorporation 170,423 Banks 2,428,528 0.1
Universal Stainless & Alloy Products, Inc. (a) 100,000 Non-Ferrous Metals 1,300,000 0.1
URS Corporation (a)(b) 741,700 Business Services 9,734,813 0.5
Webster Financial Corporation 100,000 Banks 4,550,000 0.2
Wescast Industries, Inc. (Class A) 150,000 Motor Vehicles 4,518,750 0.2
Westbridge Capital Corporation (a)(b) 400,000 Insurance 3,875,000 0.1
Weyco Group, Inc. 59,000 Apparel 3,835,000 0.1
Zindart Limited (ADR) (a) 220,000 Miscellaneous & Conglomerates 2,255,000 0.1
------------ ----
$513,254,476 25.9%
Low Price to Book Value
Abraxas Petroleum Corporation (a) 200,000 Domestic Oil $ 2,568,760 0.1%
Alamco, Inc. (a) 198,000 Domestic Oil 3,044,250 0.2
American Exploration Company (a) 250,000 Domestic Oil 3,656,250 0.2
Amtech Corporation (a) 458,200 Electronics 2,147,812 0.1
Anchor Bancorp Wisconsin, Inc. 28,000 Banks 1,365,000 0.1
Antec Corporation (a) 150,000 Electronics 1,762,500 0.1
Arden Industrial Products, Inc. (a)(b) 650,000 Producer Goods 3,778,125 0.2
Box Energy Corporation (Class B) (a) 1,327,400 Domestic Oil 9,623,650 0.5
Boyds Wheels, Inc. (a) 30,000 Motor Vehicles 120,000 0.0
California State Bank 81,700 Banks 2,083,350 0.1
Caretenders Health Corporation (a)(b) 308,900 Drugs & Medicine 2,509,812 0.1
Castle & Cooke, Inc. (a) 377,200 Construction 6,247,375 0.3
Catalina Lighting, Inc. 221,200 Construction 857,150 0.0
Chieftain International, Inc. (a) 200,000 Energy & Raw Materials 4,387,500 0.2
Children's Broadcasting Corporation (a)(b) 590,000 Media 2,728,750 0.1
Clayton Williams Energy, Inc. (a)(b) 600,000 Domestic Oil 6,825,000 0.3
Coastal Physician Group, Inc. (a)(b) 1,500,000 Drugs & Medicine 2,437,500 0.1
Cobra Electronics Corporation (a)(b) 500,000 Electronics 1,578,150 0.1
Collagen Corporation (b) 850,000 Drugs & Medicine 14,875,000 0.8
Crown Central Petroleum Corporation
(Class B) (a) 145,500 Domestic Oil 2,164,312 0.1
CSP, Inc. (a)(b) 280,000 Electronics 1,960,000 0.1
Cyrk International, Inc. (a) 500,000 Business Services 5,875,000 0.3
C.P. Clare Corporation (a)(b) 490,000 Electronics 7,717,500 0.4
Datron Systems, Inc. (a)(b) 250,000 Business Machines 2,531,250 0.1
Dayton Mining Corporation (a) 500,000 Gold 1,906,250 0.1
Designs, Inc. (a)(b) 1,100,000 Retail 5,362,500 0.3
Domain Energy Corporation (a) 100,000 Domestic Oil 1,350,000 0.1
ECC International Corporation (a)(b) 676,700 Electronics 3,552,675 0.2
ENStar, Inc. (a)(b) 233,333 Business Machines 1,458,331 0.1
Evergreen Resources, Inc. (a)(b) 575,000 Domestic Oil 5,893,750 0.3
EZCorp, Inc. (Class A) (a)(b) 700,000 Miscellaneous Finance 7,000,000 0.4
First Alert, Inc. (a) 491,900 Consumer Durables 1,383,469 0.1
FSI International, Inc. (a) 661,700 Electronics 10,587,200 0.5
GA Financial, Inc. 100,000 Banks 1,900,000 0.1
Gish Biomedical, Inc. (a)(b) 275,000 Drugs & Medicine 1,375,000 0.1
Grist Mill Company (a)(b) 400,000 Food & Agriculture 2,825,000 0.1
</TABLE>
5
<PAGE>
<TABLE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS (CONT'D) . June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Percent of
Common Stocks -- 76.6% (CONT'D) Shares Industry Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Low Price to Book Value [cont'd]
Hallmark Capital Corporation (a) 55,000 Banks $ 1,175,625 0.1%
Hanover Foods Corporation (Class A) (a)(b) 50,500 Food & Agriculture 1,780,125 0.1
Harmony Brook, Inc. (a)(b) 720,000 Business Services 360,000 0.0
Health Power, Inc. (a)(b) 295,800 Drugs & Medicine 961,350 0.0
HMN Financial, Inc. (a)(b) 250,000 Banks 5,750,000 0.3
Howell Corporation (a)(b) 300,000 Domestic Oil 6,000,000 0.3
ICO, Inc. 500,000 Energy & Raw Materials 2,593,750 0.1
IEC Electronics Corporation (a)(b) 700,000 Electronics 9,887,500 0.5
ImmuLogic Pharmaceutical Corporation (a) 350,800 Drugs & Medicine 1,096,250 0.1
Iwerks Entertainment, Inc. (a)(b) 1,100,000 Non Durables & Entertainment 4,812,500 0.2
Jacobson Stores, Inc. 60,800 Retail 577,600 0.0
John Alden Financial Corporation 1,250,000 Insurance 26,171,875 1.3
JumboSports, Inc. 600,000 Retail 2,287,500 0.1
Kentucky Electric Steel, Inc. (a)(b) 450,000 Steel 2,362,500 0.1
Massbank Corporation 100,000 Banks 4,775,000 0.2
Matrix Pharmaceutical, Inc. (a)(b) 1,570,000 Drugs & Medicine 10,499,375 0.5
Meadowbrook Rehabilitation
Group, Inc. (Class A) (a)(b) 186,666 Business Services 396,665 0.0
Mizar, Inc. (a)(b) 416,000 Business Machines 1,508,000 0.1
Morgan Products, Ltd. (a)(b) 750,000 Construction 5,625,000 0.3
Netframe Systems, Inc. (a) 557,500 Business Services 505,262 0.0
Northwest Equity Corporation (b) 80,000 Banks 1,150,000 0.1
Offshore Logistics, Inc. (a) 175,000 Air Transport 3,303,125 0.2
Oneita Industries, Inc. (a)(b) 600,000 Apparel 243,780 0.0
Outlook Group Corporation (a)(b) 457,500 Media 2,802,187 0.1
PICO Holdings, Inc. (a) 106,300 Insurance - Specialty 478,350 0.0
Players International, Inc. (a) 1,073,000 Travel & Recreation 3,219,000 0.2
PolyMedica Industries, Inc. (a)(b) 550,000 Drugs & Medicine 4,812,500 0.2
Presidential Life Corporation 1,500,000 Insurance 29,062,500 1.5
Ramsay Health Care, Inc. (a)(b) 603,333 Drugs & Medicine 2,036,249 0.1
Rexworks, Inc. (a)(b) 185,500 Producer Goods 556,500 0.0
RightCHOICE Managed
Care, Inc. (Class A) (a)(b) 1,002,500 Drugs & Medicine 13,596,406 0.7
The Rottlund Company, Inc. (a)(b) 420,000 Construction 1,890,000 0.1
Sanfilippo John B. & Son, Inc. 275,000 Food & Agriculture 1,890,625 0.1
Snyder Oil Corporation (a) 250,000 Domestic Oil 4,593,750 0.2
Stampeder Exploration, Ltd. (a) 3,000,000 Domestic Oil 11,812,500 0.6
Star Multi Care Services, Inc. (a)(b) 230,093 Drugs & Medicine 1,150,465 0.1
Starcraft Corporation (a)(b) 400,000 Motor Vehicles 1,050,000 0.1
Stewart & Stevenson Services, Inc. 300,000 Producer Goods 7,800,000 0.4
Stifel Financial Corporation 220,500 Miscellaneous Finance 2,618,438 0.1
Strouds, Inc. (a)(b) 444,000 Retail 777,000 0.0
St. Francis Capital Corporation 100,000 Banks 3,875,000 0.2
Sunrise Resources, Inc. (a)(b) 600,000 Business Services 2,400,000 0.1
Technology Research Corporation (b) 500,000 Producer Goods 2,062,500 0.1
Tesoro Petroleum Corporation (a)(b) 1,500,000 Domestic Oil 22,218,750 1.1
Tipperary Corporation (a) 533,300 Energy & Raw Materials 2,133,200 0.1
Trak Auto Corporation (a)(b) 366,500 Motor Vehicles 4,031,500 0.2
Trimark Holdings, Inc. (a)(b) 400,000 Non Durables & Entertainment 2,050,000 0.1
Vectra Technologies, Inc. (a)(b) 723,500 Business Services 361,750 0.0
Vicorp Restaurants, Inc. (a)(b) 500,000 Non Durables & Entertainment 6,000,000 0.3
Weston Roy F. Inc. (Class A) (a)(b) 550,000 Business Services 1,650,000 0.1
------------ -----
$368,190,123 18.4%
</TABLE>
6
<PAGE>
<TABLE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS (CONT'D) . June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Percent of
Common Stocks -- 76.6% (CONT'D) Shares Industry Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Cash Flow Ratio
3-D Geophysical, Inc. (a)(b) 700,000 Domestic Oil $ 3,587,500 0.2%
The Advest Group, Inc. 220,000 Miscellaneous Finance 5,225,000 0.3
Aeroflex, Inc. 300,000 Producer Goods 1,537,500 0.1
Allwaste, Inc. (a)(b)(c) 2,000,000 Business Services 19,000,000 1.0
The Alpine Group, Inc. (a)(b) 1,100,000 Producer Goods 12,443,750 0.6
American Oilfield Divers, Inc. (a)(b) 500,000 Energy & Raw Materials 6,000,000 0.3
Amtran, Inc. (a)(b) 600,000 Air Transport 4,950,000 0.3
Asia Pacific Wire & Cable
Corporation Ltd. (a)(b) 727,600 Producer Goods 7,912,650 0.4
Benton Oil and Gas Company (a) 600,000 Domestic Oil 9,000,000 0.5
Buckhead America Corporation (a)(b) 175,000 Travel & Recreation 1,159,375 0.1
Cash America International, Inc. 700,000 Miscellaneous Finance 7,350,000 0.4
CHC Helicopter Corporation (Class A) (a)(b) 1,000,000 Air Freight 7,125,000 0.4
The Cherry Corporation (Class A) (a)(b) 850,100 Consumer Durables 11,051,300 0.6
Comdial Corporation (a)(b) 650,000 Telephone 5,443,750 0.3
Commonwealth Industries, Inc. 312,600 Non-Ferrous Metals 6,369,225 0.3
Comstock Resources, Inc. (a) 200,000 Domestic Oil 2,087,500 0.1
Dairy Mart Convenience
Stores, Inc. (Class A) (a)(b) 384,000 Retail 2,232,000 0.1
Damark International, Inc. (Class A) (a)(b) 800,000 Retail 12,400,000 0.6
DeVlieg-Bullard, Inc. (a) 500,000 Producer Goods 1,718,750 0.1
Diamond Home Services, Inc. (a) 247,000 Construction 2,377,375 0.1
Duckwall-ALCO Stores, Inc. (a)(b) 330,000 Retail 4,248,750 0.2
Eaton Vance Corporation 700,000 Miscellaneous Finance 19,468,750 1.0
Eltek, Ltd. (a)(b) 300,000 Business Machines 731,250 0.0
Financial Industries Corporation (a)(b) 300,000 Insurance 3,825,000 0.2
First Financial Corporation 700,000 Miscellaneous Finance 20,562,500 1.1
Forest Oil Corporation (a) 1,500,000 Domestic Oil 22,031,250 1.1
The Fortress Group, Inc. (b) 700,000 Construction 4,287,500 0.2
Gibson Greetings, Inc. (a) 700,000 Non Durables & Entertainment 15,750,000 0.8
GKN Holding Corporation (a) 300,000 Miscellaneous Finance 1,425,000 0.1
Grand Casinos, Inc. (a) 2,090,000 Travel & Recreation 30,827,500 1.6
GZA GeoEnvironmental Technologies,
Inc. (a)(b) 372,700 Business Services 1,164,688 0.1
Hallwood Consolidated Resources
Corporation (a)(b) 100,000 Domestic Oil 6,800,000 0.3
Hampshire Group, Ltd. (a) 125,000 Apparel 1,843,750 0.1
HealthRite, Inc. (a)(b) 403,000 Drugs & Medicine 780,812 0.0
Help at Home, Inc. (a)(b) 100,000 Business Services 362,500 0.0
Home Products International, Inc. 250,000 Chemicals 2,468,750 0.1
Johnson Worldwide Associates, Inc. (Class A) 150,000 Travel & Recreation 1,931,250 0.1
Johnstown America Industries, Inc. (a) 150,000 Railroads & Shipping 900,000 0.1
Kaye Group, Inc. (b) 353,600 Insurance 1,768,000 0.1
Kinnard Investments, Inc. (a) 222,704 Miscellaneous Finance 1,308,386 0.1
LCS Industries, Inc. (b) 350,000 Business Services 5,053,125 0.3
The Lion Brewery, Inc. (a)(b) 375,000 Liquor 1,007,812 0.1
The Marcus Corporation 150,000 Non Durables & Entertainment 3,693,750 0.2
Marten Transport, Ltd. (a)(b) 222,200 Trucking & Freight 2,888,600 0.1
Martin Industries, Inc. (b) 500,000 Producer Goods 3,000,000 0.2
Minntech Corporation (a)(b) 513,100 Drugs & Medicine 5,387,550 0.3
MTL, Inc. (a) 210,000 Trucking & Freight 4,908,750 0.3
MYR Group, Inc. (b) 300,000 Construction 5,400,000 0.3
Norstan, Inc. (a)(b) 552,000 Telephone 8,970,000 0.5
Norwood Promotional Products, Inc. (a) 200,000 Non Durables & Entertainment 2,800,000 0.1
Old America Stores, Inc. (a)(b) 369,200 Consumer Durables 646,100 0.0
Pacific Scientific Company 242,000 Aerospace 3,206,500 0.2
Park-Ohio Industries, Inc. (a) 118,500 Producer Goods 1,807,125 0.1
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 76.6% [CONT'D] Shares Industry Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Cash Flow Ratio [cont'd]
Patrick Industries, Inc. (b) 312,000 Construction $ 5,148,000 0.3%
Peoples Telephone Company, Inc. (a)(b) 1,600,000 Telephone 5,500,000 0.3
Praegitzer Industries, Inc. (a) 100,000 Electronics 1,112,500 0.1
Printronix, Inc. (a) 78,300 Computer Peripherals 1,174,500 0.1
Quixote Corporation (b) 577,000 Business Services 4,616,000 0.2
RenaissanceRe Holdings Ltd. 250,000 Insurance 9,531,250 0.5
Right Management Consultants, Inc. (a)(b) 400,000 Business Services 4,550,000 0.2
Schnitzer Steel Industries, Inc. (Class A) 200,000 Steel 5,950,000 0.3
Schult Homes Corporation (b) 360,000 Construction 5,715,000 0.3
ShopKo Stores, Inc. (a) 1,000,000 Retail 25,500,000 1.3
SIFCO Industries, Inc. (a) 177,900 Aerospace 2,535,075 0.1
Steel of West Virginia, Inc. (a)(b) 360,000 Steel 3,600,000 0.2
Sterling Financial Corporation (a) 275,000 Banks 5,121,875 0.3
St. Mary Land & Exploration Company (a) 340,000 Domestic Oil 11,942,500 0.6
Teltrend, Inc. (a)(b) 500,000 Telephone 7,312,500 0.4
Thorn Apple Valley, Inc. (a) 436,000 Food & Agriculture 8,393,000 0.4
Timber Lodge Steakhouse, Inc. (a)(b) 300,000 Non Durables & Entertainment 1,162,500 0.1
Todhunter International, Inc. (a)(b) 490,000 Liquor 3,552,500 0.2
Tower Air, Inc. (a) 500,000 Air Transport 1,562,500 0.1
United Federal Savings Bank 143,700 Banks 1,688,475 0.1
United Wisconsin Services, Inc. 600,000 Insurance 20,212,500 1.0
West Coast Entertainment Corporation (a) 300,000 Non Durables & Entertainment 1,575,000 0.1
Willis Lease Finance Corporation (a) 110,000 Miscellaneous Finance 1,388,750 0.1
Wilsons The Leather Experts, Inc. (a) 125,000 Retail 1,265,625 0.1
World Acceptance Corporation (a) 400,000 Miscellaneous Finance 2,550,000 0.1
Worldtex, Inc. 550,000 Drugs & Medicine 4,400,000 0.2
-------------- ----
$467,285,673 24.5%
Special Situations
Allied Healthcare Products, Inc. (a)(b) 600,000 Drugs & Medicine $ 3,900,000 0.2%
Badger Meter, Inc. (b) 200,000 Electronics 5,925,000 0.3
Breed Technologies, Inc. (a) 57,100 Non Durables & Entertainment 1,313,300 0.1
Capital Factors Holdings, Inc. (a) 130,000 Miscellaneous Finance 2,275,000 0.1
Christiana Companies, Inc. (a) 182,300 Energy & Raw Materials 7,269,212 0.4
Eskimo Pie Corporation (b) 271,500 Food & Agriculture 3,291,937 0.2
The Female Health Company (a)(b) 585,100 Soap & Cosmetics 1,901,575 0.1
Interdigital Communications Corp. (a)(b) 3,435,000 Telephone 18,892,500 1.0
Interpore International (a)(b) 600,000 Drugs & Medicine 2,850,000 0.1
Marquette Medical Systems, Inc. (a) 416,500 Drugs & Medicine 9,163,000 0.5
Matthews International Corporation (Class A) 200,000 Producer Goods 7,300,000 0.4
Medical Graphics Corporation (a)(b) 243,700 Drugs & Medicine 913,875 0.0
Memtec Ltd. (ADR) (a) 100,000 Producer Goods 2,700,000 0.1
M/A/R/C, Inc. (a)(b) 300,000 Business Services 5,850,000 0.3
NTN Communications, Inc. (a)(b) 1,725,000 Media 7,654,687 0.4
OEC Medical Systems, Inc. (a) 311,000 Electronics 5,539,688 0.3
Osmonics, Inc. (a) 200,800 Producer Goods 3,702,250 0.2
Regency Health Services, Inc. (a) 527,100 Drugs & Medicine 8,104,163 0.4
Rehabilicare, Inc. (a)(b) 355,000 Drugs & Medicine 1,242,500 0.1
Resound Corporation (a) 575,000 Optical Photo & Equipment 3,234,375 0.2
Scios, Inc. (a) 800,000 Drugs & Medicine 5,100,000 0.3
Sullivan Dental Products, Inc. (b) 500,000 Drugs & Medicine 9,125,000 0.5
Total-Tel USA Communications, Inc. (a)(b) 289,000 Telephone 5,202,000 0.3
UNC, Inc. (a)(b) 1,000,000 Aerospace 14,625,000 0.8
Virginia First Financial Corporation 264,000 Banks 5,940,000 0.3
Vitalink Pharmacy Services, Inc. (a) 38,217 Drugs & Medicine 730,900 0.0
Wilsons The Leather Experts, Inc. (Warrants) (a) 100,000 Retail 131,250 0.0
Zytec Corporation (a) 220,000 Electronics 4,125,000 0.2
-------------- ----
148,002,212 7.8%
--------------
TOTAL COMMON STOCKS (Cost $1,108,874,184) $1,496,732,484
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Par Percent of
CONVERTIBLE BONDS - .3% Amount Industry Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ICN Pharmaceuticals, Inc. 8.50%
11/15/1999 (b) $1,000,000 Drugs & Medicine $ 1,285,000 0.1%
Fort Bend Holding Corporation 8.00%
12/01/2005 400,000 Miscellaneous Financial 560,000 0.0
Mercury Air Group, Inc. 7.75% 02/01/2006 (b) 1,250,000 Chemicals 1,284,375 0.1
Professional Bancorp, Inc. 8.50%
03/01/2004 1,000,000 Banks 1,020,000 0.1
--------------
TOTAL CONVERTIBLE BONDS (Cost $3,651,859) $ 4,149,375
- ------------------------------------------------------------------------------------------------------------------------------------
Par Percent of
CORPORATE BONDS - .4% Amount Industry Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Engle Homes, Inc. 11.75% 12/15/2000 (b) $6,905,000 Construction $ 6,879,106 0.4%
--------------
TOTAL CORPORATE BONDS (Cost $6,651,302) $ 6,879,106
- ------------------------------------------------------------------------------------------------------------------------------------
Par Percent of
SHORT-TERM INVESTMENTS - 22.7% Amount Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 12.7%
U.S. Treasury Note 6.000% 12/31/1997 $ 20,000,000 $ 20,050,798 1.0%
U.S. Treasury Note 5.250% 12/31/1997 102,000,000 101,885,750 5.2
U.S. Treasury Note 6.125% 03/31/1998 50,000,000 50,161,500 2.6
U.S. Treasury Note 5.875% 04/30/1998 25,000,000 25,026,248 1.3
U.S. Treasury Note 6.000% 05/31/1998 50,000,000 50,101,495 2.6
--------------
247,225,791
DISCOUNT NOTES - 9.3%
Federal Home Loan Bank 0.000% 07/01/1997 35,000,000 35,000,000 1.8
Federal Home Loan Bank 0.000% 07/10/1997 34,000,000 33,954,185 1.7
Federal Home Loan Bank 0.000% 07/23/1997 6,000,000 5,980,273 0.3
Federal Home Loan Bank 0.000% 07/24/1997 15,000,000 14,948,346 0.8
Federal Home Loan Bank 0.000% 07/28/1997 6,000,000 5,975,790 0.3
Federal Home Loan Bank 0.000% 12/19/1997 18,080,000 17,612,672 0.9
Federal Farm Credit Bank 0.000%
01/02/1998 45,000,000 44,959,946 2.3
Federal National Mortgage Association
0.000% 01/05/1998 25,000,000 24,284,687 1.2
--------------
182,715,899
VARIABLE RATE DEMAND NOTE (+) - .7%
Warner-Lambert Company 5.23% 13,905,000 13,905,000 0.7
--------------
TOTAL SHORT-TERM INVESTMENTS - (Cost $443,892,916) $ 443,846,690
TOTAL INVESTMENTS - (Cost $1,563,070,261)............................................................ $1,951,607,655 100.0%
Liabilities, less cash and receivables............................................................... (81,217) 0.0
-------------- -----
TOTAL NET ASSETS..................................................................................... $1,951,526,438 100.0%
============== =====
</TABLE>
(a) Non-income producing security.
(b) Affiliated company. See Note 7 in Notes to Financial Statements.
(c) All or part of security committed as collateral for short sale. See Note
2(f) in Notes to Financial Statements.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rate changes periodically on specified dates.
The rate listed is as of June 30, 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of
SHORT SALES - (0.0%) Shares Industry Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philip Services Corp. 58,200 Business Services $ 923,925 (0.0)%
--------------
TOTAL SHORT SALES (Proceeds $963,959) $ 923,925
==============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
9
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS . June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 87.9% Shares Industry Value Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
AK Steel Holding Corporation 7,800 Steel $ 344,175 1.4%
AGCO Corporation 15,000 Producer Goods 539,063 2.1
Apria Healthcare Group, Inc. (a) 19,500 Drugs & Medicine 346,125 1.4
Commercial Federal Corporation 10,500 Banks 389,813 1.5
First Brands Corporation 13,500 Chemicals 309,656 1.2
Horace Mann Educators Corporation 7,200 Insurance 352,800 1.4
IBP Inc. 12,600 Food & Agriculture 292,950 1.2
Integrated Health Services, Inc. 9,800 Drugs & Medicine 377,300 1.5
Lehman Brothers Holdings, Inc. 13,500 Miscellaneous Financial 546,750 2.2
Lennar Corporation 17,500 Construction 558,906 2.2
Medusa Corporation 10,600 Construction 406,775 1.6
Popular, Inc. 9,100 Banks 367,413 1.5
P. H. Glatfelter Company 18,500 Paper & Forest Products 370,000 1.5
Reliance Group Holdings, Inc. 38,800 Insurance 460,750 1.8
Storage Technology Corporation 8,700 Business Machines 387,150 1.5
Sun Healthcare Group, Inc. (a) 21,000 Drugs & Medicine 437,063 1.7
SUPERVALU, Inc. 10,000 Food & Agriculture 345,000 1.4
Toll Brothers, Inc. (a) 19,000 Construction 349,125 1.4
TR Financial Corporation 14,400 Banks 362,700 1.4
Walden Residential Properties, Inc. 14,300 Real Property 366,436 1.5
Zeigler Coal Holding Company 15,000 Energy & Raw Materials 350,625 1.4
---------- ----
$8,260,575 32.8%
Low Price to Book Value
Allegiance Corporation 12,500 Drugs & Medicine $ 340,625 1.4%
A. O. Smith Corporation 9,700 Motor Vehicles 344,956 1.4
Bank United Corporation 10,000 Miscellaneous Financial 380,000 1.5
Boise Cascade Corporation 9,400 Paper & Forest Products 331,938 1.3
Bowater, Inc. 10,300 Paper & Forest Products 476,375 1.9
Darden Restaurants, Inc. 38,400 Food & Agriculture 348,000 1.4
Heilig Meyers Company 19,800 Consumer Durables 388,575 1.5
MEMC Electronic Materials, Inc. 7,500 Electronic Equipment 245,625 1.0
OGE Energy Corporation 7,500 Energy & Utilities 341,250 1.4
Ohio Casualty Corporation 10,500 Insurance 462,000 1.8
Ranger Oil Ltd. 42,000 International Oil 391,125 1.6
Reynolds Metals Company 6,000 Non-Ferrous Metals 427,500 1.7
Silicon Valley Group, Inc. (a) 15,500 Electronics 408,812 1.6
Sterling Software, Inc. 11,000 Business Services 343,750 1.3
Trigon Healthcare, Inc. (a) 22,000 Insurance 533,500 2.1
Wellman, Inc. 12,000 Chemicals 208,500 0.8
---------- ----
$5,972,531 23.7%
Below Average Price/Cash Flow Ratio
Agrium, Inc. 31,500 Chemicals $ 362,250 1.4%
Asarco, Inc. 14,000 Non-Ferrous Metals 428,750 1.7
El Paso Electric Company (a) 56,500 Energy & Utilities 399,030 1.6
Ethyl Corporation 38,500 Chemicals 356,125 1.4
KLM Royal Dutch Airlines NV 10,000 Air Transport 308,750 1.2
McDermott International, Inc. 14,000 Construction 408,625 1.6
Mid Ocean Ltd. 9,800 Insurance 513,888 2.1
Protective Life Corporation 9,000 Insurance 452,250 1.8
Public Service Co. of New Mexico 17,500 Energy & Utilities 312,813 1.3
Signet Banking Corporation 12,200 Banks 439,200 1.7
Tesoro Petroleum Corporation (a) 28,000 Domestic Oil 414,750 1.7
TransTexas Gas Corporation (a) 24,000 Domestic Oil 384,000 1.5
---------- ----
$4,780,431 19.0%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 87.9% [CONT'D] Shares Industry Value Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Situations
Blount Int'l, Inc. (Class A) 10,600 Consumer Durables $ 451,161 1.8%
Dean Foods Company 10,500 Food & Agriculture 423,938 1.7
HealthPlan Services Corporation 19,500 Insurance 368,063 1.5
National Semiconductor Corporation (a)(b) 9,300 Electronic Equipment 284,813 1.1
Newmont Mining Corporation 8,600 Gold 335,400 1.3
Tandem Computers, Inc. 5,100 Business Machines 103,275 0.4
Teradyne, Inc. (a)(b) 8,500 Business Services 333,625 1.3
Valero Energy Corporation 9,500 Domestic Oil 344,375 1.4
Wellpoint Health Networks, Inc. (a) 10,700 Insurance 490,863 1.9
----------- ----
3,135,513 12.4%
-----------
TOTAL COMMON STOCKS (Cost $19,600,901) $22,149,050
- --------------------------------------------------------------------------------------------------------------------------------
Par Percent of
SHORT-TERM INVESTMENTS - 12.4% Amount Value Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
DISCOUNT NOTES - 7.8%
Federal Mortgage Corporation
5.46% 07/07/1997 $1,000,000 $ 999,103 3.9%
Federal Home Loan Banks 5.47% 07/17/1997 1,000,000 997,609 3.9
-----------
1,996,712
VARIABLE RATE DEMAND NOTES (+) - 4.6%
Johnson Controls, Inc. 5.28% 250,000 250,000 1.0
General Mills, Inc. 5.24% 250,000 250,000 1.0
Warner-Lambert Company 5.23% 250,000 250,000 1.0
American Family Financial Services 5.26% 243,000 243,000 1.0
Wisconsin Electric Power Company 5.30% 157,000 157,000 0.6
-----------
1,150,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $3,146,712) $ 3,146,712
TOTAL INVESTMENTS - (Cost $22,747,613)......................................................... $25,295,762 100.3%
Liabilities, less cash and receivables......................................................... (93,700) (0.3)
----------- -----
TOTAL NET ASSETS............................................................................... $25,202,062 100.0%
=========== =====
</TABLE>
(a) Non-income producing security.
(b) All or part of security committed as collateral for written call options.
See Note 2(h) in Notes to Financial Statements.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rate changes periodically on specified dates.
The rates listed are as of June 30, 1997.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
11
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS . June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 87.9% Shares Industry Value Net Assets
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
Allmerica Financial Corporation 1,800 Insurance $ 71,775 1.3%
American General Corporation 1,200 Insurance 57,300 1.1
AT&T Corporation 1,400 Telephone 49,086 0.9
Chase Manhatten Corporation 400 Banks 38,825 0.7
Hanson PLC (ADR) 250 Construction 6,250 0.1
Lehman Brothers Holdings, Inc. 1,600 Miscellaneous Financial 64,800 1.2
Owens Corning 5,000 Construction 215,625 3.9
PartnerRe Ltd. 1,400 Insurance 53,375 1.0
Philip Morris Companies, Inc. 1,200 Tobacco 53,250 1.0
Reynolds & Reynolds Company (Class A) 9,900 Producer Goods 155,925 2.9
Shaw Industries, Inc. 21,700 Apparel 230,563 4.2
Summit Bancorp 1,800 Banks 90,225 1.7
SUPERVALU, Inc. 1,700 Food & Agriculture 58,650 1.1
Union Planters Corporation 600 Banks 31,125 0.6
USF&G Corporation 2,300 Insurance 55,200 1.0
UST, Inc. 2,200 Tobacco 61,050 1.1
---------- ----
$1,293,024 23.8%
Low Price to Book Value
Aetna, Inc. 1,800 Drugs & Medicine $ 184,275 3.4%
Allmerica Property & Casualty Companies, Inc. 1,100 Insurance 36,025 0.7
Beverly Enterprises, Inc. (a) 5,500 Drugs & Medicine 89,375 1.6
British Steel PLC (a) 4,200 Producer Goods 106,050 2.0
Champion International Corporation 1,800 Paper & Forest Products 99,450 1.8
Darden Restaurants, Inc. 9,800 Food & Agriculture 88,813 1.6
Digital Equipment Corporation 1,000 Business Machines 35,437 0.7
Dillards, Inc. 700 Retail 24,237 0.4
International Paper Company 800 Paper & Forest Products 38,850 0.7
Jefferson Smurfit Group PLC (ADR) 3,100 Containers 90,288 1.7
Kmart Corporation (a) 7,000 Retail 85,750 1.6
Louisiana-Pacific Corporation 3,900 Paper & Forest Products 82,388 1.5
Mead Corporation 1,800 Paper & Forest Products 112,050 2.1
Ohio Casualty Corporation 1,300 Insurance 57,200 1.0
St. Paul Companies, Inc. 1,200 Insurance 91,500 1.7
Unicom Corporation 9,000 Energy & Utilities 200,250 3.6
---------- ----
$ 421,938 26.1%
Below Average Price/Cash Flow Ratio
Consolidated Natural Gas Company 3,600 Energy & Raw Materials $ 193,725 3.6%
Elf Aquitane (ADR) 1,200 International Oil 65,325 1.2
Frontier Corporation 5,400 Telephone 107,663 2.0
Louisiana Land & Exploration Company 3,500 Domestic Oil 199,937 3.6
OGE Energy Corporation 1,500 Energy & Utilities 68,250 1.3
Ohio Edison Company 800 Energy & Utilities 17,450 0.3
RJR Nabisco Holdings Corporation 1,600 Tobacco 52,800 1.0
Telecomunicacoes Brasileiras S. A. (ADR) 600 Telephone 91,050 1.7
Union Texas Petroleum Holdings, Inc. 4,400 Domestic Oil 92,125 1.7
YPF Sociedad Anonima (ADR) 4,800 International Oil 147,600 2.7
---------- ----
$1,035,925 19.1%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 87.9% [cont'd] Shares Industry Value Net Assets
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Situations
Fort Howard Corporation 3,600 Paper & Forest Products $ 182,250 3.3%
Hanna (M.A.) Company 5,400 Chemicals 155,588 2.8
Jefferson-Pilot Corporation 1,600 Insurance 111,800 2.1
J.C. Penney Company, Inc. 800 Retail 41,750 0.8
Philips Electronics NV 1,200 Electronics 86,250 1.6
Student Loan Mktg Association 900 Miscellaneous Financial 114,300 2.1
Tenet Healthcare Corporation (a) 3,600 Drugs & Medicine 106,425 2.0
Textron, Inc. 1,200 Miscellaneous Financial 79,650 1.5
Toys "R" Us, Inc. (a) 4,200 Retail 147,000 2.7
---------- ----
1,025,013 18.9%
----------
TOTAL COMMON STOCKS (Cost $4,126,941) $4,775,900
- --------------------------------------------------------------------------------------------------------------
Par Percent of
SHORT-TERM INVESTMENTS - 13.8% Amount Value Net Assets
- --------------------------------------------------------------------------------------------------------------
DISCOUNT NOTE - 9.3%
Federal Mortgage Corporation
5.46% 07/07/1997 $500,000 $ 499,552 9.3%
VARIABLE RATE DEMAND NOTES (+) - 4.5%
Johnson Controls, Inc. 5.28% 50,000 50,000 0.9
General Mills, Inc. 5.24% 50,000 50,000 0.9
Pitney Bowes Credit Corp. 5.26% 50,000 50,000 0.9
American Family Financial Services 5.26% 50,000 50,000 0.9
Wisconsin Electric Power Company 5.30% 50,000 50,000 0.9
----------
250,000
----------
TOTAL SHORT-TERM INVESTMENTS (Cost $749,552) $ 749,552
TOTAL INVESTMENTS - (Cost $4,876,493).............................................. $5,525,452 101.7%
Liabilities, less cash and receivables............................................. (91,418) (1.7)
---------- -----
TOTAL NET ASSETS................................................................... $5,434,034 100.0%
========== =====
</TABLE>
(a) Non-income producing security.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rate changes periodically on specified dates.
The rates listed are as of June 30, 1997.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
13
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND VALUE PLUS FUND
SCHEDULE OF INVESTMENTS . June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS -- 64.8% Shares Industry Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
Ambassador Apartments, Inc. 25,000 Real Property $ 621,875 0.4%
Commercial Bankshares, Inc. 77,000 Banks 1,463,000 0.9
Continental Homes Holding Corporation 80,300 Construction 1,415,287 0.8
Decorator Industries, Inc. 137,500 Miscellaneous & Conglomerates 1,263,281 0.8
Donegal Group, Inc. 50,000 Insurance 1,218,750 0.7
EMC Insurance Group, Inc. 270,000 Insurance 3,341,250 2.0
Equity Inns, Inc. 300,000 Real Property 4,012,500 2.4
Foster (L.B.) Company (a) 209,400 Producer Goods 916,125 0.5
Gorman-Rupp Company 100,000 Producer Goods 1,800,000 1.1
Gryphon Holdings, Inc. (a) 250,000 Insurance 3,812,500 2.3
Intrav, Inc. 150,000 Travel & Recreation 1,350,000 0.8
Lawyers Title Corporation 250,000 Insurance 4,718,750 2.8
MMI Companies, Inc. 125,000 Insurance 3,265,625 2.0
NYMagic, Inc. 4,600 Insurance 94,875 0.1
Paine Webber Group, Inc. 30,000 Miscellaneous Financial 1,050,000 0.6
Prime Retail, Inc. 200,000 Real Property 2,687,500 1.6
Sphere Drake Holdings Ltd. 145,900 Insurance 1,249,269 0.7
Twin Disc, Inc. 50,000 Producer Goods 1,437,500 0.9
Walden Residential Properties, Inc. 50,000 Real Property 1,281,250 0.7
----------- -----
$36,999,337 22.1%
Low Price to Book Value
Aceto Corporation 100,000 Chemicals $ 1,462,500 0.9%
Alliance Bancorp, Inc. (a) 60,000 Banks 1,807,500 1.1
Analysis & Technology, Inc. 100,000 Business Services 1,590,630 0.9
Arctic Cat, Inc. 300,000 Motor Vehicles 3,112,500 1.9
Carson Pirie Scott & Company 50,000 Retail 1,587,500 0.9
Central & South West Corporation 50,000 Energy & Utilities 1,062,500 0.6
Flexsteel Industries, Inc. 149,000 Consumer Durables 1,750,750 1.0
Haggar Corporation 255,000 Apparel 3,251,250 1.9
Insteel Industries, Inc. 181,300 Producer Goods 1,473,063 0.9
Kaman Corporation (Class A) 100,000 Producer Goods 1,537,500 0.9
Lufkin Industries, Inc. 27,500 Producer Goods 721,875 0.5
Magnetek, Inc. 31,250 Producer Goods 519,531 0.3
Mitchell Energy & Development Corporation 40,800 Domestic Oil 872,100 0.5
Monterey Resources, Inc. 100,000 Domestic Oil 1,487,500 0.9
Providence Energy Corporation 120,000 Energy & Utilities 2,100,000 1.3
Salient 3 Communications, Inc. (Class A) 142,900 Electronics 1,714,800 1.0
Tab Products Company 166,300 Producer Goods 1,642,212 1.0
Teche Holding Company 63,700 Banks 1,210,300 0.7
----------- -----
$28,904,011 17.2%
Below Average Price/Cash Flow Ratio
Central Hudson Gas & Electric Corporation 125,000 Energy & Utilities $ 4,304,688 2.6%
Dames & Moore, Inc. 350,000 Business Services 4,331,250 2.6
First Albany Companies, Inc. 20,055 Miscellaneous Financial 288,291 0.2
The Greenbrier Co., Inc. 250,000 Railroad & Shipping 2,828,125 1.7
Minnesota Power & Light Company 100,000 Energy & Utilities 3,037,500 1.8
Nash Finch Company 78,300 Food & Agriculture 1,732,388 1.0
N.Y. State Electric & Gas Corporation 175,000 Energy & Utilities 3,653,125 2.2
Piccadilly Cafeterias, Inc. 125,500 Non-Durables & Entertainment 1,333,438 0.8
Rochester Gas and Electric Corporation 200,000 Energy & Utilities 4,212,500 2.5
Southwestern Energy Company 100,000 Energy & Raw Material 1,300,000 0.8
USX-Delhi Group 400,000 Energy & Raw Material 5,250,000 3.1
Versa Technologies, Inc. 125,900 Producer Goods 1,982,925 1.2
Walbro Corporation 95,000 Producer Goods 1,923,750 1.1
Yankee Energy System, Inc. 10,000 Energy & Utilities 245,000 0.1
----------- -----
$36,422,980 21.7%
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND VALUE PLUS FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS -- 64.8% [cont'd] Shares Industry Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Situations
CU Bancorp 25,000 Banks $ 381,250 0.2%
Grand Premier Financial, Inc. 77,200 Banks 1,158,000 0.7
TCBY Enterprises, Inc. 200,000 Non-Durables & Entertainment 1,262,500 0.8
TR Financial Corporation 140,000 Banks 3,526,250 2.1
------------ ----
6,328,000 3.8%
------------
TOTAL COMMON STOCKS (Cost $99,706,923) $108,654,328
- -----------------------------------------------------------------------------------------------------------------------------
Percent of
PREFERRED STOCKS -- 8.7% Shares Industry Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Chiquita Brands International, Inc.
5.75% Ser. A Conv. 20,000 Food & Agriculture $ 942,500 0.6%
Excel Realty Trust, Inc. 2.125% Series A Conv. 80,000 Real Property 2,180,000 1.3
Fieldcrest Cannon, Inc. 3.00% Series A Conv. 45,800 Apparel 2,083,900 1.2
ICO, Inc. $1.6875 Series Conv. 100,000 Energy & Raw Materials 2,175,000 1.3
Integon Corporation $3.875 Series Conv. 56,700 Insurance 3,763,462 2.2
International Technology Corporation Conv. 20,000 Business Services 365,000 0.2
Station Casinos, Inc. 7.00% Series Conv. 25,000 Travel & Recreation 1,118,750 0.7
Walden Residential Property, Inc. 9.20% 80,000 Real Property 2,020,000 1.2
------------
TOTAL PREFERRED STOCKS (Cost $13,272,943) $ 14,648,612
- -----------------------------------------------------------------------------------------------------------------------------
Par Percent of
CONVERTIBLE BONDS -- 12.4% Amount Industry Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
Bell Sports Corporation 4.25% 11/15/2000 $2,000,000 Non-Durables & Entertainment $ 1,675,000 1.0%
Box Energy Corporation 8.25% 12/01/2002 1,350,000 Domestic Oil 1,255,500 0.7
Chock Ful O' Nuts Corporation
8.00% 09/15/2006 750,000 Food & Agriculture 787,500 0.5
Fedders, Inc. 8.50% 06/15/2012 531,980 Consumer Durables 526,660 0.3
Fort Bend Holding Corporation 8.00%
12/01/2005 1,000,000 Miscellaneous Financial 1,400,000 0.8
Hector Communications
Corporation 8.50% 02/15/2002 500,000 Telephone 525,000 0.3
ICN Pharmaceuticals, Inc. 8.50%
11/15/1999 2,000,000 Drugs & Medicine 2,570,000 1.5
J Baker, Inc. 7.00% 06/01/2002 140,000 Retail 124,950 0.1
Outboard Marine Corporation 7.00%
07/01/2002 4,000,000 Producer Goods 3,960,000 2.4
Park Electrochemical Corporation 5.50%
03/01/2006 2,000,000 Electronics Equipment 1,835,000 1.1
Professional Bancorp, Inc. 8.50%
03/01/2004 500,000 Banks 510,000 0.3
Richardson Electronics Ltd. 7.25%
12/15/2006 763,000 Electronics 616,123 0.4
Richy Electronics, Inc. 7.00% 03/01/2006 300,000 Electronics 267,750 0.2
Thorn Apple Valley, Inc. 9.00% 04/01/2007 1,500,000 Food & Agriculture 1,651,875 1.0
Unisys Corporation 8.25% 08/01/2000 3,000,000 Business Services 3,067,500 1.8
------------
TOTAL CONVERTIBLE BONDS (Cost $19,349,234) $ 20,772,858
</TABLE>
15
<PAGE>
HEARTLAND VALUE PLUS FUND
SCHEDULE OF INVESTMENTS [CONT'D] June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Par Percent of
CORPORATE BONDS - 5.8% Amount Industry Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Engle Homes, Inc. 11.75% 12/15/2000 $ 1,000,000 Construction $ 996,250 0.6%
Grand Casinos, Inc. 10.125% 12/01/2003 2,500,000 Travel & Recreation 2,600,000 1.5
Beal Financial Corporation 12.75% 08/15/2000 2,000,000 Banks 2,127,500 1.3
Regency Health, Inc. 9.875% 10/15/2002 1,000,000 Drugs & Medicine 1,032,500 0.6
ABC Rail Product Corporation 9.125% 01/15/2004 3,000,000 Railroads & Shipping 2,992,500 1.8
------------
TOTAL CORPORATE BONDS (Cost $9,598,125) $ 9,748,750
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Par Percent of
SHORT-TERM INVESTMENTS - 11.5% Amount Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY SECURITY
U.S. Treasury Note 6.00% 05/31/1998 $10,000,000 $ 10,020,298 6.0%
DISCOUNT NOTE
Federal Mortgage Corporation 0.00% 07/03/1997 8,000,000 7,997,604 4.8
VARIABLE RATE DEMAND NOTE (+)
American Family Financial Services 5.26% 1,250,000 1,250,000 0.7
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $19,247,606) $ 19,267,902
TOTAL INVESTMENTS - (Cost $161,174,831) ............................................. $173,092,450 103.2%
Liabilities, less cash and receivables .............................................. (5,309,847) (3.2)
------------ ------
TOTAL NET ASSETS .................................................................... $167,782,603 100.0%
============ ======
</TABLE>
(a) Non-income producing security.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rate changes periodically on specified dates.
The rate listed is as of June 30, 1997.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
16
<PAGE>
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Par Percent of
Amount LONG-TERM INVESTMENTS - 97.2% Coupon Maturity Value Net Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY AND AGENCY SECURITIES - 34.3%
U.S. TREASURY SECURITIES - 23.1%
$5,000,000 US Treasury Note (a) 7.250% 05/15/2004 $ 5,212,600 11.7%
4,500,000 US Treasury Bond 8.125 08/15/2019 5,134,095 11.4
-----------
10,346,695
AGENCY SECURITIES - 11.2%
2,000,000 FNMA 7.875 09/13/2006 2,051,680 4.6
3,000,000 FNMA 6.700 12/12/2006 2,944,740 6.6
-----------
4,996,420
-----------
TOTAL U.S. TREASURY AND AGENCY SECURITIES (Cost $15,152,761) 15,343,115
AGENCY MORTGAGE-BACKED SECURITIES - 62.9%
PASS THROUGH SECURITIES - 33.2%
1,214,293 FHA # 034-11075 8.750 06/01/2030 1,278,805 2.9
2,387,739 FNMA #365472 RI 6.500 11/01/2011 2,340,730 5.2
2,946,730 FNMA #361493 GL 9.000 01/01/2025 3,108,800 7.0
2,991,747 FNMA #374082 CL 8.000 03/01/2027 3,058,126 6.8
2,000,000 FNMA #376640 CL 8.000 06/01/2027 2,044,375 4.6
318,013 GNMA #293146 MHB 10.250 07/15/2005 342,398 0.8
2,719,995 FNMA Grantor Trust 1995 - T5A 7.000 03/17/2035 2,659,511 5.9
-----------
14,832,745
COLLATERALIZED MORTGAGE OBLIGATIONS - 29.7%
5,996,000 FHLMC CMO-SEQ 1921 B 6.500 05/15/2021 5,765,698 12.9
3,000,000 FNMA CMO-PAC 1993 - 38L 5.000 08/25/2022 2,553,750 5.7
5,000,000 VA VENDEE CMO-SEQ 1992 - 2F 7.000 02/15/2018 4,953,523 11.1
-----------
13,272,971
-----------
TOTAL AGENCY MORTGAGE - BACKED SECURITIES
(Cost $27,941,915) 28,105,716
-----------
TOTAL LONG-TERM INVESTMENTS (Cost $43,094,676) $43,448,831
TOTAL INVESTMENTS - (Cost $43,094,676) ............................ $43,448,831 97.2%
Cash and receivables, less liabilities ............................ 1,254,521 2.8
----------- ------
TOTAL NET ASSETS .................................................. $44,703,352 100.0%
=========== ======
</TABLE>
(a) All or a portion of security pledged to cover margin requirements for
futures contracts.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
17
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
Small Cap
Contrarian Mid Cap
Fund Value Fund Value Fund
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at cost............................................. $ 240,244,040 $1,563,070,261 $ 22,747,613
============== ============== ==============
Investments in securities, at value............................................ $ 266,307,774 $1,951,607,655 $ 25,295,762
Cash........................................................................... -- 27,943 25,399
Receivable from fund shares sold............................................... 275,538 206,350 15,406
Receivable from investments sold............................................... 13,545,181 4,665,236 --
Receivable from options contracts written...................................... -- -- 44,727
Receivable from securities sold short.......................................... 56,078,313 963,959 --
Deposits with brokers for securities sold short................................ 370,758 8,408 --
Variation margin on open futures contracts..................................... -- -- --
Accrued dividends and interest................................................. 95,324 6,800,759 34,093
Deferred organization expense.................................................. 27,939 -- 13,964
-------------- -------------- --------------
Total Assets................................................................. 336,700,827 1,964,280,310 25,429,351
-------------- -------------- --------------
LIABILITIES:
Payable for investments purchased.............................................. 278,068 9,770,862 92,640
Payable for fund shares redeemed............................................... 387,398 335,769 --
Payable to custodian........................................................... 11,132,937 -- --
Securities sold short, at value................................................ 62,678,663 923,925 --
Options contracts written, at value............................................ -- -- 74,888
Payable to Advisor for management fee.......................................... 165,228 1,203,627 15,455
Payable to Advisor for deferred organization expense........................... 27,939 -- 13,964
Accrued expenses............................................................... 142,235 519,689 30,342
-------------- -------------- --------------
Total Liabilities............................................................ 74,812,468 12,753,872 227,289
-------------- -------------- --------------
TOTAL NET ASSETS................................................................. $ 261,888,359 $1,951,526,438 $ 25,202,062
============== ============== ==============
NET ASSETS CONSIST OF:
Paid in capital................................................................ $ 234,118,340 $1,395,785,553 $ 22,389,000
Accumulated undistributed net investment income................................ 30,473 4,202,899 52,752
Accumulated undistributed net realized gains (losses) on investments........... 9,764,898 162,960,558 242,322
Net unrealized appreciation on investments..................................... 17,974,648 388,577,428 2,517,988
-------------- -------------- --------------
TOTAL NET ASSETS................................................................. $ 261,888,359 $1,951,526,438 $ 25,202,062
============== ============== ==============
SHARES OUTSTANDING, $.001 par value (100,000,000 shares authorized)............ 18,400,035 54,053,342 2,082,766
-------------- -------------- --------------
NET ASSET VALUE PER SHARE $ 14.23 $ 36.10 $ 12.10
============== ============== ==============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
18
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
U.S.
Large Cap Value Plus Government
Value Fund Fund Securities Fund
-------------- -------------- ---------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at cost............................................. $ 4,876,493 $ 161,174,831 $ 43,094,676
============== ============== ===============
Investments in securities, at value............................................ $ 5,525,452 $ 173,092,450 $ 43,448,831
Cash........................................................................... 8,596 -- 906,014
Receivable from fund shares sold............................................... 7,463 295,048 5,000
Receivable from investments sold............................................... -- 448,924 --
Receivable from options contracts written...................................... -- -- --
Receivable from securities sold short.......................................... -- -- --
Deposits with brokers for securities sold short................................ -- -- --
Variation margin on open futures contracts..................................... -- -- 11,251
Accrued dividends and interest................................................. 9,630 888,023 411,802
Deferred organization expense.................................................. 13,964 12,071 --
-------------- -------------- ---------------
Total Assets................................................................. 5,565,105 174,736,516 44,782,898
-------------- -------------- ---------------
LIABILITIES:
Payable for investments purchased.............................................. 105,367 6,496,734 --
Payable for fund shares redeemed............................................... 331 91,018 44,830
Payable to custodian........................................................... -- 113,412 --
Securities sold short, at value................................................ -- -- --
Options contracts written, at value............................................ -- -- --
Payable to Advisor for management fee.......................................... 3,236 93,471 10,011
Payable to Advisor for deferred organization expense........................... 13,964 12,071 --
Accrued expenses............................................................... 8,173 147,207 24,705
-------------- -------------- ---------------
Total Liabilities............................................................ 131,071 6,953,913 79,546
-------------- -------------- ---------------
TOTAL NET ASSETS................................................................. $ 5,434,034 $ 167,782,603 $ 44,703,352
============== ============== ===============
NET ASSETS CONSIST OF:
Paid in capital................................................................ $ 4,743,206 $ 150,101,827 $ 50,903,848
Accumulated undistributed net investment income................................ 11,847 -- --
Accumulated undistributed net realized gains (losses) on investments........... 30,022 5,763,157 (6,565,639)
Net unrealized appreciation on investments..................................... 648,959 11,917,619 365,143
-------------- -------------- ---------------
TOTAL NET ASSETS................................................................. $ 5,434,034 $ 167,782,603 $ 44,703,352
============== ============== ===============
SHARES OUTSTANDING, $.001 par value (100,000,000 shares authorized)............ 447,525 11,219,998 4,697,766
-------------- -------------- ---------------
NET ASSET VALUE PER SHARE $ 12.14 $ 14.95 $ 9.52
============== ============== ===============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
19
<PAGE>
STATEMENTS OF OPERATIONS
For the period from January 1, 1997 to June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Small Cap
Contrarian Mid Cap
Fund Value Fund Value Fund
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends......................................................................... $ 770,325 $ 4,451,039 $ 126,495
Interest.......................................................................... 1,057,789 9,768,287 69,253
------------ ------------ ------------
Total investment income......................................................... 1,828,114 14,219,326 195,748
------------ ------------ ------------
EXPENSES:
Management fees................................................................... 998,765 6,514,765 66,965
Distribution fees................................................................. 332,922 2,171,522 22,321
Transfer agent fees............................................................... 290,381 752,692 17,228
Registration fees................................................................. 50,396 99,987 14,669
Custodian fees.................................................................... 32,311 86,918 8,247
Printing and communications....................................................... 26,720 114,919 1,165
Postage........................................................................... 8,421 127,195 1,876
Audit fees........................................................................ 6,550 8,500 3,050
Amortization of organization expenses............................................. 4,930 -- 1,643
Legal fees........................................................................ 4,178 15,083 100
Directors' fees................................................................... 3,324 8,325 2,386
Other operating expenses.......................................................... 38,743 116,521 3,346
------------ ------------ ------------
Total expenses.................................................................. 1,797,641 10,016,427 142,996
Less: Management fee waiver..................................................... -- -- --
------------ ------------ ------------
Net expenses.................................................................... 1,797,641 10,016,427 142,996
------------ ------------ ------------
NET INVESTMENT INCOME............................................................... 30,473 4,202,899 52,752
------------ ------------ ------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains (losses) on:
Long positions.................................................................. 5,074,232 163,067,980 237,406
Short positions................................................................. 2,859,838 -- --
Futures contracts............................................................... 1,807,171 -- --
Options......................................................................... 23,657 111,328 8,520
Net increase (decrease) in unrealized appreciation on:
Long positions.................................................................. 12,834,577 70,789,104 2,214,875
Short positions................................................................. (7,763,454) 40,034 --
Futures contracts............................................................... -- -- --
Options......................................................................... -- -- (30,161)
------------ ------------ ------------
TOTAL REALIZED AND UNREALIZED GAINS ON INVESTMENTS.................................. 14,836,021 234,008,446 2,430,640
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 14,866,494 $238,211,345 $ 2,483,392
============ ============ ============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
20
<PAGE>
STATEMENTS OF OPERATIONS
For the period from January 1, 1997 to June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
U.S.
Large Cap Value Plus Government
Value Fund Fund Securities Fund
------------ ------------ ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends....................................................................... $ 40,761 $ 1,321,879 $ --
Interest........................................................................ 16,645 1,767,322 1,671,296
------------ ------------ ------------
Total investment income....................................................... 57,406 3,089,201 1,671,296
------------ ------------ ------------
EXPENSES:
Management fees................................................................. 15,072 425,297 152,546
Distribution fees............................................................... 5,024 151,892 59,007
Transfer agent fees............................................................. 5,940 86,600 31,763
Registration fees............................................................... 9,988 54,201 10,435
Custodian fees.................................................................. 1,162 25,566 3,148
Printing and communications..................................................... 398 12,193 5,395
Postage......................................................................... 420 6,798 2,410
Audit fees...................................................................... 3,050 7,550 6,150
Amortization of organization expenses........................................... 1,643 3,812 --
Legal fees...................................................................... 50 3,250 429
Directors' fees................................................................. 1,795 2,815 2,732
Other operating expenses........................................................ 1,017 29,071 3,929
------------ ------------ ------------
Total expenses................................................................ 45,559 809,045 277,944
Less: Management fee waiver................................................... -- -- (63,407)
------------ ------------ ------------
Net expenses.................................................................. 45,559 809,045 214,537
------------ ------------ ------------
NET INVESTMENT INCOME............................................................. 11,847 2,280,156 1,456,759
------------ ------------ ------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains (losses) on:
Long positions................................................................ 31,093 5,763,157 (809,674)
Short positions............................................................... -- -- --
Futures contracts............................................................. -- -- 43,478
Options....................................................................... -- -- --
Net increase (decrease) in unrealized appreciation on:
Long positions................................................................ 569,883 5,116,120 549,233
Short positions............................................................... -- -- --
Futures contracts............................................................. -- -- 10,988
Options....................................................................... -- -- --
------------ ------------ ------------
TOTAL REALIZED AND UNREALIZED GAINS ON INVESTMENTS................................ 600,976 10,879,277 (205,975)
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ 612,823 $ 13,159,433 $ 1,250,784
============ ============ ============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
21
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
----------------------------------
Small Cap
Contrarian Fund
----------------------------------
Jan. 1, 1997 Year
to June 30, 1997 Ended
(Unaudited) Dec. 31, 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).................................................................. $ 30,473 $ 375,584
Net realized gains (losses) on investments.................................................... 9,764,898 11,035,747
Net increase in unrealized appreciation on investments........................................ 5,071,123 11,875,878
------------ ------------
Net increase in net assets resulting from operations........................................ 14,866,494 23,287,209
------------ ------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income......................................................................... -- (375,584)
Net realized gains on investments............................................................. -- (11,035,749)
------------ ------------
Total distributions to shareholders......................................................... -- (11,411,333)
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued................................................................... 64,898,955 245,828,468
Reinvested dividends from net investment income and
distributions from net realized gains on investments........................................ -- 9,882,164
Cost of shares redeemed....................................................................... (80,888,486) (90,123,683)
------------ ------------
Net increase (decrease) in net assets derived from Fund
share activities.......................................................................... (15,989,531) 165,586,949
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS......................................................... (1,123,037) 177,462,825
NET ASSETS AT THE BEGINNING OF THE PERIOD....................................................... 263,011,396 85,548,571
------------ ------------
NET ASSETS AT THE END OF THE PERIOD............................................................. $261,888,359 $263,011,396
============ ============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
22
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
------------------------------- -----------------------------------
Value Mid Cap
Fund Value Fund
------------------------------- -----------------------------------
Oct. 11, 1996
Jan. 1, 1997 Year Jan. 1, 1997 (commencement)
to June 30, 1997 Ended to June 30, 1997 of operations) to
(Unaudited) Dec. 31, 1996 (Unaudited) Dec. 31, 1996
---------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............................... $ 4,202,899 $ 3,201,287 $ 52,752 $ (1,646)
Net realized gains (losses) on investments................. 163,179,308 101,382,821 245,926 (3,604)
Net increase in unrealized appreciation on investments..... 70,829,138 167,734,490 2,184,714 333,274
-------------- -------------- ---------------- ----------------
Net increase in net assets resulting from operations..... 238,211,345 272,318,598 2,483,392 328,024
-------------- -------------- ---------------- ----------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income...................................... -- (3,201,287) -- --
Net realized gains on investments.......................... -- (101,601,571) -- --
-------------- -------------- ---------------- ----------------
Total distributions to shareholders...................... -- (104,802,858) -- --
-------------- -------------- ---------------- ----------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued................................ 273,463,078 482,657,821 18,128,388 6,732,455
Reinvested dividends from net investment income and
distributions from net realized gains on investments..... -- 90,283,401 -- --
Cost of shares redeemed.................................... (186,907,821) (304,623,134) (2,343,680) (126,517)
-------------- -------------- ---------------- ----------------
Net increase (decrease) in net assets derived from Fund
share activities....................................... 86,555,257 268,318,088 15,784,708 6,605,938
-------------- -------------- ---------------- ----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS...................... 324,766,602 435,833,828 18,268,100 6,933,962
NET ASSETS AT THE BEGINNING OF THE PERIOD.................... 1,626,759,836 1,190,926,008 6,933,962 --
-------------- -------------- ---------------- ----------------
NET ASSETS AT THE END OF THE PERIOD.......................... $1,951,526,438 $1,626,759,836 $ 25,202,062 $ 6,933,962
============== ============== ================ ================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
23
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
--------------------------------------
Large Cap
Value Fund
--------------------------------------
Oct. 11, 1996
Jan. 1, 1997 (commencement
to June 30, 1997 of operations) to
(Unaudited) Dec. 31, 1996
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................... $ 11,847 $ (986)
Net realized gains (losses) on investments............................. 31,093 (1,071)
Net increase (decrease) in unrealized appreciation on investments...... 569,883 79,076
---------------- ----------------
Net increase in net assets resulting from operations............... 612,823 77,019
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................................. -- --
Net realized gains on investments...................................... -- --
---------------- ----------------
Total distributions to shareholders................................ -- --
---------------- ----------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued............................................ 3,067,572 2,589,599
Reinvested dividends from net investment income and distributions
from net realized gains on investments............................. -- --
Cost of shares redeemed................................................ (687,836) (225,143)
---------------- ---------------
Net increase (decrease) in net assets derived from Fund
share activities................................................. 2,379,736 2,364,456
---------------- ----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................................... 2,992,559 2,441,475
NET ASSETS AT THE BEGINNING OF THE PERIOD................................. 2,441,475 --
---------------- ----------------
NET ASSETS AT THE END OF THE PERIOD....................................... $ 5,434,034 $ 2,441,475
================ ================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
24
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
--------------------------------------
Value Plus
Fund
--------------------------------------
Jan. 1, 1997 Year
to June 30, 1997 Ended
(Unaudited) Dec. 31, 1996
---------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)....................................... $ 2,280,156 $ 1,075,148
Net realized gains (losses) on investments......................... 5,763,157 3,357,002
Net increase (decrease) in unrealized appreciation on investments.. 5,116,120 5,791,869
---------------- ---------------
Net increase in net assets resulting from operations........... 13,159,433 10,224,019
---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................. (2,280,156) (1,075,148)
Net realized gains on investments.................................. -- (3,357,002)
---------------- ---------------
Total distributions to shareholders............................ (2,280,156) (4,432,150)
---------------- ---------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued........................................ 129,475,658 54,866,412
Reinvested dividends from net investment income and distributions
from net realized gains on investments......................... 2,096,331 4,017,651
Cost of shares redeemed............................................ (41,250,849) (17,216,440)
---------------- ---------------
Net increase (decrease) in net assets derived from Fund
share activities............................................ 90,321,140 41,667,623
---------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................... 101,200,417 47,459,492
NET ASSETS AT THE BEGINNING OF THE PERIOD............................. 66,582,186 19,122,694
---------------- ---------------
NET ASSETS AT THE END OF THE PERIOD................................... $ 167,782,603 $ 66,582,186
================ ===============
-------------------------------------
U.S. Government
Securities Fund
-------------------------------------
<S> <C> <C>
Jan. 1, 1997 Year
to June 30, 1997 Ended
(Unaudited) Dec. 31, 1996
---------------- ---------------
OPERATIONS:
Net investment income (loss)........................................ $ 1,456,759 $ 3,631,257
Net realized gains (losses) on investments.......................... (766,196) 88,090
Net increase (decrease) in unrealized appreciation on investments... 560,221 (3,109,011)
---------------- ---------------
Net increase in net assets resulting from operations............ 1,250,784 610,336
---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................... (1,456,759) (3,631,257)
Net realized gains on investments................................... -- --
---------------- ---------------
Total distributions to shareholders............................. (1,456,759) (3,631,257)
---------------- ---------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued......................................... 3,708,965 9,208,348
Reinvested dividends from net investment income and distributions
from net realized gains on investments.......................... 1,055,599 2,603,735
Cost of shares redeemed............................................. (11,568,199) (23,338,997)
---------------- ---------------
Net increase (decrease) in net assets derived from Fund
share activities............................................. (6,803,635) (11,526,914)
---------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................................ (7,009,611) (14,547,835)
NET ASSETS AT THE BEGINNING OF THE PERIOD.............................. 51,712,963 66,260,798
---------------- ---------------
NET ASSETS AT THE END OF THE PERIOD.................................... $ 44,703,352 $ 51,712,963
================ ===============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
25
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Small Cap Contrarian Fund
--------------------------------------------------------
For the six months Year April 27, 1995/1/
ending June 30, 1997 Ended through
(Unaudited) Dec. 31, 1996 Dec. 31, 1995
--------------------------------------------------------
<S> <C> <C> <C>
Per Share Data
Net asset value, beginning of period.. $ 13.40 $ 11.79 $ 10.00
Income from investment operations:
Net investment income (loss)........ - 0.02 0.03
Net realized and unrealized gains
on investments.................... 0.83 2.20 2.05
------- -------- --------
Total income from investment
operations...................... 0.83 2.22 2.08
Less distributions from:
Net investment income............... - (0.02) (0.03)
Net realized gains on investments... - (0.59) (0.26)
------- -------- --------
Total distributions............... - (0.61) (0.29)
Net asset value, end of period........ $ 14.23 $ 13.40 $ 11.79
======== ======== ========
Total Return/4/....................... 6.2%/2/ 18.9% 20.8%/2/
Ratios and Supplemental Data
Net assets, end of period
(in thousands).................... $261,888 $263,011 $85,549
Ratio of net expenses to average
net assets....................... 1.34%/3/ 1.30% 1.44%/3/
Ratio of net investment income
to average net assets............. 0.02%/3/ 0.19% 1.01%/3/
Portfolio turnover rate............. 38% 57% 45%
Average commission per share/5/..... $ 0.0544 $ 0.0464 N/A
</TABLE>
/1/ Commencement of operations.
/2/ Not annualized.
/3/ Annualized.
/4/ The contingent deferred and initial sales charges in effect for the Value
Fund prior to June 1, 1994 are not reflected in Total Return as set forth in
the table.
/5/ Disclosure of average commission per share was not required prior to the
year ended December 31, 1996.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
26
<PAGE>
<TABLE>
<CAPTION>
Value Fund
- ----------------------------------------------------------------------------------------
For the six months
ending June 30, 1997 For the year ended December 31,
(Unaudited) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 31.65 $ 27.95 $ 22.72 $ 23.22 $ 20.41 $ 16.06
0.08 0.06 0.13 (0.09) (0.12) (0.09)
4.37 5.78 6.63 0.47 3.95 6.91
- ----------- ----------- ---------- ---------- ---------- ----------
4.45 5.84 6.76 0.38 3.83 6.82
-- (0.06) (0.13) -- -- --
-- (2.08) (1.40) (0.88) (1.02) (2.47)
- ----------- ----------- ---------- ---------- ---------- ----------
-- (2.14) (1.53) (0.88) (1.02) (2.47)
$ 36.10 $ 31.65 $ 27.95 $ 22.72 $ 23.22 $ 20.41
========== =========== ========== ========== ========= ==========
14.1%/2/ 21.0% 29.8% 1.7% 18.8% 42.5%
$1,951,526 $1,626,760 $1,190,926 $ 339,364 $ 186,518 $ 48,391
1.13%/3/ 1.23% 1.29% 1.39% 1.51% 1.48%
0.47%/3/ 0.22% 0.61% (0.52)% (0.71)% (0.49)%
15% 31% 31% 35% 51% 76%
$ 0.0586 $ 0.0530 N/A N/A N/A N/A
</TABLE>
27
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Mid Cap Value Fund Large Cap Value Fund
------------------------------ -------------------------------
For the six For the six
months ending Oct. 11, 1996/1/ months ending Oct. 11, 1996/1/
June 30, 1997 through June 30, 1997 through
(Unaudited) Dec. 31, 1996 (Unaudited) Dec. 31, 1996
------------- ---------------- ------------- ----------------
<S> <C> <C> <C>
Per Share Data
Net asset value, beginning of period............. $ 10.66 $ 10.00 $ 10.50 $ 10.00
Income from investment operations:
Net investment income.......................... 0.03 -- 0.03 --
Net realized and unrealized gains
(losses) on investments...................... 1.41 0.66 1.61 0.50
------ ------ ------ ------
Total income (loss) from investment
operations................................. 1.44 0.66 1.64 0.50
Less distributions from:
Net investment income.......................... -- -- -- --
Net realized gains on investments.............. -- -- -- --
------ ------ ------ ------
Total distributions.......................... -- -- -- --
Net asset value, end of period................... $ 12.10 $ 10.66 $ 12.14 $ 10.50
====== ====== ====== ======
Total Return/4/.................................. 13.5%/2/ 6.6%/2/ 15.6%/2/ 5.0%/2/
Ratios and Supplemental Data
Net assets, end of period
(in thousands)............................... $25,202 $ 6,934 $ 5,434 $ 2,441
Ratio of net expenses to average
net assets................................... 1.46%/3/ 1.94%/3/ 2.12%/3/ 2.73%/3/
Ratio of net investment income
to average net assets........................ 0.54%/3/ (0.16)%/3/ 0.55%/3/ (0.25)%/3/
Portfolio turnover rate........................ 27% 4% 8% 1%
Average commission per share/5/................ $0.0665 $0.0675 $0.0672 $0.0668
</TABLE>
/1/ Commencement of operations.
/2/ Not annualized.
/3/ Annualized.
/4/ The contingent deferred sales charge in effect for the Value Plus Fund prior
to June 1, 1994 is not reflected in Total Return as set forth in the table.
/5/ Disclosure of average commission per share was not required prior to the
year ended December 31, 1996.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
28
<PAGE>
<TABLE>
<CAPTION>
Value Plus Fund
- -----------------------------------------------------------------------------
For the six
months ending Oct. 26, 1993/1/
June 30, 1997 For the year ended December 31, through
(Unaudited) 1996 1995 1994 Dec. 31, 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 13.73 $ 11.17 $ 9.53 $10.45 $10.00
0.23 0.38 0.41 0.41 0.07
1.22 3.33 1.89 (0.92) 0.45
- --------- ------- ------- ------ ------
1.45 3.71 2.30 (0.51) 0.52
(0.23) (0.38) (0.41) (0.41) (0.07)
-- (0.77) (0.25) -- --
- --------- ------- ------- ------ ------
(0.23) (1.15) (0.66) (0.41) (0.07)
$ 14.95 $ 13.73 $ 11.17 $ 9.53 $10.45
========= ======= ======= ====== ======
10.6%/2/ 33.8% 24.4% (4.9)% 5.2%/2/
$ 167,783 $66,582 $19,123 $9,884 $5,811
1.24%/3/ 1.45% 1.54% 1.80% 1.30%/3/
3.49%/3/ 3.23% 3.90% 4.39% 6.52%/3/
27% 73% 150% 127% 6%
$ 0.0630 $0.0573 N/A N/A N/A
</TABLE>
29
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. Government Securities Fund
------------------------------------------------------------------------
For the six months
ending June 30, For the year ended December 31,
1997 (Unaudited) 1996 1995 1994 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period ................... $ 9.54 $ 9.96 $ 8.91 $ 10.50 $ 9.93 $ 9.97
Income from investment operations:
Net investment income .............................. 0.29 0.59 0.60 0.59 0.56 0.66
Net realized and unrealized gains (losses) on
investments ...................................... (0.02) (0.42) 1.05 (1.59) 1.18 0.30
------- ------- ------- ------- ------- -------
Total income (loss) from investment operations . 0.27 0.17 1.65 (1.00) 1.74 0.96
Less distributions from:
Net investment income .............................. (0.29) (0.59) (0.60) (0.59) (0.56) (0.66)
Net realized gains on investments .................. -- -- -- -- (0.61) (0.34)
------- ------- ------- ------- ------- -------
Total distributions ............................ (0.29) (0.59) (0.60) (0.59) (1.17) (1.00)
Net asset value, end of period ......................... $ 9.52 $ 9.54 $ 9.96 $ 8.91 $ 10.50 $ 9.93
======= ======= ======= ======= ======= =======
Total Return/1/ ........................................ 2.9%/2/ 2.0% 19.0% (9.6)% 17.8% 10.1%
Ratios and Supplemental Data
Net assets, end of period (in thousands) ........... $44,703 $51,713 $66,261 $64,807 $66,789 $28,378
Ratio of net expenses to average net assets/4/...... 0.92%/3/ 1.06% 1.07% 1.07% 1.06% 0.92%
Ratio of net investment income to average net
assets/4/ ........................................ 6.20%/3/ 6.36% 6.31% 6.30% 5.09% 6.71%
Portfolio turnover rate ............................ 104% 30% 97% 95% 200% 149%
</TABLE>
/1/ The contingent deferred and initial sales charges in effect for the Fund
prior to June 1, 1994 are not reflected in Total Return as set forth in the
table.
/2/ Not annualized.
/3/ Annualized.
/4/ Heartland Advisors, Inc. voluntarily waived the Fund's management fees in
their entirety from May 7, 1988 through November 30, 1990. Effective
December 1, 1990, Heartland Advisors, Inc. partially reinstated a portion
of the Fund's management fees at the rate of .25 of 1% of average daily net
assets and, effective January 20, 1992 and January 1, 1993, reinstated
additional portions of the fees resulting in rates of .35% of 1% and .50 of
1% of average daily net assets, respectively. Effective March 31, 1997,
Heartland Advisors, Inc. increased its voluntary waiver of the Fund's
management fees by an additional .25%, resulting in a rate of .25% of 1% of
average daily net assets.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
(1) Organization
The Heartland Group, Inc. (the "Corporation") is registered as a
diversified open-end management company under the Investment Company Act of
1940. The Small Cap Contrarian Fund, Value Fund, Mid Cap Value Fund, Large
Cap Value Fund, Value Plus Fund, and U.S. Government Securities Fund (the
"Funds") are six of the nine series of funds issued by the Corporation at
June 30, 1997.
(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Funds in the preparation of the financial statements:
(a) Portfolio securities which are traded on stock exchanges are valued at
the last sales price as of the close of business on the day the
securities are being valued, or, lacking any sales, at the latest bid
price. Each over-the-counter security for which the last sale price on
the day of valuation is available from NASDAQ and falls within the
range of the latest bid and asked quotations is valued at that price.
All other securities traded in the over-the-counter market are valued
at the most recent bid prices. Foreign securities are valued on the
basis of quotations from the primary market in which they are traded,
and are translated from the local currency into U.S. dollars using
exchange rates as of the close of the New York Stock Exchange. Debt
securities are stated at fair value as furnished by independent
pricing services based primarily upon information concerning market
transactions and dealer quotations for similar securities or by
dealers who make markets in such securities. Debt securities are
stated at fair value as furnished by independent pricing services
based primarily upon information concerning market transactions and
dealer quotations for similar securities, or by dealers who make
markets in such securities. Debt securities having maturities of 60
days or less may be valued at acquisition cost, plus or minus any
amortized discount or premium. Securities and other assets for which
quotations are not readily available are valued at their fair value
using methods determined by the Board of Directors.
(b) The Funds' policy is to comply with the requirements of the Internal
Revenue Code which are applicable to regulated investment companies
and to distribute substantially all of their taxable income to their
shareholders. The Funds accordingly paid no Federal income taxes, and
no Federal income tax provision is required.
At June 30, 1997, the Mid Cap Value and Large Cap Value Funds had
Federal income tax capital loss carryforwards of $3,604 and $1,071,
respectively, expiring in 2004, and the U.S. Government Securities
Fund had Federal income tax capital loss carryforwards of $4,940,986
expiring in 2002 and $858,458 expiring in 2003. These Funds do not
intend to make distributions of any future realized capital gains
until their Federal income tax capital loss carryforwards are
completely utilized.
(c) Net investment income, if any, is distributed to each shareholder as a
dividend. Dividends from the Small Cap Contrarian, Value, Mid Cap
Value and Large Cap Value Funds are declared and paid annually.
Dividends from the Value Plus Fund are declared and paid quarterly.
Dividends from the U.S. Government Securities Fund are declared daily
and distributed monthly. Dividends are recorded on the ex-dividend
date. Net realized gains on investments, if any, are distributed
annually.
(d) The Funds record security and shareholder transactions no later than
the first business day after the trade date. Net realized gains and
losses on investments are computed on the identified cost basis.
Dividend income is recognized on the ex-dividend date, and interest
income is recognized on an accrual basis. The Funds amortize premium
and accrete discount on investments utilizing the effective interest
method.
(e) Each Fund may enter into futures contracts for hedging purposes, such
as to protect against anticipated declines in the market value of its
portfolio securities or to manage exposure to changing interest rates.
Upon entering into a futures contract, a 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 a Fund as unrealized gains or losses. When the
futures contract is closed, a 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.
31
<PAGE>
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 a futures
contract's price may result in a loss which could render a portfolio's
hedging strategy unsuccessful.
The U.S. Government Securities Fund had the following open futures
contracts at June 30, 1997:
Number Expiration
Type of Contracts Date Appreciation
---- ------------ ---- ------------
U.S. Treasury Bond Index (20) Sept. 1997 $ 10,988
(f) The Small Cap Contrarian Fund may enter into transactions where it will
sell a security short (sell a security which the Fund does not own 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.
The Small Cap Contrarian, Value, Mid Cap Value, Large Cap Value and Value
Plus Funds may each engage in "short sales against the box." These
transactions involve selling a security that a Fund owns for delivery at a
specified date in the future. Similarly, each of these Funds 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.
Each Fund maintains a segregated collateral account with its custodian
consisting of cash or liquid assets to cover short positions, including
short sales in acquiror securities.
The Schedule of Investments for the Small Cap Contrarian Fund does not
include the following "boxed" position where the Fund purchased a long
security to close out a short position. At June 30, 1997, the Fund chose
not to complete the boxed transaction which would have required delivery of
the long securities.
Security Shares Market Value
-------- ------ ------------
Liposome Company, Inc. 150,000 $1,434,375
Included in the "Receivable from Securities Sold Short" on the Statement of
Assets and Liabilities for the Small Cap Contrarian Fund was $3,352,412
related to this position. At June 30, 1997, the cost of the offsetting long
position and the associated net unrealized appreciation related to this
position was $1,488,735 and $1,863,677, respectively.
(g) A restricted security is a security which has been purchased through a
private offering and cannot be resold to the general public without prior
registration under the Securities Act of 1933 or pursuant to the resale
limitations provided by Rule 144 under the Act or an exemption from the
registration requirements of the Act. At June 30, 1997, the Small Cap
Contrarian Fund held the following restricted securities (equaling 4.0% of
total assets). These securities are valued under the supervision of, and
pursuant to guidelines adopted by, the Corporation's Board of Directors.
<TABLE>
<CAPTION>
Acquisition
Security Shares Cost Fair Value Date
-------- ------ ---- ---------- ----
<S> <C> <C> <C> <C>
Apex Silver Mines Ltd. 187,500 $1,500,000 $1,500,000 8/96
Drypers Corp. Pfd. Stock 20,250 2,025,000 7,944,618 2/96
Drypers Corp. Com. Stock 228,929 247,788 1,759,892 2/96
Excelsior-Henderson Motorcycle
Mfg. Co. Pfd. Stock 460,000 1,725,000 1,725,000 8/96
</TABLE>
(h) The Small Cap Contrarian Fund may buy and sell options, including
purchasing and writing put and call options and options on futures, based
on any type of security, index or currency related to its investments,
including options traded on foreign exchanges and options not traded on
exchanges. The Value, Mid Cap Value, Large Cap Value, Value Plus and U.S.
Government Securities Funds each may write covered call options and
purchase options that are traded on recognized U.S. exchanges and enter
into closing transactions with respect to such options. The Mid Cap Value
and Large Cap Value Funds may also purchase call options. The Funds may
enter into options transactions for hedging purposes, and will not use
these instruments for speculation. Written covered call options and
purchased put options are valued at the latest sales price at the time at
which net asset value per share of a Fund is computed (close of regular
trading on the New York Stock Exchange) or, lacking any sales, the latest
asked or bid price, respectively.
32
<PAGE>
For the period ended June 30, 1997, the Small Cap Contrarian Fund had
purchased the following put options:
<TABLE>
<CAPTION>
# of
Contracts Cost
--------- ---------
<S> <C> <C>
Balance at January 1, 1997 -- --
Options purchased (S&P 500 Index) 330 $ 803,435
Options expired -- --
Options closed (S&P 500 Index) (330) (803,435)
--------- ----------
Balance at June 30, 1997 -- $ --
========= ==========
For the period ended June 30, 1997, the Value and Mid Cap Value Funds had
the following transactions in written covered call options:
Value Fund # of Premium
Contracts Amount
--------- ----------
<S> <C> <C>
Balance at January 1, 1997 500 $ 111,328
Options opened -- --
Options expired (Computer
Products, Inc. - Jan/97) (500) (111,328)
Options closed -- --
--------- ---------
Balance at June 30, 1997 -- $ --
========= =========
Mid Cap Value Fund # of Premium
Contracts Amount
--------- ---------
Balance at January 1, 1997 -- --
Options opened
(National Semiconductor Corp.
- Nov/97) 93 $ 19,483
(Teradyne, Inc. - Oct/97) 170 54,739
Options expired -- --
Options closed (Teradyne, Inc.
- Oct/97) (85) (29,495)
--------- ---------
Balance at June 30, 1997 178 $ 44,727
========= =========
</TABLE>
(i) 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.
(3) Investment Management Fees and Transactions with Related Parties
The Funds have management agreements with Heartland Advisors, Inc. (the
"Advisor") to serve as investment advisor and manager. Under the terms of
the agreement, the Small Cap Contrarian, Value, Mid Cap Value, and Large
Cap Value Funds pay the Advisor a monthly management fee at the annual rate
of .75% of the daily net asset value of the Funds; the Value Plus Fund pays
the Advisor a monthly management fee at the annual rate of .70% of the
daily net asset value of the Fund; and the U.S. Government Securities Fund
pays 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.
For the period ended June 30, 1997, the Advisor collected a partial fee for
the U.S. Government Securities Fund at the annual rate of .50% of the
Fund's average daily net assets for the period from January 1, 1997 through
March 30, 1997 and at the annual rate of .25% of the Fund's average daily
net assets for the period from March 31, 1997 through June 30, 1997. The
Advisor may reinstate any portion or all of the Fund's management fee at
any time.
The Funds have 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"). The Plan requires the Funds
to pay to the Distributor a quarterly distribution fee on an annual basis
up to .25% of their daily net assets. Additionally, for the period ended
June 30, 1997, the Distributor received for the Value, Value Plus, and U.S.
Government Securities Funds $10,491, $285 and $3,268, respectively, from
investors for commissions for Fund shares redeemed and for the Small Cap
Contrarian, Value, and Value Plus Funds, $4,638, $43,869 and $1,058,
respectively, for brokerage fees on the execution of purchases and sales of
portfolio investments.
33
<PAGE>
Officers and certain directors of the Corporation are also officers and/or
directors of Heartland Advisors, Inc.; however, they receive no
compensation from the Funds.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the
Board of Directors of the Corporation has adopted a plan which will allow
the Funds, under certain conditions described in the Rule, to acquire
newly-issued securities from syndicates in which the Distributor is a
member.
(4) Deferred Organization Expenses
For the Small Cap Contrarian, Mid Cap Value, Large Cap Value and Value Plus
Funds, 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 Funds 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 organizational expenses and the
related payable to the Advisor at June 30, 1997, were $27,939, $13,964,
$13,964 and $12,071, respectively.
(5) Investment Transactions
During the period ended June 30, 1997, purchases and sales of securities,
other than short-term obligations, were as follows (in thousands):
<TABLE>
<CAPTION>
Small Cap Mid Cap Large Cap Value U.S. Government
Contrarian Value Value Value Plus Securities
Fund Fund Fund Fund Fund Fund
---------- ------- ----- --------- ----- ---------------
<S> <C> <C> <C> <C> <C> <C>
Purchases $103,613 $225,559 $17,535 $2,393 $126,641 $48,397
Proceeds from
sales 88,414 348,155 4,173 262 22,276 56,630
</TABLE>
<TABLE>
Included in these transactions were purchases and sales of U.S. obligations as follows (in thousands):
Small Cap Mid Cap Large Cap Value U.S. Government
Contrarian Value Value Value Plus Securities
Fund Fund Fund Fund Fund Fund
---------- ------- ----- --------- ----- ---------------
<S> <C> <C> <C> <C> <C> <C>
Purchases $ -- $ -- $ -- $ -- $ 10,016 $42,901
Proceeds from
sales -- -- -- -- -- 33,774
</TABLE>
<TABLE>
At June 30, 1997, the gross unrealized appreciation and depreciation on investments for tax purposes was as follows (in
thousands):
Small Cap Mid Cap Large Cap Value U.S. Government
Contrarian Value Value Value Plus Securities
Fund Fund Fund Fund Fund Fund
---------- -------- ------ ----------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Appreciation $ 51,202 $474,393 $2,866 $ 706 $13,515 $ 426
Depreciation (33,227) (85,816) (348) (57) (1,597) (61)
-------- -------- ------ ------ ------ -------
$ 17,975 $388,577 $2,518 $ 649 $11,918 $ 365
======== ======== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Cost of investments is substantially the same for financial reporting purposes and federal income tax purposes.
(6) Fund Share Transactions
For the period ended June 30, 1997, Fund share transactions were as follows:
Small Cap Mid Cap
Contrarian Value Value
Fund Fund Fund
--------- --------- ---------
<S> <C> <C> <C>
Shares issued 4,805,971 8,392,629 1,639,599
Reinvested dividends from net
investment income -- -- --
Shares redeemed (6,029,197) (5,740,062) (207,034)
--------- --------- ---------
Net increase (decrease) in Fund shares (1,223,226) 2,652,567 1,432,565
========= ========= =========
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Large Cap Value U.S. Government
Value Plus Securities
Fund Fund Fund
--------- --------- ---------------
<S> <C> <C> <C>
Shares issued 276,637 9,126,887 386,742
Reinvested dividends from net
investment income -- 143,634 88,284
Shares redeemed (61,531) (2,901,403) (1,195,771)
-------- ---------- ----------
Net increase (decrease) in Fund shares 215,106 6,369,118 (720,745)
======== ========== ==========
For the year ended December 31, 1996, Fund share transactions were as
follows:
Small Cap Mid Cap
Contrarian Value Value
Fund Fund Fund
------------ ----------- --------
<S> <C> <C> <C>
Shares issued 18,340,944 15,865,977 662,589
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 743,593 2,886,369 --
Shares redeemed (6,717,525) (9,964,582) (12,388)
---------- ---------- -------
Net increase in Fund shares 12,367,012 8,787,764 650,201
========== ========== =======
Large Cap Value U.S. Government
Value Plus Securities
Fund Fund Fund
---------- ---------- ---------------
Shares issued 254,625 4,188,644 976,754
Reinvested dividends from net
investment income and distributions
from net realized gains on investments -- 299,317 277,541
Shares redeemed (22,206) (1,349,351) (2,486,341)
---------- ---------- ----------
Net increase (decrease) in Fund shares 232,419 3,138,610 (1,232,046)
========== ========== ==========
</TABLE>
(7) Transactions with Affiliates
The following companies are affiliated with the Small Cap Contrarian and
Value Funds; that is, the Funds held 5% or more of the outstanding voting
securities during the period ended June 30, 1997. Such companies are
defined in Section (2)(a)(3) of the Investment Company Act of 1940.
Small Cap Contrarian Fund
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1,1997 Purchases Sales June 30,1997 Dividends (Losses)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advocat, Inc. 0 300,000 0 300,000 $ 0 $ 0
Allou Health & Beauty Care, Inc. (Class A) 505,000 20,000 0 525,000 0 0
Autonomous Technologies Corporation 500,000 25,000 0 525,000 0 0
Bio-Vascular, Inc. 500,000 0 0 500,000 0 0
Business Resource Group 313,500 86,500 0 400,000 0 0
Campbell Resources, Inc. 6,000,000 2,000,000 0 8,000,000 0 0
Catherines Stores Corporation 433,000 167,000 0 600,000 0 0
Chico's Fas, Inc. 400,000 60,000 0 460,000 0 0
Children's Discovery Centers of America, Inc. 400,000 55,500 0 455,500 0 0
Compression Labs, Inc. 1,065,600 358,500 1,424,100/(1)/ 0 0 (685,341)
Crown Books Corporation 325,000 0 0 325,000 0 0
Custom Chrome, Inc. 0 400,000 0 400,000 0 0
Dignity Partners, Inc. 400,000 0 0 400,000 0 0
Drypers Corporation 7.5% Sr. Conv. Cum. Pfd. 22,500 0 2,250/(2)/ 20,250 22,788 0
Drypers Corporation Common 0 228,929/(2)/ 0 228,929 0 0
Dynamic Materials Corporation 200,000 125,900 200,000 125,900 0 1,921,025
Excelsior-Henderson Motorcycle Mfg. Co.
Series A Conv. Pfd. 460,000/(3)/ 0 0 460,000 0 0
Family Steak Houses of Florida, Inc. 700,000 0 0 700,000 0 0
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Small Cap Contrarian Fund [cont'd]
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1997 Purchases Sales June 30, 1997 Dividends (Losses)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Industries Corporation 200,000 100,000 300,000 0 $ 0 $ 298,628
The GNI Group, Inc. 600,000 0 0 600,000 0 0
Gothic Energy Corporation 530,000 170,000 0 700,000 0 0
Harding Lawson Associates Group, Inc. 475,000 0 0 475,000 0 0
Harmony Brook, Inc. 700,000 0 0 700,000 0 0
Help at Home, Inc. 100,000 0 100,000 0 0 (344,465)
ICTS International N.V. 240,000 111,500 0 351,500 0 0
In Home Health, Inc. 759,000 141,000 0 900,000 0 0
Interpore International 600,000 0 600,000 0 0 (222,770)
Jaco Electronics, Inc. 343,500 36,500 0 380,000 0 0
The Lion Brewery, Inc. 300,000 0 300,000 0 0 (936,838)
Luminart, Inc. 1,000,000 0 1,000,000 0 0 (739,950)
Moore Medical Corporation 200,000 0 0 200,000 0 0
Motor Club of America 61,500 84,500 0 146,000 0 0
M-Wave, Inc. 264,800 12,200 0 277,000 0 0
New Brunswick Scientific Company 254,217/4/ 0 0 254,217 0 0
NTN Canada, Inc. 105,000 64,000 0 169,000 0 0
O. I. Corporation 275,000 42,800 0 317,800 0 0
Personnel Management, Inc. 200,000 0 0 200,000 0 0
PIA Merchandising Services, Inc. 100,000 450,000 90,000 460,000 0 (498,205)
PolyVision Corporation 600,000 0 0 600,000 0 0
Riveria Tool Company 0 130,000 0 130,000 0 0
Safety Components International, Inc. 0 269,300 0 269,300 0 0
Serv-Tech, Inc. 410,000 0 382,000 28,000 0 28,084
Speizman Industries, Inc. 290,000 0 0 290,000 0 0
Tipperary Corporation 1,000,000 0 0 1,000,000 0 0
UniComp, Inc. 300,000 0 300,000 0 0 1,060,652
Union Bankshares, Ltd. 57,500 0 0 57,500 0 0
Vectra Technologies, Inc. 650,000 0 0 650,000 0 0
---------- ----------
$ 22,788 $ (119,240)
========== ==========
</TABLE>
/1/ Adjusted for acquisition (1 share distributed for every .46 shares of VTEL
Corporation received).
/2/ Adjusted for conversion of 2,250 shares of Drypers Corporation 7.5% Sr.
Conv. Cum. Pfd. Stock into 225,000 shares of Drypers Corporation Common
Stock.
/3/ Adjusted for 2 for 3 stock split.
/4/ Adjusted for 10% stock dividend.
<TABLE>
<CAPTION>
Value Fund
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1997 Purchases Sales June 30, 1997 Dividends (Losses)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3-D Geophysical, Inc. 500,000 200,000 0 700,000 $ 0 $ 0
Align-Rite International, Inc. 300,000 0 0 300,000 0 0
Allied Healthcare Products, Inc. 503,000 97,000 0 600,000 0 0
Allwaste, Inc. 3,800,000 0 1,800,000 2,000,000 0 6,331,962
The Alpine Group, Inc. 1,100,000 0 0 1,100,000 0 0
American Buildings Company 500,000 0 0 500,000 0 0
American Educational Products, Inc. 81,000/1/ 0 81,000 0 0 (1,128,449)
American Oilfield Divers, Inc. 500,000 0 0 500,000 0 0
Amtran, Inc. 600,000 0 0 600,000 0 0
Amwest Insurance Group, Inc. 200,000 0 0 200,000 44,000 0
Arden Industrial Products, Inc. 650,000 0 0 650,000 0 0
Asia Pacific Wire & Cable Corporation Ltd. 0 727,600 0 727,600 0 0
Astec Industries, Inc. 965,000 0 0 965,000 0 0
Badger Meter, Inc. 200,000/2/ 0 0 200,000 46,760 0
Baldwin Piano & Organ Company 325,000 0 0 325,000 0 0
</TABLE>
36
<PAGE>
Value Fund [cont'd]
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1997 Purchases Sales June 30, 1997 Dividends (Losses)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Buckhead America Corporation 150,000 25,000 0 175,000 $ 0 $ 0
Caretenders Health Corporation 308,900 0 0 308,900 0 0
CHC Helicopter Corporation (Class A) 1,000,000 0 0 1,000,000 0 0
The Cherry Corporation (Class A) 850,100 0 0 850,100 0 0
Children's Broadcasting Corporation 410,100 179,900 0 590,000 0 0
Clayton Williams Energy, Inc. 600,000 100,000 100,000 600,000 0 1,156,250
CMAC Investment Corporation 600,000 0 600,000 0 0 10,148,483
Coastal Physician Group, Inc. 2,000,000 0 500,000 1,500,000 0 (6,487,173)
Cobra Electronics Corporation 500,000 0 0 500,000 0 0
Collagen Corporation 419,800 430,200 0 850,000 85,000 0
Comdial Corporation 650,000 0 0 650,000 0 0
CSP, Inc. 280,000 0 0 280,000 0 0
C.P. Clare Corporation 467,500 32,500 10,000 490,000 0 9,552
D&N Financial Corporation 400,000 0 0 400,000 0 0
Dairy Mart Convenience Stores, Inc.
(Class A) 450,000 0 66,000 384,000 0 (287,763)
Dakotah, Inc. 300,000 0 0 300,000 0 0
Damark International, Inc. (Class A) 800,000 0 0 800,000 0 0
Datron Systems, Inc. 233,700 16,300 0 250,000 0 0
Designs, Inc. 962,000 138,000 0 1,100,000 0 0
DeVlieg-Bullard, Inc. 692,500 0 192,500 500,000 0 297,626
Digital Biometrics, Inc. 885,000 0 885,000 0 0 (788,433)
Duckwall-ALCO Stores, Inc. 330,000 0 0 330,000 0 0
ECC International Corporation 600,000 76,700 0 676,700 0 0
Effective Management Systems, Inc. 350,000 0 0 350,000 0 0
Eltek, Ltd. 0 300,000 0 300,000 0 0
Engle Homes, Inc. 581,500 0 0 581,500 46,520 0
ENStar, Inc. 0 233,333/3/ 0 233,333 0 0
Eskimo Pie Corporation 344,000 0 72,500 271,500 22,150 (31,325)
Evergreen Resources, Inc. 560,000 15,000 0 575,000 0 0
EZCorp, Inc. (Class A) 532,300 167,700 0 700,000 0 0
The Female Health Company 585,100 0 0 585,100 0 0
Fibermark, Inc. 375,000/4/ 0 0 375,000 0 0
Financial Industries Corporation 0 300,000 0 300,000 0 0
FLIR Systems, Inc. 354,000 0 319,200 34,800 0 1,042,226
Forest Oil Corporation 1,560,000 0 60,000 1,500,000 0 407,435
Fortress Group, Inc. 590,000 110,000 0 700,000 3,500 0
Gehl Company 401,500 8,500 10,000 400,000 0 30,210
Gibson Greeting, Inc. 1,200,600 0 500,600 700,000 0 4,816,430
Gish Biomedical, Inc. 275,000 0 0 275,000 0 0
Grist Mill Company 350,000 50,000 0 400,000 0 0
GZA GeoEnvironmental Technologies, Inc. 372,700 0 0 372,700 0 0
Hallwood Consolidated Resources Corporation 100,000 0 0 100,000 0 0
Hanover Foods Corporation (Class A) 50,500 0 0 50,500 0 0
Harmony Brook, Inc. 720,000 0 0 720,000 0 0
Health Power, Inc. 275,000 20,800 0 295,800 0 0
HealthRite, Inc. 403,000 0 0 403,000 0 0
Help at Home, Inc. 0 100,000 0 100,000 0 0
HMN Financial, Inc. 250,000 0 0 250,000 0 0
Home Federal Bancorp 193,500 0 0 193,500 49,988 0
Hospital Staffing Services, Inc. 620,000 0 0 620,000 0 0
Howell Corporation 200,000 100,000 0 300,000 0 0
ICN Pharmaceuticals, Inc. 3,150,000 0 0 3,150,000 494,550 0
IEC Electronics Corporation 700,000 0 0 700,000 0 0
Interdigital Communications Corp. 2,990,000 610,000 165,000 3,435,000 0 (781,566)
Interpore International 0 600,000 0 600,000 0 0
Iwerks Entertainment, Inc. 856,000 244,000 0 1,100,000 0 0
</TABLE>
37
<PAGE>
<TABLE>
Value Fund [cont'd]
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1997 Purchases Sales June 30, 1997 Dividends (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kaye Group, Inc. 353,600 0 0 353,600 $ 17,680 $ 0
Kentucky Electric Steel, Inc. 450,000 0 0 450,000 0 0
LCS Industries, Inc. 312,500 37,500 0 350,000 24,544 0
The Lion Brewery, Inc. 0 375,000 0 375,000 0 0
Magal Security Systems Ltd. 0 300,000 0 300,000 0 0
Marten Transport, Ltd. 212,000 10,200 0 222,200 0 0
Martin Industries, Inc. 318,300 181,700 0 500,000 28,341 0
Matrix Pharmaceutical, Inc. 750,000 820,000 0 1,570,000 0 0
Maxicare Health Plans, Inc. 1,133,000 0 33,000 1,100,000 0 15,142
Meadowbrook Rehabilitation
Group, Inc. (Class A) 186,666 0 0 186,666 0 0
Medical Graphics Corporation 243,700 0 0 243,700 0 0
Mednet, MPC Corporation 1,200,000 668,400 0 1,868,400 0 0
Mercury Air Group, Inc. 625,000/5/ 8,700 0 633,700 14,009 0
MFRI, Inc. 300,000 0 0 300,000 0 0
Minntech Corporation 457,500 142,500 86,900 513,100 0 (269,256)
Mizar, Inc. 144,200 271,800 0 416,000 0 0
Morgan Products, Ltd. 750,000 0 0 750,000 0 0
MTL, Inc. 300,000 0 90,000 210,000 0 652,764
MYR Group, Inc. 300,000 0 0 300,000 33,000 0
M/A/R/C, Inc. 375,000/6/ 0 75,000 300,000 0 744,955
Netframe Systems, Inc. 1,000,000 0 442,500 557,500 0 (1,707,408)
Norstan, Inc. 552,000 0 0 552,000 0 0
North Star Universal, Inc. 700,000 0 700,000/7/ 0 0 0
Northwest Equity Corporation 90,000 0 10,000 80,000 27,200 36,496
NTN Communications, Inc. 1,100,000 625,000 0 1,725,000 0 0
Old America Stores, Inc. 345,800 104,200 80,800 369,200 0 (100,665)
Oneita Industries, Inc. 600,000 0 0 600,000 0 0
Outlook Group Corporation 457,500 0 0 457,500 0 0
Patrick Industries, Inc. 312,000 0 0 312,000 24,960 0
Peoples Telephone Company, Inc. 1,396,000 204,000 0 1,600,000 0 0
Pinnacle Bancorp 67,800 0 67,800 0 0 160,000
Pioneer Financial Services, Inc. 600,000 0 600,000 0 0 6,017,050
PolyMedica Industries, Inc. 550,000 0 0 550,000 0 0
Powell Industries, Inc. 600,000 0 0 600,000 0 0
Presidential Life Corporation 1,700,000 0 200,000 1,500,000 154,155 1,242,798
Professionals Insurance Co. Mgt. Group 220,000 0 0 220,000 0 0
Quixote Corporation 562,000 15,000 0 577,000 73,060 0
Ramsay Health Care, Inc. 603,333/8/ 0 0 603,333 0 0
Rehabilicare, Inc. 400,000 0 45,000 355,000 0 73,119
Rexworks, Inc. 185,500 0 0 185,500 0 0
Rhodes, Inc. 651,800 0 651,800/9/ 0 0 0
Right Management Consultants, Inc. 0 400,000 0 400,000 0 0
RightCHOICE Managed Care, Inc.
(Class A) 1,000,000 2,500 0 1,002,500 0 0
The Rottlund Company, Inc. 316,000 104,000 0 420,000 0 0
Schult Homes Corporation 400,000/10/ 0 40,000 360,000 33,000 335,709
Star Multi Care Services, Inc. 224,492 5,601 0 230,093 0 0
Starcraft Corporation 400,000 0 0 400,000 0 0
Steel of West Virginia, Inc. 590,000 0 230,000 360,000 0 756,119
Sterling Financial Corporation 275,000 0 0 275,000 0 0
Stokely USA, Inc. 640,000 0 640,000 0 0 (2,266,680)
Strattec Security Corporation 500,000 0 0 500,000 0 0
St. Mary Land & Exploration Company 460,000 100,000 220,000 340,000 0 2,858,317
Strouds, Inc. 0 444,000 0 444,000 0 0
Sullivan Dental Products, Inc. 540,000 0 40,000 500,000 52,000 243,106
Sunrise Resources, Inc. 400,000 200,000 0 600,000 0 0
</TABLE>
38
<PAGE>
<TABLE>
Value Fund [cont'd]
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1997 Purchases Sales June 30, 1997 Dividends (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Technology Research Corporation 500,000 0 0 500,000 $ 60,000 $ 0
Teltrend, Inc. 0 500,000 0 500,000 0 0
Tesoro Petroleum Corporation 1,400,000 100,000 0 1,500,000 0 0
Thorn Apple Valley, Inc. 421,000 15,000 0 436,000 0 0
Timber Lodge Steakhouse, Inc. 300,000 0 0 300,000 0 0
Todhunter International, Inc. 490,000 0 0 490,000 0 0
Total-Tel USA Communications, Inc. 289,000 0 0 289,000 0 0
Trak Auto Corporation 366,500 0 0 366,500 0 0
Transitional Hospitals Corporation 2,413,500 0 2,413,500 0 0 16,953,932
Transworld Bancorp 176,775 0 176,775 0 0 2,279,623
Trimark Holdings, Inc. 400,000 0 0 400,000 0 0
UNC, Inc. 1,100,000 0 100,000 1,000,000 0 455,696
URS Corporation 860,000 0 118,300 741,700 0 433,009
Vectra Technologies, Inc. 723,500 0 0 723,500 0 0
Vicorp Restaurants, Inc. 222,600 277,400 0 500,000 0 0
Westbridge Capital Corporation 500,000 100,000 200,000 400,000 0 917,698
Weston, Roy F., Inc. (Class A) 550,000 0 0 550,000 0 0
---------- -----------
$1,334,417 $44,566,989
========== ===========
/1/ Adjusted for 1 for 5 stock split.
/2/ Adjusted for 2 for 1 stock split.
/3/ Adjusted for reorganization (1 share received for every 3 shares of North
Star Universal, Inc. held).
/4/ Adjusted for 3 for 2 stock split; name changed from Specialty Paperboard,
Inc.
/5/ Adjusted for 25% stock dividend.
/6/ Adjusted for 3 for 2 stock split.
/7/ Adjusted for reorganization (3 shares distributed for every 1 share of
ENStar, Inc. received).
/8/ Adjusted for merger (1 share received for every 3 shares of Ramsay Managed
Care, Inc. held).
/9/ Adjusted for acquisition (2 shares distributed for every 1 share of Heilig-
Meyers Company received).
/10/ Adjusted for 20% stock dividend.
39
</TABLE>
<PAGE>
The Heartland Family of Funds
Small Cap Contrarian Fund
Value Fund
(closed to new investors 7/1/95)
Mid Cap Value Fund
Large Cap Value Fund
Value Plus Fund
U.S. Government Securities Fund
Wisconsin Tax Free Fund
Short Duration High-Yield
Municipal Fund NEW
High-Yield Municipal
Bond Fund NEW
Portico Money Market Fund
[Logo] Heartland Funds
AMERICA'S VALUE INVESTOR
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. Complete
portfolios for the Funds are included in the Annual and Semi-Annual Reports to
Shareholders.
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 Funds'
prospectus. Please call for a prospectus if you would like more complete
information, including charges and expenses, for any Heartland fund. Read it
carefully before you invest. Heartland Advisors, Inc., distributor. Member
SIPC/NASD.
<PAGE>
[Logo] Heartland Funds
America's Value Investor
Value Report
Second Quarter 1997
Notes on value investing
for investors in the Heartland
Municipal Funds
Semi-Annual Report
to Shareholders
<PAGE>
Value Report
Dear Tax-Free Investor
After a rough first quarter, the bond market appeared to regain its footing in
the second quarter, on its way to what we believe will be a good year for bond
investors. In the second quarter of 1997, the Heartland Short Duration High-
Yield Municipal Fund's share price rose from $10.00 to $10.06, while the High-
Yield Municipal Bond Fund's share price rose from $10.02 to $10.16.
Consistent with their objectives of providing high tax-free income, both Funds
ranked highly in the Lipper Analytical Services Yield Survey. Based on SEC
yields for the 30 days ending June 30, the High-Yield Municipal Bond Fund ranked
#1 among 46 funds in the High Yield Municipal Debt Funds category, and the Short
Duration High-Yield Municipal Fund ranked #5 among those funds.
We are also pleased to report that, for both Funds, Heartland Advisors will
continue waiving all fees and absorbing all expenses through December 31, 1997.
Fees and expenses will then be rolled in gradually, over a number of months.
This lengthy subsidization means higher effective yields for investors.
With subdued inflation, stable rates and no income tax relief in sight, our
outlook for bonds is favorable. We will continue to use our disciplined,
research-intensive approach to pursue investment value in the high-yield
municipal market.
Thank you for your continued support.
Sincerely,
Greg D. Winston, CFA Thomas J. Conlin, CFA
Portfolio Co-Managers
August, 1997
[Photo of
Greg D. Winston]
Greg D. Winston, CFA
[Photo of
Thomas J. Conlin]
Thomas J. Conlin, CFA
<PAGE>
VALUE REPORT
INVESTMENT PERFORMANCE
Heartland Short Duration High-Yield Municipal Fund
<TABLE>
<CAPTION>
<S> <C> <C>
6.0% 9.9% 3.5%
June Equivalent taxable yield Cumulative return from
yield* at a 39.6% federal rate 1/2/97 through 6/30/97
Federal tax brackets 28.0% 31.0% 36.0% 39.6%
TAX-FREE YIELD EQUIVALENT TAXABLE YIELDS
6.0% (June yield*) 8.3% 8.7% 9.3% 9.9%
Heartland High-Yield Municipal Bond Fund
7.1% 11.7% 4.8%
June Equivalent taxable yield Cumulative return from
yield* at a 39.6% federal rate 1/2/97 through 6/30/97
Federal tax brackets 28.0% 31.0% 36.0% 39.6%
TAX-FREE YIELD EQUIVALENT TAXABLE YIELDS
7.1% (June yield*) 9.8% 10.2% 11.0% 11.7%
</TABLE>
These charts are for illustrative purposes only. Monthly yields will fluctuate.
* SEC annualized yield for the 30 days ending 6/30/97. The performance data
quoted reflects fee waivers in effect during the period. Without fee waivers,
the SEC yields would have been 5.0% and 5.9%, respectively, and total return
would be lower. 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 certain investors, a portion of the Funds'
income may be subject to the Alternative Minimum Tax.
1
<PAGE>
V A L U E R E P O R T
Heartland Short Duration High-Yield Municipal Fund
FLYING HIGHER
Reflecting a trend in its industry, American Airlines has recently shown
improving fundamentals. Strong consumer demand and a refocusing on its most
profitable routes resulted in much improved earnings and cash flow in '97's
first quarter. In addition, resolution of its pilots' contract dispute has
removed an element of uncertainty, and a potential alliance with British Airways
offers promise.
In the second quarter, these factors led us to purchase industrial development
revenue bonds secured by airport lease payments from American Airlines. The
bonds were:
. Chicago-O'Hare International Airport 7.875% due 11/1/25, yielding 5.56% to a
call of 102 on 11/1/00.
. Tulsa, Oklahoma Municipal Airport Trust 7.375% due 12/1/20, yielding 5.56% to
a call of 102 on 12/1/00.
. Alliance Airport Authority, Texas 7.500% due 12/1/29, yielding 5.49% to a
call of 102 on 12/1/00.
We believe these bonds provide value for the Fund. Though the airline industry
is cyclical, we feel confident in American Airlines' near-term financial
prospects. Moreover, in addition to their generous yields and early calls, these
bonds offer another level of security: a first mortgage lien on the airport
gates.
On June 30, 1997, the Chicago, Tulsa and Alliance bonds were respectively valued
at $113,925, $2,142,500 and $317,862, representing 0.2%, 4.4% and 0.6%,
respectively, of the Fund's net assets.
2
<PAGE>
V A L U E R E P O R T
Heartland Short Duration High-Yield Municipal Fund
This Fund seeks a high level of federally tax-exempt current income with a low
degree of share-price fluctuation. It invests chiefly in short and intermediate
term municipal obligations of medium and lower quality, and maintains an average
portfolio duration of three years or less.
<TABLE>
<CAPTION>
JUNE SEC YIELD EQUIVALENT TAXABLE YIELD TOTAL RETURN
<S> <C> <C>
6.0% 9.9% 3.5%
Annualized for the At a 39.6% Cumulative return
30 days federal rate from inception on 1/2/97
ending 6/30/97 through 6/30/97
</TABLE>
Without the Advisor's fee waivers in effect during the period, yield would have
been 5.0% and total return would be lower. 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>
FUND FACTS
<S> <C> <C> <C>
Sales commission........................None Net assets................................$49 mil.
Share price...........................$10.06 Number of holdings..............................88
Weighted average duration...........1.9 yrs. Inception...................................1/2/97
</TABLE>
<TABLE>
<CAPTION>
% OF
TOP 5 HOLDINGS COUPON MATURITY CALL NET ASSETS
<S> <C> <C> <C> <C>
LA Public Facilities Authority........................8.3% 09/2008 09/2002 4.7%
Martin County, FL Indus. Develop. Authority...........7.9% 12/2025 12/2004 4.6%
Tulsa, OK Municipal Airport Trust.....................7.4% 12/2020 12/2000 4.4%
Robbins, IL Resource Recovery Revenue.................8.4% 10/2016 10/2006 4.2%
ID Health Facilities Authority........................5.7% 10/2004 -- 4.2%
</TABLE>
PORTFOLIO COMPOSITION
[graphic - A pie chart displays categories of the Heartland Short Duration High-
Yield Municipal Fund's portfolio as of 6/30/97: electric/PCR at 22.1%; hospital
at 17.0%; airport at 14.5%; nursing at 12.5%; other at 33.9%. Other is further
broken down as follows: retirement at 7.0%; IDR/PCR at 6.9%; res. recovery at
5.7%; multifamily at 4.6%; single family at 2.5%; other at 1.9%; university at
1.5%; hotel at 1.4%; student loan at 1.0%; mental at 0.6%; water & sewer at
0.3%; lease at 0.3%; G.O. at 0.2%.]
All statistics are as of June 30, 1997.
3
<PAGE>
V A L U E R E P O R T
Heartland High-Yield Municipal Bond Fund
CARE IN CONNECTICUT
For years, America's elderly population has been rising. Demographics suggest a
dramatic long-term increase in this trend. Thus, one of our investment themes is
"The Aging of America."
Consistent with this theme is our investment in the Alzheimer's Resource Center
of Connecticut (ARCC), a project of the Connecticut State Development Authority.
Located about 15 miles from Hartford, the ARCC is a 120-bed skilled nursing
facility that we believe represents sound investment value.
. It is the only facility in the state dedicated solely to caring for
Alzheimer's patients.
. This singular focus has created strong demand. The facility opened in October
'92, reached 100% capacity in May '93, and has had at least 99% capacity since
then, with a long waiting list.
. The supply of new nursing home beds in Connecticut is static through the year
2000, owing to a Certificate of Need moratorium.
An investment in such a facility entails the possible risks of Medicare/Medicaid
reform. However, about 40% of ARCC's patients pay privately, mitigating this
uncertainty and generating higher per-patient income. Also, in our view,
management appears very capable, and finances are strong, with debt service
coverage for fiscal year '96 at a very healthy 1.57X.
On June 30, 1997, the Fund's bonds in the Connecticut State Development
Authority Alzheimer's Resource Center--7.00% due 8/15/09 and 7.25% due 8/15/21--
were respectively valued at $254,062 and $101,250, representing 2.4% and 0.9%,
respectively, of net assets.
4
<PAGE>
V A L U E R E P O R T
Heartland High-Yield Municipal Bond Fund
This Fund seeks to maximize after-tax total return by investing for a high level
of current income that is federally tax-exempt. It invests chiefly in medium and
lower quality municipal obligations. While the duration of its portfolio is
unrestricted, the Fund expects to maintain an average duration of over five
years.
JUNE SEC YIELD EQUIVALENT TAXABLE YIELD TOTAL RETURN
7.1% 11.7% 4.8%
Annualized for the At a 39.6% Cumulative return
30 days federal rate from inception on 1/2/97
ending 6/30/97 through 6/30/97
Without the Advisor's fee waivers in effect during the period, yield would have
been 5.9% and total return would be lower. 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>
FUND FACTS
<S> <C> <C> <C>
Sales commission.......................None Net assets....................$10.7 mil.
Share price............................$10.16 Number of holdings.................34
Weighted average duration............5.6 yrs. Inception......................1/2/97
</TABLE>
<TABLE>
<CAPTION>
% OF
TOP 5 HOLDINGS COUPON MATURITY NET ASSETS
<S> <C> <C> <C>
Montana Board of Investments.............................7.0% 12/2019 13.7%
Danforth, TX Health Facilities Corporation...............8.3% 03/2027 6.1%
Shelby County, TN Health, Ed. & Housing Fac..............8.5% 07/2026 5.9%
Cuyahoga County, OH Mortgage Revenue.....................8.0% 08/2016 5.0%
Robbins, IL Resource Recovery Revenue....................8.4% 10/2016 4.9%
</TABLE>
PORTFOLIO COMPOSITION
[graphic - A pie chart displays categories of the Heartland High-Yield Municipal
Bond Fund's portfolio as of 6/30/97: nursing at 23.3%; retirement at 18.2%;
res. recovery at 18.1%; other at 40.4%. Other is further broken down as
follows: hospital at 13.0%; electric/PCR at 8.7%; single family at 8.1%;
multifamily at 5.8%; hotel at 2.1%; IDR/PCR at 1.6%; G.O. at 0.9%; other at
0.2%.]
All statistics are as of June 30, 1997.
5
<PAGE>
VALUE REPORT
[Photo of
Milwaukee]
- ------------------------------------------------------------------
At Heartland, we're at home with Milwaukee traditions of hard work
and commitment to value.
[Logo] Heartland Funds
AMERICA'S VALUE INVESTOR
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - JUNE 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT LONG-TERM INVESTMENTS -- 98.6% COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS -- 98.6%
ALABAMA -- 2.1%
$ 1,000,000 West Jefferson Amusement & Public Park Authority -
Visionland Alabama Project.................................. 7.500% 12/01/2008 $1,020,000
ARIZONA -- 2.1%
1,000,000 Scottsdale, Arizona Industrial Development Authority -
Westminster Village......................................... 5.500 06/01/2017 1,016,250
CALIFORNIA -- 0.2%
100,000 Los Angeles, California Regional Airports -
Continental Airlines, Incorporated (a)...................... 9.000 08/01/2008 106,003
COLORADO -- 9.0%
400,000 Colorado Student Obligation Bond Authority -
Student Loan Revenue........................................ 6.900 09/01/2001 421,500
605,000 Denver, Colorado City & County Airport........................ 8.500 11/15/2023 681,381
110,000 Denver, Colorado City & County Airport........................ 8.000 11/15/2025 122,237
90,000 Denver, Colorado City & County Airport........................ 7.500 11/15/2025 92,568
1,250,000 Denver, Colorado City & County Airport (a).................... 7.750 11/15/2021 1,395,312
1,500,000 Mesa County, Colorado Industrial Development Revenue -
Joy Technologies, Incoporated................................ 8.500 09/15/2006 1,696,875
---------
4,409,873
CONNECTICUT -- 4.9%
440,000 Connecticut State Health & Educational Facilities Authority -
University of Hartford..................................... 5.700 07/01/1998 439,327
350,000 Connecticut State Health & Educational Facilities Authority -
University of Hartford..................................... 6.200 07/01/2001 353,500
1,600,000 Connecticut State Development Authority -
Alzheimer's Resource Center................................ 6.875 08/15/2004 1,632,000
---------
2,424,827
DISTRICT OF COLUMBIA -- 0.1%
55,000 District of Columbia General Obligation....................... 4.700 06/01/1999 54,725
FLORIDA -- 6.6%
345,000 Broward County, Florida Resource Recovery -
Broward Waste Energy - Limited Partnership North............ 7.950 12/01/2008 375,619
320,000 Homestead, Florida Industrial Development Revenue -
Community Rehabilitation Providers......................... 7.950 11/01/2018 327,600
2,000,000 Martin County, Florida Industrial Development Authority -
Indiantown Cogeneration Project............................ 7.875 12/15/2025 2,265,000
265,000 St. Petersburg, Florida Housing Authority -
Rogall Congregate-Section 8/Elderly........................ 7.500 12/01/2006 276,925
---------
3,245,144
GEORGIA -- 0.9%
55,000 Atlanta, Georgia Special Purpose Facilities -
Delta Airlines, Incorporated............................... 7.900 12/01/2018 59,056
370,000 Georgia Residential Finance Authority -
Home Ownership Mortgage.................................... 7.200 12/01/2011 395,437
---------
454,493
HAWAII -- 1.2%
170,000 Hawaii State Airport System................................... 7.500 07/01/2020 185,725
185,000 Hawaii State Department of Budget & Finance -
Hawaiian Electric Company................................... 7.625 12/01/2018 198,181
190,000 Hawaii State Department of Budget & Finance -
Hawaiian Electric Company.................................. 7.600 07/01/2020 205,200
---------
589,106
IDAHO -- 4.1%
2,050,000 Idaho Health Facilities Authority - Bonner General Hospital... 5.700 10/01/2004 2,034,625
</TABLE>
7
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT LONG-TERM INVESTMENTS -- 98.6% [cont'd] COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds -- 98.6% [cont'd]
ILLINOIS -- 6.7%
$ 35,000 Belleville, Illinois Industrial Development Revenue -
Kmart Corporation........................................... 6.900% 06/15/2007 $ 36,269
125,000 Carol Stream, Illinois First Mortgage Revenue -
Windsor Park Manor.......................................... 5.750 12/01/1999 125,469
250,000 Carol Stream, Illinois First Mortgage Revenue -
Windsor Park Manor.......................................... 6.000 12/01/2000 251,250
250,000 Carol Stream, Illinois First Mortgage Revenue -
Windsor Park Manor.......................................... 6.250 12/01/2001 251,562
70,000 Chicago-O'Hare International Airport -
United Air Lines, Incorporated.............................. 8.400 05/01/2018 75,512
170,000 Chicago-O'Hare International Airport -
United Air Lines, Incorporated.............................. 8.950 05/01/2018 191,250
105,000 Chicago-O'Hare International Airport -
American Air Lines, Incorporated............................ 7.875 11/01/2025 113,925
2,000,000 Robbins, Illinois Resource Recovery Revenue -
Robbins Resource Recovery Partners.......................... 8.375 10/15/2016 2,080,000
140,000 Rochelle, Illinois Water & Sewer Revenue..................... 6.250 05/01/2000 144,550
-----------
3,269,787
INDIANA -- 4.1%
2,000,000 Beech Grove, Indiana Economic Development Multifamily
Housing - McGregor Woods Apartments (b)..................... 5.000 06/01/2037 1,987,500
KANSAS -- 3.7%
180,000 Lawrence, Kansas Commercial Development Revenue -
Holiday Inn Project......................................... 7.000 07/01/1999 181,350
190,000 Lawrence, Kansas Commercial Development Revenue -
Holiday Inn Project......................................... 7.000 07/01/2000 191,425
180,000 Manhattan, Kansas Commercial Development Revenue -
Holiday Inn Project......................................... 7.000 07/01/1999 181,350
190,000 Manhattan, Kansas Commercial Development Revenue -
Holiday Inn Project......................................... 7.000 07/01/2000 191,900
130,000 Wichita, Kansas Hospital Revenue -
Riverside Health System..................................... 4.750 04/01/2000 128,538
205,000 Wichita, Kansas Hospital Revenue -
Riverside Health System..................................... 4.750 04/01/2000 202,694
160,000 Wichita, Kansas Hospital Revenue -
Riverside Health System..................................... 5.250 04/01/2002 157,800
120,000 Wichita, Kansas Hospital Revenue -
Riverside Health System..................................... 5.250 04/01/2002 118,350
290,000 Wichita, Kansas Hospital Revenue -
Riverside Health System..................................... 5.500 04/01/2004 283,837
155,000 Wichita, Kansas Hospital Revenue -
Riverside Health System..................................... 5.500 04/01/2004 151,706
-----------
1,788,950
KENTUCKY -- 1.5%
475,000 Kenton County, Kentucky Airport Board -
Delta Airlines, Incorporated................................ 6.750 02/01/2002 499,937
210,000 Kenton County, Kentucky Airport Board -
Delta Airlines, Incorporated................................ 7.125 02/01/2021 223,125
-----------
723,062
LOUISIANA -- 4.7%
2,125,000 Louisiana Public Facilities Authority -
Beverly Enterprises, Incorporated........................... 8.250 09/01/2008 2,302,969
MASSACHUSETTS -- 5.4%
1,260,000 Massachusetts Industrial Finance Agency -
Reeds Landing Project....................................... 7.750 10/01/2000 1,289,081
50,000 Massachusetts Industrial Finance Agency
- SEMASS Project............................................ 9.250 07/01/2015 56,625
410,000 Massachusetts Industrial Finance Agency
- SEMASS Project............................................ 9.000 07/01/2015 463,300
400,000 Massachusetts State Health & Education Facilities Authority -
Milford - Whitinsville Regional Hospital.................... 7.750 07/15/2017 432,000
385,000 Springfield, Massachusetts Housing Authority -
Citywide Apartments Project................................. 9.500 11/01/2005 423,981
-----------
2,664,987
</TABLE>
8
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT LONG-TERM INVESTMENTS -- 98.6% [cont'd] COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds -- 98.6% [cont'd]
MICHIGAN -- 4.4%
$ 425,000 Dickinson County, Michigan Hospital System................... 7.625% 11/01/2005 $ 459,000
30,000 Kentwood, Michigan Economic Development -
Kmart Corporation........................................... 7.850 09/01/2001 30,249
65,000 Michigan State Strategic Fund - Kmart Corporation............ 6.700 01/01/2007 66,950
1,455,000 Midland County, Michigan Economic Development Corporation
Pollution Control Revenue - Midland Cogeneration............ 9.500 07/23/2009 1,589,588
-----------
2,145,787
MINNESOTA -- 2.1%
1,000,000 St. Paul, Minnesota Housing &
Redevelopment Authority - Healtheast Project................ 9.750 11/01/2017 1,035,910
MISSISSIPPI -- 1.0%
450,000 Claiborne County, Mississippi Pollution Control Revenue -
Middle South Energy, Incorporated........................... 9.875 12/01/2014 489,937
NEW HAMPSHIRE -- 3.4%
600,000 New Hampshire Industrial Development Authority -
Maryland Cup Corporation.................................... 6.750 06/01/1999 603,750
1,000,000 New Hampshire Industrial Development Authority -
United Illuminating Company................................. 10.750 10/01/2012 1,043,340
-----------
1,647,090
NEW JERSEY -- 2.0%
500,000 New Jersey Health Care Facilities Financial Authority -
Columbus Hospital........................................... 7.200 07/01/2001 512,500
450,000 New Jersey Economic Development Authority -
Vineland Cogeneration Limited Partnership................... 7.875 06/01/2019 486,000
-----------
998,500
NEW MEXICO -- 1.0%
375,000 Chaves New Mexico Hospital Revenue -
Eastern New Mexico Medical Center........................... 7.250 12/01/2010 401,250
75,000 New Mexico Educational Assistance Foundation -
Student Loan Revenue........................................ 6.050 12/01/2000 77,719
-----------
478,969
NEW YORK -- 3.1%
900,000 Port Authority of New York & New Jersey Special
Obligation - Continental Airlines/Laguardia................. 9.125 12/01/2015 1,015,875
90,000 Tompkins County, New York Industrial Development
Agency - Kendal at Ithaca................................... 7.250 06/01/2003 92,363
380,000 Tompkins County, New York Industrial Development
Agency - Kendal at Ithaca................................... 7.625 06/01/2009 391,875
-----------
1,500,113
NORTH DAKOTA -- 2.6%
1,220,000 Mercer County, North Dakota Pollution Control Revenue -
Basin Electric Power........................................ 7.000 01/01/2019 1,276,425
OHIO-- 2.7%
100,000 Cleveland, Ohio Airport Special Revenue -
Continental Airlines, Incorporated.......................... 9.000 12/01/2019 108,125
640,000 Cuyahoga County, Ohio Mortgage Revenue -
Maple Care Center (b)....................................... 6.350 08/20/2006 670,400
100,000 Forest Park, Ohio Industrial Development Revenue -
Kmart Corporation........................................... 6.100 04/01/2004 100,375
425,000 Marion County, Ohio Hospital Improvement Revenue -
Community Hospital.......................................... 5.900 05/15/2004 433,500
-----------
1,312,400
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 98.6% [cont'd] COUPON MATURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 98.6% [cont'd]
<C> <S> <C> <C> <C>
OKLAHOMA - 4.4%
$2,000,000 Tulsa, Oklahoma Municipal Airport Trust -
American Airlines, Incorporated............................................. 7.375% 12/01/2020 $ 2,142,500
PENNSYLVANIA - 8.6%
795,000 Clarion County, Pennsylvania Industrial Development
Authority - Beverly Enterprises, Incorporated............................... 10.125 05/01/2007 856,613
240,000 Lehigh County, Pennsylvania Industrial Development
Authority - Keebler Company Project......................................... 6.050 10/01/2001 242,100
350,000 McKean County, Pennsylvania Industrial Development
Authority - Kmart Corporation............................................... 6.875 04/01/2004 364,875
1,000,000 Philadelphia Hospitals & Higher Educational Facilities -
Graduate Health System...................................................... 6.900 07/01/2000 1,043,750
125,000 Philadelphia, Pennsylvania Municipal Authority -
Gas Works Lease Revenue..................................................... 7.625 05/01/2014 131,563
500,000 Ridley Park, Pennsylvania Hospital Authority -
Taylor Hospital............................................................. 6.000 12/01/2005 505,000
500,000 Scranton-Lackawanna Health & Welfare Authority -
Allied Services Rehabilitation Hospitals.................................... 6.600 07/15/2000 511,875
500,000 Scranton-Lackawanna Health & Welfare Authority -
Allied Services Rehabilitation Hospitals.................................... 7.125 07/15/2005 537,500
-----------
4,193,276
RHODE ISLAND - 1.9%
900,000 Rhode Island Housing & Mortgage Finance Corporation -
Homeownership Opportunity (a)............................................... 8.050 04/01/2022 941,625
TENNESSEE - 0.5%
250,000 Roane County, Tennessee Industrial Development Board -
Kmart Corporation........................................................... 7.250 01/15/2007 263,438
TEXAS - 3.0%
295,000 Alliance Airport Authority, Texas -
American Airlines, Incorporated............................................. 7.500 12/01/2029 317,862
80,000 Brazos River Authority Texas Pollution Control Revenue -
Texas Utilities Electric Company............................................ 8.250 01/01/2019 85,100
1,000,000 San Antonio, Texas Health Facilities Development
Corporation - Beverly Enterprises, Incorporated............................. 8.250 12/01/2019 1,085,000
-----------
1,487,962
UTAH - 0.2%
100,000 Salt Lake City, Utah Airport Revenue -
Delta Airlines, Incorporated................................................ 7.900 06/01/2017 106,125
WISCONSIN - 0.4%
200,000 Menomonee Falls, Wisconsin Industrial Development
Revenue - Keebler Company Project........................................... 6.450 03/01/2004 203,500
TOTAL MUNICIPAL BONDS (Cost $48,115,476)................................................................. $48,315,858
-----------
TOTAL LONG-TERM INVESTMENTS (Cost $48,115,476)........................................................... $48,315,858
-----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND SHORT-DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [cont'd] . June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT SHORT-TERM INVESTMENTS - 8.6% COUPON MATURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BOND - 0.0%
PENNSYLVANIA - 0.0%
$ 15,000 Philadelphia Hospitals & Higher Educational Facilities -
Graduate Health System.......................................................... 6.500% 07/01/1997 $ 15,000
TOTAL MUNICIPAL BOND (COST $15,039)...................................................................... $ 15,000
-----------
DAILY VARIABLE RATE PUT BONDS - 8.6%
ALABAMA - 4.7%
2,300,000 North Alabama Environment Import Authority -
Pollution Control Revenue....................................................... 4.100 12/01/2000 $ 2,300,000
DELAWARE - 1.4%
700,000 Delaware State Economic Development Authority -
Delmarva Power & Light Company.................................................. 4.200 10/01/2017 700,000
TEXAS - 2.5%
200,000 Texas Lone Star Airport Import Authority -
American Airlines, Incorporated................................................. 4.100 12/01/2014 200,000
1,000,000 Texas Sabine River Authority -
Texas Utilities Electric Company................................................ 4.050 03/01/2026 1,000,000
-----------
1,200,000
TOTAL DAILY VARIABLE RATE PUT BONDS (COST $4,200,000).................................................... $ 4,200,000
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $4,215,039)........................................................... $ 4,215,000
TOTAL INVESTMENTS (COST $52,330,515)............107.2% $52,530,858
Liabilities, less cash and receivables.......... (7.2) (3,520,096)
----- -----------
TOTAL NET ASSETS................................100.0% $49,010,762
===== ===========
</TABLE>
(a) All or a portion of security pledged to cover margin requirements for
futures contracts.
(b) When-issued security.
The accompanying Notes to Financial Statements are an integral part of
this Schedule.
11
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - JUNE 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 97.7% COUPON MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS - 97.7%
CONNECTICUT - 3.3%
$250,000 Connecticut State Development Authority - Alzheimers
Resource Center................................................................ 7.000% 08/15/2009 $ 254,062
100,000 Connecticut State Development Authority - Alzheimers
Resource Center................................................................ 7.250 08/15/2021 101,250
----------
355,312
DISTRICT OF COLUMBIA - 1.0%
100,000 District of Columbia General Obligation......................................... 6.375 06/01/2026 102,250
FLORIDA - 6.8%
250,000 Manatee County, Florida Housing Finance Authority - Single
Family Mortgage................................................................ 7.200 05/01/2028 275,625
400,000 Martin County, Florida Industrial Development Authority -
Indiantown Cogeneration Project................................................ 7.875 12/15/2025 453,000
----------
728,625
GEORGIA - 6.0%
325,000 Dekalb County, Georgia Housing Authority - Friendly Hills
Apartments Project............................................................. 7.050 01/01/2039 348,969
30,000 Savannah, Georgia Hospital Authority - Candler Hospital......................... 7.000 01/01/2011 31,275
255,000 Savannah, Georgia Hospital Authority - Candler Hospital......................... 7.000 01/01/2023 265,200
----------
645,444
IDAHO - 1.0%
100,000 Idaho Housing & Finance Association -
Single Family Mortgage......................................................... 6.200 07/01/2028 102,125
ILLINOIS - 12.2%
250,000 Carol Stream, Illinois First Mortgage Revenue - Windsor
Park Manor..................................................................... 7.000 12/01/2013 250,937
240,000 Illinois Health Facilities Authority -
Fairview Obligated Group....................................................... 7.125 08/15/2017 240,000
360,000 Illinois Housing Development Authority -
Multi-Family Housing Revenue................................................... 5.000 07/01/2025 286,200
500,000 Robbins, Illinois Resource Recovery Revenue -
Robbins Resource Recovery Partners............................................. 8.375 10/15/2016 520,000
----------
1,297,137
INDIANA - 1.0%
100,000 Indianapolis, Indiana Airport Authority -
Federal Express Corporation.................................................... 7.100 01/15/2017 109,625
KANSAS - 6.6%
115,000 Lawrence, Kansas Commercial Development Revenue -
Holiday Inn Project............................................................ 8.000 07/01/2016 119,025
105,000 Manhattan, Kansas Commercial Development Revenue -
Holiday Inn Project............................................................ 8.000 07/01/2016 108,675
500,000 Wichita, Kansas Hospital Revenue - Riverside
Health System.................................................................. 6.125 04/01/2017 475,000
----------
702,700
MASSACHUSETTS - 6.7%
345,000 Massachusetts Health & Education Facilities Authority -
Central New England Health Alliance............................................ 6.125 08/01/2013 329,906
100,000 Massachusetts State Health & Education Facilities Authority -
Sisters of Providence Health System............................................ 6.625 11/15/2022 101,125
185,000 Massachusetts Industrial Finance Agency - Evanswood
Bethzatha Corporation.......................................................... 8.000 01/15/2027 187,775
100,000 Massachusetts Health & Education Facilities Authority -
Youville Hospital.............................................................. 6.000 02/15/2034 101,125
----------
719,931
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS [cont'd] - JUNE 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 97.7% [cont'd] COUPON MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS - 97.7% [cont'd]
MINNESOTA - 4.7%
$ 500,000 Minneapolis, Minnesota Health Facilities Development
Revenue - Community Home Program Company Project............................... 7.500% 12/01/2026 $ 500,000
MONTANA - 13.7%
1,525,000 Montana Board of Investments - Yellowstone Energy
Limited Partnership............................................................ 7.000 12/31/2019 1,462,094
NEW HAMPSHIRE - 4.5%
485,000 New Hampshire Higher Education & Health Facilities
Authority - River Woods At Exeter.............................................. 6.500 03/01/2023 477,725
NORTH DAKOTA - 4.8%
500,000 North Dakota Housing Finance Agency -
Single Family Mortgage (a)..................................................... 5.950 07/01/2017 507,500
OHIO - 5.0%
460,000 Cuyahoga County, Ohio Mortgage Revenue -
Maple Care Center (b).......................................................... 8.000 08/20/2016 537,625
OKLAHOMA - 0.9%
100,000 Oklahoma County Industrial Authority -
National Benevolent Association................................................ 6.150 01/01/2011 100,625
PENNSYLVANIA - 0.2%
15,000 Philadelphia Hospitals & Higher Education Facilities -
Graduate Health System......................................................... 7.250 07/01/2010 16,106
TENNESSEE - 6.6%
65,000 Hawkins County, Tennessee Industrial Development
Board - Kmart Corporation...................................................... 7.000 01/01/2006 67,275
630,000 Shelby County, Tennessee Health, Education & Housing
Facilities - Winfield Village of Cordova....................................... 8.500 07/01/2026 633,938
-----------
701,213
TEXAS - 12.7%
100,000 Amarillo, Texas Health Facilities Corporation -
Sears Panhandle Retirement Corporation......................................... 6.300 08/15/2005 99,750
665,000 Danforth, Texas Health Facilities Corporation -
Sam Houston Long Term Care Facility............................................ 8.250 03/01/2027 655,025
95,000 Lufkin, Texas Health Facilities Development Corporation -
Memorial Health System of East Texas........................................... 6.875 02/15/2026 100,462
510,000 Tarrant County, Texas Health Facilities Development
Corporation - St. Joseph Long Term Care Facility............................... 8.500 05/01/2027 500,438
-----------
1,355,675
TOTAL MUNICIPAL BONDS (COST $10,305,534).................................................................. $10,421,712
-----------
TOTAL LONG-TERM INVESTMENTS (COST $10,305,534)............................................................ $10,421,712
-----------
</TABLE>
13
<PAGE>
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT SHORT-TERM INVESTMENTS -- 4.7% COUPON MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DAILY VARIABLE RATE PUT BOND -- 4.7%
DELAWARE -- 4.7%
$ 500,000 Delaware Economic Development Authority -
Delmarva Power & Light Company................. 4.200% 10/01/2017 $ 500,000
TOTAL DAILY VARIABLE RATE PUT BONDS (COST $500,000).......................... $ 500,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST $500,000)................................. $ 500,000
------------
TOTAL INVESTMENTS (COST $10,805,534)............ 102.4% $10,921,712
Liabilities, less cash and receivables.......... (2.4) (251,532)
------ ------------
TOTAL NET ASSETS................................ 100.0% $10,670,180
====== ============
</TABLE>
(a) All or a portion of security pledged to cover margin
requirements for futures contracts.
(b) When-issued security.
The accompanying Notes to Financial Statements are an integral
part of this Schedule.
14
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Short
Duration
High-Yield High-Yield
Municipal Municipal
Fund Bond Fund
----------- ----------
<S> <C> <C>
ASSETS:
Investments in securities, at cost.................................... $52,330,515 $10,805,534
=========== ===========
Investments in securities, at value................................... $52,530,858 $10,921,712
Cash.................................................................. -- 44,670
Receivable from fund shares sold...................................... 80,410 5,000
Receivable from investments sold...................................... -- --
Accrued interest...................................................... 793,222 232,216
Variation margin on open futures contracts............................ 15,626 6,250
Deferred organization expense......................................... 21,278 21,278
Receivable from Advisor for management fee waiver and
expense reimbursement.............................................. 45,016 25,821
----------- ----------
Total Assets................................................... 53,486,410 11,256,947
----------- ----------
LIABILITIES:
Payable for investments purchased..................................... 2,706,121 539,668
Payable for fund shares redeemed...................................... 1,668,013 --
Distribution payable.................................................. 6,155 --
Payable to custodian.................................................. 29,066 --
Payable to Advisor for management fee................................. 15,656 5,473
Payable to Advisor for deferred organization expense.................. 21,278 21,278
Accrued expenses...................................................... 29,359 20,348
----------- ----------
Total Liabilities.............................................. 4,475,648 586,767
----------- ----------
TOTAL NET ASSETS........................................................... $49,010,762 $10,670,180
=========== ===========
NET ASSETS CONSIST OF:
Paid-in capital....................................................... $48,785,298 $10,534,919
Accumulated undistributed net realized losses on investments.......... (23,629) (6,773)
Net unrealized appreciation on investments............................ 249,093 142,034
----------- ----------
TOTAL NET ASSETS........................................................... $49,010,762 $10,670,180
=========== ===========
SHARES OUTSTANDING, $.001 par value (100,000,000 shares authorized)... 4,870,608 1,049,886
=========== ===========
NET ASSET VALUE PER SHARE.................................................. $ 10.06 $ 10.16
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
15
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the period from January 2, 1997 (commencement of operations)
to June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------
Short
Duration
High-Yield High-Yield
Municipal Municipal
Fund Bond Fund
---------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................ $581,838 $207,308
-------- --------
Total investment income.......................... 581,838 207,308
-------- --------
EXPENSES:
Management fees..................................... 39,092 18,738
Distribution fees................................... 24,433 7,807
Registration fees................................... 16,026 6,486
Custodian fees...................................... 4,716 2,960
Audit fees.......................................... 3,000 3,000
Printing and communications......................... 2,920 840
Amortization of organization expenses............... 2,365 2,365
Directors' fees..................................... 2,516 2,148
Transfer agent fees................................. 3,035 1,600
Postage............................................. 600 240
Legal fees.......................................... 200 120
Other operating expenses............................ 5,227 1,652
-------- --------
Total expenses................................... 104,130 47,956
Less: Management fee waiver...................... (39,092) (18,738)
Less: Expense reimbursement...................... (65,038) (29,218)
-------- --------
Net expenses..................................... -- --
-------- --------
NET INVESTMENT INCOME.................................... 581,838 207,308
-------- --------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on:
Securities....................................... 63,373 19,785
Futures contracts................................ (87,002) (26,558)
Net increase in unrealized appreciation on:
Securities....................................... 200,343 116,178
Futures contracts................................ 48,750 25,856
-------- --------
TOTAL REALIZED AND UNREALIZED GAINS ON INVESTMENTS....... 225,464 135,261
-------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $807,302 $342,569
======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
16
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the period from January 2, 1997 (commencement of operations)
to June 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------------------
Short
Duration
High-Yield High-Yield
Municipal Municipal
Fund Bond Fund
----------- -----------
OPERATIONS:
<S> <C> <C>
Net investment income................................................ $ 581,838 $ 207,308
Net realized losses on investments................................... (23,629) (6,773)
Net increase in unrealized appreciation on investments............... 249,093 142,034
----------- -----------
Net increase in net assets resulting from operations............... 807,302 342,569
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................. (581,838) (207,308)
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued.......................................... 53,333,517 11,730,694
Reinvested dividends from net investment income...................... 507,839 169,359
Cost of shares redeemed.............................................. (5,056,058) (1,365,134)
----------- -----------
Net increase in net assets derived from Fund share activities...... 48,785,298 10,534,919
----------- -----------
TOTAL INCREASE IN NET ASSETS.............................................. 49,010,762 10,670,180
NET ASSETS AT THE BEGINNING OF THE PERIOD................................. -- --
NET ASSETS AT THE END OF THE PERIOD....................................... $49,010,762 $10,670,180
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------
Short Duration
High-Yield High-Yield
Municipal Municipal
Fund Bond Fund
Jan. 2, 1997/1/ Jan 2, 1997/1/
to June 30, 1997 to June 30, 1997
(Unaudited) (Unaudited)
----------------- ----------------
Per Share Data
<S> <C> <C>
Net asset value, beginning of period........................... $ 10.00 $ 10.00
Income from investment operations:
Net investment income....................................... 0.28 0.32
Net realized and unrealized gains on investments............ 0.06 0.16
----------- -----------
Total income from investment operations.................... 0.34 0.48
Less distributions from:
Net investment income....................................... (0.28) (0.32)
----------- -----------
Total distributions........................................ (0.28) (0.32)
Net asset value, end of period................................. $ 10.06 $ 10.16
=========== ===========
Total Return/2/................................................ 3.5% 4.8%
Ratio and Supplemental Data
Net assets, end of period (in thousands).................... $49,011 $10,670
Ratio of net expenses to average net assets................. 0.00%/3/ /4/ 0.00%/3/ /4/
Ratio of net investment income to average net assets........ 4.97%/3/ /4/ 6.12%/3/ /4/
Portfolio turnover rate..................................... 82% 75%
</TABLE>
/1/ Commencement of operations.
/2/ Not annualized.
/3/ Annualized.
/4/ If there had been no management fee waiver or expense reimbursement by the
Advisor, the ratio of net expenses to average net assets would have been
0.89% for the Short Duration High-Yield Municipal Fund and 1.42% for the
High-Yield Municipal Bond Fund and the ratio of net investment income to
average net assets would have been 4.08% and 4.70%, respectively.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
17
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS . June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
(1) Organization
The Heartland Group, Inc. (the "Corporation") is registered as a
diversified open-end management company under the Investment Company Act of
1940. The Short Duration High-Yield Municipal Fund and the High-Yield
Municipal Bond Fund (the "Funds") are two of the nine series of funds
issued by the Corporation at June 30, 1997.
(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Funds in the preparation of the financial statements:
(a) Debt securities are stated at fair value as furnished by independent
pricing services based primarily upon information concerning market
transactions and dealer quotations for similar securities or by
dealers who make markets in such securities. Debt securities having
maturities of 60 days or less may be valued at acquisition cost, plus
or minus any amortized discount or premium. Securities and other
assets for which quotations are not readily available are valued at
their fair value using methods determined by the Board of Directors.
(b) The Funds' policy is to comply with the requirements of the Internal
Revenue Code which are applicable to regulated investment companies
and to distribute substantially all of their taxable income to their
shareholders. The Fund accordingly paid no Federal income taxes, and
no Federal income tax provision is required.
(c) Net investment income is distributed to each shareholder as a
dividend. Dividends are declared daily and distributed monthly and are
recorded by the Funds on the ex-dividend date. Net realized gains on
investments, if any, are distributed annually.
(d) The Funds record security and shareholder transactions no later than
the first business day after the trade date. Net realized gains and
losses on investments are computed on the identified cost basis.
Interest income is recognized on an accrual basis. The Funds amortize
premium and accrete original issue discount on investments utilizing
the effective interest method.
(e) The Funds may enter into futures contracts for hedging purposes, such
as to protect against anticipated declines in the market value of
their portfolio securities or to manage exposure to changing interest
rates. Upon entering into a futures contract, a 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 Statements of
Assets and Liabilities. The predominant risk is that the movement of
the futures contract's price may result in a loss which could render a
portfolio's hedging strategy unsuccessful.
The Funds had the following open futures contracts at June 30, 1997:
<TABLE>
<CAPTION>
Short Duration High-Yield Municipal Fund
Number Expiration Unrealized
Type of Contracts Date Appreciation
- ---- ------------ ---- ------------
<S> <C> <C> <C>
Municipal Bond Index (50) Sept. 1997 $48,750
High-Yield Municipal Bond Fund
Number Expiration Unrealized
Type of Contracts Date Appreciation
- ---- ------------ ---- ------------
Municipal Bond Index (20) Sept. 1997 $25,856
</TABLE>
(f) 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.
18
<PAGE>
(3) Investment Management Fees and Transactions with Related Parties
The Funds have management agreements with Heartland Advisors, Inc. (the
"Advisor") to serve as investment advisor and manager. Under the terms of
the agreements, the Short Duration High-Yield Municipal Fund pays the
Advisor a monthly management fee at the annual rate of .40% of the daily
net asset value of the Fund and the High-Yield Municipal Bond Fund pays the
Advisor a monthly management fee at the annual rate of .60% of the daily
net asset value of the Fund.
The Funds have 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"). The Plan requires the Funds
to pay to the Distributor a quarterly distribution fee on an annual basis
up to .25% of their daily net assets.
The Advisor has voluntarily committed to waive the entire management and
Rule 12b-1 fees and to reimburse all other expenses for the Funds for the
fiscal year ending December 31, 1997. As a result, the Funds did not incur
any operating expenses for the period ended June 30, 1997. Effective
January 1, 1998, the Advisor will begin to reduce the amount of this waiver
and reimbursement each month by 0.15% on an annualized basis, but will
voluntarily reimburse the Funds to the extent that annual total fund
operating expenses would exceed 0.75% for the Short Duration High-Yield
Municipal Fund and 0.95% for the High-Yield Municipal Bond Fund.
Officers and certain directors of the Corporation are also officers and/or
directors of Heartland Advisors, Inc.; however, they receive no
compensation from the Funds.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the
Board of Directors of the Corporation has adopted a plan which will allow
the Funds, under certain conditions described in the Rule, to acquire
newly-issued securities from syndicates in which the Distributor is a
member.
(4) 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 Funds 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 organizational expenses and the
related payable to the Advisor at June 30, 1997, were $21,278 for each
Fund. Reimbursement to the Advisor of these amounts by the Funds will be
subject to the expense limitations and reimbursements in effect for the
Funds at the time.
(5) Investment Transactions
During the period ended June 30, 1997, purchases and sales of securities,
other than short-term obligations, were as follows (in thousands):
<TABLE>
<CAPTION>
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- ---------
<S> <C> <C>
Purchases $64,635 $14,497
Proceeds from sales 15,644 4,150
At June 30, 1997, the gross unrealized appreciation and depreciation on securities for tax
purposes were as follows (in thousands):
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- ---------
Appreciation $ 256 $ 125
Depreciation (56) (9)
-------------- ---------
$ 200 $ 116
============== =========
Cost of investments is substantially the same for financial reporting
purposes and federal income tax purposes.
(6) Fund Share Transactions
For the period ended June 30, 1997, Fund share transactions were as follows:
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- -----------
Shares issued 5,323,534 1,167,931
Reinvested dividends from
net investment income 51,253 16,979
Shares redeemed (504,179) (135,024)
-------------- -----------
Net increase in Fund shares 4,870,608 1,049,886
============== ===========
</TABLE>
19
<PAGE>
Dear Investor
We are here to help you meet your investment needs.
If you have a question, please call Heartland Shareholder Services. We're
confident you'll find our representatives to be knowledgeable and responsive.
[Photo of Heartland Shareholder Services Representative]
1-800-432-7856
[Logo] Heartland Funds
- ------------------------
AMERICA'S VALUE INVESTOR
<PAGE>
The Heartland Family of Funds
Small Cap Contrarian Fund
Value Fund
(closed to new investors 7/1/95)
Mid Cap Value Fund
Large Cap Value Fund
Value Plus Fund
U.S. Government Securities Fund
Wisconsin Tax Free Fund
Short Duration High-Yield
Municipal Fund NEW
High-Yield Municipal
Bond Fund NEW
Portico Money Market Fund
[Logo] Heartland Funds
AMERICA'S VALUE INVESTOR
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. Complete
portfolios for the Funds will be included in the Annual and Semi-Annual Reports
to Shareholders.
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 Funds'
prospectus. Please call for a prospectus if you would like more complete
information, including charges and expenses, for any Heartland fund. Read it
carefully before you invest. Heartland Advisors, Inc., distributor. Member
SIPC/NASD.
<PAGE>
[Logo] Heartland Funds
America's Value Investor
Value Report
Second Quarter 1997
Notes on value investing
for investors in the Heartland
Wisconsin Tax Free Fund
Semi-Annual Report
to Shareholders
<PAGE>
Value Report
[PHOTO OF PAT RETZER]
Dear Wisconsin Investor
After a rough first quarter, the bond market appeared to regain its footing in
the second quarter, on its way to what we believe will be a good year for bond
investors. In the second quarter of 1997, the Fund's share price rose from
$10.03 to $10.24, while paying dividends of $.13 per share. Dividends were 100%
exempt from both Wisconsin and federal income tax.*
Our outlook for the bond market is favorable. The economy has shown signs of
slowing, inflation remains in check, and the dollar is firm. In addition, after
raising rates in March, the Federal Reserve elected to stand pat at both its May
and July meetings.
On the income tax front, the President and both houses of Congress have floated
their tax-cut proposals. In our view, none of the plans offer much in the way of
substantive relief for middle and higher bracket taxpayers.
Thus, given our positive expectations for the bond market, and little or no
income tax relief in sight, we believe our Fund continues to offer an excellent
investment opportunity. As always, we will use our knowledge of the Wisconsin
municipal market, and our size advantage over other Wisconsin tax-free funds, to
find what we view as attractive issues and take meaningful positions.
Thank you for your continued support.
Sincerely,
Patrick J. Retzer, CPA
Portfolio Manager
August, 1997
*For certain investors, a portion of the Fund's income may be subject to the
alternative minimum tax.
<PAGE>
Value Report
INVESTMENT PERFORMANCE
Heartland Wisconsin Tax Free Fund
<TABLE>
<CAPTION>
<S> <C>
JUNE YIELD............................................................ 5.1%
SEC yield annualized for the 30 days ending 6/30/97.
EQUIVALENT TAXABLE YIELD.............................................. 9.0%/1/
</TABLE>
AVERAGE ANNUAL RETURNS AS OF 6/30/97
<TABLE>
<CAPTION>
Since inception
YTD/2/ 1-year 5-year 4/3/92
<S> <C> <C> <C> <C>
Heartland Wisconsin Tax Free Fund 3.4% 8.3% 6.2% 6.4%
</TABLE>
/1/Based on a combined Wisconsin tax rate of 6.9% and a federal rate of 39.6%,
adjusted to reflect the deductibility of state taxes. /2/Not annualized.
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 buying power in the Wisconsin market.
. It is the most broadly diversified -- which helps enhance opportunity and
reduce risk.
. It has the highest proportion of Wisconsin bonds -- investments where
Heartland Advisors' grasp of the state's economy can make an important
difference.
. We invite you to compare its current yield to that of any similar investment.
All statistics are as of June 30, 1997.
<PAGE>
V A L U E R E P O R T
Heartland Wisconsin Tax Free Fund
WRIGHTSTOWN: THE RIGHT STUFF
During the second quarter, with yields on municipals running at relatively low
levels, we focused on smaller, non-rated issues that offered more attractive
yields and, we believe, solid credit quality.
One such security was issued by the Community Development Authority (CDA) of the
Village of Wrightstown. These bonds are intended to finance the purchase and
improvement of property for Phase I of a planned 115-acre industrial park in
Wrightstown.
Located in the heart of the Fox River Valley, between Green Bay and Appleton,
Wrightstown appears ideally situated for companies looking to serve these two
cities. Phase I of the Park comprises thirty acres. On nine of those acres, one
company has begun construction of a 50,000 square-foot plant for converting
paper. Another paper company has offered to purchase the remaining twenty-one
acres. Moreover, the CDA has received purchase inquiries on portions of the
park's Phase II.
To us, the park's location, the Village's presence on the lease and the very
strong interest in occupancy represented a solid investment opportunity. And
because this issue was small and non-rated, it offered double tax-free yields as
high as 6.08%.
On June 30, 1997, the Fund's Wrighstown Community Development Authority bonds--
5.95% due 6/1/14 and 6.0% due 6/1/19--were respectively valued at $200,250 and
$598,500, representing 0.2% and 0.5%, respectively, of the Fund's net assets.
2
<PAGE>
V A L U E R E P O R T
Heartland Wisconsin Tax Free Fund
OBJECTIVE
The Heartland Wisconsin Tax Free Fund seeks a high level of current income that
is exempt from federal and Wisconsin personal income taxes. It invests chiefly
in tax-exempt municipal securities issued by qualified entities such as
municipalities, agencies and authorities.
<TABLE>
<CAPTION>
FUND FACTS
<S> <C> <C> <C>
Current yield..........................5.1% Number of holdings...................218
June SEC yield annualized Weighted average maturity......19.3 yrs.
for the 30 days ending 6/30/97. Weighted average duration......11.1 yrs.
Sales commission.......................None Inception.........................4/3/92
Net assets......................$125.4 mil. Share price.......................$10.24
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS
YTD Since inception
6/30/97 /1/ 1-year 5-year 4/3/92
<S> <C> <C> <C> <C>
Heartland
Wisconsin Tax Free Fund 3.4% 8.3% 6.2% 6.4%
Lehman 20-Year
Municipal Bond Index 3.6 9.4 7.9 8.2
</TABLE>
/1/Not annualized. The Lehman 20-Year Municipal Bond Index is an unmanaged
index of certain investment grade municipal securities with maturities between
17 and 22 years, and is not limited to investments that are exempt from
Wisconsin state income tax. Moreover, unlike a mutual fund, it has no operating
expenses; its returns reflect this inherent advantage.
<TABLE>
<CAPTION>
TOP 5 HOLDINGS COUPON MATURITY % OF NET ASSETS
<S> <C> <C> <C>
Milw. RDA - WI Ave./M. L. King Jr. Dr.............5.5% 09/2012 8.8%
Wisconsin Center - Rev. Bnds. - Pub. Imp..........5.7 12/2020 7.7
SE WI Professional Baseball Park Dist.............5.8 12/2021 3.0
Guam Power Authority - Series A...................6.3 10/2012 2.8
Milwaukee RDA - Multifamily Revenue...............6.3 08/2038 2.6
</TABLE>
PORTFOLIO COMPOSITION
[graphic - A pie chart displays categories of the Heartland Wisconsin Tax Free
Fund's portfolio as of 6/30/97: housing at 42.4%; cash & equivalents at 1.5%;
education at 19.4%; public facility at 12.0%; other at 24.7%. Other is further
broken down as follows: industrial dev. at 11.1%; G.O. state at 5.0%; utilities
at 4.4%; transportation at 3.3%; health care at 0.9%.]
All statistics are as of June 30, 1997.
3
<PAGE>
VALUE REPORT
The Value of Double Tax-Free Income
As you can see below, the Heartland Wisconsin Tax Free Fund is designed to
produce income you can keep. And the higher your federal income tax bracket,
the more benefit you realize from double tax-free investing.
<TABLE>
<CAPTION>
THE VALUE OF DOUBLE TAX-FREE INCOME
<S> <C> <C> <C> <C>
Federal Rate 28.0% 31.0% 36.0% 39.6%
Maximum Effective Federal Rate/1/ 29.4 32.6 37.8 41.6
Wisconsin Tax Rate 6.9 6.9 6.9 6.9
Maximum Effective Combined Rate/2/ 34.3 37.2 42.1 45.6
HYPOTHETICAL TAX FREE YIELD EQUIVALENT TAXABLE YIELDS
5.0% 7.6% 8.0% 8.6% 9.2%
</TABLE>
This chart is for illustrative purposes only, and is not intended to predict
actual yields. /1/Based on federal rates as adjusted for phase-out of itemized
deductions and personal exemptions. /2/Based on the Wisconsin rate and the
maximum effective federal rate, adjusted to reflect the deductibility of state
taxes.
If you wish to make an additional investment, use the reinvestment slip and
postage-paid envelope we have enclosed for your convenience.
4
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS . June 30, 1997 (Unaudited)
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR
AMOUNT MUNICIPAL BONDS -- 98.5% COUPON MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN -- 84.7%
$ 20,000 Amery, WI Housing Authority - Revenue Bonds.......................... 7.375% 05/01/2005 $ 21,150
300,000 Appleton, WI Housing Authority - Industrial Park..................... 6.500 10/01/2016 299,625
1,390,000 Appleton, WI Housing Authority - Industrial Park..................... 6.750 10/01/2026 1,388,263
125,000 Barron, WI Housing Authority - Maplecroft Project.................... 0.000 10/01/2004 83,750
130,000 Barron, WI Housing Authority - Maplecroft Project.................... 0.000 10/01/2008 67,763
35,000 Barron, WI Housing Authority - Maplecroft Project.................... 0.000 10/01/2005 22,094
520,000 Barron, WI Housing Authority - Maplecroft Project.................... 5.375 10/01/2011 505,700
130,000 Barron, WI Housing Authority - Maplecroft Project.................... 0.000 10/01/2006 76,863
85,000 Barron, WI Housing Authority - Maplecroft Project.................... 0.000 10/01/2007 47,175
1,000,000 Bristol, WI Community Development Authority.......................... 6.125 03/01/2012 1,013,750
3,155,000 Brown County, WI Housing Authority - R.P. Terrace.................... 6.500 06/01/2019 3,253,594
75,000 Dane County, WI Housing Authority - Forest Harbor Apts................ 5.950 07/01/2013 75,938
25,000 Dane County, WI Housing Authority - Forest Harbor Apts............... 6.000 07/01/2014 25,625
435,000 Deforest, WI Redev. Auth. - Lease Revenue Bonds...................... 6.250 02/01/2018 449,138
265,000 Deforest, WI Redev. Auth. - Lease Revenue Bonds...................... 6.200 02/01/2014 275,269
685,000 Eau Claire, WI Housing Auth. - London Hill........................... 6.250 05/01/2015 693,563
550,000 Elkhart Lake, WI Community Development Authority..................... 6.000 04/01/2015 552,750
205,000 Evansville, WI Housing Authority - Baker Block Project............... 5.750 12/01/2016 203,975
250,000 Franklin, WI Community Development Authority......................... 6.150 04/01/2012 253,438
890,000 Franklin, WI Community Development Authority......................... 6.100 04/01/2010 910,025
1,000,000 Franklin, WI Community Development Authority......................... 6.050 04/01/2008 1,028,750
250,000 Franklin, WI Community Development Authority......................... 5.850 04/01/2006 256,563
10,000 Franklin, WI Community Development Authority......................... 5.400 04/01/2003 10,000
3,000,000 Green Bay, WI Housing Authority - Pheasant Run Project............... 6.500 09/01/2019 3,067,500
200,000 Hartford, WI Community Development Authority......................... 5.800 12/01/2005 209,250
100,000 Hartford, WI Community Development Authority......................... 5.450 12/01/2002 103,250
210,000 Hartford, WI Community Development Authority......................... 6.000 12/01/2007 218,663
225,000 Hartford, WI Community Development Authority......................... 6.100 12/01/2008 235,688
10,000 Hudson, WI Christian Community Home.................................. 8.000 07/01/2005 10,000
75,000 Hudson, WI Christian Community Home.................................. 6.800 05/01/2009 75,844
65,000 Hudson, WI Christian Community Home.................................. 6.900 05/01/2010 65,813
250,000 Hudson, WI Christian Community Home.................................. 7.000 05/01/2023 252,188
55,000 Hudson, WI Christian Community Home.................................. 6.700 05/01/2008 55,619
390,000 Jackson, WI Community Development Authority.......................... 7.000 12/01/2013 419,738
500,000 Jackson, WI Community Development Authority.......................... 7.000 12/01/2017 539,375
515,000 Jackson, WI Community Development Authority.......................... 7.000 12/01/2016 552,338
430,000 Jackson, WI Community Development Authority.......................... 7.000 12/01/2014 465,475
345,000 Jackson, WI Community Development Authority.......................... 7.000 12/01/2015 373,463
350,000 Jackson, WI Community Development Authority.......................... 7.000 12/01/2012 378,438
285,000 Jackson, WI Community Development Authority.......................... 6.900 12/01/2010 308,869
180,000 Jackson, WI Community Development Authority.......................... 6.700 12/01/2008 195,300
105,000 Jackson, WI Community Development Authority.......................... 6.600 12/01/2007 113,663
160,000 Jackson, WI Community Development Authority.......................... 6.500 12/01/2006 173,200
260,000 Jackson, WI Community Development Authority.......................... 6.800 12/01/2009 282,100
1,760,000 La Crosse, WI Housing Authority - Forest Park Project................ 6.375 12/01/2018 1,779,800
1,100,000 La Crosse, WI Housing Authority - Ping Manor Project................. 6.375 04/01/2012 1,123,375
800,000 La Crosse, WI Housing Authority - Ping Manor Project................. 6.000 04/01/2005 807,000
350,000 La Crosse, WI Housing Authority - Washburn........................... 6.500 10/01/2026 353,063
100,000 Little Chute, WI Community Development Authority.................... 5.625 03/01/2019 100,625
305,000 Madison, WI CDA - Dempsey Manor Project.............................. 6.400 10/01/2018 309,575
160,000 Madison, WI CDA - Dempsey Manor Project.............................. 6.650 10/01/2025 160,800
1,435,000 Madison, WI CDA - Edgewood College................................... 6.250 04/01/2014 1,476,256
95,000 Madison, WI CDA - Greentree Project - Series A....................... 7.300 09/01/2032 96,781
1,000,000 Madison, WI CDA - Meriter Retirement Project......................... 6.125 12/01/2019 1,053,750
45,000 Madison, WI CDA - Monticello Apartments Project...................... 7.125 04/01/2009 46,294
200,000 Madison, WI CDA - Second Mortgage - Revenue Bonds.................... 5.875 07/01/2016 204,750
100,000 Marinette, WI Housing Authority - Multifamily - Series A............. 6.750 02/01/2024 103,625
165,000 Markesan, WI CDA - Elderly Housing Revenue Bonds..................... 6.750 10/01/2009 168,506
190,000 Markesan, WI CDA - Elderly Housing Revenue Bonds..................... 6.900 10/01/2011 194,988
100,000 Menomonee Falls, WI CDA - Village Square Project..................... 5.200 09/01/2009 94,250
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS (cont'd) . June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS--98.5% (cont'd) COUPON MATURITY Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN--84.7% [cont'd]
$ 950,000 Menomonee Falls, WI CDA - Village Square Project.................... 5.350% 09/01/2016 $ 876,375
215,000 Milwaukee, WI Housing Authority - Blatz Apartments.................. 7.500 12/01/2028 222,794
50,000 Milwaukee, WI New Public Housing Authority.......................... 5.000 09/01/2010 49,125
100,000 Milwaukee, WI Redevelopment Auth. - Campus Town..................... 5.550 11/01/2012 100,750
3,000,000 Milwaukee, WI Redevelopment Auth. - Campus Town..................... 5.700 11/01/2018 3,037,500
55,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.................... 5.300 12/01/2007 55,344
65,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.................... 5.350 12/01/2008 65,406
55,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.................... 5.400 12/01/2010 54,794
225,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.................... 5.500 12/01/2013 221,063
1,955,000 Milwaukee, WI Redevelopment Authority - MSOE........................ 6.000 10/01/2017 1,976,994
1,385,000 Milwaukee, WI Redevelopment Authority - MSOE........................ 6.000 10/01/2017 1,397,119
3,250,000 Milwaukee, WI Redevelopment Auth. - Multifamily..................... 6.300 08/01/2038 3,266,250
500,000 Milwaukee, WI Redevelopment Auth. - Schlitz Park II................. 5.000 01/01/2015 504,375
10,000 Milwaukee, WI Redevelopment Auth. - School Improve.................. 0.000 03/01/2004 6,700
1,755,000 Milwaukee, WI Re. Auth. - Wisc. Ave/M.L. King, Jr. Dr............... 5.600 09/01/2009 1,792,294
11,000,000 Milwaukee, WI Re. Auth. - Wisc. Ave/M.L. King, Jr. Dr............... 5.500 09/01/2012 11,041,250
1,705,000 Milwaukee, WI Re. Auth. - Wisc. Ave/M.L. King, Jr. Dr............... 5.600 03/01/2009 1,741,231
1,300,000 Milwaukee, WI Re. Auth. - Wisc. Ave/M.L. King, Jr. Dr............... 5.500 03/01/2008 1,327,625
650,000 New Berlin, WI Housing Authority - Apple Glen....................... 6.700 11/01/2020 684,125
1,210,000 New Berlin, WI Housing Authority - Apple Glen....................... 6.700 11/01/2017 1,273,525
65,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 11/01/2007 35,913
70,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 05/01/2010 33,075
65,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 11/01/2009 31,688
70,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 05/01/2009 35,088
70,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 05/01/2005 45,150
70,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 05/01/2007 39,813
65,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 11/01/2004 43,469
65,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 11/01/2006 38,269
65,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 11/01/2003 46,231
65,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 11/01/2005 40,788
70,000 New Berlin, WI Housing Authority - Apple Glen....................... 0.000 05/01/2006 42,350
165,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.800 11/01/2012 167,063
190,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.900 11/01/2014 198,075
135,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.900 05/01/2014 136,688
165,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.850 11/01/2013 175,313
160,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.850 05/01/2013 162,000
105,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.500 05/01/2009 105,263
155,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.700 11/01/2011 156,356
150,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.700 05/01/2011 151,313
125,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.600 05/01/2010 131,563
125,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.400 11/01/2008 125,313
125,000 New Berlin, WI Housing Authority - Pinewood Creek................... 6.400 05/01/2008 125,313
1,015,000 New Berlin, WI Housing Authority - Pinewood Creek................... 7.125 05/01/2024 1,063,213
80,000 Oak Creek, WI Housing Authority - Country Oaks II................... 6.000 08/01/2010 80,300
2,980,000 Oak Creek, WI Housing Authority - Country Oaks II................... 6.300 08/01/2028 3,084,300
1,440,000 Oak Creek, WI Housing Authority - Country Oaks II................... 6.200 08/01/2017 1,445,400
10,000 Oak Creek, WI Housing Authority - Multifamily....................... 7.750 03/01/2031 10,388
125,000 Oak Creek, WI Housing Authority - Wood Creek........................ 0.000 01/20/2013 49,375
2,130,000 Oak Creek, WI Housing Authority - Wood Creek........................ 5.625 07/20/2029 2,082,075
1,000,000 Oak Creek, WI Housing Authority - Wood Creek........................ 5.500 07/20/2019 978,750
60,000 Oak Creek, WI Housing Authority - Wood Creek........................ 0.000 01/20/2014 22,125
125,000 Oak Creek, WI Housing Authority - Wood Creek........................ 0.000 07/20/2013 47,500
65,000 Oak Creek, WI Housing Authority - Wood Creek........................ 0.000 01/20/2012 27,219
125,000 Oak Creek, WI Housing Authority - Wood Creek........................ 0.000 07/20/2011 54,375
125,000 Oak Creek, WI Housing Authority - Wood Creek........................ 0.000 01/20/2011 55,938
35,000 Oak Creek, WI Housing Authority - Wood Creek........................ 0.000 01/20/2010 16,713
50,000 Oak Creek, WI Housing Authority - Wood Creek........................ 0.000 07/20/2007 28,125
100,000 Oak Creek, WI Housing Authority - Wood Creek........................27.750 07/20/1998 123,153
335,000 Omro, WI CDA - Revenue Bonds........................................ 5.875 12/01/2011 347,563
50,000 Omro, WI CDA - Revenue Bonds........................................ 5.750 12/01/2006 52,563
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS (cont'd) . June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS--98.5% (cont'd) COUPON MATURITY Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WISCONSIN-84.7% [cont'd]
$ 200,000 Outagamie, WI Housing Authority - First Mortgage.................... 5.000% 11/15/2003 $ 196,000
10,000 Racine, WI Elderly Housing Authority - Lincoln Lutheran............. 7.150 10/01/2005 10,000
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 49,500
170,000 Schofield, WI CDA - Lease Revenue................................... 6.000 10/01/2012 172,763
500,000 Schofield, WI CDA - Lease Revenue................................... 6.200 10/01/2017 506,875
3,700,000 SE WI Professional Baseball Park District........................... 5.750 12/15/2021 3,737,000
1,000,000 SE WI Professional Baseball Park District........................... 5.700 12/15/2017 1,010,000
315,000 Sheboygan, WI Housing Authority - Multifamily Housing............... 6.900 02/01/2024 324,056
125,000 Sheboygan, WI Housing Authority - Rocky Knoll Project............... 5.300 12/01/2016 118,750
175,000 Sheboygan, WI Housing Authority - Rocky Knoll Project............... 5.250 12/01/2013 164,500
35,000 Slinger, WI Redevelopment Auth. Lease Revenue....................... 5.800 09/01/2007 35,569
95,000 Slinger, WI Redevelopment Auth. Lease Revenue....................... 5.850 09/01/2008 96,544
540,000 Slinger, WI Redevelopment Auth. Lease Revenue....................... 6.250 09/01/2017 550,125
560,000 Stevens Point, WI CDA - Mrtge. Refunding - Edgewater................ 6.625 09/01/2009 586,600
100,000 Stevens Point, WI CDA - Mrtge. Refunding - Edgewater................ 6.500 09/01/2006 105,500
435,000 Sturtevant, WI CDA - Redevelopment Lease............................ 5.700 12/01/2009 439,894
375,000 Sturtevant, WI CDA - Redevelopment Lease............................ 5.800 12/01/2010 380,156
200,000 Sturtevant, WI CDA - Redevelopment Lease............................ 5.900 12/01/2011 202,750
1,000,000 Sturtevant, WI CDA - Redevelopment Lease............................ 6.000 12/01/2015 1,018,750
200,000 Sturtevant, WI CDA - Redevelopment Lease............................ 6.500 12/01/2015 210,250
1,190,000 St. Croix Falls, WI CDA Lease Revenue............................... 6.400 12/01/2014 1,218,263
115,000 St. Croix Falls, WI CDA Lease Revenue............................... 6.000 12/01/2007 118,163
105,000 St. Croix Falls, WI CDA Lease Revenue............................... 5.900 12/01/2006 107,625
310,000 Superior, WI Housing Authority - St. Francis Project............... 6.000 01/20/2022 315,425
305,000 Superior, WI RA - Superior Memorial Hospital Mortgage.............. 5.700 05/01/2009 313,388
195,000 Sussex, WI CDA - Revenue Bond...................................... 5.700 04/01/2007 196,950
1,900,000 Sussex, WI CDA - Revenue Bond...................................... 6.100 04/01/2015 1,930,875
270,000 Two Rivers, WI CDA - Arch Forest Project............................ 6.350 12/15/2012 271,013
500,000 Waukesha, WI HA - Multifamily - Brookfield Woods.................... 6.750 12/01/2034 506,250
5,000 Waukesha, WI HA - Multifamily - Summit Woods........................ 7.375 12/01/2024 5,000
405,000 Waukesha, WI HA - Multifamily - The Court Apartments................ 5.800 04/01/2025 405,506
10,000 Waukesha, WI HA - Multifamily - The Court Apartments................ 6.300 12/01/2013 10,000
1,000,000 Waukesha, WI HA - Multifamily - The Court Apartments................ 6.000 04/01/2036 937,500
1,000,000 Waukesha, WI HA - Westgrove Woods - A............................... 6.000 12/01/2031 1,007,500
715,000 Waukesha, WI HA - Westgrove Woods - C............................... 6.750 02/01/2027 715,894
5,000 Waukesha, WI RA - Barstow Associates................................ 4.875 08/01/2010 5,000
95,000 Waupaca, WI CDA - Series A.......................................... 6.100 10/01/2008 97,731
100,000 Waupaca, WI CDA - Series A.......................................... 6.200 10/01/2010 102,625
110,000 Waupaca, WI CDA - Series A.......................................... 6.200 10/01/2011 112,475
120,000 Waupaca, WI CDA - Series A.......................................... 6.200 10/01/2012 122,250
100,000 Waupaca, WI CDA - Series A.......................................... 6.100 10/01/2009 102,500
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 05/01/2010 49,350
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 05/01/2009 52,631
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 11/01/2009 48,750
1,060,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 6.700 11/01/2019 1,082,525
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 11/01/2010 45,625
1,200,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 6.700 11/01/2015 1,228,500
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 05/01/2008 56,175
615,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 6.700 11/01/2022 628,069
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 11/01/2008 51,875
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 11/01/2006 58,875
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 11/01/2007 55,250
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 05/01/2004 72,188
75,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 05/01/2003 54,750
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 11/01/2003 71,125
70,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 05/01/2005 45,063
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 11/01/2004 66,875
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 05/01/2007 59,719
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project........................ 0.000 11/01/2005 62,750
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS [cont'd] . June 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS - 98.5% [cont'd] COUPON MATURITY VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN - 84.7% [cont'd]
$ 105,000 Wauwatosa, WI HA - Hawthorne Terrace Project.................... 0.000% 05/01/2006 $ 63,525
2,720,000 West Allis, WI CDA - Poblocki Investments Project............... 6.100 05/01/2007 2,815,200
150,000 Whitewater, WI Multifamily Housing - Revenue Bonds.............. 5.375 11/15/2005 150,938
100,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............ 5.625 05/01/2005 100,250
115,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............ 5.625 05/01/2007 109,681
120,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............ 5.625 05/01/2008 113,250
125,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............ 5.625 05/01/2009 116,563
135,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............ 5.625 05/01/2010 130,781
105,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............ 5.625 05/01/2006 101,194
10,000 Winnebago County, WI Housing Authority - Series A............... 6.200 03/01/2001 10,325
15,000 Winnebago County, WI Housing Authority - Series A............... 6.300 03/01/2002 15,581
10,000 Winnebago County, WI Housing Authority - Series A............... 6.000 03/01/1999 10,163
10,000 Winnebago County, WI Housing Authority - Series A............... 6.100 03/01/2000 10,250
380,000 Winnebago County, WI Housing Authority - Series A............... 7.125 03/01/2022 391,400
195,000 Winnebago County, WI Housing Authority - Series A............... 6.875 03/01/2012 200,119
9,650,000 Wisconsin Center - Revenue Bond - Public Improvements........... 5.700 12/15/2020 9,637,911
10,000 WHEDA Home Ownership............................................ 7.375 09/01/2017 10,348
100,000 WHEDA Home Ownership............................................ 0.000 12/01/2007 36,375
60,000 Wittenberg, WI HA - Multifamily - Forest Park................... 7.200 06/20/2030 61,050
200,000 Wrightstown, WI Community Development Authority................. 5.950 06/01/2014 200,250
600,000 Wrightstown, WI Community Development Authority................. 6.000 06/01/2019 598,500
------------
106,210,045
------------
PUERTO RICO - 6.1%
420,000 Puerto Rico Commonwealth - Public Improvement................... 5.500 07/01/2013 415,275
400,000 Puerto Rico Commonwealth - Public Improvement................... 5.850 07/01/2011 409,000
1,205,000 Puerto Rico Commonwealth Hwy./Transportation.................... 5.500 07/01/2017 1,176,381
2,915,000 Puerto Rico Commonwealth Hwy./Transportation.................... 5.750 07/01/2018 2,922,288
990,000 Puerto Rico Electric Power Authority - Series O................. 0.000 07/01/2017 320,513
280,000 Puerto Rico Electric Power Authority - Series P................. 7.000 07/01/2021 312,200
135,000 Puerto Rico Housing Finance Corporation - Multifamily (a)....... 7.500 10/01/2015 141,581
250,000 Puerto Rico Industrial, Medical & Environmental Auth.(a)........ 6.000 06/01/2000 258,125
1,625,000 Puerto Rico Municipal Finance Agency - Series A................. 5.875 07/01/2007 1,673,750
------------
7,629,113
------------
GUAM - 7.7%
1,000,000 Guam Airport Authority - Series B............................... 6.400 10/01/2013 1,050,000
250,000 Guam Gov't Ltd. Oblig. Revenue - Series A....................... 7.100 11/15/2009 262,188
1,000,000 Guam Government G.O. - Series A................................. 5.375 11/15/2013 937,500
3,000,000 Guam Government G.O. - Series A................................. 5.400 11/15/2018 2,786,250
3,400,000 Guam Power Authority - Series A................................. 6.300 10/01/2012 3,476,500
250,000 Guam Power Authority - Series A................................. 5.250 10/01/2013 231,250
1,000,000 Guam Power Authority - Series A................................. 5.250 10/01/2023 896,250
------------
9,639,938
------------
NEW PUBLIC HOUSING AUTHORITIES - 0.0%
35,000 Burleigh County, ND - New Public Housing Authority.............. 4.875 01/01/2011 33,775
------------
33,775
------------
TOTAL INVESTMENTS (Cost $121,692,013)..................... 98.5% $123,512,870
Cash and receivables, less liabilities.................... 1.5% 1,903,027
----- ------------
TOTAL NET ASSETS..........................................100.0% $125,415,897
===== ============
</TABLE>
(a) All or a portion of security pledged to cover margin requirements for
futures contracts.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
8
<PAGE>
<TABLE>
HEARTLAND WISCONSIN TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES . June 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at cost........................................................................ $121,692,013
============
Investments in securities, at value....................................................................... $123,512,870
Cash...................................................................................................... 358,628
Accrued interest.......................................................................................... 1,675,691
Variation margin on open futures contracts................................................................ 18,752
------------
Total Assets........................................................................................... 125,565,941
------------
LIABILITIES:
Payable to Advisor for management fee..................................................................... 69,087
Distributions payable..................................................................................... 1,059
Payable for Fund shares redeemed.......................................................................... 54,328
Accrued expenses.......................................................................................... 25,570
------------
Total Liabilities...................................................................................... 150,044
============
TOTAL NET ASSETS............................................................................................... $125,415,897
============
NET ASSETS CONSIST OF:
Paid in capital........................................................................................... $123,516,123
Accumulated undistributed net realized losses on investments.............................................. (47,026)
Net unrealized appreciation on investments................................................................ 1,946,800
------------
TOTAL NET ASSETS............................................................................................... $125,415,897
============
SHARES OUTSTANDING, $.001 par value (100,000,000 shares authorized)....................................... 12,253,594
------------
NET ASSET VALUE PER SHARE...................................................................................... $ 10.24
============
STATEMENT OF OPERATIONS
For the period from January 1, 1997 to June 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest.................................................................................................. $ 3,643,969
------------
Total investment income................................................................................ 3,643,969
------------
EXPENSES:
Management fees........................................................................................... 397,893
Transfer agent fees....................................................................................... 44,916
Postage................................................................................................... 8,102
Audit fees................................................................................................ 7,500
Printing and communications............................................................................... 6,256
Custodian fees............................................................................................ 5,515
Directors' fees........................................................................................... 2,274
Registration fees......................................................................................... 1,891
Amortization of organization expense...................................................................... 1,517
Legal fees................................................................................................ 895
Other operating expenses.................................................................................. 27,668
------------
Total expenses......................................................................................... 504,427
Less: Fees paid indirectly............................................................................. (5,515)
------------
Net expenses........................................................................................... 498,912
------------
NET INVESTMENT INCOME..................................................................................... 3,145,057
------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on:
Securities............................................................................................. 287,599
Futures Contracts...................................................................................... 200,053
Net increase in unrealized appreciation on:
Securities............................................................................................. 290,139
Futures Contracts...................................................................................... 125,943
------------
TOTAL REALIZED AND UNREALIZED GAINS ON INVESTMENTS........................................................ 903,734
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................................... $ 4,048,791
============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
9
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND WISCONSIN TAX FREE FUND
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
Jan. 1, 1997 to Year Ended
June 30, 1997 Dec. 31,
(Unaudited) 1996
--------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income......................................................................... $ 3,145,057 $ 6,199,073
Net realized gains on investments............................................................. 487,652 370,748
Net increase (decrease) in unrealized appreciation on investments............................. 416,082 (1,867,241)
------------ ------------
Net increase in net assets resulting from operations....................................... 4,048,791 4,702,580
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income......................................................................... (3,145,057) (6,199,073)
------------ ------------
Total distributions to shareholders........................................................ (3,145,057) (6,199,073)
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued................................................................... 7,886,565 21,604,140
Reinvested dividends from net investment income............................................... 2,211,200 4,374,986
Cost of shares redeemed....................................................................... (10,130,365) (18,450,990)
------------ ------------
Net increase (decrease) in net assets derived from Fund share activities................... (32,600) 7,528,136
------------ ------------
TOTAL INCREASE IN NET ASSETS....................................................................... 871,134 6,031,643
NET ASSETS AT THE BEGINNING OF THE PERIOD.......................................................... 124,544,763 118,513,120
------------ ------------
NET ASSETS AT THE END OF THE PERIOD................................................................ $125,415,897 $124,544,763
============ ============
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
For the six months For the year ended April 3, 1992/1/
ending June 30, 1997 December 31, through
(Unaudited) 1996 1995 1994 1993 Dec. 31, 1992
----------- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Selected Per Share Data
Net asset value, beginning of period......... $ 10.16 $ 10.30 $ 9.21 $ 10.38 $ 9.85 $ 9.70
Income from investment operations:
Net investment income...................... .26 .51 .51 .51 .49 .37
Net realized and unrealized gains (losses)
on investments............................ .08 (.14) 1.09 (1.17) .55 .15
-------- -------- -------- -------- -------- --------
Total income from investment operations.. .34 .37 1.60 (.66) 1.04 .52
Less distributions from:
Net investment income...................... (.26) (.51) (.51) (.51) (.49) (.37)
Net realized gains on investments.......... -- -- -- -- (.02) --
-------- -------- -------- -------- -------- --------
Total distributions...................... (.26) (.51) (.51) (.51) (.51) (.37)
Net asset value, end of period............... $ 10.24 $ 10.16 $ 10.30 $ 9.21 $ 10.38 $ 9.85
======== ======== ======== ======== ======== ========
Total Return/2/.............................. 3.4%/3/ 3.8% 17.8% (6.5)% 10.8% 7.3%/4/
Ratio and Supplemental Data
Net assets, end of period
(in thousands)............................ $125,416 $124,545 $118,513 $101,749 $ 99,350 $ 36,304
Ratio of net expenses to
average net assets........................ 0.81%/4//5/ 0.80%/5/ 0.84% 0.85% 0.84% 0.82%/4/
Ratio of net investment income
to average net assets..................... 5.10%/4/ 5.12% 5.23% 5.28% 4.81% 4.87%/4/
Portfolio turnover rate.................... 7% 14% 11% 22% 6% 7%
</TABLE>
/1/ Commencement of operations.
/2/ The front-end sales charge in effect for the Fund prior to June 1, 1994 is
not reflected in Total Return as set forth in the table.
/3/ Not annualized.
/4/ Annualized.
/5/ The ratio does not include fees paid indirectly. If the Fund did not have
fees paid indirectly, the expense ratio would have been 0.82% for the six
months ending June 30, 1997 and 0.81% for 1996. Disclosure of fees paid
indirectly was not required prior to December 31, 1995.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
10
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS . June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
(1) Organization
The Heartland Group, Inc. (the "Corporation") is registered as a
diversified open-end management company under the Investment Company Act of
1940. The Wisconsin Tax Free Fund (the "Fund") is one of the nine series of
funds issued by the Corporation at June 30, 1997.
(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Fund in preparation of the financial statements:
(a) Debt securities are stated at fair value as furnished by independent
pricing services based primarily upon information concerning market
transactions and dealer quotations for similar securities, or by
dealers who make markets in such securities. Debt securities having
maturities of 60 days or less may be valued at acquisition cost, plus
or minus any amortized discount or premium. Securities and other
assets for which quotations are not readily available are valued at
their fair value using methods determined by the Board of Directors.
(b) The Funds' policy is to comply with the requirements of the Internal
Revenue Code which are applicable to regulated investment companies
and to distribute substantially all of its taxable income to its
shareholders. The Fund accordingly paid no Federal income taxes, and
no Federal income tax provision is required.
At June 30, 1997, the Fund had a Federal income tax capital loss
carryforward of $8,153 expiring in 2002 and $526,525 expiring in 2003.
The Fund does not intend to make a distribution of any future realized
capital gains until its Federal income tax capital loss carryforward
is completely utilized.
(c) Net investment income is distributed to each shareholder as a
dividend. Dividends are declared daily and distributed monthly and are
recorded by the Fund on the ex-dividend date. Net realized gains on
investments, if any, are distributed annually.
(d) The Fund records security and shareholder transactions no later than
the first business day after the trade date. Net realized gains and
losses on investments are computed on the identified cost basis.
Interest income is recognized on an accrual basis. The Fund amortizes
premium and accretes original issue discount on investments utilizing
the effective interest method.
(e) The Fund may enter into futures contracts for hedging purposes, such
as to protect against anticipated declines in the market value of its
portfolio securities or to manage exposure to changing interest rates.
Upon entering into a futures contract, 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 a
portfolio's hedging strategy unsuccessful.
The Fund had the following open futures contracts at June 30, 1997:
<TABLE>
<CAPTION>
Unrealized
Number Expiration Appreciation
Type of Contracts Date (Depreciation)
- ---- ------------ ---- --------------
<S> <C> <C> <C>
U.S. Treasury Bond Index 50 Sept. 1997 $(14,227)
Municipal Bond Index (150) Sept. 1997 140,170
--------
$125,943
========
</TABLE>
11
<PAGE>
(f) The Fund has entered into a fee arrangement with its custodian bank
which provides for a reduction in custody fees based upon net amounts
of uninvested cash balances. This reduction of expenses is shown on the
Statement of Operations as "Fees Paid Indirectly."
(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.
(3) Investment Management Fees and Transactions with Related Parties
The Fund has a management agreement with Heartland Advisors, Inc. (the
"Advisor") to serve as investment advisor and manager. Under the terms of
the agreement, the Fund pays the Advisor a monthly management fee at the
annual rate of .65% of the daily net asset value of the Fund.
Officers and certain directors of the Corporation are also officers and/or
directors of the Advisor; however, they receive no compensation from the
Fund.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the
Board of Directors of the Corporation 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 Heartland Advisors, Inc. is a
member.
(4) Deferred Organization Expenses
Organization expenses have been deferred and were amortized on a straight-
line basis over sixty months. Payments for these expenses were advanced by
the Advisor, who was reimbursed by the Fund over the same period. As of
June 30, 1997 all organization expenses have been amortized.
(5) Investment Transactions
During the year ended June 30, 1997, purchases and sales of securities,
other than short-term obligations, were $9,131,050 and $9,773,778,
respectively.
At June 30, 1997, the gross unrealized appreciation and depreciation on
investments were $2,546,508 and $725,651, respectively, netting to
$1,820,857.
Cost of investments is substantially the same for financial reporting
purposes and federal income tax purposes.
(6) Fund Share Transactions
For the period ended June 30, 1997, Fund share transactions were as
follows:
Shares issued....................................... 778,310
Reinvested dividends from net investment income..... 218,159
Shares redeemed..................................... (1,000,576)
----------
Net decrease in Fund shares......................... (4,107)
==========
For the year ended December 31, 1996, Fund share transactions were as
follows:
Shares issued....................................... 2,158,376
Reinvested dividends from net investment income..... 434,964
Shares redeemed..................................... (1,840,299)
----------
Net increase in Fund shares......................... 753,041
==========
12
<PAGE>
VALUE REPORT
Dear Investor
We are here to help you meet your investment needs.
[Photo of Heartland Shareholder Services Representative]
If you have a question, please call Heartland Shareholder Services. We're
confident you'll find our representatives to be knowledgeable and responsive.
1-800-432-7856
[Logo] Heartland Funds
- ----------------------
AMERICA'S VALUE INVESTOR
<PAGE>
The Heartland Family of Funds
Small Cap Contrarian Fund
Value Fund
(closed to new investors 7/1/95)
Mid Cap Value Fund
Large Cap Value Fund
Value Plus Fund
U.S. Government Securities Fund
Wisconsin Tax Free Fund
Short Duration High-Yield
Municipal Fund NEW
High-Yield Municipal
Bond Fund NEW
Portico Money Market Fund
[Logo] Heartland Funds
AMERICA'S VALUE INVESTOR
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. Complete
portfolios for the Funds will be included in the Annual and Semi-Annual Reports
to Shareholders.
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 Funds'
prospectus. Please call for a prospectus if you would like more complete
information, including charges and expenses, for any Heartland fund. Read it
carefully before you invest. Heartland Advisors, Inc., distributor. Member
SIPC/NASD.
