<PAGE>
[LOGO] HEARTLAND FUNDS
---------------------------
AMERCIA'S VALUE INVESTOR(R)
=======================
Value Report
June 30, 1999
Notes on value investing
for investors in
Heartland Funds
=======================
Semi-Annual Report
to Shareholders
Large Cap Value Fund
Mid Cap Value Fund
Value Plus Fund
Value Fund
Government Fund
<PAGE>
VALUE REPORT
The Value School is Accepting New Applications
[PHOTO OF WILLIAM J. NASGOVITZ APPEARS HERE]
Dear Fellow Investor,
At Heartland, value investing is our sole curriculum. As tenured professors in
the value school, we continually lecture on the merits of this time-tested
investment discipline. In recent years, many of our students have been asleep in
their seats. They seem to have discredited the concept of value. Why buy cheap
stocks when the expensive ones have been producing the best returns? We would
respond by saying that buying stocks selling at a discount to their economic
value not only makes much stronger academic sense, but over the long term has
provided attractive returns for those students patient enough to stay the
course.
During the second quarter 1999, the logic of momentum investing--paying absurd
multiples for large cap growth stocks and absolutely ludicrous premiums for
Internet start-ups--was finally challenged. The "new age" investment professors
are disappearing, as are the profits from their "pay any price for growth"
strategy. At the same time, value is being acknowledged in the market. Investors
are gravitating to cyclical stocks and other traditional value sectors. Recent
years' market laggards are now at the head of the performance class.
Will the value school continue to attract investors? We think so. Money follows
returns. That's why value and growth take turns leading the market. Please see
the following page for a historical look at these cycles. With the value sector
gaining momentum and growth stocks running out of gas, value investing is bound
to attract a bigger audience. Importantly, even after value's strong
outperformance during the second quarter, value stocks are still cheap and
growth stocks are still quite expensive based on historical yardsticks.
It is easy to lose sight of the merits of value investing during extended
periods in which value underperforms. Investors' patience is tested and our
enrollment dwindles. But, we always welcome serious investment students back.
The Value School is now accepting new applications. We will continue to follow
our value syllabus--Heartland's 10-Point Value Grids (see p. 13). We are
confident this sound investment course will reward our shareholders with
attractive long-term returns.
Sincerely,
/s/ William J. Nasgovitz
William J. Nasgovitz
President
<PAGE>
VALUE REPORT
Time For Investors to Anticipate a Change?
Note from the chart below that historically value and growth investment styles
have rotated in performance leadership. The current period of underperformance
for value investing has been long and deep.
S&P Value Minus S&P Growth Over Rolling Three-Year Periods
[CHART SHOWING APPEARS HERE]
Based on the S&P 500/BARRA Value and Growth indexes, which divide the S&P 500
into a value index and a growth index based on price/book ratios. Each S&P
company is included in either the growth or the value index. The two indexes
have approximately the same market value and are rebalanced as needed. Past
performance does not guarantee future results. The performance presented is not
intended to be indicative of any Heartland fund or product. There can be no
assurance that historical patterns will continue and if they did, how long they
will continue.
Source: Standard & Poor's
1
<PAGE>
VALUE REPORT
Heartland Large Cap Value Fund
[PHOTO OF JAMES P. HOLMES, CFA APPEARS HERE]
Portfolio Manager
"April was a breakout month for value stocks, and characteristic of past market
turns, the cheapest of the cheap stocks -- what we call deep value -- performed
the best."
Value stocks excelled in the second quarter of 1999. Most of the industry groups
represented in our portfolio participated in the rally. Our healthcare
investments performed particularly well as it became clear that additional cost
cutting in federal insurance programs was not on the legislative docket. The
still robust domestic economy helped severely depressed cyclical holdings post
strong gains. Positions in energy, railroad and utilities companies also
contributed to returns. Finally, the announced takeovers of Raychem by Tyco and
YPF Sociedad by Repsol gave performance a big boost. Rising interest rates and
declining bond portfolios restrained our insurance company investments.
Does the exceptional performance of value stocks this quarter signal a major
change in a market that has favored growth stocks for nearly 5 years? April was
a breakout month for value stocks, and characteristic of past market turns, the
cheapest of the cheap stocks--what we call deep value--performed the best. Based
on historic valuation criteria, growth stocks remain significantly overvalued
and traditional value sectors are still quite cheap. This may set the stage for
an extended period of outperformance by value stocks.
A Good Man (or Woman) is Hard to Find
Manpower, Inc. is exporting the temporary employee service business to Europe.
Manpower's earnings stalled with its major push into these new markets. However,
we believe the company is now ready to reap the rewards of its international
expansion. New management is aggressively cutting costs overseas and at home,
another catalyst for improving earnings. Over the next three to five years, we
believe Manpower's earnings can grow at around 12% annually. If we are right,
Manpower stock deserves much better than its current P/E of 12.
At June 30, 1999, the Fund held 15,000 shares of Raychem Corporation, 0 shares
of YPF Sociedad Anonima (ADR), and 25,500 shares of Manpower, Inc., valued at
$555,000, $0, and $576,938, respectively, and representing 5.7%, 0%, and 6.0%,
respectively, of the Fund's net assets.
2
<PAGE>
VALUE REPORT
Heartland Large Cap Value Fund
This Fund seeks long-term capital appreciation through investing in large
companies. It invests in companies with market capitalizations of over $1
billion selected on a value basis.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS/1/ Since inception
YTD* 1-year (10/11/96)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Large Cap Value Fund 8.0% 3.9% 13.7%
- -------------------------------------------------------------------------------------
S&P 500 Index 12.4 22.8 30.6
- -------------------------------------------------------------------------------------
</TABLE>
*Not annualized.
The S&P 500 Index is an unmanaged index of 500 stocks representing major U.S.
industries.
FUND FACTS
<TABLE>
<CAPTION>
Growth of $10,000 Fund vs. S&P 500/2/
<S> <C> <C> <C>
since inception (10/11/96)........ $ 14,184/1/ Alpha...................... -0.59
Median market cap..................... $ 3.2 bil. Beta....................... 0.68
Share price........................... $ 12.61 R-squared.................. 0.51
Net assets............................ $ 9.7 mil. Number of holdings............. 24
</TABLE>
<TABLE>
<CAPTION>
COMPARATIVE VALUATIONS Heartland Large Cap S&P 500
Value Fund Index/4/
- -------------------------------------------------------------------------------------
<S> <C> <C>
'99 Price/Earnings Ratio 15.1x/3/ 26.2x
- -------------------------------------------------------------------------------------
Price/Book Value Ratio 2.1x 5.2x
- -------------------------------------------------------------------------------------
Price/Cash Flow Ratio 8.6x 18.6x
- -------------------------------------------------------------------------------------
</TABLE>
TOP 10 HOLDINGS
<TABLE>
<S> <C> <C> <C>
Healthsouth Corporation..................... 6.5% HON Industries, Inc.......................... 4.9%
Ryder System, Inc........................... 6.5 HCR Manor Care, Inc.......................... 4.9
Liz Claiborne, Inc.......................... 6.2 Unicom Corporation........................... 4.8
Manpower, Inc............................... 6.0 Jefferson Smurfit Group PLC(ADR)............. 4.8
Raychem Corporation......................... 5.7 Union Pacific Corporation.................... 4.2
</TABLE>
Past performance is no guarantee of future results.
All statistics are as of June 30, 1999.
/1/ Includes reinvestment of all dividends and capital gains distributions.
Without fee waivers and expense reimbursement in effect, total returns would
have been lower. /2/ Since the Fund commenced operations on 10/11/96, the
measurements are based on weekly data, rather than monthly data, from inception
through 6/30/99. Source: Heartland Advisors, Inc., with data on the relevant
benchmark index from Russell Analytics. /3/ Excluding negative earnings. /4/
Sources: Russell Analytics, S&P Barra, and Heartland Advisors, Inc.
3
<PAGE>
VALUE REPORT
Heartland Mid Cap Value Fund
[PHOTO OF MICHAEL A. BERRY, PH.D. APPEARS HERE]
Portfolio Manager
"We are seeing a clear rotation from growth to value across the market
capitalization spectrum. We believe this rotation will accelerate as more air
escapes from what is still an inflated growth stock bubble."
Mid cap value stocks performed exceptionally well in April and May, and
preserved most of their gains during June's market slide. We are seeing a clear
rotation from growth to value across the market capitalization spectrum. We
believe this rotation will accelerate as more air escapes from what is still an
inflated growth stock bubble.
Our oil service investments, notably drillers like McDermott International, Inc.
and Santa Fe International Corp., were among our best performers, as day rates
for rigs rebounded strongly from severely depressed levels. Positions in hard
cyclicals in the papers, chemicals, cement and steel industries also performed
well, with Wellman and Bowater being portfolio standouts. Our savings and loan
holdings disappointed as interest rates drifted higher and the yield curve
remained relatively flat. Our software investments stalled with major customers
deferring new purchases until after the millennium.
Falling Through the Cracks
Texas Industries is a Dallas based cement and steel beam manufacturer that seems
to have an identity problem on Wall Street. Since it isn't a pure play in either
industry, analysts and institutional investors have been ignoring it. We are
delighted to be able to take advantage of their oversight. Texas Industries has
strong positions in its Texas/Oklahoma/Louisiana marketplace, and reasonably
good profit margins, which should get better as revenues grow and pricing
continues to firm. We are estimating 15% average annualized earnings growth over
the next 3-5 years. The stock trades at just under 12 times our 1999 earnings
forecasts. We believe investors will soon begin looking under the rug for
undervalued cyclicals. When they do, they will find what we view as a great
bargain in the form of Texas Industries.
At June 30, 1999, the Fund held 27,200 shares of McDermott International, Inc.
21,300 shares of Santa Fe International Corporation, 44,100 shares of Wellman,
Inc., 10,400 shares of Bowater, Inc., and 7,400 shares of Texas Industries,
Inc., valued at $768,400, $489,900, $702,844, $491,400, and $286,750,
respectively, and representing 3.5%, 2.3%, 3.2%, 2.2%, and 1.3%, respectively,
of the Fund's net assets.
4
<PAGE>
VALUE REPORT
Heartland Mid Cap Value Fund
This Fund seeks long-term capital appreciation through investing in mid-sized
companies. It invests in common stocks and other equity securities of companies
with market capitalizations between $750 million and $5 billion selected on a
value basis.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS/1/ Since inception
YTD* 1-year (10/11/96)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mid Cap Value Fund -3.6% -18.6% 5.7%
- ----------------------------------------------------------------------------------------------
S&P Mid-Cap Index 6.9 17.2 23.6
- ----------------------------------------------------------------------------------------------
</TABLE>
*Not annualized.
The S&P Mid-Cap Index is an unmanaged index of 400 stocks generally considered
representative of the mid-cap market.
FUND FACTS
<TABLE>
<CAPTION>
Growth of $10,000 Fund vs. S&P Mid-Cap Index/2/
<S> <C> <C> <C>
since inception (10/11/96)......................... $ 11,619/1/ Alpha...................................... -2.2
Median market cap..................................... $ 1.3 bil. Beta....................................... 0.83
Share price........................................... $ 11.27 R-squared.................................. 0.82
Net assets............................................ $ 21.9 mil. Number of holdings.............................. 30
</TABLE>
<TABLE>
<CAPTION>
COMPARATIVE VALUATIONS Heartland Mid Cap S&P Mid-Cap
Value Fund Index/4/
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
'99 Price/Earnings Ratio 17.9x3 20.3x
- ----------------------------------------------------------------------------------------------
Price/Book Value Ratio 1.9x 3.1x
- ----------------------------------------------------------------------------------------------
Price/Cash Flow Ratio 10.1x 13.2x
- ----------------------------------------------------------------------------------------------
</TABLE>
TOP 10 HOLDINGS
<TABLE>
<S> <C> <C> <C>
Sterling Software, Inc.................................... 5.4% Tesoro Petroleum Corporation................... 4.2%
Autodesk, Inc............................................. 5.2 Structural Dynamics Research Corp.............. 4.1
Champion Enterprises, Inc................................. 4.9 Lennar Corporation............................. 3.9
ICN Pharmaceuticals, Inc.................................. 4.8 Polaroid Corporation........................... 3.8
CKE Restaurants, Inc...................................... 4.7 El Paso Electric Company....................... 3.7
</TABLE>
All statistics are as of June 30, 1999.
/1/ Includes reinvestment of all dividends and capital gains distributions.
Without fee waivers and expense reimbursement in effect, total returns would
have been lower. /2/ Since the Fund commenced operations on 10/11/96, the
measurements are based on weekly data, rather than monthly data, from inception
through 6/30/99. Source: Heartland Advisors, Inc., with data on the relevant
benchmark index from Russell Analytics. /3/ Excluding negative earnings. /4/
Sources: Russell Analytics, S&P Barra, and Heartland Advisors, Inc.
5
<PAGE>
VALUE REPORT
Heartland Value Plus Fund
[PHOTO OF WILLIAM J. NASGOVITZ APPEARS HERE]
Portfolio Manager
[PHOTO OF PATRICK J. RETZER, CPA APPEARS HERE]
Portfolio Co-Manager
"Why pay big premiums for earnings or the prospect of future earnings, when you
can get solid, real earnings at a discount?"
In the second quarter of 1999, the Fund was clicking on all cylinders, but our
healthcare, financial services, cyclical, and consumer company investments
provided the biggest boost. But our modest technology holdings disappointed and
our fixed income and convertible bond positions ran into the headwind of rising
interest rates.
The small cap rally is supported by strong fundamentals, very attractive
valuations, and an apparent shift in investor sentiment from greed (growth at
any price) to fear (oops, the S&P 500 is retreating and my internet stocks are
freefalling). Or maybe it's just common sense returning to the market. Why pay
big premiums for earnings, or the prospect of future earnings, when you can get
solid, real earnings at a discount? Whatever the cause of the recovery, it
appears that small cap value is back and we think this sector is poised for an
extended period of outperformance.
Insteel We Trust
Insteel Industries, a manufacturer of concrete reinforcing products, industrial
wire, nails and tire bead wire, is well along the road to recovery. After
selling off underperforming assets and investing in new capacity, Insteel is
once again profitable. The company should benefit from the new federal highway
construction spending bill and the ramp up of its refurbished tire bead wire
plant. First half earnings were impressive and second half earnings should be
even better. Yet, Insteel trades at around book value, at just over seven times
our 1999 earnings estimates, and yields nearly 3%. We think it's a great value,
and in view of substantial share repurchases this year, management appears to
agree.
At June 30, 1999, the Fund held 430,800 shares of Insteel Industries, Inc.,
valued at $3,877,200 and representing 2.4% of the Fund's net assets.
6
<PAGE>
VALUE REPORT
Heartland Value Plus Fund
This Fund seeks capital appreciation and current income. It invests primarily in
income-producing equity securities of smaller companies, selected on a value
basis. To further pursue its income objective, the Fund also invests in other
securities, such as debt securities and cash equivalents. This approach involves
investment risks in addition to those presented by investments in larger
capitalization companies, including the potential for greater price volatility
and lower market liquidity.
<TABLE>
<CAPTION>
JUNE YIELD
- ------------------------------------------------------------------------------------
<S> <C>
Value Plus Fund 2.8%
- ------------------------------------------------------------------------------------
</TABLE>
SEC yield annualized for the 30 days ended 6/30/99.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS/1/ Since inception
YTD* 1-year 5-year (10/26/93)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value Plus Fund 9.1% -2.0% 15.8% 14.1%
- ------------------------------------------------------------------------------------
Russell 2000 9.3 1.5 15.4 12.4
- ------------------------------------------------------------------------------------
</TABLE>
*Not annualized.
The Russell 2000 Index is an unmanaged index of stocks considered representative
of the small cap market.
FUND FACTS
<TABLE>
<CAPTION>
Growth of $10,000 Fund vs. Russell 2000/2/
<S> <C> <C> <C>
since inception (10/26/93)....................... $ 21,165/1/ Alpha................................... 2.33
Median market cap.................................. $ 133 mil. Beta.................................... 0.60
Share price........................................ $ 14.73 R-squared............................... 0.69
Net assets......................................... $ 160.2 mil. Number of holdings........................... 54
</TABLE>
COMPARATIVE VALUATIONS
<TABLE>
<CAPTION>
Heartland Russell
Value Plus Fund 2000/4/
- ------------------------------------------------------------------------------------
<S> <C> <C>
'99 Price/Earnings Ratio 17.0x/3/ 20.1x
- ------------------------------------------------------------------------------------
Price/Book Value Ratio 1.3x 2.4x
- ------------------------------------------------------------------------------------
Price/Cash Flow Ratio 8.6x 16.5x
- ------------------------------------------------------------------------------------
</TABLE>
TOP 10 HOLDINGS
<TABLE>
<S> <C> <C> <C>
London Pacific Group Ltd. (ADR)........................... 7.2% Lufkin Industries, Inc......................... 3.8
Southwestern Energy Corporation........................... 6.8 Hollinger International, Inc................... 3.7
ICN Pharmaceuticals, Inc................................... 5.6 Fleming Companies, Inc......................... 2.9
Oil-Dri Corporation....................................... 4.7 Flexsteel Industries, Inc...................... 2.5
CKE Restaurants, Inc...................................... 4.1 Storage Technology Corporation................. 2.5
</TABLE>
All statistics are as of June 30, 1999.
/1/ Includes reinvestment of all dividends and capital gains distributions. /2/
Based on monthly data for the 3-year period ending 6/30/99. Source: Heartland
Advisors, Inc., with data on the relevant benchmark index from Russell
Analytics. /3/Excluding negative earnings. /4/ Sources: Russell Analytics, S&P
Barra, and Heartland Advisors, Inc.
7
<PAGE>
VALUE REPORT
Heartland Value Fund
[PHOTO OF WILLIAM J. NASGOVITZ APPEARS HERE]
Portfolio Co-Manager
[PHOTO OF ERIC J. MILLER, CMA APPEARS HERE]
Portfolio Co-Manager
"Washington appears to be listening both to industry lobbyists and individuals
appalled by the uninsured costs of caring for their parents."
Investors rediscovered small cap value stocks in the second quarter of 1999.
While almost every industry sector represented in the portfolio posted positive
results, our investments in healthcare, cyclicals, and consumer stocks made the
biggest performance contributions. The takeover of four portfolio companies also
buoyed returns. Our utilities investments disappointed, finishing the quarter
flat.
What's responsible for small cap value's resurrection? Investors began
discovering some warts on overvalued large cap market darlings and their torrid
love affair with internet stocks cooled considerably. At the same time,
investors realized they could buy great small companies cheap. Will small cap
value continue to excel? Fundamentals are in their favor and now that investors
have had a taste of very good returns, we suspect they will develop a hearty
appetite for small cap bargains.
Nursing Returns
Last year, the nursing home industry was devastated by major changes in Medicare
reimbursement policies. Earnings plummeted and nursing home stocks nosedived.
Leading nursing home companies have adjusted to the new rules and earnings are
recovering. Additional help may come from an unlikely source--those same federal
regulators that nearly destroyed them. Washington appears to be listening both
to industry lobbyists and individuals appalled by the uninsured costs of caring
for their parents.
Industry leader Beverly Enterprises has done a great job adjusting to the new
rules. Earnings should recover in 1999 and trend significantly higher in 2000.
The stock has performed well recently, but still trades at just 1.4 times book
value and at only about 11 times our 1999 earnings estimates. We think it is
still reasonably priced, and if Uncle Sam gives the industry a leg up, Beverly
Enterprises could prove to be an exceptional bargain.
At June 30, 1999, the Fund held 2,000,000 shares of Beverly Enterprises, Inc.,
valued at $16,125,000 and representing 1.2% of the Fund's net assets.
8
<PAGE>
VALUE REPORT
Heartland Value Fund
This Fund seeks long-term capital appreciation through investing in small
companies. It invests primarily in equity securities of companies with market
capitalizations of less than $750 million selected on a value basis. While
investing in small cap companies may offer greater return potential than
investing in large companies, it also involves additional risks, including the
potential for greater price volatility and lower market liquidity.
AVERAGE ANNUAL TOTAL RETURNS/1/
<TABLE>
<CAPTION>
Since
inception
YTD* 1-year 5-year 10-year (12/28/84)
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Value Fund 11.7% - 4.8% 13.8% 14.6% 15.3%
- ---------------------------------------------------------------------------
Russell 2000 9.3 1.5 15.4 12.4 13.0
</TABLE>
*Not annualized.
The Russell 2000 Index is an unmanaged index of stocks considered
representative of the small cap market.
FUND FACTS
<TABLE>
<CAPTION>
Growth of $10,000 Fund vs. Russell 2000/2/
<S> <C>
since inception (12/28/84)... $79,035/1/ Alpha.................. -0.84
Median market cap............ $76 mil. Beta .................. 0.80
Share price.................. $32.71 R-squared.............. 0.83
Net assets................... $1.3 bil. Number of holdings....... 313
</TABLE>
<TABLE>
<CAPTION>
COMPARATIVE VALUATIONS Heartland Russell
Value Fund 2000/2/
<S> <C> <C>
- ---------------------------------------------------------------------------
'99 Price/Earnings Ratio 16.2x/3/ 20.1x
- ---------------------------------------------------------------------------
Price/Book Value Ratio 1.9x 2.4x
- ---------------------------------------------------------------------------
Price/Cash Flow Ratio 9.7x 16.5x
- ---------------------------------------------------------------------------
</TABLE>
TOP 10 HOLDINGS
<TABLE>
<S> <C> <C>
ICN Pharmaceuticals, Inc............. 5.8% UniSource Energy Corporation...... 1.4%
ShopKo Stores, Inc................... 1.8 Associated Banc-Corp.............. 1.3
Interdigital Communications Corp..... 1.6 Beverly Enterprises, Inc.......... 1.2
Tesoro Petroleum Corporation......... 1.5 Alpine Group, Inc................. 1.2
Presidential Life Corporation........ 1.5 URS Corporation................... 1.1
</TABLE>
All statistics are as of June 30, 1999.
/1/ Includes reinvestment of all dividends and capital gains distributions. /2/
Based on monthly data for the 3-year period ending 6/30/99. Source: Heartland
Advisors, Inc., with data on the relevant benchmark index from Russell
Analytics. /3/Excluding negative earnings. /4/ Sources: Russell Analytics, S&P
Barra, and Heartland Advisors, Inc.
9
<PAGE>
VALUE REPORT
Heartland Government Fund
(Formerly the Heartland U.S. Government Securities Fund)
[PHOTO OF PATRICK J. REIZER, CPA APPEARS HERE]
Portfolio Co-Manager
[PHOTO OF LAWRENCE J. PAVELEC, CFA APPEARS HERE]
Portfolio Co-Manager
"With inflation currently at 2.1% and the 10-year Treasury yielding almost 6%,
we are clearly in the high end of the historical value range for bonds."
Prices Down, Value Up
In the second quarter of 1999, Treasury securities continued to retreat from
last fall's highs. This is a reflection of three economic/market forces. First,
the crisis that sent Treasuries skyrocketing in third quarter 1998--Asia,
Russia, and the near collapse of Long Term Capital Management--have been
resolved or stabilized. Secondly, due to firming commodities prices, inflation
as measured by the Consumer Price Index, has risen from 1.7% at the beginning of
the year to 2.1% at the close of the second quarter. Finally, the strong U.S.
economy and high employment continue to raise fears of impending wage inflation.
Is there light at the end of this tunnel? Of course. We just aren't exactly sure
when it will appear. However, historically, whenever the "real rate of return"
on Treasuries (the spread between inflation and yields) has reached 3.5%-4%, it
has usually been a good buying opportunity. With inflation currently at 2.1% and
the 10-year Treasury yielding almost 6%, we are clearly in the high end of the
historical value range for bonds.
In 1994, the worst bear market for bonds, the 10-year Treasury Bond yield rose
by 57% from its low. We have already experienced a 43% increase in the 10-year
Treasury yield from last fall's lows, leading us to the opinion that much of the
risk is out of the market. If there is no change in interest rates, a 10-year
Treasury would provide a 3% total return over the next six months. If interest
rates increase by 25 basis points (0.25%), 10-year Treasuries would still
provide a 1.3% six month total return. If interest rates drop 25 basis points,
the return would be 4.6%. We think this represents a very favorable risk/reward
posture for Treasuries.
10
<PAGE>
VALUE REPORT
Heartland Government Fund
This Fund seeks a high level of current income, liquidity, and safety of
principal. It works to minimize credit risk by investing 80% of its total assets
in securities issued or guaranteed by the U.S. Government or its agencies./1/
Although there are no duration restrictions for the Fund, it generally maintains
an average portfolio duration of three to six years.
JUNE YIELD........................................ 6.0%/2/
SEC yield annualized for the 30 days ended 6/30/99.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS/3/ Since
inception
YTD* 1-year 5-year 10-year (4/9/87)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Government
Fund -2.6% 1.3% 6.7% 8.3% 8.0%
- ----------------------------------------------------------------------------------
Lehman Intermediate
Treasury Index -0.5 4.5 6.9 7.5 7.5
- ----------------------------------------------------------------------------------
Lipper General
U.S Gov't Fund Index -2.4 1.6 6.6 6.8 6.8
- ----------------------------------------------------------------------------------
</TABLE>
*Not annualized.
The Lehman Intermediate Treasury Index is an unmanaged index of all U.S.
Treasury securities issued by the U.S. Government with maturities of greater
than one year but less than ten years and at least $100 million in outstanding
issuance. 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 Inc.
FUND FACTS
<TABLE>
<S> <C> <C>
Growth of $10,000 Avg. weighted duration................. 4.4 yrs.
since inception (4/9/87)..... $25,525/3/ Avg. weighted credit quality........... Agency/1/
Share price ................... $ 9.52 Dividends.......Declared daily, distributed monthly
Net assets..................... $ 51.1 mil. Sales commission....................... None
</TABLE>
TOP 5 HOLDINGS COUPON MATURITY % OF NET ASSETS
FHLMC 6.5% 5/15/25 9.7%
FNMA TBA 6.5% 5/15/29 9.4
US Treasury Bond 7.875% 2/15/21 9.3
FHLB 5.77% 9/16/02 7.8
Contimortgage HEL Trust 7.58% 8/15/28 6.0
All statistics are as of June 30, 1999.
/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, the SEC yield would have been 5.5% and total
returns would have been lower. /3/Includes reinvestment of all dividends and
capital gains distributions.
11
<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.
12
<PAGE>
VALUE REPORT
Our Value Criteria for Stock Selection
1 Low price/earnings multiple. Is the stock's price/earnings ratio less than
the average in the marketplace? If so, and the stock is then "discovered" by
Wall Street, the low P/E provides opportunity for a price increase. Also, if
the market drops, low P/E stocks have less downside risk.
2 High cash flow. Does the company have high cash flow? Strong cash flow
permits a company to finance expansion internally, repurchase shares or
increase its dividends.
3 Positive earnings dynamics. Does the company have improving earnings or
upwardly revised estimates? Heartland Advisors favors companies with
prospects for improved earnings.
4 Discount to book value. Is the company selling at prices below its tangible
book value? A company's book value -- assets minus liabilities -- gives an
indication of what it would be worth if liquidated. Heartland Advisors likes
to buy a stock for less than book value. Stocks that are very popular with
investors may sell at five or more times book value.
5 Financial soundness. How much debt does a company have relative to its
equity? Heartland Advisors prefers companies whose balance sheets have a
ratio of debt to total capital of no more than 25%.
6 High insider ownership. Does management own a significant percentage of a
company's stock, and are they buying shares? Executives who invest in their
own companies usually have aligned their interests with those of other
shareholders.
7 Capable management. Do the top decision-makers have a realistic vision for
the company as well as a history of success and the drive to accomplish their
goals? The ability of management and management's plans for the company's
prosperity are of paramount importance.
8 Hidden assets. Does the company have undervalued assets? These may include
understated natural resources, overfunded pension plans or fixed assets worth
substantially more than their stated book value.
9 Positive technical analysis. How has the stock's price moved over time?
Heartland Advisors prefers to buy stocks whose prices have experienced
limited fluctuation over long periods.
10 Catalyst for recognition. Is there a factor that could potentially ignite
market interest in the stock and close the gap between the stock's price and
Heartland Advisors' assessment of its true value? Examples of a catalyst
include a new product or technology, a large repurchase plan or merger
activity.
13
<PAGE>
VALUE REPORT
Heartland Value Research
The following studies were conducted by Heartland's research staff and are
available to you upon request. Please call shareholder services at
1.800.432.7856.
#1 "THE CASE FOR LOW P/E AT MARKET TOPS"
Michael A. Berry, Ph.D.
#2 "OVER TIME, THERE'S BEEN NOTHING LIKE VALUE"
Michael A. Berry, Ph.D.
#3 "USING A MID-CAP VALUE STRATEGY TO HEDGE THE LARGE CAP/SMALL CAP CYCLE"
Michael A. Berry, Ph.D.
#4 "WHY INTERMEDIATE MATURITIES?"
Lawrence J. Pavelec, CFA / Patrick J. Retzer, CPA
#5 "A REVEALING LOOK AT PRICE-TO-BOOK"
James P. Holmes, CFA
#6 "WHY GOVERNMENT BONDS?"
Lawrence J. Pavelec, CFA / Patrick J. Retzer, CPA
#7 "VALUE INVESTING: COME RAIN OR COME SHINE"
Michael A. Berry, Ph.D.
#8 "HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND: THE INVENTION OF A
NEW SECTOR"
Thomas J. Conlin, CFA / Greg D. Winston, CFA
14
<PAGE>
VALUE REPORT
Heartland's Risk/Return Spectrum
[CHART SHOWING POTENTIAL RISK/RETURN OF HEARTLAND'S FUNDS APPEARS HERE]
In general, with mutual funds, as with other investments, the higher the risk,
the greater the potential return over time. Each investor should choose an
investment strategy that matches his or her particular investment goals.
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. There is no assurance that the Firstar Money Market Fund will be able to
maintain a stable net asset value of $1. Firstar Funds are not deposits or
obligations of or guaranteed by Firstar Bank or its affiliates, nor are they
insured by the FDIC, the U.S. Government or any governmental agency. For more
complete information, including charges and expenses, call Heartland Advisors at
1-800-432-7856 for a prospectus. Read it carefully before you invest.
15
<PAGE>
VALUE REPORT
[PHOTO APPEARS HERE]
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 knowledgeable and responsive.
1.800.HEARTLN(1.800.432.7856)
www.heartlandfunds.com
Financial Advisor Services: 1.800.442.6391
16
<PAGE>
SCHEDULES OF INVESTMENTS
AND FINANCIAL STATEMENTS
Table of Contents
-----------------------------
2 ...................................Large Cap Value Fund
3 .....................................Mid Cap Value Fund
4 ........................................Value Plus Fund
6 .............................................Value Fund
12 ........................................Government Fund
14 ...................Statements of Assets and Liabilities
16 ...............................Statements of Operations
18 ..................................Statements of Changes
in Net Assets
22 ...................................Financial Highlights
26 ..........................Notes to Financial Statements
1
<PAGE>
HEARTLAND LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 91.2% Shares Industry Value Net Assets
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
American Financial Group, Inc. 2,500 Insurance $ 85,156 0.9%
IMC Global, Inc. 21,000 Food & Agriculture 370,125 3.8
Jefferson Smurfit Group PLC(ADR) 19,600 Containers 461,825 4.8
Liz Claiborne, Inc. 16,400 Apparel 598,600 6.2
Owens Corning 8,200 Construction 281,875 2.9
Ryder System, Inc. 24,100 Trucking 626,600 6.5
Tenet Healthcare Corporation (a) 18,600 Drugs & Medicine 345,262 3.6
----------- -----
$ 2,769,443 28.7%
Low Price to Book Value
Allmerica Financial Corporation 3,255 Insurance $ 197,945 2.0%
Healthsouth Corporation (a) 42,200 Drugs & Medicine 630,363 6.5
Petroleo Brasileiro S.A. (ADR) 14,700 International Oil 227,391 2.4
St. Paul Companies, Inc. 9,122 Insurance 290,194 3.0
Toys "R" Us, Inc. (a) 15,800 Retail 326,862 3.4
Unicom Corporation 12,000 Energy & Utilities 462,750 4.8
----------- -----
$ 2,135,505 22.1%
Below Average Price/Cash Flow Ratio
Columbia/HCA Healthcare Corporation 8,400 Drugs & Medicine $ 191,625 2.0%
HCR Manor Care, Inc. (a) 19,500 Drugs & Medicine 471,656 4.9
Manpower, Inc. 25,500 Business Services 576,938 6.0
Midamerican Energy Holdings Company 9,500 Energy & Utilities 328,938 3.4
Santa Fe Snyder Corporation (a) 23,900 Domestic Oil 182,237 1.9
----------- -----
$ 1,751,394 18.2%
Special Situations
HON Industries, Inc. 16,300 Producer Goods $ 475,756 4.9%
Household International, Inc. 4,900 Miscellaneous Financial 232,137 2.4
Koninklijke (Royal) Philips Electronics NV 2,852 Electronics 287,695 3.0
(N.Y.Registered)
Louisiana-Pacific Corporation 8,000 Paper & Forest Products 190,000 2.0
Raychem Corporation 15,000 Consumer Durables 555,000 5.7
Union Pacific Corporation 7,000 Railroads & Shipping 408,188 4.2
----------- -----
2,148,776 22.2%
-----------
TOTAL COMMON STOCKS (Cost $8,205,157) $ 8,805,118
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Par Percent of
SHORT-TERM INVESTMENTS - 8.8% Amount Value Net Assets
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTES (+) - 8.8%
American Family Mutual Insurance Co. 4.70% $100,000 $ 100,000 1.0%
General Mills, Inc. 4.67% 170,000 170,000 1.8
Pitney Bowes Credit Corporation 4.67% 43,000 43,000 0.4
Warner-Lambert Company 4.70% 213,000 213,000 2.2
Wisconsin Electric Power Company 4.70% 327,000 327,000 3.4
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $853,000) $ 853,000
TOTAL INVESTMENTS (Cost $9,058,157)......................................... $ 9,658,118 100.0%
Liabilities, less cash and receivables...................................... (1,639) 0.0
----------- -----
TOTAL NET ASSETS............................................................ $ 9,656,479 100.0%
=========== =====
</TABLE>
(a) Non-income producing security.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates.
The rates listed are as of June 30, 1999.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
2
<PAGE>
HEARTLAND MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 100.2% Shares Industry Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
Champion Enterprises, Inc. 57,500 Construction $ 1,070,938 4.9%
Commercial Federal Corporation 27,650 Banks 641,134 2.9
Lennar Corporation 35,900 Construction 861,600 3.9
LNR Property Corporation 22,100 Real Property 472,388 2.2
Prime Hospitality Corporation (a) 51,450 Travel & Recreation 617,400 2.8
Reliance Group Holdings, Inc. 88,400 Insurance 657,475 3.0
Santa Fe International Corporation 21,300 Domestic Oil 489,900 2.3
------------ -----
$ 4,810,835 22.0%
Low Price to Book Value
Astoria Financial Corporation 15,000 Miscellaneous Financial $ 659,063 3.0%
Bank United Corporation (Class A) 18,000 Miscellaneous Financial 723,375 3.3
Borders Group, Inc. 32,000 Retail 506,000 2.3
Bowater, Inc. 10,400 Paper & Forest Products 491,400 2.2
Data General Corporation (a) 42,800 Business Machines 623,275 2.9
Hollinger International, Inc. 55,600 Media 660,250 3.0
Modis Professional Services, Inc. 51,100 Business Services 702,625 3.2
XL Capital Ltd. (Class A) 11,400 Insurance 644,100 3.0
------------ -----
$ 5,010,088 22.9%
Below Average Price/Cash Flow Ratio
CKE Restaurants, Inc. 63,600 Non-Durables & Entertainment $ 1,033,500 4.7%
El Paso Electric Company (a) 91,100 Energy & Utilities 814,206 3.7
McDermott International, Inc. 27,200 Construction 768,400 3.5
Poco Petroleum Ltd. (b) 68,000 International Oil 553,148 2.6
Structural Dynamics Research Corporation 48,300 Business Services 896,569 4.1
Tesoro Petroleum Corporation (a) 58,000 Domestic Oil 924,375 4.2
Texas Industries, Inc. 7,400 Steel 286,750 1.3
Wellman, Inc. 44,100 Chemicals 702,844 3.2
------------ -----
$ 5,979,792 27.3%
Special Situations
Autodesk, Inc. 38,200 Business Services $ 1,129,287 5.2%
ICN Pharmaceuticals, Inc. 32,800 Drugs & Medicine 1,055,750 4.8
Polaroid Corporation 30,000 Optical Photo & Equipment 828,750 3.8
Premark International, Inc. 19,200 Business Services 720,000 3.3
Sterling Software, Inc. (a) 44,400 Business Services 1,184,925 5.4
Storage Technology Corporation (a) 27,500 Business Machines 625,625 2.9
Zale Corporation 14,400 Retail 576,000 2.6
------------ -----
6,120,337 28.0%
------------
TOTAL COMMON STOCKS (Cost $20,391,681) $ 21,921,052
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Par Percent of
SHORT-TERM INVESTMENT - 0.1% Amount Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTE (+) - 0.1%
Warner-Lambert Company 4.70% $22,000 $ 22,000 0.1%
------------
TOTAL SHORT-TERM INVESTMENT (Cost $22,000) $ 22,000
TOTAL INVESTMENTS (Cost $20,413,681)......................................... $ 21,943,051 100.3%
Liabilities, less cash and receivables....................................... (72,714) (0.3)
------------ -----
TOTAL NET ASSETS............................................................. $ 21,870,337 100.0%
============ =====
</TABLE>
(a) Non-income producing security.
(b) Foreign-denominated 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, 1999.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
3
<PAGE>
HEARTLAND VALUE PLUS FUND
SCHEDULE OF INVESTMENTS . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 93.3% Shares Industry Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
Aceto Corporation 150,000 Chemicals $ 1,725,000 1.1%
Amcast Industrial Corporation 150,000 Electronics 2,446,875 1.5
Blimpie International, Inc. 231,500 Non-Durables & Entertainment 636,625 0.4
Capital Transamerica Corporation 100,000 Insurance 1,325,000 0.8
Chicago Title Corporation 100,000 Insurance 3,568,750 2.2
Cooker Restaurant Corporation (b) 600,000 Non-Durables & Entertainment 3,337,500 2.1
Decorator Industries, Inc. (b) 349,600 Miscellaneous & Conglomerates 2,534,600 1.6
Frequency Electronics, Inc. 77,000 Electronics 635,250 0.4
GeoScience Corporation (a) 394,000 Electronics 2,807,250 1.8
Hanover Foods Corporation (Class A) (b) 50,500 Food & Agriculture 3,011,062 1.9
International Aluminum Company 125,000 Producer Goods 3,445,313 2.1
Lufkin Industries, Inc. 303,400 Producer Goods 6,068,000 3.8
Reliance Group Holdings, Inc. 150,000 Insurance Property/Casualty 1,115,625 0.7
Selective Insurance Group, Inc. 150,000 Insurance 2,859,375 1.8
Siam Food Products Public Company
Ltd. (b)(c) 1,419,400 Food & Agriculture 2,617,470 1.6
Tab Products Company (b) 500,000 Producer Goods 3,687,500 2.3
WPR Corporation (a)(b) 400,000 Drugs & Medicine 2,268,750 1.4
------------ -----
$ 44,089,945 27.5%
Low Price to Book Value
Amada Sonoike Company Ltd. (c) 200,000 Producer Goods $ 613,785 0.4%
Bay View Capital Corporation 176,400 Miscellaneous Financial 3,616,200 2.2
Chubu Suisan Company Ltd. (c) 500,000 Miscellaneous & Conglomerates 1,934,579 1.2
Communications Systems, Inc. 100,000 Telecommunications 1,237,500 0.8
Denkyosha Company (c) 500,000 Electronics 2,557,439 1.6
EMCInsurance Group, Inc. 300,000 Insurance 3,525,000 2.2
Foster (LB) Company (a) 300,000 Producer Goods 1,762,500 1.1
Insteel Industries, Inc. (b) 430,800 Producer Goods 3,877,200 2.4
Kennedy-Wilson, Inc. (a) 250,000 Real Property 2,234,375 1.4
London Pacific Group Ltd. (ADR) 499,000 Insurance 11,477,000 7.2
Northland Cranberries, Inc. (Class A) 400,000 Food & Agriculture 3,375,000 2.1
St. Laurent Paperboard, Inc. 200,000 Paper & Forest Products 2,556,566 1.6
Yushiro Chemical Industry Company Ltd. (c) 463,000 Chemicals 2,062,616 1.3
------------ -----
$ 40,829,760 25.5%
Below Average Price/Cash Flow Ratio
Amcol International Corporation 148,100 Energy & Raw Materials $ 2,128,938 1.3%
CKE Restaurants, Inc. 400,000 Non-Durables & Entertainment 6,500,000 4.1
Fleming Companies, Inc. 400,000 Food & Agriculture 4,650,000 2.9
FlexsteelIndustries, Inc. 300,000 Consumer Durables 3,993,750 2.5
Hollinger International, Inc. 500,000 Media 5,937,500 3.7
K2, Inc. 428,000 Non-Durables & Entertainment 3,825,250 2.4
Oil-Dri Corporation of America (b) 470,000 Non-Durables & Entertainment 7,520,000 4.7
Olsten Corporation 125,000 Business Services 789,063 0.5
Southwestern Energy Company 1,034,600 Energy & Raw Materials 10,927,962 6.8
------------ -----
$ 46,272,463 28.9%
Special Situations
Bando McGlocklin Capital Corporation 39,200 Real Property $ 475,300 0.3%
Ceres Group, Inc. 100,000 Insurance 918,750 0.6
Franchise Mortgage Acceptance Company (a) 173,600 Miscellaneous Financial 1,519,000 0.9
ICN Pharmaceuticals, Inc. (e) 280,000 Drugs & Medicine 9,012,500 5.6
Storage Technology Corporation (a) 175,000 Business Machines 3,981,250 2.5
Vans, Inc. (a) 208,000 Apparel 2,382,250 1.5
------------ -----
$ 18,289,050 11.4%
------------
TOTAL COMMON STOCKS (Cost $135,199,645) $149,481,218
</TABLE>
4
<PAGE>
HEARTLAND VALUE PLUS FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Percent of
PREFERRED STOCKS - 1.6% Shares Industry Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bolder Technologies Corporation
9.00% Ser. A Conv. (144A) (d) 85,000 Electronics $ 2,518,125 1.6%
TOTAL PREFERRED STOCKS (Cost $4,165,000)
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Par Percent of
CONVERTIBLE BONDS - 4.7% Amount Industry Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dura Pharmaceuticals, Inc. 3.50%
07/15/2002 $1,100,000 Drugs & Medicine $ 826,375 0.5%
Kent Electronics Corporation 4.50%
09/01/2004 1,953,000 Electronics 1,533,105 1.0
Reptron Electronics, Inc. 6.75% 08/01/2004 1,445,000 Electronics 578,000 0.4
Sholodge, Inc. 7.50% 05/01/2004 5,550,000 Travel & Recreation 3,219,000 2.0
Source Capital Corporation 7.50%
03/01/2008 (d) 1,400,000 Banks 1,048,689 0.6
Thorn Apple Valley,Inc. 9.00% 04/01/2007 (f) 1,500,000 Food & Agriculture 300,000 0.2
------------
TOTAL CONVERTIBLE BONDS (Cost $9,988,149) $ 7,505,169
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Par Percent of
CORPORATE BONDS - 2.3% Amount Industry Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Doman Industries Ltd. 9.25% 11/15/2007 $2,700,000 Paper & Forest Products $ 2,032,500 1.3%
Sholodge, Inc. 9.55% 09/01/2007 3,000,000 Travel & Recreation 1,667,250 1.0
------------
TOTAL CORPORATE BONDS (Cost $5,685,346) $ 3,699,750
TOTAL INVESTMENTS (Cost $155,038,140).......................................... $163,204,262 101.9%
Liabilities, less cash and receivables......................................... (2,970,981) (1.9)
------------ -----
TOTAL NET ASSETS............................................................... $160,233,281 100.0%
============ =====
</TABLE>
(a) Non-income producing security.
(b) Affiliated company. See Note 9 in Notes to Financial Statements.
(c) Foreign-denominated security.
(d) Restricted security. See Note 2(h) in Notes to Financial Statements.
(e) All or part of security committed to cover margin requirements for futures
contracts.
(f) Defaulted security.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
5
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.6% Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
Advanced Lighting Technologies, Inc. (a) 296,000 Consumer Durables $ 2,664,000 0.2%
Advocat, Inc. (a)(b) 530,500 Drugs & Medicine 1,027,844 0.1
Akita Drilling Ltd. (ClassA) (b)(c) 748,600 International Oil 4,759,027 0.4
Aldila, Inc. (a)(b) 1,000,000 Non-Durables & Entertainment 1,843,750 0.1
Align-Rite International, Inc. (a)(b) 300,000 Electronics 4,162,500 0.3
American Physicians Service Group, Inc. (a) 187,200 Miscellaneous Financial 655,200 0.1
Amwest Insurance Group, Inc. (b) 242,000 Insurance 2,238,500 0.2
Asia Pacific Wire & Cable Corp. Ltd. (a)(b) 706,000 Non-Ferrous Metals 3,088,750 0.2
Atlantic American Corporation 337,800 Insurance 1,372,312 0.1
Baldwin Technology Company, Inc. (ClassA)(a) 500,000 Optical Photo & Equipment 1,468,750 0.1
Bay Bancshares, Inc. 126,300 Banks 1,957,650 0.1
Beverly Enterprises, Inc. (a) 2,000,000 Drugs & Medicine 16,125,000 1.2
Bitstream, Inc. (a)(b) 582,200 Business Services 836,912 0.1
Buckhead America Corporation (a)(b) 184,600 Travel & Recreation 1,038,375 0.1
Building One Services Corporation (a) 286,327 Miscellaneous & Conglomerates 3,972,787 0.3
Business Resource Group (a)(b) 486,000 Business Services 1,609,875 0.1
Cameron Ashley Building Products, Inc. (a)(b) 500,000 Construction 5,218,750 0.4
Capital RE Corporation 300,000 Insurance 4,818,750 0.4
Caretenders Health Corporation (a)(b) 308,900 Drugs & Medicine 810,862 0.1
Castle Dental Centers, Inc. (a) 100,000 Drugs & Medicine 625,000 0.1
Catherines StoresCorporation (a)(b) 500,000 Apparel 6,187,500 0.5
Cavalier Homes, Inc. 349,500 Construction 2,861,531 0.2
CHC Helicopter Corporation (ClassA) (a)(b)(c) 536,000 International Oil 1,941,896 0.1
The Cherry Corporation (Class A) (a)(b) 944,800 Consumer Durables 12,991,000 1.0
Children's Broadcasting Corporation (a)(b) 680,000 Media 1,445,000 0.1
Children's Comprehensive Services, Inc. (a)(b) 460,000 Business Services 3,191,250 0.2
Comdial Corporation (a)(b) 516,500 Telephone 3,647,781 0.3
Commercial Federal Corporation 450,000 Banks 10,434,375 0.8
Digi International, Inc. (a) 775,000 Business Machines 8,089,062 0.6
Donnelly Corporation (b) 365,100 Construction 5,773,144 0.4
Duckwall-ALCO Stores, Inc. (a)(b) 370,000 Retail 3,885,000 0.3
Durakon Industries, Inc. (a)(b) 500,000 Trucking & Freight 7,843,750 0.6
Dynamic Materials Corporation (a)(b) 250,000 Chemicals 1,031,250 0.1
Encore Wire Corporation (a) 300,000 Non-Ferrous Metals 2,718,750 0.2
Engle Homes, Inc. 549,800 Construction 7,559,750 0.6
Esterline Technologies Corporation (a) 400,000 Electronics 5,750,000 0.4
EZcorp, Inc. (Class A) (b) 718,100 Miscellaneous Financial 4,936,937 0.4
FiberMark, Inc. (a)(b) 391,600 Paper & Forest Products 5,164,225 0.4
Financial Industries Corporation (a)(b) 300,000 Insurance 3,600,000 0.3
Flour City International, Inc. (a)(b) 500,000 Construction 1,500,000 0.1
Fortress Group, Inc. 300,000 Construction 440,625 0.0
Friedman Industries, Inc. 231,525 Steel 969,511 0.1
Gehl Company (a) 270,000 Producer Goods 5,467,500 0.4
General Chemical Group, Inc. 300,000 Energy & Raw Materials 937,500 0.1
Genesis Health Ventures, Inc. (a) 910,000 Drugs & Medicine 2,730,000 0.2
Gentek, Inc. (a) 300,000 Energy & Raw Materials 4,162,500 0.3
Gibson Greetings, Inc. (a) 200,000 Media 1,268,750 0.1
Guangshen Railway Company Ltd. (ADR) 500,000 Railroads & Shipping 3,812,500 0.3
Hallmark Capital Corporation (a) 110,000 Banks 1,251,250 0.1
Hallwood Group, Inc. (a) 59,500 Domestic Oil 1,141,656 0.1
Hampshire Group Ltd. (a)(b) 228,200 Apparel 2,738,400 0.2
Home Products International, Inc. (a) 283,100 Retail 2,406,350 0.2
Home Security International, Inc. (a)(b) 500,000 Business Services 2,812,500 0.2
Indus International, Inc. (a) 460,000 Business Services 1,983,750 0.1
In Home Health, Inc. (a)(b) 470,101 Drugs & Medicine 793,295 0.1
InterContinental Life Corporation (a)(b) 451,600 Insurance 4,233,750 0.3
InterDigital Communications Corp. (a)(b) 4,500,000 Telephone 20,812,500 1.6
Intermet Corporation 600,000 Non-Ferrous Metals 9,075,000 0.7
International Aircraft Investors (a)(b) 430,000 Miscellaneous Financial 3,036,875 0.2
</TABLE>
6
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.6% [CONT'D] Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio [CONT'D]
International Airline Support Group, Inc. (a)(b) 250,000 Air Transport $ 1,062,500 0.1%
Jason, Inc. (a) 400,000 Producer Goods 3,200,000 0.2
John B. Sanfilippo & Son, Inc. (a)(b) 470,000 Food & Agriculture 1,791,875 0.1
K-Tron International, Inc. (a) 135,000 Electronics 2,379,375 0.2
Kaye Group, Inc. 363,600 Insurance 2,727,000 0.2
Kentucky Electric Steel,Inc. (a)(b) 450,000 Steel 1,490,625 0.1
LAI Worldwide, Inc. (a)(b) 590,000 Business Services 3,945,625 0.3
Landry's Seafood Restaurants, Inc. (a) 500,000 Non-Durables and Entertainment 4,000,000 0.3
Little Switzerland, Inc. (a) 295,000 Apparel 202,813 0.0
M/I Schottenstein Homes, Inc. 300,000 Construction 5,531,250 0.4
Magal Security Systems Ltd. (b) 650,000 Business Services 2,031,250 0.1
Manchester Equipment Company, Inc. (a) 391,800 Business Services 1,126,425 0.1
Marcus Corporation 225,000 Non-Durables & Entertainment 2,770,313 0.2
Marten Transport Ltd. (a)(b) 333,300 Trucking & Freight 3,999,600 0.3
MDC Holdings, Inc. 248,700 Construction 5,347,050 0.4
Meadow Valley Corporation (a) 150,000 Construction 656,250 0.1
MFRI, Inc. (a)(b) 400,000 Producer Goods 2,000,000 0.1
MicroTouch Systems, Inc. (a) 225,000 Business Machines 3,346,875 0.2
Mining Services International Corporation 250,000 Energy & Raw Materials 1,187,500 0.1
Moore Medical Corporation (a)(b) 200,000 Drugs & Medicine 2,087,500 0.2
Motor Club of America (a)(b) 146,000 Insurance 1,907,125 0.1
National Home Health Care Corporation (a)(b) 346,400 Drugs & Medicine 1,558,800 0.1
NeoMagic Corporation (a) 250,000 Business Machines 2,101,563 0.2
Norstan, Inc. (a) 500,000 Telephone 6,218,750 0.5
Nu Horizons Electronics Corporation (a)(b) 700,000 Electronics 4,943,750 0.4
O.I. Corporation (a)(b) 326,500 Optical & Photo Equipment 1,428,438 0.1
Patrick Industries, Inc. (b) 317,000 Construction 4,953,125 0.4
PBOC Holdings, Inc. (a) 500,000 Banks 5.000,000 0.4
Planar Systems, Inc. (a) 400,000 Business Machines 3,100,000 0.2
Play-by-Play Toys & Novelties, Inc. (a)(b) 731,500 Non-Durables & Entertainment 2,994,578 0.2
Powell Industries, Inc. (a) 507,400 Producer Goods 4,693,450 0.4
PremiumWear, Inc. (a)(b) 200,000 Apparel 975,000 0.1
Professionals Group, Inc. (a) 242,000 Insurance 8,167,500 0.6
RainForest Cafe, Inc. (a) 750,000 Non-Durables & Entertainment 3,796,875 0.3
Raytel Medical Corporation (a)(b) 880,000 Drugs & Medicine 4,070,000 0.3
RenaissanceRe Holdings Ltd. 250,000 Insurance 9,250,000 0.7
Riviera Tool Company (a)(b) 320,250 Producer Goods 1,581,234 0.1
Rush Enterprises, Inc. (a) 225,000 Motor Vehicles 3,628,125 0.3
Ryan's Family Steak Houses, Inc. (a) 485,000 Non-Durables & Entertainment 5,638,125 0.4
SCPIE Holdings, Inc. 257,800 Insurance 8,410,725 0.6
Seattle FilmWorks, Inc. (a) 100,000 Optical Photo & Equipment 306,250 0.0
Shiloh Industries, Inc. (a) 209,500 Producer Goods 3,037,750 0.2
Sifco Industries, Inc. 200,000 Aerospace 1,650,000 0.1
Southern Energy Homes, Inc. (a)(b) 750,000 Construction 3,984,375 0.3
Spacehab, Inc. (a) 272,700 Electronics 1,397,588 0.1
Speizman Industries, Inc. (a)(b) 300,000 Producer Goods 1,087,500 0.1
Steel Technologies, Inc. 245,800 Steel 2,319,738 0.2
Sterling Financial Corporation (a) 275,000 Banks 3,798,438 0.3
Summit Bank Corporation 48,900 Banks 806,850 0.1
Todhunter International, Inc. (a)(b) 490,000 Liquor 4,103,750 0.3
TransCoastal Marine Services, Inc. (a)(b) 1,000,000 Construction 4,875,000 0.4
UnionBancorp, Inc. 129,300 Banks 1,931,419 0.1
Unisource Energy Corporation (a) 1,500,000 Energy & Utilities 17,906,250 1.4
United Security Bancorporation (a) 206,211 Banks 2,680,743 0.2
United Wisconsin Services, Inc. 442,000 Insurance 3,536,000 0.3
Universal Stainless & Alloy Products, Inc. (a) 200,000 Non-Ferrous Metals 1,150,000 0.1
U.S. Home Corporation 400,000 Construction 14,200,000 1.1
Webco Industries, Inc. (a) 300,000 Steel 1,537,500 0.1
Weyco Group, Inc. 177,000 Apparel 4,071,000 0.3
Wilsons The Leather Experts, Inc. (a) 342,500 Retail 5,629,841 0.4
</TABLE>
7
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.6% [CONT'D] Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio [CONT'D]
Winston Resources, Inc. 100,000 Business Services $ 437,500 0.0%
World Acceptance Corporation (a) 400,000 Miscellaneous Financial 2,012,500 0.1
World of Science, Inc. (a)(b) 300,000 Retail 637,500 0.1
Zindart Ltd. (ADR) (a)(b) 450,000 Miscellaneous & Conglomerates 3,712,500 0.3
------------ -----
$453,031,988 34.3%
Low Price to Book Value
Allied Healthcare Products, Inc. (a)(b) 775,000 Drugs & Medicine $ 1,283,592 0.1%
The Alpine Group, Inc. (a)(b) 994,100 Producer Goods 15,967,731 1.2
Baldwin Piano & Organ Company (a)(b) 331,500 Non-Durables & Entertainment 2,652,000 0.2
Beau Canada Exploration Ltd. (a) 1,600,000 International Oil 2,460,865 0.2
Catalina Lighting, Inc. (a)(b) 710,000 Construction 3,550,000 0.3
Chronimed, Inc. (a)(b) 610,000 Drugs & Medicine 4,727,500 0.4
Clayton Williams Energy, Inc. (a)(b) 563,600 Domestic Oil 3,346,375 0.2
Commonwealth Industries, Inc. (b) 884,800 Non-Ferrous Metals 11,060,000 0.8
Datron Systems, Inc. (a)(b) 250,000 Business Machines 1,937,500 0.1
ESCO Electronics Corporation (a) 314,200 Producer Goods 4,025,688 0.3
Exabyte Corporation (a) 597,100 Business Machines 2,313,763 0.2
Forest Oil Company (a) 1,000,000 Domestic Oil 12,562,500 1.0
Fuji Coca-Cola Bottling Company Ltd. (c) 600,000 Food & Agriculture 11,483,727 0.9
Gundle/SLT Environmental, Inc. (a)(b) 662,800 Chemicals 2,816,900 0.2
GZA GeoEnvironmental
Technologies, Inc. (a)(b) 372,700 Business Services 1,863,500 0.1
Hallmark Financial Services, Inc. (a)(b) 1,060,000 Insurance 397,500 0.0
Hallwood Energy Corporation (a)(b) 477,540 Domestic Oil 2,865,240 0.2
Health Power, Inc. (a)(b) 340,000 Drugs & Medicine 722,500 0.1
High Plains Corporation (a)(b) 1,500,000 Chemicals 2,859,375 0.2
Hospitality Worldwide Services, Inc. (a)(b) 924,500 Food & Agriculture 3,351,313 0.2
IEC Electronics Corporation (a)(b) 728,800 Electronics 2,596,350 0.2
Itron, Inc. 113,300 Electronics 970,131 0.1
Ladd Furniture, Inc. 100,000 Consumer Durables 2,100,000 0.2
Lechters, Inc. (a) 844,700 Retail 2,111,750 0.2
Martin Industries, Inc. (b) 450,000 Producer Goods 984,375 0.1
Material Sciences Corporation (a) 500,000 Producer Goods 7,500,000 0.6
Matrix Service Company (a)(b) 600,000 Construction 2,475,000 0.2
M-Wave, Inc. (a)(b) 300,000 Electronics 750,000 0.1
Napco Security Systems, Inc. (a) 136,500 Electronics 443,625 0.0
Networks North, Inc. (a)(b) 200,000 Media 525,000 0.0
Numac Energy, Inc. (a)(c) 2,200,400 International Oil 5,565,302 0.4
Outlook Group Corporation (a)(b) 467,500 Media 1,636,250 0.1
PDK Labs, Inc. (a)(b) 380,000 Drugs & Medicine 1,282,500 0.1
Petsec Energy Ltd. (ADR) (a)(b) 1,500,000 Domestic Oil 2,437,500 0.2
Precision Response Corporation (a) 225,000 Business Services 1,258,594 0.1
The Rottlund Company, Inc. (a)(b) 550,000 Construction 2,543,750 0.2
Roy F. Weston, Inc. (Class A) (a)(b) 990,000 Business Services 2,970,000 0.2
Scan-Optics, Inc. (a)(b) 550,000 Business Machines 2,406,250 0.2
Sholodge, Inc. (a)(b) 530,000 Travel & Recreation 2,683,125 0.2
SITEL Corporation (a) 500,000 Business Services 1,468,750 0.1
Smartflex Systems, Inc. (a)(b) 500,000 Electronics 1,656,250 0.1
St.Francis Capital Corporation 225,000 Banks 4,837,500 0.4
The Stephan Company 200,000 Soap & Cosmetics 837,500 0.1
Strouds, Inc. (a)(b) 700,000 Retail 1,137,500 0.1
Tech-Sym Corporation (a)(b) 303,000 Aerospace 7,196,250 0.5
Tesoro Petroleum Corporation (a) 1,250,100 Domestic Oil 19,923,469 1.5
The Unimark Group, Inc. (a) 415,000 Food & Agriculture 1,426,563 0.1
U.S.A. Floral Products, Inc. (a) 700,000 Non-Durables & Entertainment 5,293,750 0.4
Utah Medical Products, Inc. 100,000 Drugs & Medicine 775,000 0.1
Vicorp Restaurants, Inc. (a) 354,500 Non-Durables & Entertainment 6,159,438 0.5
Wall Data, Inc. (a) 500,000 Business Services 4,781,250 0.4
Willbros Group, Inc. (a) 300,000 Construction 2,550,000 0.2
------------ -----
$193,530,291 14.8%
</TABLE>
8
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.6% [CONT'D] Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Cash Flow Ratio
American Medical Security Group, Inc. (a) 500,000 Insurance $ 4,312,500 0.3%
Arcadia Financial Ltd. 480,600 Miscellaneous Financial 3,724,650 0.3
Audiovox Corporation (Class A) (a) 581,200 Consumer Durables 6,393,200 0.5
Benton Oil & Gas Company (a) 1,000,000 Domestic Oil 2,000,000 0.1
BTG, Inc. (a)(b) 800,000 Business Services 4,800,000 0.4
Bunka Shutter Company, Ltd. (c) 1,500,000 Construction 4,269,274 0.3
Burlington Coat Factory Warehouse Corp. 500,000 Apparel 9,656,250 0.7
Campbell Resources, Inc. (a)(b) 12,000,000 Gold 3,750,000 0.3
Capital Corporation of the West (a) 105,000 Banks 1,312,500 0.1
Check Technology Corporation (a) 210,000 Electronics 498,750 0.0
Chic by H.I.S., Inc. (a)(b) 450,200 Apparel 1,153,638 0.1
Chofu Seisakusho Company Ltd. (c) 300,000 Consumer Durables 5,345,873 0.4
Ciprico, Inc. (a)(b) 490,000 Business Machines 4,869,375 0.4
Cohesion Technologies, Inc. (a)(b) 813,000 Drugs & Medicine 4,878,000 0.4
Copley Pharmaceutical, Inc. (a) 526,900 Drugs & Medicine 5,400,725 0.4
Crown Central Petroleum
Corporation (Class B) (a) 900,000 Domestic Oil 9,900,000 0.7
CSP, Inc. (a)(b) 364,430 Electronics 2,414,349 0.2
Cyrk International, Inc. (a)(b) 938,600 Business Services 5,690,263 0.4
DataTRAK International, Inc. (a)(b) 600,000 Business Services 3,075,000 0.2
Denyo Company Ltd. (c) 227,000 Producer Goods 2,056,231 0.2
Diamond Home Services, Inc. (a)(b) 820,000 Construction 3,485,000 0.3
ECC International Corporation (a)(b) 700,000 Electronics 2,756,250 0.2
EDAP TMS S.A. (a)(b) 840,000 Drugs & Medicine 1,470,000 0.1
Environmental Technologies Corporation (a)(b) 467,200 Chemicals 467,200 0.0
Fahnestock Viner Holdings, Inc. 200,000 Miscellaneous Financial 3,125,000 0.2
Filene's Basement Corporation (a)(b) 705,100 Retail 1,013,581 0.1
Franklin Bank National Association (b) 185,800 Banks 1,997,350 0.1
Fuji Pharmaceutical Company Ltd. (c) 500,000 Drugs & Medicine 2,272,821 0.2
Fukuda Denshi Company Ltd. (c) 500,000 Drugs & Medicine 9,281,030 0.7
GA Financial, Inc. 100,000 Banks 1,462,500 0.1
Goody's Family Clothing, Inc. (a) 100,000 Apparel 1,143,750 0.1
Harding Lawson Associates Group, Inc. (a)(b) 392,600 Business Services 3,337,100 0.2
Health Management Systems, Inc. (a) 400,000 Business Services 2,200,000 0.2
Hibiya Engineering Company Ltd. (c) 500,000 Construction 3,341,171 0.2
HMN Financial, Inc. 250,600 Miscellaneous Financial 2,913,225 0.2
Horipro, Inc. (c) 600,000 Non-Durables & Entertainment 3,984,655 0.3
ICTS International N.V. (a) 300,000 Business Services 1,687,500 0.1
ImmuLogic Pharmaceutical Corporation (a)(b) 2,000,000 Drugs & Medicine 3,750,000 0.3
Iwerks Entertainment, Inc. (a)(b) 1,100,000 Non-Durables & Entertainment 1,168,750 0.1
Jaco Electronics, Inc. (a)(b) 380,000 Electronics 1,567,500 0.1
Judge Group, Inc. (a) 400,000 Business Services 625,000 0.1
Kansai Kosaido Company Ltd. (c) 400,000 Media 3,035,928 0.2
Katsuragawa Electric Company (c) 500,000 Business Machines 2,784,309 0.2
Kentucky Fried Chicken Japan Ltd. (c) 500,000 Non-Durables & Entertainment 6,146,104 0.5
Kondotec, Inc. (c) 500,000 Construction 3,011,178 0.2
LaCrosse Footware, Inc. (b) 500,000 Apparel 3,875,000 0.3
Lindal Cedar Homes, Inc. (a)(b) 405,400 Construction 836,138 0.1
Maezawa Kasei Industries Company (c) 300,000 Chemicals 4,850,885 0.4
M/A/R/C, Inc. (b) 250,000 Business Services 3,625,000 0.3
MASSBANK Corporation 133,333 Banks 4,999,988 0.4
Matrix Pharmaceutical, Inc. (a)(b) 1,100,000 Drugs & Medicine 4,537,500 0.3
Matsumoto Yushi-Seiyaku Company Ltd. (c) 419,000 Chemicals 8,987,336 0.7
Maxicare Health Plans, Inc. (a)(b) 1,000,000 Drugs & Medicine 4,750,000 0.4
Microtest, Inc. (a) 371,100 Electronics 881,363 0.1
MMI Companies, Inc. 500,000 Insurance 8,437,500 0.6
Morgan Products Ltd. (a)(b) 850,000 Construction 3,240,625 0.2
Network Equipment Tech, Inc. (a) 635,200 Business Machines 6,272,600 0.5
New Brunswick Scientific Company, Inc. (a)(b) 185,500 Electronics 1,298,500 0.1
</TABLE>
9
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.6% [CONT'D] Shares Industry Value Net Assets
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Cash Flow Ratio [CONT'D]
Nissui Pharmaceutical Company Ltd. (c) 776,000 Drugs & Medicine $ 4,814,190 0.4%
Novamerican Steel, Inc. (a) 275,400 Steel 3,167,100 0.2
Ontro, Inc. (a)(b) 315,400 Chemicals 867,350 0.1
Orthologic Corporation (a) 1,200,000 Drugs & Medicine 2,962,500 0.2
Parlex Corporation (a) 213,600 Electronics 3,364,200 0.2
Pentech International, Inc. (a)(b) 709,900 Non-Durables & Entertainment 554,609 0.0
Perrigo Company (a) 500,000 Drugs & Medicine 3,812,500 0.3
PIA Merchandising Services, Inc. (a)(b) 545,000 Business Services 2,316,250 0.2
Pico Holdings, Inc. (a) 250,000 Insurance Specialty 6,328,125 0.5
Pointe Financial Corporation (a) 100,000 Banks 1,050,000 0.1
Presidential Life Corporation 1,000,000 Insurance 19,625,000 1.5
Providence & Worcester Railroad Company 200,000 Railroads & Shipping 2,825,000 0.2
PXRE Corporation (b) 591,400 Insurance 10,719,125 0.8
Rainbow Technologies, Inc. (a) 300,000 Business Machines 3,543,750 0.3
Rehabilicare, Inc. (a) 312,100 Drugs & Medicine 1,033,831 0.1
Remington Oil & Gas Corporation (a)(b) 1,382,900 Domestic Oil 6,741,638 0.5
Riken Vitamin Company Ltd. (c) 500,000 Drugs & Medicine 6,228,602 0.5
Salient 3 Communications, Inc. (a)(b) 300,000 Electronics 2,437,500 0.2
Sangetsu Company Ltd. (c) 500,000 Consumer Durables 10,621,623 0.8
Shikoku Coca-Cola Bottling Company Ltd. (c) 400,000 Food & Agriculture 6,121,355 0.5
Sicor, Inc. (a) 1,500,000 Drugs & Medicine 6,375,000 0.5
Six Rivers National Bank (a)(b) 93,300 Banks 1,212,900 0.1
SK Kaken Company Ltd. (c) 150,000 Construction 2,796,684 0.2
SpaceLabs Medical, Inc. 13,200 Drugs & Medicine 249,150 0.0
Stifel Financial Corporation 210,000 Miscellaneous Financial 1,955,625 0.1
Sunrise Medical, Inc. (a) 631,600 Drugs & Medicine 4,500,150 0.3
Suprema Specialities, Inc. (a)(b) 26,900 Food & Agriculture 186,619 0.0
Technology Research Corporation (a)(b) 500,000 Producer Goods 906,250 0.1
Teikoku Hormone Manufacturing Co. Ltd. (c) 500,000 Drugs & Medicine 4,388,890 0.3
Toyo Tec Company Ltd. (c) 302,000 Business Services 1,796,329 0.1
Trimark Holdings, Inc. (a)(b) 329,300 Non-Durables & Entertainment 1,543,594 0.1
Urocor, Inc. (a)(b) 500,000 Drugs & Medicine 2,453,125 0.2
U.S.Global Investors, Inc. (a)(b) 600,000 Miscellaneous Financial 750,000 0.1
Veterinary Centers of America, Inc. (a) 75,000 Food & Agriculture 1,017,188 0.1
Washington Homes, Inc. 180,300 Construction 1,160,681 0.1
------------ ------
$340,546,348 25.7%
Special Situations
Acres Gaming, Inc. (a) 291,000 Business Machines $ 582,000 0.0%
Alabama National Bancorporation 110,000 Banks 2,750,000 0.2
Associated Banc-Corporation 400,000 Banks 16,600,000 1.3
Badger Meter, Inc. (b) 200,000 Electronics 6,950,000 0.5
Barrett Business Services, Inc. (a)(b) 632,400 Business Services 5,375,400 0.4
Blue Wave Systems, Inc. (a) 440,400 Business Machines 1,596,450 0.1
Cash America International, Inc. 500,000 Miscellaneous Financial 6,437,500 0.5
Collagen Aesthetics, Inc. (a)(b) 878,500 Drugs & Medicine 12,079,375 0.9
Davox Corporation (a) 227,300 Telephone 2,713,394 0.2
Dollar Thrifty Automotive Group, Inc. (a) 460,200 Travel & Recreation 10,699,650 0.8
Eclipse Surgical Technologies, Inc. 250,000 Drugs & Medicine 2,703,125 0.2
Effective Management Systems, Inc. (a)(b) 375,000 Business Machines 445,313 0.0
Executone Information Systems, Inc. (a)(b) 2,295,400 Telephone 9,827,181 0.7
HealthRite, Inc. (a)(b) 500,000 Drugs & Medicine 312,500 0.0
Home Federal Bancorp (b) 290,250 Banks 8,235,844 0.6
</TABLE>
10
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.6% [CONT'D] Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Situations [CONT'D]
ICN Pharmaceuticals, Inc. (d) 2,400,000 Drugs & Medicine $ 77,250,000 5.8%
Interpore International, Inc. (a) 600,000 Drugs & Medicine 2,475,000 0.2
LSI Industries, Inc. 235,000 Construction 5,669,375 0.4
Medical Graphics Corporation (a)(b) 543,450 Drugs & Medicine 679,313 0.1
Mentor Corporation (d) 750,000 Drugs & Medicine 13,968,750 1.1
Micron Electronics, Inc. (a) 300,000 Business Machines 3,018,750 0.2
Minntech Corporation (b) 600,000 Drugs & Medicine 8,850,000 0.7
MYR Group, Inc. (b) 501,600 Construction 8,809,350 0.7
NABI, Inc. (a)(b) 3,200,000 Drugs & Medicine 9,000,000 0.7
Osmonics, Inc. (a)(b) 588,000 Producer Goods 6,394,500 0.5
Photoelectron Corporation (a) 151,900 Drugs & Medicine 474,688 0.0
Reliance Steel & Aluminum Company 247,400 Non-Ferrous Metals 9,648,600 0.7
Republic Bancorp, Inc. 800,800 Banks 12,162,150 0.9
Respironics, Inc. (a) 100,000 Drugs & Medicine 1,512,500 0.1
RightCHOICE Managed Care, Inc.
(Class A) (a)(b) 670,000 Drugs & Medicine 7,663,125 0.6
Saucony, Inc. (Class B) (a)(b) 500,000 Apparel 11,312,500 0.9
Security Dynamics Tech, Inc. (a) 100,000 Business Machines 2,125,000 0.2
The Seibels Bruce Group, Inc. (a)(b) 650,000 Insurance 3,250,000 0.2
ShopKo Stores, Inc. (d) 656,500 Retail 23,798,125 1.8
Strategic Diagnostics, Inc. (a) 500,000 Electronics 1,875,000 0.1
Strattec Security Corporation (a)(b) 300,000 Producer Goods 10,125,000 0.8
Sybase, Inc. (a) 1,000,000 Business Services 11,000,000 0.8
Syncor International Corporation (a) 107,000 Drugs & Medicine 3,852,000 0.3
Teltrend, Inc. (a)(b) 500,000 Telephone 10,625,000 0.8
The Topps Company, Inc. (a) 800,000 Non-Durables & Entertainment 5,825,000 0.4
URS Corporation 500,000 Business Services 14,656,250 1.1
Verdant Brands, Inc. (a)(b) 1,311,000 Food & Agriculture 1,270,031 0.1
Winsloew Furniture, Inc. (a) 135,700 Consumer Durables 4,562,913 0.4
Wyman-Gordon Company (a) 175,000 Producer Goods 3,379,686 0.3
XOMA, Ltd. (a) 1,000,000 Drugs & Medicine 6,062,500 0.5
-------------- -----
$ 368,602,838 27.8%
--------------
TOTAL COMMON STOCKS (Cost $1,154,370,668) $1,355,711,465
TOTAL INVESTMENTS (Cost $1,154,370,668)........................................... $1,355,711,468) 102.6%
Liabilities, less cash and receivables............................................ (34,224,124) (2.6)
-------------- -----
TOTAL NET ASSETS.................................................................. $1,321,487,344) 100.0%
============== =====
</TABLE>
(a) Non-income producing security.
(b) Affiliated company. See Note 9 in Notes to Financial Statements.
(c) Foreign-denominated security.
(d) All or part of security committed to cover margin requirements for futures
contracts.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
11
<PAGE>
HEARTLAND GOVERNMENT FUND
SCHEDULE OF INVESTMENTS . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Par Percent of
Amount LONG TERM INVESTMENTS - 105.5% Coupon Maturity Value Net Assets
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY AND AGENCY SECURITIES - 24.4%
U.S. TREASURY SECURITIES - 11.0%
$4,000,000 U.S. Treasury Bond (a) 7.875% 02/15/2021 $ 4,735,520 9.3%
2,000,000 U.S. Treasury Strips (a) 0.000 08/15/2009 889,480 1.7
------------
5,625,000
AGENCY SECURITIES - 13.4%
4,000,000 Federal Home Loan Bank
(Callable 12/16/1999) 5.770 09/16/2002 3,958,200 7.8
3,000,000 Federal National Mortgage Association
(Callable 09/02/2002) (a) 6.190 02/19/2009 2,869,830 5.6
------------
6,828,030
------------
TOTAL U.S. TREASURY AND AGENCY SECURITIES (Cost $12,732,155) 12,453,030
------------
MORTGAGE-RELATED SECURITIES - 62.4%
PASS-THROUGH SECURITIES - 31.3%
171,948 FHLMC #260666 8.250 03/01/2008 178,826 0.3
951,633 FHLMC #280656 9.000 06/01/2014 1,022,406 2.0
703,597 FNMA #208578 CL 7.500 03/01/2013 715,910 1.4
1,307,342 FNGL #252779 8.000 08/01/2028 1,340,836 2.6
469,114 FNMA #304119 CL 8.500 02/01/2025 493,743 1.0
839,282 FNMA #309494 RE 6.500 09/01/2025 814,103 1.6
1,709,330 FNMA #361493 GL 9.000 01/01/2025 1,817,753 3.6
225,493 GNMA #31652 8.500 09/15/2009 237,471 0.5
1,257,864 GNMA #443630 MHD 9.000 11/15/2017 1,354,945 2.7
159,260 GNMA #293146 MHB 10.250 07/15/2005 162,345 0.3
1,150,889 FNMA Grantor Trust 1995 - T5A 7.000 03/17/2035 1,126,904 2.2
5,000,000 FNMA TBA (b) 6.500 05/15/2029 4,823,438 9.4
2,000,000 GNMA TBA (b) 6.000 05/24/2029 1,869,375 3.7
------------
15,958,055
COLLATERALIZED MORTGAGE OBLIGATIONS - 31.1%
2,500,000 FHR CMO 1817 6.500 09/15/2023 2,428,075 4.7
5,000,000 FHLMC CMO-SEQ 1978 BC 6.500 05/15/2025 4,933,150 9.7
1,000,000 FHLMC CMO 2075 PAC 6.250 08/15/2027 933,560 1.8
2,000,000 FHLMC CMO-SEQ 2073 PJ 6.000 10/15/2023 1,930,040 3.8
3,000,000 FNMA CMO-PAC 1993 - 38L 5.000 08/25/2022 2,777,940 5.4
3,000,000 GNMA GNR 1999-16D 6.500 05/16/2013 2,906,700 5.7
------------
15,909,465
------------
TOTAL MORTGAGE-RELATED SECURITIES (Cost $32,025,045) 31,867,520
------------
ASSET-BACKED SECURITIES/CORPORATE - 18.7%
3,000,000 Contimortgage HEL Trust 7.580 08/15/2028 3,063,900 6.0
1,948,932 IMCEC 1997 - A A (144A) 7.410 11/26/2028 1,862,448 3.6
2,000,000 LBCMT 1999 - C1 6.410 08/15/2007 1,969,000 3.9
2,500,000 Toll Road Investors Partnership II, L.P. (144A) 0.000 02/15/2010 1,171,875 2.3
1,500,000 GT MH 1999 - 3 B1 8.370 05/07/2014 1,472,040 2.9
------------
TOTAL ASSET-BACKED SECURITIES/CORPORATE (Cost $9,659,875) 9,539,263
------------
TOTAL LONG-TERM INVESTMENTS (Cost $54,417,075) $ 53,859,813
------------
</TABLE>
12
<PAGE>
HEARTLAND GOVERNMENT FUND
SCHEDULE OF INVESTMENTS [CONT'D] . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par Percent of
Amount SHORT-TERM INVESTMENTS - 7.3% Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER - 5.9%
$3,000,000 Exxon Asset Management
0.00% 07/01/1999 $ 3,000,000 5.9%
VARIABLE RATE DEMAND NOTES (+) - 1.4%
252,000 General Mills, Inc. 4.67% 252,000 0.5
188,000 Sara Lee Corporation 4.66% 188,000 0.4
273,000 Warner-Lambert Company 4.70% 273,000 0.5
-----------
713,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $3,713,000) $ 3,713,000
-----------
TOTAL INVESTMENTS (Cost $58,130,075).................................. $57,572,813 112.8%
Liabilities, less cash and receivables................................ (6,504,670) (12.8)
----------- -----
TOTAL NET ASSETS...................................................... $51,068,143 100.0%
=========== =====
</TABLE>
(a) All or a portion of security committed to cover margin requirements for
futures contracts or when-issued securities.
(b) When-issued security.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. The interest rates change periodically on specified
dates. The rates listed are as of June 30, 1999.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
13
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Large Cap
Value Fund
-------------
<S> <C>
ASSETS:
Investments in securities, at cost......................................................... $ 9,058,157
=============
Investments in securities, at value........................................................ $ 9,658,118
Cash....................................................................................... 6,250
Receivable from securities sold............................................................ ---
Receivable from fund shares sold........................................................... ---
Variation margin on open futures contracts................................................. ---
Accrued dividends and interest............................................................. 20,477
Prepaid expenses........................................................................... 4,298
Deferred organization expenses............................................................. 7,393
Receivable from Advisor for expense reimbursement.......................................... 16,945
-------------
Total Assets........................................................................... 9,713,481
-------------
LIABILITIES:
Payable for securities purchased........................................................... ---
Payable for fund shares redeemed........................................................... 24,390
Variation margin on open futures contracts................................................. ---
Short-term notes payable................................................................... ---
Distributions payable...................................................................... ---
Payable to Advisor for management fee...................................................... 6,875
Payable to Advisor for deferred organization expenses...................................... 7,393
Accrued interest payable................................................................... ---
Accrued expenses........................................................................... 18,344
-------------
Total Liabilities...................................................................... 57,002
-------------
TOTAL NET ASSETS............................................................................ $ 9,656,479
=============
NET ASSETS CONSIST OF:
Paid in capital............................................................................ $ 8,873,409
Accumulated undistributed net investment income............................................ 66,256
Accumulated undistributed net realized gains (losses) on investments....................... 116,853
Net unrealized appreciation (depreciation) on investments.................................. 599,961
-------------
TOTAL NET ASSETS............................................................................ $ 9,656,479
=============
SHARES OUTSTANDING, $.001 par value (50,000,000; 100,000,000; 100,000,000; 150,000,000;
and 100,000,000 shares authorized, respectively)............................................ 765,798
=============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE.............................. $ 12.61
=============
</TABLE>
(1) Formerly the U.S. Government Securities Fund.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
14
<PAGE>
<TABLE>
<CAPTION>
Mid Cap Value Plus Government
Value Fund Fund Value Fund Fund(1)
- ------------- ------------- -------------- -------------
<S> <C> <C> <C>
$ 20,413,681 $ 155,038,140 $1,154,370,668 $ 58,130,075
============= ============= ============== =============
$ 21,943,051 $ 163,204,262 $1,355,711,468 $ 57,572,813
10,292 67,098 69,014 51,142
292,998 1,330,828 5,420,090 19,906
1,000 271,096 399,102 18
--- --- --- ---
23,921 499,434 1,113,152 458,095
5,504 18,452 75,750 10,239
7,393 --- --- ---
27,555 --- --- 21,282
- ------------- ------------- -------------- -------------
22,311,714 165,391,170 1,362,788,576 58,133,495
- ------------- ------------- -------------- -------------
--- 1,471,331 1,695,745 6,724,103
93,330 178,085 392,268 2,448
--- 781,250 5,625,000 2,895
300,000 1,500,000 32,200,000 ---
--- 1,041,690 --- 275,772
14,516 103,551 870,454 30,074
7,393 --- --- ---
54 267 5,724 ---
26,084 81,715 512,041 30,060
- ------------- ------------- -------------- -------------
441,377 5,157,889 41,301,232 7,065,352
- ------------- ------------- -------------- -------------
$ 21,870,337 $ 160,233,281 $1,321,487,344 $ 51,068,143
============= ============= ============== =============
$ 24,620,156 $ 164,211,580 $1,050,882,556 $ 57,534,268
29,810 3,497 --- 3,092
(4,308,999 (9,508,755 83,981,484 (5,912,399
1,529,370 5,526,959 186,623,304 (556,818
- ------------- ------------- -------------- -------------
$ 21,870,337 $ 160,233,281 $1,321,487,344 $ 51,068,143
============= ============= ============== =============
1,940,171 10,881,328 40,402,923 5,364,353
============= ============= ============== =============
$ 11.27 $ 14.73 $ 32.71 $ 9.52
============= ============= ============== =============
</TABLE>
15
<PAGE>
STATEMENTS OF OPERATIONS
For the period from January 1, 1999, to June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Large Cap
Value Fund
----------
<S> <C>
INVESTMENT INCOME:
Dividends......................................................... $ 72,870
Interest.......................................................... 17,476
Foreign tax withholding........................................... (2,558)
----------
Total investment income......................................... 87,788
----------
EXPENSES:
Management fees................................................... 30,605
Distribution fees................................................. 10,202
Transfer agent fees............................................... 10,276
Fund accounting fees.............................................. 2,089
Custodian fees.................................................... 837
Printing and communications....................................... 3,175
Postage........................................................... 4,970
Legal fees........................................................ 212
Registration fees................................................. 3,819
Directors' fees................................................... 7,124
Audit fees........................................................ 5,796
Amortization of organization expenses............................. 1,643
Other operating expenses.......................................... 11,131
----------
Total expenses before interest expense, dividends on short
positions, and expense reimbursement and management
fee waivers.................................................... 91,879
Total interest expense and/or dividends on short positions........ ---
----------
Total expenses before expense reimbursement and
management fee waivers......................................... 91,879
Less: Expense reimbursement and management fee waivers............ (70,347)
----------
Net expenses...................................................... 21,532
----------
NET INVESTMENT INCOME.............................................. 66,256
----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on:
Long positions.................................................. 218,775
Short positions................................................. ---
Futures contracts............................................... ---
Options......................................................... ---
Net increase (decrease) in unrealized appreciation on:
Long positions.................................................. 244,254
Futures contracts............................................... ---
Options......................................................... ---
----------
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS........ 463,029
----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.... $ 529,285
==========
</TABLE>
(1) Formerly the U.S. Government Securities Fund.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
16
<PAGE>
<TABLE>
<CAPTION>
Mid Cap Value Plus Government
Value Fund Fund Value Fund Fund(1)
- ------------ ----------- ------------ -----------
<S> <C> <C> <C>
$ 170,709 $ 2,304,504 $ 4,061,632 ---
14,117 1,571,183 101,902 $ 1,750,542
(241) (28,650) (147,722) ---
- ------------ ----------- ------------ -----------
184,585 3,847,037 4,015,812 1,750,542
- ------------ ----------- ------------ -----------
93,153 537,960 4,855,151 118,561
31,051 192,128 1,618,383 65,851
34,344 110,607 674,988 28,034
2,089 3,652 17,472 2,117
1,587 12,530 131,335 5,397
8,405 18,564 185,938 3,796
15,483 27,435 244,434 13,323
1,083 5,569 53,947 2,210
5,920 3,464 3,458 1,559
6,562 10,939 33,890 7,886
5,963 8,431 29,556 5,852
1,643 --- --- ---
16,933 29,681 136,239 20,209
- ------------ ----------- ------------ -----------
224,216 960,960 7,984,791 274,795
--- 56,530 1,127,178 ---
- ------------ ----------- ------------ -----------
224,216 1,017,490 9,111,969 274,795
(69,441) --- --- (64,459)
- ------------ ----------- ------------ -----------
154,775 1,017,490 9,111,969 210,336
- ------------ ----------- ------------ -----------
29,810 2,829,547 (5,096,157) 1,540,206
- ------------ ----------- ------------ -----------
(4,189,223) (6,254,104) 79,626,883 (460,959)
--- --- --- ---
--- --- 4,211,333 (32,362)
--- --- 83,127 ---
2,258,663 18,166,542 62,741,404 (2,428,845)
--- (2,639,163) (13,720,081) (2,640)
--- --- --- ---
- ------------ ----------- ------------ -----------
(1,930,560) 9,273,275 132,942,666 (2,924,806)
- ------------ ----------- ------------ -----------
$ (1,900,750) $12,102,822 $127,846,509 $(1,384,600)
============ =========== ============ ===========
</TABLE>
17
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
--------------------------------
Large Cap
Value Fund
--------------------------------
Jan. 1, 1999
to June 30, 1999 Year Ended
(Unaudited) Dec. 31, 1998
---------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income........................ $ 66,256 $ 199,168
Net realized gains (losses) on investments... 218,775 72,330
Net increase (decrease) in unrealized
appreciation on investments................. 244,254 (198,786)
----------- -----------
Net increase (decrease) in net assets
resulting from operations................. 529,285 72,712
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................ (2,121) (197,047)
Net realized gains on investments............ (138,062) (169,485)
----------- -----------
Net distributions to shareholders.......... (140,183) (366,532)
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued.................. 9,507,798 5,074,757
Reinvested dividends from net investment
income and distributions from net
realized gains on investments.............. 135,488 355,161
Cost of shares redeemed...................... (8,401,249) (4,776,114)
----------- -----------
Net increase (decrease) in net assets
derived from Fund share activities........ 1,242,037 653,804
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS........ 1,631,139 359,984
NET ASSETS AT THE BEGINNING OF THE PERIOD...... 8,025,340 7,665,356
----------- -----------
NET ASSETS AT THE END OF THE PERIOD............ $ 9,656,479 $ 8,025,340
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME............ $ 66,256 $ 2,121
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
18
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------------------
Mid Cap Value Plus
Value Fund Fund
- ------------------------------------ -----------------------------------
Jan. 1, 1999 Jan. 1, 1999
to June 30, 1999 Year Ended to June 30, 1999 Year Ended
(Unaudited) Dec. 31, 1998 (Unaudited) Dec. 31, 1998
- ---------------- ------------- ---------------- -------------
<S> <C> <C> <C>
$ 29,810 212,413 $ 2,829,547 $ 10,626,057
(4,189,223) (60,288) (6,254,104) (3,254,234)
2,258,663 (4,914,405) 15,527,379 (35,114,200)
------------ ------------ ------------- -------------
(1,900,750) (4,762,280) 12,102,822 (27,742,377)
------------ ------------ ------------- -------------
-- (212,413) (3,027,168) (10,437,624)
-- -- -- (539,961)
------------ ------------ ------------- -------------
-- (212,413) (3,027,168) (10,977,585)
------------ ------------ ------------- -------------
3,442,423 29,193,427 83,506,191 225,703,596
-- 211,255 1,579,348 9,753,798
(14,357,499) (26,301,867) (108,241,906) (358,704,802)
------------ ------------ ------------- -------------
(10,915,076) 3,102,815 (23,156,367) (123,247,408)
------------ ------------ ------------- -------------
(12,815,826) (1,871,878) (14,080,713) (161,967,370)
34,686,163 36,558,041 174,313,994 336,281,366
------------ ------------ ------------- -------------
$ 21,870,337 $ 34,686,163 $ 160,233,281 $ 174,313,996
============ ============ ============= =============
$ 29,810 $ -- $ 3,497 $ 201,118
============ ============ ============= =============
</TABLE>
19
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C>
OPERATIONS:
Net investment income......................................................................
Net realized gains (losses) on investments.................................................
Net increase (decrease) in unrealized appreciation on
investments...............................................................................
Net increase (decrease) in net assets resulting from
operations..............................................................................
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income......................................................................
Net realized gains on investments..........................................................
Net distributions to shareholders........................................................
FUND SHARE ACTIVITIES:
Proceeds from shares issued................................................................
Proceeds from Fund merger..................................................................
Reinvested dividends from net investment income and
distributions from net realized gains on investments......................................
Cost of shares redeemed....................................................................
Net increase (decrease) in net assets derived from Fund
share activities.......................................................................
TOTAL INCREASE (DECREASE) IN NET ASSETS.....................................................
NET ASSETS AT THE BEGINNING OF THE PERIOD...................................................
NET ASSETS AT THE END OF THE PERIOD.........................................................
UNDISTRIBUTED NET INVESTMENT INCOME.........................................................
</TABLE>
(1) Formerly the U.S. Government Securities Fund.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
20
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------- -----------------------------------
Value Government
Fund Fund/(1)/
-------------------------------------- -----------------------------------
Jan. 1, 1999 Jan. 1, 1999
to June 30, 1999 Year Ended to June 30, 1999 Year Ended
(Unaudited) Dec. 31, 1998 (Unaudited) Dec. 31, 1998
---------------- -------------- ---------------- -------------
<S> <C> <C> <C>
$ (5,096,157) $ 4,393,333 $ 1,540,206 $ 3,067,612
83,921,343 57,797,743 (493,321) 739,120
49,021,323 (289,725,122) (2,431,485) 321,544
---------------- -------------- ---------------- -------------
127,846,509 (227,534,046) (1,384,600) 4,128,276
---------------- -------------- ---------------- -------------
--- (3,004,029) (1,537,114) (3,069,809)
--- (33,890,119) --- ---
---------------- -------------- ---------------- -------------
--- (36,894,148) (1,537,114) (3,069,809)
---------------- -------------- ---------------- -------------
126,146,630 343,555,971 9,543,962 26,715,684
--- 104,944,820 --- ---
--- 33,363,615 991,951 2,330,317
(478,064,352) (798,592,335) (11,431,558) (23,781,051)
---------------- -------------- ---------------- -------------
(351,917,722) (316,727,929) (895,645) 5,264,950
---------------- -------------- ---------------- -------------
(224,071,213) (581,156,123) (3,817,359) 6,323,417
1,545,558,557 2,126,714,680 54,885,502 48,562,085
---------------- -------------- ---------------- -------------
$ 1,321,487,344 $1,545,558,557 $ 51,068,143 $ 54,885,502
================ ============== ================ =============
$ --- $ --- $ 3,092 $ ---
================ ============== ================ =============
</TABLE>
21
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Large Cap Value Fund
---------------------------------------------------------------------
For the six
months ended For the year ended Oct. 11, 1996/(1)/
June 30, 1999 December 31, through
(Unaudited) 1998 1997 Dec. 31, 1996
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period............ $ 11.94 $ 12.30 $ 10.50 $ 10.00
Income (loss) from investment operations:
Net investment income........................ 0.11 0.30 0.11 --
Net realized and unrealized gains (losses)
on investments............................. 0.81 (0.10) 2.28 0.50
------------- --------- --------- ------------
Total income (loss) from investment
operations............................... 0.92 0.20 2.39 0.50
------------- --------- --------- ------------
Less distributions from:
Net investment income........................ 0.00 (0.30) (0.11) --
Net realized gains on investments............ (0.25) (0.26) (0.48) --
------------- --------- --------- ------------
Total distributions........................ (0.25) (0.56) (0.59) --
------------- --------- --------- ------------
Net asset value, end of period.................. $ 12.61 $ 11.94 $ 12.30 $ 10.50
============= ========= ========= ============
Total Return.................................... 8.0%/(2)/ 1.7% 22.9% 5.0%/(2)/
Ratios and Supplemental Data
Net assets, end of period
(in thousands)............................. $ 9,656 $ 8,025 $ 7,665 $ 2,441
Ratio of net expenses to average
net assets................................. 0.53%/(3)(4)/ 0.00%/(4)/ 1.36%/(4)/ 2.73%/(3)/
Ratio of net investment income (loss)
to average net assets...................... 1.62/(3)(4)/ 2.37%/(4)/ 1.14%/(4)/ (0.25)%/(3)/
Portfolio turnover rate...................... 51% 48% 30% 1%
<CAPTION>
Mid Cap Value Fund
------------------------------------------------------------------------
For the six
months ended For the year ended Oct. 11, 1996/(1)/
June 30, 1999 December 31, through
(Unaudited) 1998 1997 Dec. 31, 1996
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period............ $ 11.69 $ 12.78 $ 10.66 $ 10.00
Income (loss) from investment operations:
Net investment income........................ 0.02 0.07 0.05 --
Net realized and unrealized gains (losses)
on investments............................. (0.44) (1.09) 2.38 0.66
------------- --------- --------- ------------
Total income (loss) from investment
operations............................... (0.42) (1.02) 2.43 0.66
------------- --------- --------- ------------
Less distributions from:
Net investment income........................ -- (0.07) (0.05) --
Net realized gains on investments............ -- -- (0.26) --
------------- --------- --------- ------------
Total distributions........................ -- (0.07) (0.31) --
------------- --------- --------- ------------
Net asset value, end of period.................. $ 11.27 $ 11.69 $ 12.78 $ 10.66
============= ========= ========= ============
Total Return.................................... (3.6)%/(2)/ (8.0)% 22.8% 6.6%/(2)/
Ratios and Supplemental Data
Net assets, end of period
(in thousands)............................. $ 21,870 $ 34,686 $ 36,558 $ 6,934
Ratio of net expenses to average
net assets................................. 1.25%/(3)(5)/ 1.25%/(5)/ 1.29%/(5)/ 1.94%/(3)/
Ratio of net investment income (loss)
to average net assets...................... 0.24%/(3)(5)/ 0.52%/(5)/ 0.54%/(5)/ (0.16)%/(3)/
Portfolio turnover rate...................... 53% 47% 48% 4%
</TABLE>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) If there had been no expense reimbursement or management fee waiver by the
Advisor, the ratio of net expenses to average net assets for the period
ended June 30, 1999 and the years ended December 31, 1998 and 1997 would
have been 2.25%, 1.92% and 2.00%, respectively, and the ratio of net
investment income to average net assets would have been 0.0%, 0.45% and
0.50%, respectively.
(5) If there had been no expense reimbursement or management fee waiver by the
Advisor, the ratio of net expenses to average net assets for the period
ended June 30, 1999 and the years ended December 31, 1998 and 1997 would
have been 1.81%, 1.34% and 1.32%, respectively, and the ratio of net
investment income to average net assets would have been 0.0%, 0.43% and
0.51%, respectively.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
22
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Value Plus Fund
-----------------------------------------------------------------------------
For the six
months ended
June 30, 1999 For the year ended December 31,
(Unaudited) 1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period................ $ 13.80 $ 16.13 $ 13.73 $11.17 $ 9.53 $10.45
Income (loss) from investment operations:
Net investment income............................ 0.27 0.62 0.48 0.38 0.41 0.41
Net realized and unrealized gains (losses)
on investments................................. 0.95 (2.32) 3.66 3.33 1.89 (0.92)
------------- -------- -------- ------ ------- ------
Total income (loss) from investment
operations................................... 1.22 (1.70) 4.14 3.71 2.30 (0.51)
------------- -------- -------- ------ ------- ------
Less distributions from:
Net investment income............................ (0.29) (0.60) (0.48) (0.38) (0.41) (0.41)
Net realized gains on investments................ -- (0.03) (1.26) (0.77) (0.25) --
------------- -------- -------- ------ ------- ------
Total distributions............................ (0.29) (0.63) (1.74) (1.15) (0.66) (0.41)
------------- -------- -------- ------ ------- ------
Net asset value, end of period...................... $ 14.73 $ 13.80 $ 16.13 $13.73 $ 11.17 $ 9.53
============= ======== ======== ====== ======= ======
Total Return/(1)/................................... 9.1%/(2)/ (10.8)% 30.6% 33.8% 24.4% (4.9)%
Ratios and Supplemental Data
Net assets, end of period (in thousands)......... $ 160,233 $174,314 $336,281 $66,582 $19,123 $9,884
Ratio of operating expenses to average
net assets..................................... 1.24%/(3)/ 1.21% 1.12% 1.45% 1.54% 1.80%
Ratio of interest expense to average
net assets..................................... 0.07%/(3)/ 0.03% -- -- -- --
Ratio of net investment income to average
net assets..................................... 3.65%/(3)/ 3.77% 3.32% 3.23% 3.90% 4.39%
Portfolio turnover rate.......................... 52%/(3)/ 64% 74% 73% 150% 127%
</TABLE>
(1) The contingent deferred sales charge in effect for the Fund prior to June 1,
1994 is not reflected in Total Return.
(2) Not annualized.
(3) Annualized.
The accompanying Notes to Financial Statements are an integral part of this
Statement.
23
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Value Fund
----------------------------------------------------------------------------
For the six
months ended
June 30, 1999 For the year ended December 31,
(Unaudited) 1998 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period.................. $ 29.29 $ 33.87 $ 31.65 $ 27.95 $ 22.72
Income (loss) from investment operations:
Net investment income (loss)........................ (0.13) 0.08 0.17 0.06 0.13
Net realized and unrealized gains (losses)
on investments.................................... 3.55 (3.97) 7.09 5.78 6.63
------------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations........................................ 3.42 (3.89) 7.26 5.84 6.76
------------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income............................... -- (0.06) (0.17) (0.06) (0.13)
Net realized gains on investments................... -- (0.63) (4.87) (2.08) (1.40)
------------- ---------- ---------- ---------- ----------
Total distributions............................... -- (0.69) (5.04) (2.14) (1.53)
------------- ---------- ---------- ---------- ----------
Net asset value, end of period........................ $ 32.71 $ 29.29 $ 33.87 $ 31.65 $ 27.95
============= ========== ========== ========== ==========
Total Return/(1)/..................................... 11.7%/(2)/ (11.5)% 23.2% 21.0% 29.8%
Ratios and Supplemental Data
Net assets, end of period (in thousands)............ $ 1,321,487 $1,545,495 $2,126,715 $1,626,760 $1,190,926
Ratio of operating expenses to average
net assets........................................ 1.24%/(3)/ 1.15% 1.12% 1.23% 1.29%
Ratio of interest expense to average net assets..... 0.17%/(3)/ -- -- -- --
Ratio of net investment income (loss) to
average net assets................................ (0.78)%/(3)/ 0.22% 0.49% 0.22% 0.61%
Portfolio turnover rate............................. 11% 36% 55% 31% 31%
<CAPTION>
---------
1994
---------
<S> <C>
Per Share Data
Net asset value, beginning of period.................. $ 23.22
Income (loss) from investment operations:
Net investment income (loss)........................ (0.09)
Net realized and unrealized gains (losses)
on investments.................................... 0.47
---------
Total income (loss) from investment
operations........................................ 0.38
---------
Less distributions from:
Net investment income............................... --
Net realized gains on investments................... (0.88)
---------
Total distributions............................... (0.88)
---------
Net asset value, end of period....................... $ 22.72
=========
Total Return/(1)/..................................... 1.7%
Ratios and Supplemental Data
Net assets, end of period (in thousands)............ $ 339,364
Ratio of operating expenses to average
net assets........................................ 1.39%
Ratio of interest expense to average net assets..... --
Ratio of net investment income (loss) to
average net assets................................ (0.52)%
Portfolio turnover rate............................. 35%
</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.
(2) Not annualized.
(3) Annualized.
The accompanying Notes to Financial Statements are an integral part of this
Statement.
24
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Government Fund
(formerly the U.S. Government Securities Fund)
----------------------------------------------------------------------------
For the six
months ended
June 30, 1999 For the year ended December 31,
(Unaudited) 1998 1997 1996 1995 1994
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period................ $ 10.06 $ 9.85 $ 9.54 $ 9.96 $ 8.91 $ 10.50
Income (loss) from investment operations:
Net investment income............................. 0.28 0.57 0.58 0.59 0.60 0.59
Net realized and unrealized gains (losses)
on investments.................................. (0.54) 0.21 0.31 (0.42) 1.05 (1.59)
------------- ------- ------- ------- ------- -------
Total income (loss) from investment
operations...................................... (0.26) 0.78 0.89 0.17 1.65 (1.00)
------------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income............................. (0.28) (0.57) (0.58) (0.59) (0.60) (0.59)
------------- ------- ------- ------- ------- -------
Total distributions............................. (0.28) (0.57) (0.58) (0.59) (0.60) (0.59)
------------- ------- ------- ------- ------- -------
Net asset value, end of period...................... $ 9.52 10.06 $ 9.85 $ 9.54 $ 9.96 $ 8.91
============= ======= ======= ======= ======= =======
Total Return/(1)/................................... (2.6)%/(2)/ 8.1% 9.7% 2.0% 19.0% (9.6)%
Ratios and Supplemental Data
Net assets, end of period (in thousands).......... $ 51,068 $54,886 $48,562 $51,713 $66,261 $64,807
Ratio of net expenses to average
net assets/(4)/................................. 0.80%/(3)/ 0.76% 0.87% 1.06% 1.07% 1.07%
Ratio of net investment income to
average net assets/(4)/.......................... 5.85%/(3)/ 5.73% 6.12% 6.36% 6.31% 6.30%
Portfolio turnover rate............................ 83% 90% 143% 30% 97% 95%
</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.
(2) Not annualized.
(3) Annualized.
(4) If there had been no expense reimbursement or management fee waiver by the
Advisor, the ratios of net expenses to average net assets for the period
ended June 30, 1999 and the years ended December 31, 1998, 1997, 1996, 1995,
and 1994, would have been 1.24%, 1.16%, 1.20%, 1.21%, 1.22%, and 1.22%,
respectively, and the ratios of net investment income to average net assets
would have been 5.40%, 5.33%, 5.79%, 6.21%, 6.16%, and 6.15%, respectively.
The accompanying Notes to Financial Statements are an integral part of this
Statement.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Heartland Group, Inc. (the "Corporation") is registered as an open-end
management company under the Investment Company Act of 1940. The Large Cap
Value Fund, Mid Cap Value Fund, Value Plus Fund, Value Fund, and Government
Fund (formerly known as the U.S. Government Securities Fund) (the "Funds"),
each of which is a diversified fund, are five of the nine series of funds
issued by the Corporation at June 30, 1999.
(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 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 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. Accordingly, no Federal income tax provision is
required.
At June 30, 1999, the Mid Cap Value Fund and Value Plus Fund had
Federal income tax capital loss carryforwards of $118,353 and
$260,654, respectively, which expire in 2006. The Government Fund had
Federal income tax capital loss carryforwards of $4,115,982 expiring
in 2002, $858,458 expiring in 2003 and $358,754 expiring in 2005. The
Funds do not intend to make distributions of any future realized
capital gains until their Federal income tax capital loss
carryforwards are completely utilized.
Statement of Position 93-2 requires that permanent financial reporting
and tax differences be reclassified to paid in capital. Net assets are
not affected by these reclassifications.
Net realized gains or losses may differ for Federal income tax
purposes primarily as a result of post-October losses which may not be
recognized for tax purposes until the first day of the following
fiscal year, wash sales, and the marking-to-market of open futures
contracts.
(c) Net investment income, if any, is distributed to each shareholder as a
dividend. Dividends from the Large Cap Value, Mid Cap Value and Value
Funds are declared and paid at least annually. Dividends from the
Value Plus Fund are declared and paid quarterly. Dividends from the
Government Fund are declared daily and distributed monthly. Dividends
are recorded on the ex-dividend date. Net realized gains on
investments, if any, are distributed at least annually.
(d) The Funds record security and shareholder transactions no later than
trade date plus one. Net realized gains and losses on investments are
computed on the identified cost basis. The portion of security gains
and losses resulting from changes in foreign exchange rates is
included with net realized and unrealized gains or losses from
investments. 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) The Funds are charged for those expenses that are directly
attributable to them. Expenses that are not directly attributable to
any one Fund are typically allocated among all Funds issued by the
Corporation in proportion to their respective net assets, number of
open shareholder accounts, or net sales, as applicable.
(f) 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 on a daily basis 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
26
<PAGE>
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 a
futures contract's price may result in a loss which could render a
portfolio's hedging strategy unsuccessful. The Funds had the following
open short futures contracts at June 30, 1999.
Value Plus Fund
<TABLE>
<CAPTION>
Number of Expiration Unrealized Notional
Type Contracts Date Depreciation Value
---- --------- ---- ------------ -----
<S> <C> <C> <C> <C>
S&P 500 (125) September 1999 $ (2,639,163) $(15,625,000)
Value Fund
Number of Expiration Unrealized Notional
Type Contracts Date Depreciation Value
---- --------- ---- ------------ -----
S&P 500 (900) September 1999 $(14,717,496) $(112,500,000)
Government Fund
Number of Expiration Unrealized Notional
Type Contracts Date Appreciation Value
---- --------- ---- ------------ -----
U.S. Treasury (10) September 1999 $ 444 $(1,250,000)
</TABLE>
(g) The Large Cap Value, Mid Cap Value, Value Plus and Value 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.
For financial statement purposes, an amount equal to a short sale's
settlement amount is included in the Statement of Assets and
Liabilities as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current
value of the short position.Subsequent fluctuations in the market
prices of securities sold short, at value, may require purchasing the
securities at prices which may differ from the market value reflected
on the Statement of Assets and Liabilities. The Fund is liable for any
dividends payable on securities while those securities are in a short
position.
(h) 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 (the "Act") 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, 1999, the Value Plus and Government Funds held restricted
securities equaling 2.2% and 5.9% of net assets, respectively.
Restricted securities that are eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the Act, provided
that such securities have been determined to be liquid pursuant to the
guidelines adopted by the Board of Directors, are valued at fair value
as furnished by independent pricing services. All other restricted
securities are identified below.
Value Plus Fund
<TABLE>
<CAPTION>
Acquisition
Security Par Value Cost Fair Value Date
-------- --------- ---- ---------- -----------
<S> <C> <C> <C> <C>
Source Capital Corporation
Conv. Bond
7.50% 03/01/2008 $1,400,000 $1,400,000 $1,048,689 2/98
</TABLE>
(i) The Funds each may write covered call options and purchase put options
that are traded on recognized U.S. exchanges and enter into closing
transactions with respect to such options. The Large Cap Value and Mid
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.
27
<PAGE>
For the period from January 1, 1999 through June 30, 1999, the Funds
had the following transactions in written covered call options:
Value Fund
<TABLE>
<CAPTION>
Number of Premium
Contracts Amount
---------- -------
<S> <C> <C>
Balance at January 1, 1999 -- --
Options opened (ICNPharmaceuticals, Inc. 6/99) 420 $ 83,127)
Options expired (ICNPharmaceuticals, Inc. 6/99) (420) (83,127)
Options closed -- --
--------- --------
Balance at June 30, 1999 -- $ --
========= ========
</TABLE>
(j) 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 those estimates.
(3) Credit Facility
Deutsche Bank AG, has made available to eight of the nine series of funds
issued by the Corporation, including the Large Cap Value, Mid Cap Value,
Value Plus and Value Funds, a $100 million credit facility pursuant to a
Credit Agreement ("Agreement"), most recently amended December 29, 1998.
The purpose of the Agreement is to provide liquidity for meeting portfolio
redemptions on a short-term basis. Outstanding principal amounts under the
credit facility bear interest at a rate per annum equal to the New York
Interbank Offering Rate plus 0.4% or the prime rate. Commitment fees are
computed at a rate per annum equal to 0.08% of the Funds' proportional
daily average unutilized credit. Commitment fees paid during the period
from January 1, 1999 to June 30, 1999 for the Large Cap Value, Mid Cap
Value, Value Plus, and Value Funds amounted to $43, $153, $864 and $8,068,
respectively. During the period from January 1, 1999 through June 30, 1999,
the following Funds utilized the credit facility:
<TABLE>
<CAPTION>
Outstanding Average Maximum
Average Interest Outstanding Interest
Fund Daily Balance Rate Balance Expense
---- ------------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Mid Cap Value Fund $ 102,762 5.31% $ 1,200,000 $ 3,600
Value Plus Fund 2,197,790 5.35 13,100,000 56,530
Value Fund 42,127,624 5.32 70,400,000 1,127,178
</TABLE>
(4) 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 Large Cap Value, Mid Cap Value and Value Funds pay the
Advisor a monthly management fee at the annual rate of 0.75% 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 0.70% of the daily net asset
value of the Fund; and the Government Fund pays the Advisor a monthly
management fee at the annual rate of 0.65% of the first $100 million of the
Fund's average daily net assets, 0.50% of the next $400 million of net
assets, and 0.40% on net assets in excess of $500 million.
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 0.25% of their daily net assets. Additionally, for the period from
January 1, 1999, through June 30, 1999, the Distributor received for the
Value Plus and Value Funds $4,500 and $62,000, respectively, for brokerage
fees on the execution of purchases and sales of portfolio investments.
Effective May 1, 1999, the Funds entered into an agreement with the Advisor
to perform certain bookkeeping and accounting services. Under the terms of
the agreement, each Fund pays the Advisor a monthly fee at an annual rate
of $12,500 plus 0.0075% of average daily net assets for the Large Cap
Value, Mid Cap Value, and Value Funds, 0.0080% of average daily net assets
for the Value Plus Fund and 0.0085% of average daily net assets for the
Government Fund.
For the Large Cap Value Fund, the Advisor voluntarily waived the entire
management and distribution fees and reimbursed all other expenses through
April 30, 1999. For the Mid Cap Value Fund, the Advisor voluntarily
reimbursed the Fund to the extent that annual total fund operating expenses
exceeded 1.25% through April 30, 1999. For the Government Fund, the Advisor
collected a partial management fee at an annual rate of 0.25% of the Fund's
average daily net assets through April 30, 1999. Effective May 1, 1999, the
Advisor contractually committed to waive fees paid, through April 30, 2000,
to the extent that annual fund operating expenses exceed 0.95% for the
28
<PAGE>
Large Cap Value Fund, 1.25% for the Mid Cap Value Fund, and 0.80% for the
Government Fund. After that date the Advisor may reinstate all or a portion
of the Funds' fees or discontinue waivers and reimbursements at any time.
If a Fund's operating expenses fall below the expense limitation, the Fund
will begin paying the Advisor for fees previously waived and expenses
previously reimbursed. This repayment will continue for up to three years
after the end of the fiscal year in which a fee is waived or an expense is
paid, subject to any expense limitation then in effect, until the Fund has
repaid the Advisor for the entire amount or such three-year period expires.
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.
(5) Deferred Organization Expenses
For the Large Cap Value and Mid Cap Value 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 organization expenses and the related payable to the Advisor at
June 30, 1999, for the Large Cap Value and Mid Cap Value Funds were $7,393
and $7,393, respectively. Reimbursements to the Advisor of these amounts by
the Funds will be subject to any expense limitations and reimbursements in
effect for the Funds at the time.
(6) Investment Transactions
During the period from January 1, 1999 through June 30, 1999, purchases and
sales of securities, other than short-term obligations, were as follows (in
thousands):
<TABLE>
<CAPTION>
Large Cap Mid Cap Value
Value Value Plus Value Government
Fund Fund Fund Fund Fund
--------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Cost of purchases $ 5,049 $ 12,903 $ 80,754 $149,544 $72,536
Proceeds from
sales 3,795 22,618 103,868 439,524 74,180
</TABLE>
Included in these transactions were purchases and sales of U.S. obligations
as follows (in thousands):
<TABLE>
<CAPTION>
Large Cap Mid Cap Value
Value Value Plus Value Government
Fund Fund Fund Fund Fund
--------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Cost of purchases $ - $ - $ _ $ - $ 62,849
Proceeds from
sales - - - - 74,138
</TABLE>
At June 30, 1999, the gross unrealized appreciation and depreciation on
investments for tax purposes, excluding securities sold short, was as
follows (in thousands):
<TABLE>
<CAPTION>
Large Cap Mid Cap Value
Value Value Plus Value Government
Fund Fund Fund Fund Fund
--------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Appreciation $ 1,000 $ 2,605 $ 21,846 $ 376,717 $ 264
Depreciation (400) (1,077) (14,100) (176,295) (902)
--------- -------- -------- --------- --------
Net Unrealized 600 1,528 7,746 200,422 (638)
========= ======== ======== ========= ========
</TABLE>
At June 30, 1999, the cost of securities for federal income tax purposes
were as follows (in thousands):
<TABLE>
<CAPTION>
Large Cap Mid Cap Value
Value Value Plus Value Government
Fund Fund Fund Fund Fund
--------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Tax cost $ 9,058 $ 20,415 $155,460 $1,155,308 $58,211
</TABLE>
29
<PAGE>
(7) Fund Merger
On November 6, 1998, the assets of the Heartland Small Cap Contrarian Fund
were merged into the Heartland Value Fund in a taxable exchange for
3,534,686 fund shares valued at $104,944,820.
(8) Fund Share Transactions
For the period from January 1, 1999 through June 30, 1999, Fund share
transactions were as follows:
<TABLE>
<CAPTION>
Large Cap Mid Cap Value
Value Value Plus
Fund Fund Fund
--------- --------- ---------
<S> <C> <C> <C>
Shares issued 776,502 314,458 6,076,251
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 12,295 -- 126,445
Shares redeemed (694,945) (1,342,069) (7,957,351)
--------- ---------- ---------
Net increase (decrease) in Fund shares 93,852 (1,027,611) (1,754,655)
========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Value Government
Fund Fund
----------- ------------
<S> <C> <C>
Shares issued 4,270,905 967,973
Reinvested dividends from net
investment income -- 101,034
Shares redeemed (16,641,717) (1,162,156)
----------- ------------
Net decrease in Fund shares (12,370,812) (93,149)
=========== ============
</TABLE>
For the year ended December 31, 1998, Fund share transactions were as
follows:
<TABLE>
<CAPTION>
Large Cap Mid Cap Value
Value Value Plus
Fund Fund Fund
---------- --------- ----------
<S> <C> <C> <C>
Shares issued 401,310 2,187,851 14,346,157
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 30,175 18,666 642,360
Shares redeemed (382,841) (2,099,901) (23,197,247)
---------- --------- ----------
Net increase (decrease) in Fund shares 48,644 106,616 (8,208,730)
========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Value Government
Fund Fund
---------- -----------
<S> <C> <C>
Shares issued (non-merger) 10,451,409 2,677,140
Shares issued (merger related) 3,534,686 --
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 1,151,769 233,351
Shares redeemed (25,157,053) (2,383,080)
------------ ----------
Net increase (decrease) in Fund shares (10,019,189) 527,411
=========== ==========
</TABLE>
(9) Transactions with Affiliates
The following companies are affiliated with the Value Plus and Value Funds;
that is, the Funds held 5% or more of the outstanding voting securities
during the period from January 1, 1999 through June 30, 1999. Such
companies are defined in Section (2)(a)(3) of the Investment Company Act of
1940.
30
<PAGE>
Value Plus Fund
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1999 Purchases Sales June 30, 1999 Dividends (Losses)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cooker Restaurant Corporation 500,000 100,000 0 600,000 $ 50,000 $ 0
Decorator Industries, Inc. 312,500 37,500 400 349,600 46,375 (314)
Hanover Foods Corporation (Class A) 0 50,500 0 50,500 13,888 0
Insteel Industries, Inc. 430,800 0 0 430,800 51,696 0
Oil-Dri Corporation of America 470,000 0 0 470,000 84,600 0
Tab Products Company 211,100 288,900 0 500,000 31,425 0
WPR Corporation 0 400,000 0 400,000 0 0
---------- -------------
$ 277,984 $ (314)
========== =============
</TABLE>
Value Fund
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1999 Purchases Sales June 30, 1999 Dividends (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACT Networks, Inc. 823,100 0 823,100 0 $ 0 $ 4,372,973
Advocat, Inc. 530,500 0 0 530,500 0 0
Akita Drilling Ltd. (Class A) 748,600 0 0 748,600 69,688 0
Aldila, Inc. 962,300 37,700 0 1,000,000 0 0
Align-Rite International, Inc. 300,000 0 0 300,000 0 0
Allied Healthcare Products, Inc. 775,000 0 0 775,000 0 0
The Alpine Group, Inc. 1,008,100 0 14,000 994,100 0 51,212
American Buildings Company 500,000 0 500,000 0 0 4,484,153
Amwest Insurance Group, Inc. 242,000/(1)/ 0 0 242,000 43,560 0
Asia Pacific Wire & Cable Corporation Ltd. 700,000 6,000 0 706,000 0 0
Badger Meter, Inc. 200,000 0 0 200,000 72,000 0
Baldwin Piano & Organ Company 331,500 0 0 331,500 0 0
Barrett Business Services, Inc. 625,000 7,400 0 632,400 0 0
Bitstream, Inc. 492,200 90,000 0 582,200 0 0
BTG, Inc. 800,000 0 0 800,000 0 0
Buckhead America Corporation 184,600 0 0 184,600 0 0
Business Resource Group 486,000 0 0 486,000 0 0
Cameron Ashley Building Products, Inc. 500,000 0 0 500,000 0 0
Campbell Resources, Inc. 12,000,000 0 0 12,000,000 0 0
Caretenders Health Corporation 308,900 0 0 308,900 0 0
Catalina Lighting, Inc. 710,000 0 0 710,000 0 0
Catherine Stores Corporation 500,000 0 0 500,000 0 0
CHC Helicopter Corporation (Class A) 536,000 0 0 536,000 0 0
The Cherry Corporation (Class A) 957,000 0 12,200 944,800 0 13,444
Chic By H.I.S., Inc. 985,000 0 534,800 450,200 0 (2,859,823)
Children's Broadcasting Corporation 680,000 0 0 680,000 0 0
Children's Comprehensive Services, Inc. 275,000 185,000 0 460,000 0 0
Chronimed, Inc. 500,000 110,000 0 610,000 0 0
Ciprico, Inc. 490,000 0 0 490,000 0 0
Clayton Williams Energy, Inc. 595,000 0 31,400 563,600 0 (209,603)
Cohesion Technologies, Inc. 878,500 0 65,500 813,000 0 (49,531)
Collagen Aesthetics, Inc. 878,500 0 0 878,500 0 0
Comdial Corporation 500,000 16,500 0 516,500 0 0
Commonwealth Industries, Inc. 963,200 0 78,400 884,800 92,400 (312,540)
Cross-Continent Auto Retailers, Inc. 859,100 0 859,100 0 0 2,491,192
Crown Central Petroleum Corporation
(Class B) 800,000 100,000 0 900,000 0 0
CSP, Inc. 364,430/(2)/ 0 0 364,430 0 0
Cyrk International, Inc. 1,000,000 0 61,400 938,600 0 (276,578)
Data TRAK International, Inc./(3)/ 600,000 0 0 600,000 0 0
Datron Systems, Inc. 250,000 0 0 250,000 0 0
Davel Communications, Inc. 360,184 0 360,184 0 3,602/(4)/ (3,087,111)
Diamond Home Services, Inc. 569,000 251,000 0 820,000 0 0
Donnelly Corporation 351,800 13,300 0 365,100 72,570 0
Duckwall-ALCO Stores, Inc. 370,000 0 0 370,000 0 0
</TABLE>
31
<PAGE>
Value Fund [CONT'D]
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1999 Purchases Sales June 30, 1999 Dividends (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Durakon Industries, Inc. 500,000 0 0 500,000 $ 0 $ 0
Dynamic Materials Corporation 250,000 0 0 250,000 0 0
ECC International Corporation 700,000 0 0 700,000 0 0
EDAP TMS S.A. (ADR) 790,000 50,000 0 840,000 0 0
Edusoft Ltd. 373,400 0 373,400 0 0 594,131
Effective Management Systems, Inc. 375,000 0 0 375,000 0 0
Environmental Technologies Corporation 476,000 0 8,800 467,200 0 (71,451)
Executone Information Systems, Inc. 3,403,400 0 1,108,000 2,295,400 0 7,752,198
EZCorp, Inc. (Class A) 700,000 18,100 0 718,100 17,500 0
Fibermark, Inc. 391,600 0 0 391,600 0 0
Filene's Basement Corporation 2,000,000 0 1,294,900 705,100 0 (5,119,323)
Financial Industries Corporation 300,000 0 0 300,000 0 0
Flour City International, Inc. 500,000 0 0 500,000 0 0
Franklin Bank National Association 183,300 2,500 0 185,800 26,012 0
Gundle/SLT Environmetnal, Inc. 662,800 0 0 662,800 0 0
GZA GeoEnvironmental Technologies, Inc. 372,700 0 0 372,700 0 0
Hallmark Financial Services, Inc. 1,060,000 0 0 1,060,000 0 0
Hallwood Energy Corporation 477,540/(5)/ 0 0 477,540 0 0
Hampshire Group, Inc. 206,000 22,200 0 228,200 0 0
Hanover Foods Corporation (Class A) 50,500 0 50,500 0 13,888 426,939
Harding Lawson Associates Group, Inc. 327,500 73,100 8,000 392,600 0 (19,401)
Health Power, Inc. 350,000 0 10,000 340,000 0 (94,250)
HealthRite, Inc. 500,000 0 0 500,000 0 0
High Plains Corporation 1,500,000 0 0 1,500,000 0 0
Home Federal Bancorp 290,250 0 0 290,250 68,209 0
Home Security International, Inc. 500,000 0 0 500,000 0 0
Hospitality Worldwide Services, Inc. 0 924,500 0 924,500 0 0
Howell Corporation 540,000 0 540,000 0 21,080 (3,988,604)
IEC Electronics Corporation 728,800 0 0 728,800 0 0
ImmuLogic Pharmaceutical Corporation 2,000,000 0 0 2,000,000 0 0
In Home Health, Inc. 533,333 0 63,233 470,100 0 7,337
Intercontinental Life Corporation 451,600/(6)/ 0 0 451,600 0 0
Interdigital Communications Corporation 4,500,000 0 0 4,500,000 0 0
International Aircraft Investors 430,000 0 0 430,000 0 0
International Airline Support Group, Inc. 250,000 0 0 250,000 0 0
Iwerks Entertainment, Inc. 1,100,000 0 0 1,100,000 0 0
Jaco Electronics, Inc. 380,000 0 0 380,000 0 0
John B. Sanfilippo & Son, Inc. 355,000 115,000 0 470,000 0 0
Kentucky Electric Steel, Inc. 450,000 0 0 450,000 0 0
LaCrosse Footwear, Inc. 447,800 52,200 0 500,000 0 0
LAI Worldwide, Inc. 610,000 0 20,000 590,000 0 21,895
Lindal Cedar Homes, Inc. 405,400 0 0 405,400 0 0
Magal Security Systems Ltd. 650,000 0 0 650,000 65,000 0
M/A/R/C, Inc. 300,000 0 50,000 250,000 45,000 395,320
Marten Transport Ltd. 333,300 0 0 333,300 0 0
Martin Industries, Inc. 450,000 0 0 450,000 18,900 0
Matrix Pharmaceutical, Inc. 2,100,000 0 1,000,000 1,100,000 0 4,261,671
Matrix Service Company 600,000 0 0 600,000 0 0
Maxicare Health Plans, Inc. 1,000,000 0 0 1,000,000 0 0
Medical Graphics Corporation 543,450 0 0 543,450 0 0
MFRI, Inc. 400,000 0 0 400,000 0 0
Minntech Corporation 600,000 0 0 600,000 0 0
Moore Medical Corporation 200,000 0 0 200,000 0 0
Morgan Products Ltd. 850,000 0 0 850,000 0 0
Motor Club of America 146,000 0 0 146,000 0 0
M-Wave, Inc. 300,000 0 0 300,000 0 0
MYR Group, Inc. 501,600 0 0 501,600 37,620 0
NABI, Inc. 3,200,000 0 0 3,200,000 0 0
</TABLE>
32
<PAGE>
Value Fund [CONT'D]
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1999 Purchases Sales June 30, 1999 Dividends (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
National Home Health Corporation 242,900 103,500 0 346,400 $ 0 $ 0
Networks North, Inc. 200,000 0 0 200,000 0 0
New Brunswick Scientific Company, Inc. 304,849/(7)/ 0 119,349 185,500 0 441,013
Northwest Equity Corporation 80,000 0 80,000 0 13,600 1,059,347
Nu Horizons Electronics Corporation 700,000 0 0 700,000 0 0
O.I. Corporation 333,100 0 6,600 326,500 0 9,725
Ontro, Inc. 333,900 0 18,500 315,400 0 23,564
Osmonics, Inc. 1,275,600 0 687,600 588,000 0 (4,695,599)
Outlook Group Corporation 467,500 0 0 467,500 0 0
Patrick Industries, Inc. 312,000 5,000 0 317,000 25,160 0
PDK Labs, Inc. 380,000 0 0 380,000 0 0
Pentech International, Inc. 694,900 15,000 0 709,900 0 0
Petsec Energy Ltd. (ADR) 2,108,300 0 608,300 1,500,000 0 (8,781,169)
PIA Merchandising Services, Inc. 545,000 0 0 545,000 0 0
Play By Play Toys and Novelties, Inc. 400,000 340,000 8,500 731,500 0 (49,249)
Premium Wear, Inc. 200,000 0 0 200,000 0 0
PXRE Corporation 600,000 0 8,600 591,400 307,528 (25,010)
Raytel Medical Corporation 880,000 0 0 880,000 0 0
Remington Oil & Gas Corporation 1,500,000 0 117,100 1,382,900 0 (546,632)
RightCHOICE Managed Care, Inc. (Class A) 960,500 0 290,500 670,000 0 (964,004)
Riveria Tool Company 320,250 0 0 320,250 0 0
The Rottlund Company, Inc. 550,000 0 0 550,000 0 0
Roy F. Weston, Inc. (Class A) 990,000 0 0 990,000 0 0
Salient 3 Communications, Inc. 300,000 0 0 300,000 0 0
Saucony, Inc. (Class B) 610,000 0 110,000 500,000 0 1,829,762
Scan-Optics, Inc. 550,000 0 0 550,000 0 0
The Seibels Bruce Group, Inc. 500,000 150,000 0 650,000 0 0
Sholodge, Inc. 550,000 0 20,000 530,000 0 (103,754)
Six Rivers National Bank 93,300 0 0 93,300 0 0
Smartflex Systems, Inc. 550,000 50,000 100,000 500,000 0 (707,015)
Southern Energy Homes, Inc. 950,000 150,000 350,000 750,000 0 (1,240,910)
Speizman Industries, Inc. 296,000 6,000 2,000 300,000 0 1,190
Starcraft Corporation 400,000 0 400,000 0 0 784,004
Strattec Security Corporation 497,000 0 197,000 300,000 0 3,179,231
Strouds, Inc. 700,000 0 0 700,000 0 0
Sunrise International Leasing Corporation 630,000 0 630,000 0 0 56,029
Suprema Specialties, Inc. 340,600 0 313,700 26,900 0 921,164
Technology Research Corporation 500,000 0 0 500,000 0 0
Tech-Sym Corporation 353,000 0 50,000 303,000 0 (215,787)
Teltrend, Inc. 500,000 0 0 500,000 0 0
Tipperary Corporation 1,300,000 0 1,300,000 0 0 (4,498,418)
Todhunter International, Inc. 490,000 0 0 490,000 0 0
Trak Auto Corporation 490,500 0 490,500 0 0 (1,006,116)
TransCoastal Marine Services, Inc. 850,000 150,000 0 1,000,000 0 0
Trimark Holdings, Inc. 400,000 0 70,700 329,300 0 (96,398)
Urocor, Inc. 500,000 0 0 500,000 0 0
U.S.Global Investors, Inc. (Class A) 588,300 66,700 55,000 600,000 0 40,309
Verdant Brands, Inc. 1,311,000 0 0 1,311,000 0 0
World of Science, Inc. 286,000 14,000 0 300,000 0 0
Zindart Ltd. (ADR) 315,700 134,300 0 450,000 0 0
---------- -------------
$1,013,316 $ (5,800,473)
========== =============
</TABLE>
(1) Adjusted for 10% stock dividend.
(2) Adjusted for 10% stock dividend.
(3) Name changed from Collaborative Clinical Research, Inc.
(4) Proceeds from sale of rights for $0.01/share.
(5) Adjusted for Hallwood Consolidated Resource Corporation merger into
Hallwood Energy Corp. for $1.5918/share.
(6) Adjusted for 2 for 1 stock split.
(7) Adjusted for 10% stock dividend.
33
<PAGE>
(10) Shareholder Meeting Voting Results
A Special Meeting of the shareholders of the Funds was held at 758 North
Broadway, Milwaukee, Wisconsin, on April 28, 1999. The shareholders cast
the following votes on the proposals presented, as applicable:
Proposal 1 - To amend the policy on borrowing.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 324,268.900 6,473.689 44,689.395
Mid Cap Value Fund 1,276,949.321 34,288.794 33,151.007
Value Plus Fund 5,442,727.991 513,433.623 139,047.357
Value Fund 22,887,521.637 2,020,654.020 497,113.220
Government Fund 2,999,838.070 131,310.629 40,876.260
</TABLE>
Proposal 2 - To amend the policy on investing in illiquid and restricted
securities.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 321,665.910 9,076.679 44,689.395
Mid Cap Value Fund 1,252,267.368 56,384.277 35,737.477
Value Plus Fund 5,320,993.143 628,099.159 146,116.669
Value Fund 20,087,507.281 4,801,671.683 516,109.913
Government Fund 2,912,165.270 227,310.411 32,549.278
</TABLE>
Proposal 3 - To eliminate the policy against investing for control or
management.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 325,713.046 4,575.165 45,143.773
Mid Cap Value Fund 1,270,095.753 42,135.564 32,157.805
Value Plus Fund 5,473,196.550 472,108.476 149,903.945
Value Fund 21,351,327.839 3,542,370.719 511,590.319
Government Fund 2,876,313.265 258,123.125 37,588.569
</TABLE>
Proposal 4 - To amend the policy on investing in U.S. Government
securities.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Government Fund 3,054,158.474 79,792.339 38,074.146
</TABLE>
Proposal 6 - To re-designate investment objectives from fundamental to
non-fundamental policies.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 323,864.038 6,110.328 45,457.618
Mid Cap Value Fund 1,264,259.100 35,366.922 44,763.100
Value Plus Fund 5,346,168.261 609,212.894 139,827.816
Value Fund 21,192,817.704 3,650,582.888 561,888.285
Government Fund 2,863,937.544 248,062.341 60,025.074
</TABLE>
Proposal 7 - To amend the policy on investing in securities involving real
estate.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 322,938.532 7,248.212 45,245.240
Mid Cap Value Fund 1,268,620.210 26,915.429 48,853.483
Value Plus Fund 5,492,719.136 462,490.726 139,999.109
Value Fund 22,275,942.007 2,633,410.478 495,936.392
Government Fund 2,949,803.000 185,175.650 37,046.309
</TABLE>
Proposal 8 - To amend the policy on investing in other investment
companies.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Value Fund 21,773,598.566 3,134,977.270 496,713.041
Government Fund 2,991,441.880 135,877.158 44,705.921
</TABLE>
Proposal 9 - To amend the policies on margin.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Value Fund 20,869,929.925 4,019,465.439 515,893.513
Government Fund 2,979,673.416 156,855.110 35,496.433
</TABLE>
34
<PAGE>
Proposal 10 - To amend policies on futures and options.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Value Fund 20,892,756.021 3,996,134.763 516,398.093
Government Fund 2,904,888.477 217,590.597 49,545.885
</TABLE>
Proposal 11 - To eliminate the policy on investing in securities involving
oil and gas interests.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 321,414.315 9,014.429 45,003.240
Mid Cap Value Fund 1,271,846.454 30,487.573 42,055.095
Value Plus Fund 5,445,902.253 512,290.165 137,016.553
Value Fund 21,811,469.996 3,098,345.052 495,473.829
Government Fund 3,009,708.335 123,811.965 38,504.659
</TABLE>
Proposal 12 - To eliminate policies on unseasoned issuers.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Value Fund 20,334,285.360 4,530,162.808 540,840.709
Government Fund 2,908,197.085 205,515.441 58,312.433
</TABLE>
Proposal 13 - To eliminate policies on warrants.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Value Fund 23,013,369.329 1,874,692.180 517,227.368
Government Fund 3,001,826.324 129,800.202 40,398.433
</TABLE>
Proposal 14 - To simplify, standardize or re-define the language of the
policy on concentration.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 323,417.13 6,172.808 45,842.046
Mid Cap Value Fund 1,290,877.657 21,770.169 31,741.296
Value Plus Fund 5,769,840.879 144,164.341 181,203.751
Value Fund 21,497,189.889 3,359,093.072 549,005.916
Government Fund 3,038,618.455 91,753.427 41,653.077
</TABLE>
Proposal 15 - To simplify, standardize or re-define the language of the
policy prohibiting loans.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 323,059.660 6,555.994 45,816.330
Mid Cap Value Fund 1,268,736.277 41,273.100 34,379.745
Value Plus Fund 5,493,095.051 450,523.463 151,590.457
Value Fund 23,544,859.989 1,310,955.197 549,473.691
Government Fund 3,020,505.365 101,414.864 50,104.730
</TABLE>
Proposal 16 - To simplify, standardize or re-define the language of the
policy prohibiting underwriting.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 323,970.269 5,377.669 46,084.046
Mid Cap Value Fund 1,273,479.196 38,784.452 32,125.474
Value Plus Fund 5,792,359.413 139,277.887 163,571.671
Value Fund 21,394,065.989 3,442,089.576 569,133.312
Government Fund 3,026,128.182 92,112.700 53,784.077
</TABLE>
Proposal 17 - To simplify, standardize or re-define the language of the
policy prohibiting issuance of senior securities.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 324,786.689 4,803.249 45,842.046
Mid Cap Value Fund 1,287,628.844 24,490.209 32,270.069
Value Plus Fund 5,760,888.410 160,949.666 173,370.895
Value Fund 22,553,640.719 2,301,675.253 549,972.905
Government Fund 3,025,810.586 103,689.946 42,524.427
</TABLE>
Proposal 18 - To simplify, standardize or re-define the language of the
policy prohibiting investments in commodities.
<TABLE>
<CAPTION>
Yes No Abstain
---------------- ---------------- ----------------
<S> <C> <C> <C>
Large Cap Value Fund 315,525.462 9,822.476 46,084.046
Mid Cap Value Fund 1,267,518.116 43,575.032 33,295.974
Value Plus Fund 5,725,694.838 223,879.213 145,634.920
Value Fund 20,481,603.067 4,414,802.030 508,883.780
Government Fund 2,995,354.007 127,889.525 48,781.427
</TABLE>
35
<PAGE>
NOTES
36
<PAGE>
The Heartland Family of Funds
Large Cap Value Fund
Mid Cap Value Fund
Value Plus Fund
Value Fund
Government Fund
Taxable Short Duration
Municipal Fund
Short Duration High-Yield
Municipal Fund
High-Yield Municipal Bond Fund
Wisconsin Tax Free Fund
Firstar Money Market Fund
[LOGO] HEARTLAND FUNDS
---------------------------
AMERICA'S VALUE INVESTOR(R)
1.800.HEARTLN (1.800.432.7856)
www.heartlandfunds.com
Financial Advisor Services:1.800.442.6391
790 N. Milwaukee Street, Milwaukee, WI 53202
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.
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. Income from the Wisconsin Tax Free Fund may be subject to
alternative minimum tax and income from the Short Duration High-Yield Municipal
and the High-Yield Municipal Bond Funds may be subject to state, local and
alternative minimum tax.
This material may only be used when preceded or accompanied by a prospectus for
the Funds listed on the front cover. If you would like more complete information
on any other Fund, including charges and expenses, please call for a prospectus.
Read it carefully before you invest.
Heartland Advisors, Inc., distributor. Member SIPC.
<PAGE>
[LOGO OF HEARTLAND FUNDS APPEARS HERE]
Value Report
June 30, 1999
Notes on value investing
for investors in the Heartland
Wisconsin Tax Free Fund
Semi-Annual Report
to Shareholders
Heartland Wisconsin
Tax Free Fund
<PAGE>
VALUE REPORT
[PHOTOS APPEARS HERE]
Dear Fellow Investor
The Beauty of Bonds
The financial markets never move in a straight line. Advances are followed by
declines, which pave the way for further advances. One of the advantages of
bonds over stocks in down markets is that yield compensates more adequately for
price declines. This year, we have experienced the worst bear market for bonds
since 1994, which was the worst bear market for bonds in history. Yet, on a
total return basis, the Wisconsin Tax Free Fund still posted a positive total
return year-to-date through the second quarter. We believe this is testimony
both for our Fund and for the role bonds should play in all investors'
portfolios.
The performance characteristics of bonds make them particularly suitable for a
program of regular investment. As prices decline, yields advance, providing a
sort of investment equilibrium. What is taken away with price declines over any
given period, is given directly back via the higher yields available on new
purchases. That is why we encourage our shareholders to make systematic
investments in the Fund.
Due primarily to a better supply/demand balance in the municipal securities
market, munis outperformed Treasuries in the second quarter. In the process, the
yield spread between munis and Treasuries narrowed. In layman's terms,
municipals are no longer as cheap relative to Treasuries as they were at the
beginning of the year. Importantly, however, they still provide an after-tax
advantage to investors in high federal income tax brackets. This is doubly true
for double tax free Wisconsin municipal bonds. Given the bond market's retreat
this year, we believe Wisconsin municipal bonds offer even greater value.
Sincerely,
/s/ Patrick J. Retzer /s/ Thomas J. Conlin
Patrick J. Retzer, CPA Thomas J. Conlin, CFA
Portfolio Co-Manager Portfolio Co-Manager
<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 6.8 6.8 6.8 6.8
Maximum Effective Combined Rate/2/ 34.2 37.1 42.0 45.5
JUNE TAX-FREE YIELD/3/ EQUIVALENT TAXABLE YIELDS
4.5% 6.9% 7.2% 7.8% 8.3%
</TABLE>
Past performance is no guarantee of future results.
/1/Based on federal rates adjusted for the maximum phase-out of itemized
deductions and personal exemptions in the applicable tax rate.
/2/Based on the Wisconsin rate and the maximum effective federal rate, adjusted
to reflect the deductibility of state taxes.
/3/SEC annualized yield for the 30 days ended 6/30/99.
1
<PAGE>
VALUE REPORT
Heartland Wisconsin Tax Free Fund
[PHOTOS APPEARS HERE]
Why YWCA?
The Young Women's Christian Association (YWCA) of Greater Milwaukee is an
outstanding organization operated exclusively for charitable and educational
purposes. The YWCA responds to the needs of women and families through its
services, programs, economic development, advocacy work and leadership training
opportunities. The YWCA, by itself and through various affiliates, also provides
services for the elderly, day care services, low-income housing, and mobility
counseling.
The YWCA does a lot for our community. So, when it needs financial help, we are
glad to provide it.
The Milwaukee, Wisconsin Redevelopment Authority Revenue Bonds, Series 1999 A&B
(Young Women's Christian Association of Greater Milwaukee) were issued to
finance two separate projects. The A Series is financing a 26,000 square foot
addition and remodeling of the organization's headquarters at the Enterprise
Center in downtown Milwaukee. The B Series is funding the acquisition,
rehabilitation, and equipping of a new facility that will house a charter
school. Both bonds are obligations of the YWCA and are secured by irrevocable
letters of credit for any outstanding principal and accrued interest by two
local banks. The Series A Bonds are rated A1 and the Series B Bonds Aaa by
Moody's. The Fund owns $965,000 of the Series A Bonds, which are yielding about
5.4%, and $375,000 of the Series B Bonds yielding about 5.3%. At June 30, 1999,
these bonds were valued at $1,313,107 and represented 0.9% of the Fund's net
assets. We believe both issues are a good deal for our shareholders and for the
Greater Milwaukee community.
"The YWCA does a lot for our community. So, when it needs financial help, we are
glad to provide it."
2
<PAGE>
VALUE REPORT
Portfolio Profile
OBJECTIVE
The Heartland Wisconsin Tax Free Fund seeks to provide investors with a high
level of current income that is exempt from Wisconsin and federal personal
income taxes.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS1
Since inception
YTD* 1-year 3-year 5-year (4/3/92)
<S> <C> <C> <C> <C> <C>
Heartland Wisconsin
Tax Free Fund 0.1% 2.7% 6.1% 6.6% 6.0%
Lehman 20-Year
Municipal Bond Index -1.1 2.6 7.3 7.8 7.7
</TABLE>
*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.
Total returns include reinvestment of dividends and capital gain distributions.
<TABLE>
GENERAL INFORMATION
<S> <C> <C> <C>
Sales commission........................ None Weighted average duration...... 8.3 yrs.
Share price............................. $10.24 Net assets..................... $145.1 mil.
Weighted average maturity............... 13.3 yrs. Number of holdings............. 178
</TABLE>
<TABLE>
<CAPTION>
% OF
TOP 5 HOLDINGS COUPON MATURITY NET ASSETS
<S> <C> <C> <C>
Commonwealth of Puerto Rico G.O. 4.5% 7/1/23 11.5%
Milwaukee, WI Redevelopment Authority 5.5% 9/1/12 7.7
Virgin Islands Public Finance Authority 5.875% 10/1/18 4.5
Guam Power Authority 5.125% 10/1/29 2.7
Virgin Islands Public Finance Authority 6.0% 10/1/22 2.7
</TABLE>
PORTFOLIO COMPOSITION
[PIE CHART APPEARS HERE]
Housing 42.9%
Education 14.6%
Industrial dev. 12.4%
G.O. 11.4%
Other 18.7%
Other Revenue 10.6%
Electric 2.7
University 1.0
Public facilities 0.9
Health care 0.7
Lease 0.5
Cash & equiv 2.3
All statistics are as of June 30, 1999.
/1/Includes reinvestment of all dividends and capital gains distributions.
3
<PAGE>
Heartland's Risk/Return Spectrum
[CHART APPEARS HERE SHOWING POTENTIAL RISK/RETURN OF HEARTLAND'S FUNDS]
In general, with mutual funds, as with other investments, the higher the risk,
the greater the potential return over time. Each investor should choose an
investment strategy that matches his or her particular investment goals.
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. There is no assurance that the Firstar Money Market Fund will be able to
maintain a stable net asset value of $1. It is possible to lose money by
investing in the Fund. Firstar Funds are not deposits or obligations of or
guaranteed by Firstar Bank or its affiliates, nor are they insured by the FDIC,
the U.S. Government or any governmental agency.
For more complete information, including charges and expenses, call Heartland
Advisors at 1-800-432-7856 for a prospectus. Read it carefully before you
invest.
4
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS - 97.7% COUPON MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN - 72.9%
$ 20,000 Amery, WI Housing Authority - Revenue Bonds.................. 7.375% 05/01/2005 $ 20,677
300,000 Appleton, WI Housing Authority - Industrial Park............. 6.500 10/01/2016 300,750
1,390,000 Appleton, WI Housing Authority - Industrial Park............. 6.750 10/01/2026 1,393,475
900,000 Bristol, WI Community Development Authority.................. 6.125 03/01/2012 921,375
3,010,000 Brown County, WI Housing Authority - R.P. Terrace............ 6.500 06/01/2019 3,092,775
200,000 Brown County, WI Housing Auth. - Univ. Village Housing....... 5.400 04/01/2017 198,750
75,000 Dane County, WI Housing Authority - Forest Harbor Apts....... 5.950 07/01/2013 76,594
25,000 Dane County, WI Housing Authority - Forest Harbor Apts....... 6.000 07/01/2014 25,531
435,000 Deforest, WI Redev. Auth. - Lease Revenue Bonds.............. 6.250 02/01/2018 454,575
265,000 Deforest, WI Redev. Auth. - Lease Revenue Bonds.............. 6.200 02/01/2014 279,575
685,000 Eau Claire, WI Housing Auth. - London Hill................... 6.250 05/01/2015 693,562
550,000 Elkhart Lake, WI Community Development Authority............. 6.000 04/01/2015 561,687
190,000 Evansville, WI Housing Authority - Baker Block Project....... 5.750 12/01/2016 190,201
10,000 Franklin, WI Community Development Authority................. 5.400 04/01/2003 10,000
1,000,000 Glendale, WI Community Development Authority................. 5.400 09/01/2018 963,750
2,875,000 Green Bay, WI Housing Authority - Pheasant Run Project....... 6.500 09/01/2019 2,936,094
1,000,000 Green Bay, WI Redevelopment Authority - Fort James Corp...... 5.600 05/01/2019 976,250
2,500,000 Green Bay, WI Housing Authority - Moraine Ridge.............. 6.150 12/01/2030 2,587,500
100,000 Hartford, WI Community Development Authority................. 5.450 12/01/2002 103,500
200,000 Hartford, WI Community Development Authority................. 5.800 12/01/2005 211,250
210,000 Hartford, WI Community Development Authority................. 6.000 12/01/2007 222,600
225,000 Hartford, WI Community Development Authority................. 6.100 12/01/2008 238,781
55,000 Hudson, WI Christian Community Home.......................... 6.700 05/01/2008 55,412
75,000 Hudson, WI Christian Community Home.......................... 6.800 05/01/2009 75,562
65,000 Hudson, WI Christian Community Home.......................... 6.900 05/01/2010 65,569
250,000 Hudson, WI Christian Community Home.......................... 7.000 05/01/2023 251,563
250,000 Hudson, WI Wintergreen Apartments............................ 6.000 07/01/2020 242,500
725,000 Jackson, WI Community Development Authority.................. 5.100 12/01/2017 705,969
1,760,000 La Crosse, WI Housing Authority - Forest Park Project........ 6.375 12/01/2018 1,784,200
1,100,000 La Crosse, WI Housing Authority - Ping Manor Project......... 6.375 04/01/2012 1,124,750
635,000 La Crosse, WI Housing Authority - Ping Manor Project......... 6.000 04/01/2005 642,938
350,000 La Crosse, WI Housing Authority - Washburn................... 6.500 10/01/2026 355,250
1,000,000 La Crosse, WI Housing Authority - Meadow Wood Project........ 6.250 01/01/2028 980,000
100,000 Little Chute, WI Community Development Authority............. 5.625 03/01/2019 101,000
305,000 Madison, WI CDA - Dempsey Manor Project...................... 6.400 10/01/2018 310,337
160,000 Madison, WI CDA - Dempsey Manor Project...................... 6.665 10/01/2025 161,600
1,435,000 Madison, WI CDA - Edgewood College........................... 6.250 04/01/2014 1,522,894
1,000,000 Madison, WI CDA - Meriter Retirement Project................. 6.125 12/01/2019 1,058,750
190,000 Madison, WI CDA - Second Mortgage - Revenue Bonds............ 5.875 07/01/2016 196,413
165,000 Markesan, WI CDA - Elderly Housing Revenue Bonds............. 6.750 10/01/2009 169,744
190,000 Markesan, WI CDA - Elderly Housing Revenue Bonds............. 6.900 10/01/2011 195,937
635,000 Mayville, WI Community Development Authority................. 5.600 04/01/2018 620,712
100,000 Menomonee Falls, WI CDA - Village Square Project............. 5.200 09/01/2009 95,750
950,000 Menomonee Falls, WI CDA - Village Square Project............. 5.350 09/01/2016 891,813
10,000 Milwaukee, WI Redev. Auth. - School Improvement.............. 0.000 03/01/2004 7,438
55,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc............. 5.300 12/01/2007 55,962
1,385,000 Milwaukee, WI Redevelopment Auth. - MSOE (Series B).......... 6.000 10/01/2017 1,400,581
1,955,000 Milwaukee, WI Redevelopment Auth. - MSOE (Series A).......... 6.000 10/01/2017 1,981,881
65,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc............. 5.350 12/01/2008 65,731
1,755,000 Milwaukee, WI Re. Auth. - Wisc. Ave/M.L. King, Jr. Dr (a).... 5.600 09/01/2009 1,809,844
55,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc............. 5.400 12/01/2010 55,206
11,000,000 Milwaukee, WI Re. Auth. - Wisc. Ave/M.L. King, Jr. Dr........ 5.500 09/01/2012 11,220,000
3,400,000 Milwaukee, WI Redevelopment Auth. - Schlitz Park............. 5.600 01/01/2015 3,319,250
3,675,000 Milwaukee, WI Redevelopment Auth. - Schlitz Park............. 5.500 01/01/2017 3,555,563
3,000,000 Milwaukee, WI Redevelopment Auth. - Campus Town.............. 5.700 11/01/2018 3,075,000
215,000 Milwaukee, WI Redevelopment Auth. - YMCA..................... 5.250 06/01/2019 210,700
200,000 Milwaukee, WI Redevelopment Auth. - YMCA..................... 5.150 06/01/2019 194,750
1,270,000 Milwaukee, WI Housing Auth. - Renaissance Apartments......... 5.250 01/01/2025 1,217,612
215,000 Milwaukee, WI Housing Auth. - Blatz Apartments............... 7.500 12/01/2028 220,644
</TABLE>
5
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS [cont'd] . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS - 97.7% [cont'd] COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN - 72.9% [cont'd]
$ 175,000 Milwaukee, WI Redevelopment Auth. - YMCA..................... 5.200% 06/01/2029 $ 171,719
750,000 Milwaukee, WI Redevelopment Auth. - YMCA..................... 5.300 06/01/2029 735,938
3,250,000 Milwaukee, WI Redevelopment Auth. - Multifamily.............. 6.300 08/01/2038 3,331,250
65,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 11/01/2003 52,162
65,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 11/01/2004 49,238
70,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 05/01/2005 51,537
65,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 11/01/2005 46,556
70,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 05/01/2006 48,563
65,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 11/01/2006 43,875
70,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 05/01/2007 45,675
65,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 11/01/2007 41,275
125,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.400 05/01/2008 130,469
125,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.400 11/01/2008 130,469
105,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.500 05/01/2009 109,856
70,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 05/01/2009 39,638
65,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 11/01/2009 35,669
125,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.600 05/01/2010 131,094
70,000 New Berlin, WI Housing Authority - Apple Glen................ 0.000 05/01/2010 37,275
150,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.700 05/01/2011 157,688
155,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.700 11/01/2011 162,944
165,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.800 11/01/2012 173,869
160,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.850 05/01/2013 168,600
165,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.850 11/01/2013 173,869
135,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.900 05/01/2014 142,256
190,000 New Berlin, WI Housing Authority - Pinewood Creek............ 6.900 11/01/2014 200,212
1,210,000 New Berlin, WI Housing Authority - Apple Glen................ 6.700 11/01/2017 1,268,987
650,000 New Berlin, WI Housing Authority - Apple Glen................ 6.700 11/01/2020 681,687
1,015,000 New Berlin, WI Housing Authority - Pinewood Creek............ 7.125 05/01/2024 1,075,900
1,000,000 New Richmond, WI Com. Dev. Auth. - Senior Housing............ 5.850 10/01/2020 961,250
3,000,000 New Richmond, WI Com. Dev. Auth. - Senior Housing............ 6.000 10/01/2032 2,865,000
50,000 Oak Creek, WI Housing Authority - Wood Creek................. 0.000 07/20/2007 32,313
35,000 Oak Creek, WI Housing Authority - Wood Creek................. 0.000 01/20/2010 19,556
80,000 Oak Creek, WI Housing Authority - Country Oaks II............ 6.000 08/01/2010 80,800
125,000 Oak Creek, WI Housing Authority - Wood Creek................. 0.000 01/20/2011 65,312
125,000 Oak Creek, WI Housing Authority - Wood Creek................. 0.000 07/20/2011 63,594
65,000 Oak Creek, WI Housing Authority - Wood Creek................. 0.000 01/20/2012 31,931
125,000 Oak Creek, WI Housing Authority - Wood Creek................. 0.000 01/20/2013 57,969
125,000 Oak Creek, WI Housing Authority - Wood Creek................. 0.000 07/20/2013 56,094
60,000 Oak Creek, WI Housing Authority - Wood Creek................. 0.000 01/20/2014 26,100
1,440,000 Oak Creek, WI Housing Authority - Country Oaks II............ 6.200 08/01/2017 1,454,400
1,000,000 Oak Creek, WI Housing Authority - Wood Creek................. 5.500 07/20/2019 1,005,000
2,980,000 Oak Creek, WI Housing Authority - Country Oaks II............ 6.300 08/01/2028 3,117,825
2,130,000 Oak Creek, WI Housing Authority - Wood Creek................. 5.625 07/20/2029 2,143,312
3,000,000 Oconto Falls, WI Community Development Authority............. 7.750 12/01/2022 3,105,000
50,000 Omro, WI CDA - Revenue Bonds................................. 5.750 12/01/2006 52,812
335,000 Omro, WI CDA - Revenue Bonds................................. 5.875 12/01/2011 353,844
200,000 Outagamie, WI Housing Authority - First Mortgage............. 5.000 11/15/2003 198,000
5,000 Racine, WI Elderly Housing Authority - Lincoln Lutheran...... 7.100 10/01/2004 5,000
10,000 Racine, WI Elderly Housing Authority - Lincoln Lutheran...... 7.150 10/01/2005 10,000
200,000 River Falls, WI Housing Authority - Lutheran Home Project.... 5.750 04/01/2028 195,000
170,000 Schofield, WI CDA - Lease Revenue............................ 6.000 10/01/2012 174,463
500,000 Schofield, WI CDA - Lease Revenue............................ 6.200 10/01/2017 514,375
970,000 SE WI Professional Baseball Park District.................... 0.000 12/15/2015 398,912
1,000,000 SE WI Professional Baseball Park District.................... 0.000 12/15/2017 363,750
125,000 Sheboygan, WI Housing Authority - Rocky Knoll Project........ 5.300 12/01/2016 123,594
175,000 Sheboygan, WI Housing Authority - Rocky Knoll Project........ 5.250 12/01/2013 166,687
315,000 Sheboygan, WI Housing Authority - Multifamily Housing........ 6.900 02/01/2024 323,162
250,000 Sparta, WI Housing Authority - Morrow Memorial Home.......... 5.750 06/01/2022 243,125
105,000 St. Croix Falls, WI CDA Lease Revenue........................ 5.900 12/01/2006 108,412
115,000 St. Croix Falls, WI CDA Lease Revenue........................ 6.000 12/01/2007 118,738
1,190,000 St. Croix Falls, WI CDA Lease Revenue........................ 6.400 12/01/2014 1,225,700
</TABLE>
6
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS [cont'd]. June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS - 97.7% [cont'd] COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------
WISCONSIN - 72.9% [cont'd]
<S> <C> <C> <C> <C>
$ 100,000 Stevens Point, WI CDA - Mrtge. Refunding - Edgewater.... 6.500% 09/01/2006 $ 104,750
560,000 Stevens Point, WI CDA - Mrtge. Refunding - Edgewater.... 6.625 09/01/2009 583,800
200,000 Sturtevant, WI CDA - Redevelopment Lease................ 6.500 12/01/2015 219,000
435,000 Sturtevant, WI CDA - Redevelopment Lease................ 5.700 12/01/2009 460,012
310,000 Superior, WI Housing Authority - St. Francis Project.... 6.000 01/20/2022 316,200
270,000 Two Rivers, WI CDA - Arch Forest Project................ 6.350 12/15/2012 274,388
2,800,000 Waukesha, WI HA - The Arboretum Project................. 5.250 12/01/2021 2,705,500
405,000 Waukesha, WI HA - Multifamily - The Court Apartments.... 5.800 04/01/2025 410,063
500,000 Waukesha, WI HA - Multifamily - Brookfield Woods........ 6.750 12/01/2034 505,625
1,000,000 Waukesha, WI HA - Multifamily - The Court Apartments.... 6.000 04/01/2036 1,001,250
750,000 Waukesha, WI HA - Riverwalk Apartments.................. 5.625 12/01/2020 727,500
715,000 Waukesha, WI HA - Westgrove Woods....................... 6.750 02/01/2027 721,256
1,500,000 Waukesha, WI HA - Multifamily - Oak Hill Terrace Project 5.450 06/01/2027 1,473,750
1,000,000 Waukesha, WI HA - Westgrove Woods....................... 6.000 12/01/2031 1,025,000
75,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 05/01/2003 61,781
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 11/01/2003 80,250
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 05/01/2004 81,638
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 11/01/2004 75,750
70,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 05/01/2005 51,450
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 11/01/2005 71,500
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 05/01/2006 72,844
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 11/01/2006 67,500
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 05/01/2007 68,644
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 11/01/2007 63,625
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 05/01/2008 63,788
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 11/01/2008 59,125
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 05/01/2009 59,588
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 11/01/2009 55,125
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 05/01/2010 55,912
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 0.000 11/01/2010 51,750
1,200,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 6.700 11/01/2015 1,230,000
1,060,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 6.700 11/01/2019 1,083,850
615,000 Wauwatosa, WI HA - Hawthorne Terrace Project............ 6.700 11/01/2022 628,837
2,720,000 West Allis, WI CDA - Poblocki Investments Project....... 6.100 05/01/2007 2,818,600
145,000 Whitewater, WI Multifamily Housing - Revenue Bonds...... 5.375 11/15/2005 146,631
10,000 Winnebago County, WI Housing Authority - Series A....... 6.100 03/01/2000 10,091
10,000 Winnebago County, WI Housing Authority - Series A....... 6.200 03/01/2001 10,175
15,000 Winnebago County, WI Housing Authority - Series A....... 6.300 03/01/2002 15,394
100,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds.... 5.625 05/01/2005 100,750
105,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds.... 5.625 05/01/2006 102,506
115,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds.... 5.625 05/01/2007 111,406
120,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds.... 5.625 05/01/2008 115,050
125,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds.... 5.625 05/01/2009 118,438
135,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds.... 5.625 05/01/2010 132,300
195,000 Winnebago County, WI Housing Authority - Series A....... 6.875 03/01/2012 198,656
380,000 Winnebago County, WI Housing Authority - Series A....... 7.125 03/01/2022 388,075
2,500,000 Wisconsin Center - Revenue Bond - Public Improvements... 0.000 12/15/2026 540,625
50,000 WHEDA Home Ownership.................................... 0.000 12/01/2007 22,062
60,000 Wittenberg, WI HA - Multifamily - Forest Park........... 7.200 06/20/2030 60,075
200,000 Wrightstown, WI Community Development Authority........ 5.950 06/01/2014 203,750
600,000 Wrightstown, WI Community Development Authority........ 6.000 06/01/2019 609,750
------------
105,772,762
------------
</TABLE>
7
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS [cont'd] . June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS - 97.7% [cont'd] COUPON MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------
GUAM - 2.7%
<S> <C> <C> <C> <C>
$ 4,250,000 Guam Power Authority - Revenue Bonds......... 5.125% 10/01/2029 $ 3,957,812
------------
PUERTO RICO - 12.4%
19,220,000 Puerto Rico Commonwealth G.O................. 4.500 07/01/2023 16,625,300
500,000 Puerto Rico Industrial Tourist
Educational Medical Facilities (b).......... 5.375 02/01/2019 487,500
1,000,000 Puerto Rico Industrial Tourist
Educational Medical Facilities (b).......... 5.375 02/01/2029 962,500
------------
18,075,300
------------
VIRGIN ISLANDS - 9.7%
4,000,000 Virgin Islands Water & Power Authority....... 5.500 07/01/2017 3,680,000
6,500,000 Virgin Islands Public Finance Authority...... 5.875 10/01/2018 6,491,875
3,840,000 Virgin Islands Public Finance Authority...... 6.000 10/01/2022 3,883,200
------------
14,055,075
------------
TOTAL INVESTMENTS (Cost $141,165,162) 97.7% $141,860,949
Cash and receivables, less liabilities....... 2.3 3,278,959
----------------------------------------
TOTAL NET ASSETS............................. 100.0% $145,139,908
====== ============
</TABLE>
(a) When-issued security.
(b) All or portion of security committed to cover segregated collateral
requirements for when-issued securities.
The accompanying Notes to Financial Statements are an integral part of
this Schedule.
HEARTLAND WISCONSIN TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES . June 30, 1999 (Unaudited)
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at cost....................................................... $141,165,162
============
Investments in securities, at value...................................................... $141,860,949
Cash..................................................................................... 44,740
Receivable from securities sold.......................................................... 3,263,948
Accrued interest......................................................................... 2,399,878
Receivable from custodian................................................................ 30,199
Prepaid expenses......................................................................... 4,642
------------
Total Assets............................................................................ 147,604,356
------------
LIABILITIES:
Payable for securities purchased......................................................... 1,478,634
Distributions payable.................................................................... 616,919
Short-term notes payable................................................................. 200,000
Payable to Advisor for management fee.................................................... 85,954
Payable for fund shares redeemed......................................................... 14,149
Accrued interest payable................................................................. 36
Accrued expenses......................................................................... 68,756
------------
Total Liabilities....................................................................... 2,464,448
------------
TOTAL NET ASSETS........................................................................... $145,139,908
============
NET ASSETS CONSIST OF:
Paid in capital.......................................................................... $143,649,173
Accumulated undistributed net investment income.......................................... (14,743)
Accumulated undistributed net realized gains on investments.............................. 809,691
Net unrealized appreciation on investments............................................... 695,787
------------
TOTAL NET ASSETS........................................................................... $145,139,908
============
SHARES OUTSTANDING, $.001 par value (100,000,000 shares authorized)...................... 14,178,900
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE............................. $ 10.24
============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
Statement.
8
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period from January 1, 1999 to June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................ $ 4,124,789
-----------
Total investment income........................................ 4,124,789
-----------
EXPENSES:
Management fees................................................. 469,206
Transfer agent fees............................................. 31,291
Printing and communications..................................... 27,935
Postage......................................................... 14,409
Custodian fees.................................................. 11,528
Audit fees...................................................... 10,905
Directors' fees................................................. 8,679
Legal fees...................................................... 6,211
Fund Accounting fees............................................ 3,482
Registration fees............................................... 2,835
Other operating expenses........................................ 43,801
-----------
Total expenses before fees paid indirectly..................... 630,282
Less: Fees paid indirectly..................................... (24,501)
-----------
Net expenses................................................... 605,781
-----------
NET INVESTMENT INCOME........................................... 3,519,008
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on:
Securities..................................................... 1,497,960
Futures contracts.............................................. 44,576
Net increase in unrealized depreciation on:
Securities..................................................... (5,015,577)
-----------
TOTAL REALIZED AND UNREALIZED LOSSES ON INVESTMENTS............. (3,473,041)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 45,967
===========
</TABLE>
HEARTLAND WISCONSIN TAX FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Jan.1 , 1999 to Year ended
June 30, 1999 Dec. 31,
(Unaudited) 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................ $ 3,519,008 $ 6,721,922
Net realized gains on investments................................ 1,542,536 584,768
Net increase (decrease) in unrealized appreciation on
investments.................................................... (5,015,577) (36,485)
------------ ------------
Net increase in net assets resulting from operations............ 45,967 7,270,205
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................ (3,533,751) (6,721,922)
------------ ------------
Total distributions to shareholders............................. (3,533,751) (6,721,922)
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued...................................... 12,826,050 25,777,610
Reinvested dividends from net investment income.................. 2,210,332 4,871,431
Cost of shares redeemed.......................................... (9,825,780) (19,128,276)
------------ ------------
Net increase in net assets derived from Fund share
activities..................................................... 5,210,602 11,520,765
------------ ------------
TOTAL INCREASE IN NET ASSETS......................................... 1,722,818 12,069,048
NET ASSETS AT THE BEGINNING OF THE PERIOD............................ 143,417,090 131,348,042
------------ ------------
NET ASSETS AT THE END OF THE PERIOD.................................. $145,139,908 $143,417,090
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME.................................. $ (14,743) $ --
============ ============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
9
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Wisconsin Tax Free Fund
----------------------------------------------------------------------
For the six months For the year ended December 31,
ended June 30,1999
(Unaudited) 1998 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period................. $ 10.48 $ 10.44 $ 10.16 $ 10.30
Income (loss) from investment operations:
Net investment income.............................. 0.25 0.51 0.52 0.51
Net realized and unrealized gains (losses)
on investments.................................... (0.24) 0.04 0.28 (0.14)
----------- ----------- ----------- -----------
Total income (loss) from investment operations.. 0.01 0.55 0.80 0.37
Less distributions from:
Net investment income.............................. (0.25) (0.51) (0.52) (0.51)
----------- ----------- ----------- -----------
Total distributions............................. (0.25) (0.51) (0.52) (0.51)
----------- ----------- ----------- -----------
Net asset value, end of period..................... $ 10.24 $ 10.48 $ 10.44 $ 10.16
=========== =========== =========== ===========
Total Return/(1)/.................................... 0.1%/(2)/ 5.4% 8.1% 3.8%
Ratios and Supplemental Data
Net assets, end of period (in thousands)........... $ 145,140 $ 143,417 $ 131,348 $ 124,545
Ratio of net expenses to average net assets........ 0.84%/(3)/(4)/ 0.78%/(4)/ 0.81%/(4)/ 0.80%/(4)/
Ratio of net investment income to average net
assets............................................ 4.87%/(3)/ 4.90% 5.05% 5.12%
Portfolio turnover rate............................ 39% 16% 8% 14%
<CAPTION>
Wisconsin Tax Free Fund
---------------------------------
1995 1994
---------------------------------
<S> <C> <C>
Per Share Data
Net asset value, beginning of period................. $ 9.21 $ 10.38
Income (loss) from investment operations:
Net investment income.............................. 0.51 0.51
Net realized and unrealized gains (losses)
on investments.................................... 1.09 (1.17)
----------- -----------
Total income (loss) from investment operations.. 1.60 (0.66)
Less distributions from:
Net investment income.............................. (0.51) (0.51)
----------- -----------
Total distributions............................. (0.51) (0.51)
----------- -----------
Net asset value, end of period....................... $ 10.30 $ 9.21
=========== ===========
Total Return/(1)/.................................... 17.8% (6.5)%
Ratios and Supplemental Data
Net assets, end of period (in thousands)........... $ 118,513 $ 101,749
Ratio of net expenses to average net assets........ 0.84% 0.85%
Ratio of net investment income to average
net assets........................................ 5.23% 5.28%
Portfolio turnover rate............................ 11% 22%
</TABLE>
(1) The front-end sales charge in effect for the Fund prior to June 1, 1994 is
not reflected in Total Return.
(2) Not annualized.
(3) Annualized.
(4) The ratio does not include fees paid indirectly. If the Fund did not have
fees paid indirectly, the expense ratios for the period ended June 30, 1999
and the years ended December 31, 1998, 1997 and 1996 would have been 0.87%,
0.80%, 0.82% and 0.81%, respectively.
The accompanying Notes to Financial Statements are an integral part of this
Statement.
10
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Heartland Group, Inc. (the "Corporation") is registered as an open-end
management company under the Investment Company Act of 1940. The Wisconsin
Tax Free Fund (the "Fund"), which is a non-diversified Fund, is one of the
nine series of funds issued by the Corporation at June 30, 1999.
(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 for which
quotations are not readily available are valued at their fair value
using methods determined by the Board of Directors.
(b) The Fund's 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, 1999, the Fund had Federal income tax capital loss
carryforwards of $399,536 expiring in 2003 and $333,310 expiring in
2005. The Fund does not intend to make a distribution of any future
realized capital gains until its Federal income tax capital loss
carryforwards are completely utilized.
Statement of Position 93-2 requires that permanent financial reporting
and tax differences be reclassified to paid in capital. Net assets are
not affected by these reclassifications.
Net realized gains or losses may differ for Federal income tax
purposes primarily as a result of post-October losses which may not be
recognized for tax purposes until the first day of the following
fiscal year, wash sales, and the marking-to-market of open futures
contracts.
(c) Net investment income is distributed to each shareholder as a
dividend. Dividends are declared daily and distributed monthly and
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 on 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 is charged for those expenses that are directly attributable
to it. Expenses that are not directly attributable to the Fund are
typically allocated among all Funds issued by the Corporation in
proportion to their respective net assets, number of open shareholder
accounts, or net sales, as applicable.
(f) 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
on a daily basis an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as
"variation margin," and are recorded by the Fund as unrealized gains
or losses. When the futures contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed.
The use of futures contracts involves, to varying degrees, elements of
market risk in excess of the amount recognized in the Statement of
Assets and Liabilities. The predominant risk is that the movement of
the futures contract's price may result in a loss which could render a
portfolio's hedging strategy unsuccessful. The Fund had no open
futures contracts as of June 30, 1999.
(g) The Fund entered into a fee arrangement with its custodian bank which
provided for a reduction in custody fees based upon net amounts of
uninvested cash balances. The reduction of custody expenses is shown
on the Statement of Operations as "Fees paid indirectly."
(h) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
11
<PAGE>
(3) Credit Facility
Deutsche Bank AG has made available to eight of the nine series of funds
issued by the Corporation, including the Wisconsin Tax Free Fund, a $100
million credit facility pursuant to a Credit Agreement ("Agreement"), most
recently amended December 29, 1998. The purpose of the Agreement is to
provide liquidity for meeting portfolio redemptions on a short-term basis.
Outstanding principal amounts under the credit facility bear interest at a
rate per annum equal to the New York Interbank Offering Rate plus 0.4% or
the prime rate. Commitment fees are computed at a rate per annum equal to
0.08% of the Funds' proportional daily average unutilized credit. During
the period from January 1, 1999 through June 30, 1999, the Fund had an
outstanding average balance of $1,105, at an average interest rate of 6.4%,
and a maximum outstanding balance of $200,000. Interest expenses accrued
and commitment fees paid for the period from January 1, 1999 through June
30, 1999 were $36 and $972, respectively.
(4) 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 0.65% of the daily net asset value of the Fund.
Effective May 1, 1999, the Fund entered into an agreement with the Advisor
to perform certain bookkeeping and accounting services. Under the terms of
the agreement, the Fund pays the Advisor a monthly fee at an annual rate of
$12,500 plus 0.0085% of average daily net assets over $50 million.
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 the Advisor is a member.
(5) Investment Transactions
During the period from January 1, 1999 through June 30, 1999, the cost of
purchases and proceeds from sales of securities, other than short-term
obligations, were $58,811,775 and $55,054,292, respectively.
At June 30, 1999, the gross unrealized appreciation and depreciation on
securities for tax purposes were $2,151,876 and $(1,456,089), respectively,
netting to $695,787.
Cost of investments is substantially the same for financial reporting
purposes and federal income tax purposes.
(6) Fund Share Transactions
For the period from January 1, 1999 through June 30, 1999, Fund share
transactions were as follows:
<TABLE>
<S> <C>
Shares issued.................................................. 1,224,348
Reinvested dividends from net investment income................ 210,600
Shares redeemed................................................ (938,931)
----------
Net increase in Fund shares.................................... 496,017
==========
For the year ended December 31, 1998, Fund share transactions
were as follows:
Shares issued.................................................. 2,462,970
Reinvested dividends from net investment income................ 465,350
Shares redeemed................................................ (1,827,845)
----------
Net increase in Fund shares.................................... 1,100,475
==========
</TABLE>
12
<PAGE>
(7) Shareholder Meeting Voting Results
A Special Meeting of the shareholders of the Fund was held at 758 North
Broadway, Milwaukee, Wisconsin, on April 28, 1999. The shareholders cast
the following votes on the proposals presented, as applicable:
<TABLE>
<CAPTION>
Proposal 1 - To amend the policy on borrowing.
<S> <C> <C> <C>
Yes No Abstain
---------------- ---------------- ----------------
8,938,417.050 298,395.287 323,082.827
Proposal 2 - To amend the policy on investing in illiquid and restricted securities.
Yes No Abstain
---------------- ---------------- ----------------
8,773,599.019 440,697.080 345,599.065
Proposal 3 - To eliminate the policy against investing for control or management.
Yes No Abstain
---------------- ---------------- ----------------
8,917,718.055 306,303.555 335,873.554
Proposal 5 - To amend the policy on investing in municipal securities subject to
alternative minimum tax.
Yes No Abstain
---------------- ---------------- ----------------
8,729,661.868 514,209.506 316,023.790
Proposal 7 - To amend the policy on investing in securities involving real estate.
Yes No Abstain
---------------- ---------------- ----------------
8,903,212.431 334,146.805 322,535.928
Proposal 8 - To amend the policy on investing in other investment companies.
Yes No Abstain
---------------- ---------------- ----------------
8,889,874.201 371,447.647 298,573.316
Proposal 14 - To simplify, standardize or re-define the language of the
policy on concentration.
Yes No Abstain
---------------- ---------------- ----------------
8,985,048.586 231,244.061 343,602.517
Proposal 15 - To simplify, standardize or re-define the language of the policy
prohibiting loans.
Yes No Abstain
---------------- ---------------- ----------------
8,934,078.931 276,386.842 349,429.391
Proposal 16 - To simplify, standardize or re-define the language of the policy
prohibiting underwriting.
Yes No Abstain
---------------- ---------------- ----------------
9,007,500.938 181,675.946 370,718.280
Proposal 17 - To simplify, standardize or re-define the language of the policy
prohibiting issuance of senior securities.
Yes No Abstain
---------------- ---------------- ----------------
8,984,224.904 231,702.315 343,967.945
Proposal 18 - To simplify, standardize or re-define the language of the policy
prohibiting investments in commodities.
Yes No Abstain
---------------- ---------------- ----------------
8,866,128.071 382,542.863 311,224.230
</TABLE>
13
<PAGE>
The Heartland Family of Funds
Large Cap Value Fund
Mid Cap Value Fund
Value Plus Fund
Value Fund
Government Fund
Taxable Short Duration
Municipal Fund
Short Duration High-Yield
Municipal Fund
High-Yield Municipal Bond Fund
Wisconsin Tax Free Fund
Firstar Money Market Fund
[LOGO OF HEARTLAND FUNDS APPEARS HERE]
[LETTERHEAD OF HEARTLAND FUNDS APPEARS HERE]
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.
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. Income from the Wisconsin Tax Free Fund may be subject to
alternative minimum tax and income from the Short Duration High-Yield Municipal
and High-Yield Municipal Bond Funds may be subject to state, local and
alternative minimum tax.
This material may only be used when preceded or accompanied by the Heartland
Wisconsin Tax Free Fund's prospectus. If you would like more complete
information on any other Fund, including charges and expenses, please call for a
prospectus. Read it carefully before you invest.
Heartland Advisors, Inc., distributor. Member SIPC.
<PAGE>
[LOGO] HEARTLAND FUNDS
----------------------
AMERICA'S VALUE INVESTOR/r/
----------------------------------
Value Report
June 30, 1999
Notes on value investing
for investors in the Heartland
High-Yield Municipal Funds
----------------------------------
Semi-Annual Report
to Shareholders
Heartland Short Duration
High-Yield Municipal Fund
Heartland High-Yield
Municipal Bond Fund
<PAGE>
VALUE REPORT
The Glass is Half Full
It is said that a pessimist always views the glass as half empty and an
optimist as half full. We are realists. But, we view what has been a soft
municipal bond market as "glass half full" opportunity. Yes, municipal bond
prices are lower, as is to be expected with interest rates trending higher in
second quarter 1999. However, yields are now appreciably higher and the "real
rate of return" on munis (the spread between inflation and bond yields) is even
more attractive.
As we anticipated, the yield spread between municipal bonds and Treasuries has
trended back closer to the historical average range, with the Bond Buyer 40, an
index of 40 investment grade municipal bonds, yielding 93% of the 30-year
Treasury Bond at quarter end. Barring the rekindling of a flat tax debate in the
upcoming election year or a strong Treasury bond rally, either of which could
make munis very cheap again, we anticipate the yield spread between munis and
Treasuries will stay in this range. Importantly, if the yield spread remains at
current levels, munis still provide an after-tax total return advantage for
investors in high federal income tax brackets.
High-yield municipal bonds out-performed Treasuries and investment grade munis
during this reporting period. Why? Because, yield generally represents a higher
percentage of the total return delivered by high-yield municipal bonds. In
essence, the higher yield more adequately compensates for price declines. So,
when interest rates rise, high-yield bonds often sustain less damage on a total
return basis. For example, despite a retreating bond market, all of our
Municipal Funds closed the second quarter with positive year-to-date total
returns, whereas Treasuries and investment grade munis had negative total
returns. This is not to say that high-yield bonds are less risky than Treasuries
and investment grade munis. In fact, the reverse is true. But, the greater risk
in high-yield bonds is credit risk (the potential for default) rather than
interest rate risk (sharper price declines as interest rates rise). That is why
we favor essential service issues, work so hard to evaluate credit risk, and
maintain very diversified portfolios.
As we write, the big bond market debate centers on how the Federal Reserve
will respond to inflation concerns engendered by the still robust U.S. economy.
Will the Fed tighten and by how much? How will the bond market react? Will long
bonds decline further as short-term interest rates rise or will they rally
because the Fed is living up to its mandate as an inflation fighter? We don't
concern ourselves with these issues. The interest rate forecasting game is a
slippery slope. We focus on individual securities selection and believe that if
we are good "bond pickers," the Funds will be good performers relative to their
peers in any given interest rate environment.
<PAGE>
VALUE REPORT
In closing, we are pleased to report that we continue to make progress
reducing our shareholders' exposure to the Alternative Minimum Tax (AMT). At the
close of this quarter, private activity bonds (subject to AMT) are less than 10%
of total assets in both the Short Duration High-Yield and High-Yield Bond Funds.
This is down from over 30% two years ago.
Sincerely,
Tom Conlin, CFA Greg Winston, CFA
Portfolio Co-Manager Portfolio Co-Manager
INVESTMENT PERFORMANCE
Heartland Short Duration High-Yield Municipal Fund
<TABLE>
<CAPTION>
Average annual total returns
June Equivalent taxable yield as of June 30, 1999
SEC yield/1/ at a 39.6% federal rate 1-year Since Inception (1/2/97)
<S> <C> <C> <C> <C>
5.8% 9.6% 3.0% 5.1%
</TABLE>
Heartland High-Yield Municipal Bond Fund
<TABLE>
<CAPTION>
Average annual total returns
June Equivalent taxable yield as of June 30, 1999
SEC yield/1/ at a 39.6% federal rate 1-year Since Inception (1/2/97)
<S> <C> <C> <C> <C>
6.4% 10.5% 4.2% 7.8%
</TABLE>
/1/Yields are for the 30 days ended 6/30/99. Total returns include reinvestment
of all dividends and capital gains distributions. Performance data reflects
fee waivers in effect during the period. Without subsidization of fees and
expenses, total returns would have been lower, and the SEC and equivalent
taxable yields would have been 5.7% and 9.4% for the Short Duration High-
Yield Municipal Fund and 6.1% and 10.0% for the High-Yield Municipal Bond
Fund. Income may be subject to state, local and alternative minimum tax.
These Funds invest primarily in medium- and lower-quality securities which have
higher yield potential but present greater investment and credit risk than
higher-quality securities. These risks may result in greater share price
volatility.
1
<PAGE>
VALUE REPORT
Heartland Short Duration High-Yield Municipal Fund
The Big Easy Chair
New Orleans' nickname is The Big Easy. The Lambeth House is a brand new, upscale
Continuing Care Retirement Community consisting of a 39 bed nursing facility, 51
assisted living units, and 118 independent living units located in beautiful
"uptown" New Orleans. It is within walking distance of a major shopping center,
Audubon Park and Tulane University. Opened in October 1998, the Lambeth House is
the first facility in New Orleans offering a full lifecare contract. Occupancy
rates for the nursing facilities and assisted living units are meeting
projections and management is well ahead of schedule in marketing the
independent living units.
We visited the Lambeth House on May 13, 1999. After touring the facility, we had
lunch in the main dining room with Gordon Cooke, the Executive Director. We were
impressed with our meal, which lived up to New Orleans' gourmet standards, and
with Gordon, who clearly was on top of all the aspects of the project. We left
with a highly favorable impression of the facility, management, and the
financial outlook for our investment. In fact, we could envision ourselves
pulling up a Big Easy chair and living quite comfortably at Lambeth House.
At June 30, 1999, the Fund owned $3.875 million of Louisiana Health Education
Authority Adjustable Rate Revenue Refunding Bonds, Series 1998B (Lambeth House
Project), valued at $3,855,625 and representing 2.4% of the Fund's net assets.
The bonds are dependent on revenues generated by the Lambeth House and are
further secured by a debt service reserve fund, and a first mortgage lien and
security interest in the Project.
Thomas J. Conlin, CFA
Portfolio Co-Manager
Greg D. Winston, CFA
Portfolio Co-Manager
"We could envision
ourselves pulling
up a Big Easy chair
and living quite
comfortably at
Lambeth House."
2
<PAGE>
VALUE REPORT
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 primarily in medium and lower
quality municipal obligations and maintains an average portfolio duration of
three years or less.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
YTD* 1-year Since inception
(1/2/97)
<S> <C> <C> <C>
Heartland Short Duration
High-Yield Municipal Fund/1/ 1.7% 3.0% 5.1%
Lehman Municipal 1-3 Year
Non-Investment Grade Bond Index/2/ 2.1% 4.8% 5.9%
</TABLE>
*Not Annualized
/1/Includes reinvestment of all dividends and capital gain distributions and
reflects fee waivers in effect during the period.
/2/The Lehman Municipal 1-3 Year Non-Investment Grade Bond Index is an unmanaged
index and includes issues that have a maximum credit rating of "Ba1", were
issued as part of a deal of at least $20 million, have an amount outstanding
of at least $3 million, have a maturity of 1 to 3 years, and were issued
after December 31, 1990.
FUND FACTS
Sales commission.............. None Weighted average duration........ 3.0 yrs.
Share price.................. $9.87 Net assets.................... $161.2 mil.
Weighted Average Maturity..6.5 yrs. Number of holdings..................... 79
<TABLE>
<CAPTION>
% OF
TOP 5 HOLDINGS COUPON MATURITY CALL NET ASSETS
<S> <C> <C> <C> <C>
Tarrant Cty., TX Health Fac. Dev. Corp. 8.25% 8/1/28 8/1/02 4.4%
Jefferson County, TX Health Fac. Dev. Corp. 8.875% 6/1/21 7/1/99 4.1
Allegheny County, PA Industrial Dev. Auth. 6.8% 1/1/05 -- 3.9
Tulsa County, OK Industrial Auth. 8.25% 3/1/20 3/1/02 3.4
Independence, MO Tax Increment Revenue 8.75% 4/1/15 4/1/04 3.2
PORTFOLIO COMPOSITION
Hospital 25.2%
Nursing
22.1%
Retirement
19.2%
Multifamily 11.0%
Other 22.5%
Other...................... 7.8%
IDR........................ 6.1
Resource recovery.......... 5.5
Mental health.............. 3.4
Solid waste................ 1.3
Cash & equiv. .............-1.6
</TABLE>
All statistics are as of June 30, 1999.
<PAGE>
VALUE REPORT
Heartland High-Yield Municipal Bond Fund
Dignity and Respect
We have come a long way in our approach to treating the mentally retarded.
Society now realizes that the mentally challenged should be treated with dignity
and respect. Municipal bonds provide financing for the facilities that provide a
better life for people with developmental disabilities. This underscores our
belief that investing in municipal securities helps improve the fabric of
American life.
Unicare Homes, Inc. has bought and renovated two intermediate care facilities
for the mentally retarded (ICF/MRs). Jackson Center is a 126 bed facility
located in Milwaukee, and Hearthside Center is a 247 bed facility in Brown Deer,
Wisconsin. Both provide 24 hour per day residential, rehabilitative and medical
services to the mentally retarded under the Wisconsin ICF/MR Medicaid Program.
They are managed by an affiliated company of Memphis, Tennessee-based
Developmental Disability Management Services, which provides services and
support to 1,850 retarded citizens.
This Project was financed by Wisconsin Health and Educational Facilities
Authority Revenue Bonds, Series 1996A and Series 1998 (Benchmark Healthcare of
Wisconsin, Inc. Project). We believe they are solid credits, which will generate
good investment and social returns.
At June 30, 1999, the Fund owned $1,420,000 of the 8.5%s of 10/15/26 (1996A),
and $670,000 of the 6.75%s of 12/1/28 (1998), valued at $2,157,838 and
representing 2.3% of the Fund's net assets. The bonds are dependent on net
revenues from the facilities and are further secured by a debt service reserve
fund and mortgage lien.
[PHOTO APPEARS HERE]
Thomas J. Conlin, CFA
Portfolio Co-Manager
[PHOTO APPEARS HERE]
Greg D. Winston, CFA
Portfolio Co-Manager
"Municipal bonds
provide financing
for the facilities that
provide a better life
for people with
developmental
disabilities."
4
<PAGE>
VALUE REPORT
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 primarily in medium
and lower quality municipal obligations and maintains an average portfolio
duration of greater than five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
<S> <C> <C> <C>
YTD* 1-year Since inception
(1/2/97)
Heartland High-Yield
Municipal Bond Fund/1/ 1.2% 4.2% 7.8%
Lehman Municipal Non-Investment
Grade Bond Index/2/ 1.3% 3.2% 7.4%
</TABLE>
* Not Annualized
/1/Includes reinvestment of all dividends and capital gain distributions and
reflects fee waivers in effect during the period.
/2/Lehman Municipal Non-Investment Grade Bond Index includes issues that have a
maximum credit rating of "Ba1," were issued as part of a deal of at least $20
million, have an amount outstanding of at least $3 million, have maturity of
at least one year, and were issued after December 31, 1990.
FUND FACTS
Sales commission................ None Net assets............... $93.9 mil.
Share price..................... $10.19 Number of holdings............... 61
Weighted average duration.... 10.0 yrs. Inception.................... 1/2/97
% OF
TOP 5 HOLDINGS COUPON MATURITY CALL NET ASSETS
Pennsylvania Higher Education Facilities 7.25% 9/1/17 9/1/01 3.9%
Tarrant County, TX Health Fac. Dev. Corp. 8.0% 8/1/25 8/1/02 3.9
Tulsa County, OK Industrial Authority 7.25% 3/1/29 3/1/02 3.6
Lubbock, Texas Health Facilities Dev. Corp. 6.5% 7/1/19 7/1/09 3.1
Massachusetts Development Finance Agency 6.75% 7/1/18 7/1/09 3.1
[PIE CHART APPEARS HERE]
PORTFOLIO COMPOSITION
Multifamily 23.4%
Nursing 22.0%
Mental health 10.4%
Retirement 14.2%
Hospital 13.7%
Other 16.3%
Other.................... 6.4%
Resource recovery........ 5.6
Solid waste.............. 2.2
Water & sewer............ 2.2
IDR...................... 2.0
Lease.................... 1.1
University............... 1.0
Cash & equiv............. -4.2
All statistics are as of June 30, 1999.
5
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS . JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 100.0% COUPON MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS -- 100.0%
ALABAMA -- 2.4%
$ 370,000 Valley, Alabama Special Care Facilities Finance Authority -
Lanier Memorial Hospital................................. 5.000% 11/01/2000 $ 371,850
325,000 Valley, Alabama Special Care Facilities Finance Authority -
Lanier Memorial Hospital................................. 4.650 11/01/2002 322,156
3,000,000 West Jefferson, Alabama Amusement & Public Park Authority -
Visionland Alabama (Callable 02/01/2004)................. 8.000 02/01/2021 3,243,750
------------
3,937,756
CONNECTICUT - 4.0%
1,440,000 Connecticut State Development Authority -
Alzheimers Resource Center (a)........................... 6.875 08/15/2004 1,508,400
4,625,000 Connecticut State Development Authority -
Alzheimers Resource Center (Callable 08/15/2004) (a)..... 7.125 08/15/2014 4,885,156
------------
6,393,556
FLORIDA - 6.9%
1,260,000 Lee County, Florida Industrial Development Authority -
Cypress Cove at Healthpark, Florida, Inc. Project
(Callable 10/01/2002)................................... 5.625 10/01/2026 1,269,450
890,000 Lee County, Florida Industrial Development Authority -
Cypress Cove at Healthpark, Florida, Inc. Project........ 5.600 10/01/2004 898,900
585,000 Lee County, Florida Industrial Development Authority -
Cypress Cove at Healthpark, Florida, Inc. Project (a).... 5.700 10/01/2005 592,312
1,745,000 Seminole County, Florida Industrial Development Authority -
RHA/Fern Park MR, Incorporated (Callable 07/01/1999)..... 9.250 04/01/2012 1,797,350
2,980,000 Sumter County, Florida Industrial Development Authority -
Wecare Nursing Center (Callable 04/01/2004).............. 8.000 04/01/2014 3,225,850
1,225,000 Tarpon Springs, Florida Health Facilities Authority -
Helen Ellis Memorial Hospital (Callable 05/01/2001)...... 7.500 05/01/2011 1,270,938
2,000,000 Tarpon Springs, Florida Health Facilities Authority -
Helen Ellis Memorial Hospital (Callable 05/01/2001)...... 7.625 05/01/2021 2,080,000
------------
11,134,800
GEORGIA - 2.9%
1,600,000 Clayton County, Georgia Development Authority IDR -
Outboard Marine Corporation (Callable 10/01/1999)........ 6.000 10/01/2002 1,602,000
3,220,000 Houston County, Georgia Development Authority -
Emerald Coast Housing (Callable 08/01/2008).............. 6.850 08/01/2018 3,159,625
------------
4,761,625
ILLINOIS - 5.5%
4,805,000 Granite City, Illinois Hospital Facilities Revenue -
St. Elizabeth Medical Center (Callable 07/01/1999)....... 8.125 06/01/2008 4,847,044
1,500,000 Illinois Health Facilities Authority - Bohemian Home -
Tabor Hills Health Care (Callable 11/15/2003)............ 5.250 11/15/2028 1,462,500
2,660,000 Worth, Illinois Nursing Home Revenue -
Belhaven Convalescent Center (Callable 12/15/2002) (a)... 6.200 12/15/2007 2,626,750
------------
8,936,294
INDIANA - 0.4%
650,000 Greensburg, Indiana Economic Development Revenue -
Kroger Company (Callable 12/01/2004)..................... 7.250 06/01/2011 730,438
</TABLE>
6
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [cont'd] * JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 100.0% [cont'd] COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 100.0% [cont'd]
IOWA - 4.9%
<S> <C> <C> <C> <C>
$4,000,000 Cedar Rapids, Iowa First Mortgage Revenue -
Cottage Grove Place (Callable 07/01/2005)....................... 5.625% 07/01/2028 $ 4,000,000
1,500,000 Elk Horn, Iowa Health Care Facility -
Salem Lutheran Homes (Callable 04/01/2003)...................... 7.250 04/01/2018 1,494,375
1,450,000 Iowa Finance Authority Health Care Facilities -
Care Initiatives................................................ 5.500 07/01/2008 1,440,937
900,000 Ottumwa, Iowa Revenue - Penn Place -
Regional Retirement Living (Callable 02/15/2003)................ 5.150 02/15/2028 886,500
------------
7,821,812
LOUISIANA - 5.7%
3,875,000 Louisiana Health Education Authority -
Lambeth House (Callable 01/01/2007) (a)......................... 5.625 01/01/2028 3,855,625
1,945,000 Louisiana Public Facilities Authority -
Beverly Enterprises, Incorporated (Callable 09/01/2002)......... 8.250 09/01/2008 2,093,306
3,290,000 Louisiana Public Facilities Authority -
Progressive Healthcare Providers (Callable 10/01/2000) (a)...... 6.250 10/01/2011 3,302,337
------------
9,251,268
MASSACHUSETTS - 3.2%
1,260,000 Massachusetts Industrial Finance Agency -
Reeds Landing Project (Callable 10/01/1999)..................... 7.750 10/01/2000 1,269,992
945,000 Massachusetts Industrial Finance Agency - Glenmeadow
Retirement Community (Callable 02/15/2003)...................... 5.000 02/15/2026 968,875
970,000 Massachusetts Industrial Finance Agency - Glenmeadow
Retirement Community (Callable 02/15/2006)...................... 5.250 02/15/2026 944,329
2,000,000 Massachusetts Development Finance Agency - Loomis
Communities (Callable 07/01/2005)............................... 5.000 07/01/2025 1,940,000
------------
5,123,196
MINNESOTA - 3.6%
900,000 Maplewood, Minnesota Health Care Facility -
Healtheast Care System (Callable 11/15/2001).................... 5.800 11/15/2003 902,250
2,000,000 South St. Paul, Minnesota Housing and Redevelopment
Authority - Healtheast Care System (Callable 11/01/2004)........ 6.750 11/01/2009 2,070,000
2,725,000 St. Paul, Minnesota Housing and Redevelopment Authority -
Healtheast Care System (Callable 11/01/2003).................... 6.625 11/01/2017 2,776,094
------------
5,748,344
MISSOURI - 5.0%
4,740,000 Independence, Missouri Tax Increment Revenue -
Homart Development Company (Callable 04/01/2004)................ 8.750 04/01/2015 5,219,925
2,880,000 Kansas City, Missouri - Industrial Development Authority -
Kingswood Project (Callable 11/15/2008)......................... 5.375 11/15/2009 2,775,600
------------
7,995,525
NEW JERSEY - 4.0%
3,485,000 New Jersey Economic Development Authority -
Sayreville Senior Living Centre (Callable 04/01/2004)........... 8.000 04/01/2014 3,842,212
2,500,000 New Jersey Health Care Facilities Finance Authority -
Raritan Bay Medical Center (Callable 07/01/2004)................ 7.250 07/01/2027 2,515,625
------------
6,357,837
NEW MEXICO - 0.6%
1,000,000 Santa Fe County, New Mexico Project Revenue -
El Castillo Retirement Residences (Callable 05/15/2000)......... 5.250 05/15/2028 995,000
</TABLE>
7
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT LONG-TERM INVESTMENTS - 100.0% [cont'd] COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS - 100.0% [cont'd]
NEW YORK - 4.4%
$ 2,855,000 Erie County, NY Industrial Development Agency -
DePaul Properties, Incorporated (Callable 09/01/2002)....... 6.500% 09/01/2018 $ 2,969,200
3,930,000 Fulton County, NY Industrial Development Agency -
Nathan Littauer Hospital Association (Callable 11/01/2001).. 7.000 11/01/2004 4,116,675
-----------
7,085,875
OHIO - 4.7%
955,000 Clark County, Ohio Industrial Development Revenue -
Main Associates Project (Callable 07/01/1999)............... 8.000 11/01/2005 935,865
1,050,000 Montgomery County, Ohio Health Care Facilities -
Friendship Village of Dayton (Callable 02/01/2001).......... 5.375 02/01/2022 1,050,000
2,000,000 Montgomery County, Ohio Hospital Revenue - Grandview
Hospital & Medical Center................................... 5.250 12/01/2002 2,020,000
1,000,000 Montgomery County, Ohio Hospital Revenue - Grandview
Hospital & Medical Center................................... 5.250 12/01/2003 1,006,250
1,700,000 Montgomery County, Ohio Health Care Facilities -
Friendship Village of Dayton (Callable 02/01/2003).......... 5.500 02/01/2007 1,695,750
905,000 Ohio Capital Corporation for Housing -
Bella Vista Section 8 Assisted Project...................... 7.250 02/01/2002 900,475
-----------
7,608,340
OKLAHOMA - 4.6%
1,065,000 Tulsa County, Oklahoma Industrial Authority -
Multifamily Housing 1st Mortgage Revenue
(Callable 12/01/2005)....................................... 7.400 12/01/2017 1,042,369
1,000,000 Tulsa County, Oklahoma Industrial Authority -
Multifamily Housing 1st Mortgage Revenue
(Callable 12/01/2005)....................................... 7.500 12/01/2027 975,000
5,135,000 Tulsa County, Oklahoma Industrial Authority -
Tulsa-American Housing Foundation Apartments
(Callable 03/01/2002)....................................... 8.250 03/01/2020 5,417,425
-----------
7,434,794
PENNSYLVANIA - 16.3%
255,000 Allegheny County, Pennsylvania Hospital Development
Authority - Allegheny Valley Hospital....................... 7.500 08/01/2000 254,337
275,000 Allegheny County, Pennsylvania Hospital Development
Authority - Allegheny Valley Hospital
(Callable 08/01/2000)....................................... 7.600 08/01/2001 273,625
295,000 Allegheny County, Pennsylvania Hospital Development
Authority - Allegheny Valley Hospital
(Callable 08/01/2000)....................................... 7.700 08/01/2002 292,788
6,400,000 Allegheny County, Pennsylvania Industrial Development
Authority - Lanchester Energy Partners...................... 6.800 01/01/2005 6,320,000
1,855,000 Cumberland County, Pennsylvania Industrial Development
Revenue - Beverly Enterprises, Inc......................... 5.300 10/01/2003 1,822,538
2,000,000 Cumberland County, Pennsylvania Industrial Development
Revenue - Beverly Enterprises, Inc. (Callable 10/01/2003).. 5.500 10/01/2008 1,947,500
4,270,000 Cumberland County, Pennsylvania Industrial Municipal
Authority - Carlisle Hospital and Health Services
(Callable 11/15/2004)....................................... 6.800 11/15/2014 4,552,888
644,000 Montgomery County, Pennsylvania Industrial Development
Authority Revenue - Meadowood Corporation
(Callable 12/01/1999)....................................... 5.150 12/01/2003 639,975
2,550,000 Philadelphia Authority for Industrial Development -
The Baptist Home of Philadelphia (Callable 11/15/2000)...... 5.250 11/15/2028 2,527,687
955,000 Scranton-Lackawanna Health & Welfare Authority -
Moses Taylor Hospital....................................... 5.550 07/01/2004 929,931
</TABLE>
8
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 100.0% [cont'd] COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 100.0% [cont'd]
PENNSYLVANIA - 16.3% [cont'd]
<S> <C> <C> <C> <C>
$ 1,000,000 Scranton-Lackawanna Health & Welfare Authority -
Moses Taylor Hospital................................... 5.650% 07/01/2005 $ 970,000
2,275,000 Washington County, Pennsylvania Hospital Authority -
Cannonsburg General Hospital (Callable 06/01/2003)...... 7.350 06/01/2013 2,249,875
3,600,000 Westmoreland County, Pennsylvania Industrial Development
Authority - Lancaster Energy Partners................... 6.800 01/01/2005 3,555,000
-----------
26,336,144
SOUTH CAROLINA - 1.3%
2,000,000 South Carolina Jobs Economic Development Corporation -
Santee River Rubber Project............................. 9.000 12/01/2011 2,050,000
TEXAS - 14.9%
1,000,000 Danforth, Texas Health Facilities Corporation -
Heritage Duval Gardens (Callable 07/01/2003)............ 7.375 07/01/2028 973,750
2,405,000 Edinburg, Texas Industrial Development Corporation -
Water Park Project...................................... 7.000 09/01/2006 2,389,969
6,405,000 Jefferson County, Texas Health Facilities Development
Corporation - Baptist Healthcare System
(Callable 07/01/1999)................................... 8.875 06/01/2021 6,541,106
190,000 Rusk County, Texas Health Facilities Corporation -
Sugarland Retirement Communities
(Callable 03/01/2000)................................... 6.375 03/01/2006 188,812
270,000 Rusk County, Texas Health Facilities Corporation -
Sugarland Retirement Communities
(Callable 03/01/2000)................................... 6.500 03/01/2007 267,975
155,000 Rusk County, Texas Health Facilities Corporation -
Sugarland Retirement Communities
(Callable 03/01/2000)................................... 6.625 03/01/2008 153,837
1,430,000 Rusk County, Texas Health Facilities Corporation -
Sugarland Retirement Communities
(Callable 03/01/2000)................................... 7.500 03/01/2014 1,417,488
1,800,000 Rusk County, Texas Health Facilities Corporation -
Sugarland Retirement Communities
(Callable 03/01/2000)................................... 7.750 03/01/2019 1,791,000
1,000,000 San Antonio, Texas Health Facilities Development
Corporation - Beverly Enterprises, Incorporated
(Callable 12/01/2002)................................... 8.250 12/01/2019 1,078,750
810,000 Tarrant County, Texas Health Facilities Development
Corporation - St. Joseph Long Term Care Facility
(Callable 11/01/1999)................................... 6.500 05/01/2004 803,925
7,105,000 Tarrant County, Texas Health Facilities Development
Corporation - Westchester Retirement Communities
(Callable 08/01/2002)................................... 8.250 08/01/2028 7,087,238
1,345,000 Wharton, Texas Housing Development
Corporation - University Place Apartments
(Callable 06/01/2000)................................... 5.500 06/01/2010 1,316,419
-----------
24,010,269
</TABLE>
9
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1999 (Unaudited)
------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT LONG-TERM INVESTMENTS - 100.0% [cont'd] COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS -100.0% [cont'd]
VIRGINIA - 3.0%
<S> <C> <C> <C> <C>
$ 2,000,000 Hopewell, Virginia Industrial Development Authority -
Stone Container Corporation (Callable 06/01/2002)................. 8.250% 6/01/2016 $ 2,185,000
2,660,000 Newport News, Virginia Redevelopment & Housing Authority -
St. Michaels Apartments (Callable 11/01/2002)..................... 7.625 11/01/2018 2,660,000
------------
4,845,000
WISCONSIN - 1.7%
2,455,000 Wisconsin Health & Education Facilities Authority -
Benchmark Healthcare of Wisconsin
(Callable 10/15/2006)............................................. 8.500 10/15/2026 2,660,606
------------
TOTAL MUNICIPAL BONDS (Cost $162,036,494).......................................................... $161,218,479
------------
TOTAL LONG-TERM INVESTMENTS (Cost $162,036,494).................................................... $161,218,479
------------
- ---------------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT SHORT-TERM INVESTMENTS - 1.6% COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 1.6%
NEW JERSEY - 1.5%
$ 2,340,000 South Amboy, New Jersey Housing Authority -
Shore Gate Village Grand Project (Callable 07/15/1999)............ 6.000% 08/15/1999 $ 2,340,468
PENNSYLVANIA - 0.1%
235,000 Allegheny County, Pennsylvania Hospital Development
Authority - Allegheny Valley Hospital............................. 7.400 08/01/1999 234,927
------------
TOTAL MUNICIPAL BONDS (COST $2,574,155)............................................................ $ 2,575,395
------------
TOTAL SHORT-TERM INVESTMENTS (COST $2,574,155)..................................................... $ 2,575,395
------------
TOTAL INVESTMENTS (COST $164,610,649)............. 101.6% $163,793,874
Liabilities, less cash and receivables............. (1.6) (2,625,031)
------------
TOTAL NET ASSETS................................... 100.0% $161,168,843
====== ============
(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.
</TABLE>
10
<PAGE>
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS - JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT LONG-TERM INVESTMENTS - 104.2% COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 104.2%
ALABAMA - 4.3%
<S> <C> <C> <C> <C>
$ 2,000,000 Mobile, Alabama Industrial Development Board -
Mobile Energy Services (Callable 01/01/2005) (a)............... 6.950% 01/01/2020 $ 900,000
2,000,000 Vance, Alabama Governmental Utility Services Corporation -
Sewer Services Revenue (Callable 10/01/2007)................... 7.500 10/01/2018 2,072,500
1,000,000 West Jefferson, Alabama Amusement and Public Park Authority -
Visionland Alabama (Callable 02/01/2004)....................... 8.000 02/01/2021 1,081,250
-----------
4,053,750
COLORADO - 2.1%
2,000,000 Colorado Health Facilities Authority -
Rocky Mountain Adventist (Callable 02/01/2003)................. 6.625 02/01/2013 1,957,500
FLORIDA - 6.7%
2,000,000 Mexico Beach, Florida Public Service Facilities -
Heritage House of Sarasota (Callable 12/01/2002)............... 8.000 12/01/2027 1,967,500
2,370,000 Seminole County, Florida Industrial Development Authority -
RHA/Fern Park MR, Incorporated (Callable 07/01/1999)........... 9.250 04/01/2012 2,441,100
2,000,000 Sumter County, Florida Industrial Development Authority -
Wecare Nursing Center (Callable 04/01/2009).................... 6.750 04/01/2029 1,905,000
-----------
6,313,600
GEORGIA - 2.7%
2,575,000 Houston County, Georgia Development Authority -
Grantley, Incorporated Project (Callable 04/01/2003)........... 7.375 04/01/2028 2,539,594
ILLINOIS - 9.4%
200,000 Chicago, Illinois Health Facilities -
Heritage Care of Chicago (Callable 07/01/2003)................. 7.200 07/01/2010 196,750
200,000 Chicago, Illinois Health Facilities -
Heritage Care of Chicago (Callable 07/01/2003)................. 7.300 07/01/2011 196,500
1,000,000 Chicago, Illinois Health Facilities -
Heritage Care of Chicago (Callable 07/01/2003)................. 7.625 07/01/2028 975,000
1,870,000 Granite City, Illinois Hospital Facility Revenue -
St. Elizabeth Medical Center (Callable 07/01/1999)............. 8.125 06/01/2008 1,886,363
2,000,000 Illinois Development Finance Authority -
Spring Grove Apartments (Callable 01/01/2009).................. 7.000 01/01/2029 1,907,500
2,000,000 Robbins Illinois Resource Recovery Revenue -
Robbins Resource Recovery (Callable 10/15/2006)................ 8.375 10/15/2016 1,100,000
1,000,000 Southern Illinois University Revenue............................ 0.000 04/01/2020 313,750
2,000,000 Southern Illinois University Revenue............................ 0.000 04/01/2027 412,500
1,000,000 Southern Illinois University Revenue............................ 0.000 04/01/2029 183,750
1,700,000 Worth, Illinois Nursing Home Revenue -
Belhaven Convalescent Center (Callable 12/15/2002)............. 7.250 12/15/2027 1,663,875
----------
8,835,988
INDIANA - 2.0%
715,000 Beech Grove, Indiana Economic Development Revenue -
Diplomat South Apartments (Callable 01/01/2003)................ 7.000 01/01/2028 689,975
1,200,000 Beech Grove, Indiana Economic Development Revenue -
Beech Grove Village Apartments (Callable 01/01/2003)........... 7.000 01/01/2028 1,173,000
----------
1,862,975
LOUISIANA - 2.7%
2,700,000 Louisiana Housing Finance Agency -
Southside Villa Apartments (Callable 07/01/2003)............... 7.000 07/01/2028 2,588,625
MASSACHUSETTS - 3.1%
2,985,000 Massachusetts Development Finance Agency -
MCHSP Human Services Providers (Callable 07/01/2009)........... 6.750 07/01/2018 2,895,450
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1999 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 104.2% [cont'd] COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS - 104.2% [cont'd]
MICHIGAN - 2.7%
$1,140,000 Redford Township, Michigan Economic Development Corporation -
The Malachi Corporation (Callable 05/01/2003) (a)............. 7.500% 05/01/2028 $ 1,097,250
1,500,000 Riverview, Michigan Economic Development Corporation -
The Malachi Corporation (Callable 05/01/2003) (a)............. 7.500 05/01/2028 1,443,750
-----------
2,541,000
MINNESOTA - 3.0%
3,000,000 Cuyuna Range Hospital District - (Callable 03/01/2005).......... 6.000 06/01/2029 2,838,750
MISSISSIPPI - 3.0%
3,000,000 Tupelo, Mississippi Housing Authority -
Tupelo Apartment Homes (Callable 01/01/2004).................. 7.250 01/01/2029 2,861,250
MISSOURI - 4.5%
1,000,000 Gallatin, Missouri Certificates of Participation -
Electric Distribution System (Callable 07/01/2007)............ 7.375 01/01/2028 1,000,000
1,350,000 Jackson County, Missouri Industrial Development Authority -
Sante Fe Village (Callable 07/01/2004)........................ 7.000 07/01/2019 1,309,500
150,000 Jackson County, Missouri Industrial Development Authority -
Sante Fe Village (Callable 07/01/2004)........................ 7.000 07/01/2029 144,937
1,715,000 St. Louis County, Missouri Industrial Development Authority -
Dasal Caring Centers (Callable 12/01/2007).................... 7.750 12/01/2016 1,779,312
-----------
4,233,749
NEW JERSEY - 4.7%
1,500,000 New Jersey Health Care Facilities Finance Authority -
Raritan Bay Medical Center (Callable 07/01/2004).............. 7.250 07/01/2027 1,509,375
3,000,000 New Jersey Economic Development Authority -
Sayreville Senior Living Centre (Callable 04/01/2009)......... 6.375 04/01/2029 2,872,500
-----------
4,381,875
NEW YORK - 1.0%
1,000,000 New York City Industrial Development Authority -
A Very Special Place, Inc. (Callable 07/01/2009).............. 5.750 07/01/2009 960,000
OHIO - 2.3%
470,000 Franklin County, Ohio Hospital Facilities -
Worthington Christian Village................................. 7.875 06/01/2005 464,125
675,000 Franklin County, Ohio Hospital Facilities -
Worthington Christian Village (Callable 06/01/2005)........... 8.000 06/01/2010 662,344
1,000,000 Montgomery County, Ohio Hospital Revenue -
Grandview Hospital & Medical Center........................... 5.250 12/01/2003 1,006,250
-----------
2,132,719
OKLAHOMA - 7.7%
2,000,000 Tulsa County, Oklahoma Industrial Authority -
Multifamily Housing 1st Mortgage Revenue
(Callable 12/01/2005)......................................... 7.500 12/01/2027 1,950,000
2,000,000 Tulsa County, Oklahoma Industrial Authority -
Shadybrook Apartments (Callable 07/01/2003)................... 6.375 07/01/2028 1,935,000
3,500,000 Tulsa County, Oklahoma Industrial Authority -
Tulsa-America Housing Foundation Apartments
(Callable 03/01/2002)......................................... 7.250 03/01/2029 3,338,125
-----------
7,223,125
</TABLE>
12
<PAGE>
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 104.2% [cont'd] COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS - 104.2% [cont'd]
PENNSYLVANIA - 7.1%
$1,500,000 Bucks County, Pennsylvania Higher Education Facilities
Authority - Chandler Hall Health Services
(Callable 05/01/2009)........................................... 6.300% 05/01/2009 $ 1,432,500
3,750,000 Pennsylvania Higher Education Facilities Authority -
Allegheny General Hospital (Callable 09/01/2001)................ 7.250 09/01/2017 3,660,937
1,600,000 Westmoreland County, Pennsylvania Industrial Development
Authority - Lanchester Energy Partners.......................... 7.000 01/01/2008 1,566,000
-----------
6,659,437
SOUTH CAROLINA - 2.2%
2,000,000 South Carolina Jobs Economic Development Authority -
Santee River Rubber Project..................................... 9.000 12/01/2011 2,050,000
TENNESSEE - 2.0%
630,000 Shelby County, Tennessee Health, Education & Housing
Facilities - Winfield Village of Cordova
(Callable 08/29/2006)........................................... 8.500 07/01/2026 666,225
1,225,000 Sweetwater, Tennessee Industrial Development Board -
Wood Presbyterian Home (Callable 01/01/2006).................... 7.750 01/01/2029 1,200,500
-----------
1,866,725
TEXAS - 16.3%
2,370,000 Bexar County, Texas Housing Finance Corporation -
King's Point & Thompson Place Apartments
(Callable 07/01/2003)........................................... 7.000 07/01/2028 2,310,750
665,000 Danforth, Texas Health Facilities Corporation - Sam Houston
Long Term Care Facility (Callable 03/01/2004)................... 8.250 03/01/2027 669,156
1,500,000 Danforth, Texas Health Facilities Corporation -
Heritage Duval Gardens (Callable 07/01/2003).................... 7.375 07/01/2028 1,460,625
2,620,000 Edinburg, Texas Industrial Development Corporation -
Water Park Project (Callable 09/01/2008)........................ 7.500 09/01/2023 2,495,550
3,000,000 Lubbock, Texas Health Facilities Development Corporation -
Carillon, Inc. (Callable 07/01/2009)............................ 6.500 07/01/2019 2,921,250
1,095,000 Rusk County, Texas Health Facilities Corporation -
Sugarland Retirement Communities
(Callable 03/01/2000)........................................... 8.250 03/01/2028 1,090,894
3,750,000 Tarrant County, Texas Health Facilities Development
Corporation - Westchester Retirement Communities
(Callable 08/01/2002)........................................... 8.000 08/01/2025 3,660,937
685,000 Tarrant County, Texas Health Facilities Development
Corporation - St. Joseph Long Term Care Facility
(Callable 05/01/2004)........................................... 8.500 05/01/2027 696,988
-----------
15,306,150
VIRGINIA - 4.5%
2,000,000 Brunswick County, Virginia Industrial Development Authority -
Extraction Technologies of Virginia (Callable 07/01/2007)....... 7.500 07/01/2016 1,875,000
2,500,000 Newport News, Virginia Redevelopment & Housing Authority -
St. Michaels Apartment (Callable 11/01/2008).................... 7.250 11/01/2028 2,353,125
-----------
4,228,125
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1999 (Unaudited)
- -------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 104.2% [cont'd] COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS - 104.2% [cont'd]
WISCONSIN - 10.2%
$1,420,000 Wisconsin Health & Education Facilities Authority -
Benchmark Healthcare of Wisconsin
(Callable 10/15/2006)..................................... 8.500% 10/15/2026 $ 1,538,925
670,000 Wisconsin Health & Education Facilities Authority -
Benchmark Healthcare of Wisconsin (Callable 12/01/2008) 6.750 12/01/2028 618,913
2,430,000 Wisconsin Health & Education Facilities Authority -
Benchmark Healthcare of Green Bay
(Callable 05/01/2007)..................................... 7.750 05/01/2027 2,487,713
2,000,000 Wisconsin Health & Education Facilities Authority -
Community Rehabilitation Providers (Callable 12/01/2008) 6.875 12/01/2023 1,935,000
1,000,000 Wisconsin Health & Education Facilities Authority -
RFDF, Incorporated Project (Callable 07/15/2007).......... 7.375 07/15/2027 982,500
2,000,000 Wisconsin Health & Education Facilities Authority -
The Millennium Housing Foundation
(Callable 07/01/2008)..................................... 6.100 01/01/2028 1,980,000
-----------
9,543,051
-----------
TOTAL MUNICIPAL BONDS (Cost $99,317,407).......................................... $97,873,438
-----------
TOTAL LONG-TERM INVESTMENTS (Cost $99,317,407).................................... $97,873,438
-----------
TOTAL INVESTMENTS (Cost $99,317,407).................104.2% $97,873,438
Liabilities, less cash and receivables............... (4.2) (3,961,497)
------ -----------
TOTAL NET ASSETS.....................................100.0% $93,911,941
====== ===========
(a) Defaulted security.
The accompanying Notes to Financial Statements are an integral part of this Schedule.
</TABLE>
14
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Short
Duration
High-Yield High-Yield
Municipal Municipal
ASSETS: Fund Bond Fund
------------ -------------
<S> <C> <C>
Investments in securities, at cost............................ $164,610,649 $ 99,317,407
============ =============
Investments in securities, at value........................... $163,793,874 $ 97,873,438
Cash.......................................................... 91,145 19,577
Receivable from securities sold............................... 2,471,755 --
Receivable from fund shares sold.............................. -- 266,452
Accrued interest.............................................. 2,997,369 2,211,954
Prepaid expenses.............................................. 14,071 9,793
Receivable from custodian..................................... 302 433
Deferred organization expense................................. 11,822 11,822
Receivable from Advisor for expense reimbursement............. 13,201 24,308
------------ -------------
Total Assets.............................................. 169,393,539 100,417,777
------------ -------------
LIABILITIES:
Payable for securities purchased.............................. 3,925,226 --
Payable for fund shares redeemed.............................. -- 206,813
Short-term notes payable...................................... 3,300,000 5,600,000
Distributions payable......................................... 786,705 592,709
Payable to Advisor for management fee......................... 58,722 53,485
Payable to Advisor for deferred organization expense.......... 11,822 11,822
Variation margin on open futures contracts.................... 92,978 --
Accrued interest payable...................................... 587 996
Accrued expenses.............................................. 48,656 40,011
------------ -------------
Total Liabilities......................................... 8,224,696 6,505,836
------------ -------------
TOTAL NET ASSETS................................................... $161,168,843 $ 93,911,941
============ =============
NET ASSETS CONSIST OF:
Paid in capital............................................... $164,566,540 $ 95,697,588
Accumulated undistributed net investment income............... 34,392 16,823
Accumulated undistributed net realized losses on investments.. (2,781,727) (358,501)
Net unrealized depreciation on investments.................... (650,362) (1,443,969)
------------ -------------
TOTAL NET ASSETS................................................... $161,168,843 $ 93,911,941
============ =============
SHARES OUTSTANDING, $.001 par value
(100,000,000 shares authorized for each fund)................. 16,324,566 9,217,986
============ =============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE..... $ 9.87 $ 10.19
============ =============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
15
<PAGE>
STATEMENTS OF OPERATIONS
For the period from January 1, 1999 to June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Short
Duration
High-Yield High-Yield
Municipal Municipal
INVESTMENT INCOME: Fund Bond Fund
----------- -----------
<S> <C> <C>
Interest.................................................... $ 4,957,171 $ 3,271,535
----------- -----------
Total investment income................................ 4,957,171 3,271,535
----------- -----------
EXPENSES:
Management fees............................................. 311,250 274,939
Distribution fees........................................... 194,531 114,558
Transfer agent fees......................................... 51,791 38,062
Postage..................................................... 10,961 7,284
Legal fees.................................................. 9,778 2,619
Custodian fees.............................................. 9,319 4,333
Printing and communications................................. 8,833 6,044
Directors' fees............................................. 8,725 7,689
Audit fees.................................................. 7,544 6,799
Registration fees........................................... 5,618 12,175
Fund accounting fees........................................ 3,672 2,791
Amortization of deferred organization expenses.............. 2,364 2,364
Other operating expenses.................................... 28,095 23,184
----------- -----------
Total expenses before interest expense, fees paid
indirectly and expense reimbursement................... 652,481 502,841
Interest expense......................................... 21,382 16,095
----------- -----------
Total expenses before fees paid indirectly and
expense reimbursement.................................. 673,863 518,936
Less: Fees paid indirectly............................... (6,407) (2,748)
Less: Expense reimbursement.............................. (89,849) (82,135)
----------- -----------
Net expenses............................................. 577,607 434,053
----------- -----------
NET INVESTMENT INCOME............................................ 4,379,564 2,837,482
----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on:
Securities............................................. (537,040) (290,099)
Futures contracts...................................... 481,645 113,486
Net increase (decrease) in
unrealized appreciation on:
Securities............................................. (1,811,422) (1,750,593)
Futures contracts...................................... 175,557 5,888
----------- -----------
TOTAL REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS........................................ 1,691,260 (1,921,318)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................................................ $ 2,688,304 $ 916,164
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
16
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Short Duration High-Yield High-Yield Municipal
Municipal Fund Bond Fund
----------------------------- -----------------------------
Jan. 1, 1999 Jan. 1, 1999
to to
June 30, 1999 Year Ended June 30, 1999 Year ended
(Unaudited) Dec. 31, 1998 (Unaudited) Dec. 31, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income....................................... $ 4,379,564 $ 7,752,447 $ 2,837,482 $ 3,430,471
Net realized gains (losses) on investments.................. (55,395) (2,755,226) (176,613) 151,394
Net increase in unrealized appreciation (depreciation) on
investments................................................ (1,635,865) 115,052 (1,744,705) (146,572)
------------ ------------- ------------ ------------
Net increase in net assets resulting from operations...... 2,688,304 5,112,273 916,164 3,435,293
------------ ------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................... (4,345,172) (7,752,971) (2,820,659) (3,430,471)
Net realized gains on investments........................... -- -- -- (591,377)
------------ ------------- ------------ ------------
Total distributions to shareholders....................... (4,345,172) (7,752,971) (2,820,659) (4,021,848)
FUND SHARE ACTIVITIES:
Proceeds from shares issued................................. 70,248,107 160,079,181 52,043,224 91,876,973
Reinvested dividends from net investment income and
distributions from net realized gains on investments....... 3,221,730 6,808,295 1,929,404 3,475,849
Cost of shares redeemed..................................... (60,287,531) (135,545,191) (31,610,997) (51,919,536)
------------ ------------- ------------ ------------
Net increase in net assets derived from Fund share
activities............................................... 13,182,306 31,342,285 22,361,631 43,433,286
------------ ------------- ------------ ------------
TOTAL INCREASE IN NET ASSETS.................................. 11,525,438 28,701,587 20,457,136 42,846,731
NET ASSETS AT THE BEGINNING OF THE PERIOD..................... 149,643,405 120,941,818 73,454,805 30,608,074
------------ ------------- ------------ ------------
NET ASSETS AT THE END OF THE PERIOD........................... $161,168,843 $ 149,643,405 $ 93,911,941 $ 73,454,805
============ ============= ============ ============
UNDISTRIBUTED NET INVESTMENT INCOME........................... $ 34,392 $ 369 $ 16,823 $ --
============ ============= ============ ============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
17
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
Short Duration High-Yield
Municipal Fund
------------------------------------------------------------
Jan. 1, 1999 to For the Jan. 2, 1997(1)
June 30, 1999 year ended through
(Unaudited) Dec. 31, 1998 Dec. 31, 1997
--------------- ------------- ---------------
<S> <C> <C> <C>
Per Share Data
Net asset value, beginning of period......................... $ 9.98 $ 10.15 $ 10.00
Income from investment operations:
Net investment income...................................... 0.28 0.53 0.57
Net realized and unrealized gains (losses) on investments.. (0.11) (0.17) 0.15
--------------- ------------- ---------------
Total income from investment operations.................... 0.17 0.36 0.72
--------------- ------------- ---------------
Less distributions from:
Net investment income...................................... (0.28) (0.53) (0.57)
Net realized gains on investments.......................... -- -- --
--------------- ------------- ---------------
Total distributions...................................... (0.28) (0.53) (0.57)
--------------- ------------- ---------------
Net asset value, end of period............................... $ 9.87 $ 9.98 $ 10.15
=============== ============= ===============
Total Return................................................. 1.7%(2) 3.7% 7.4%
Ratios and Supplemental Data
Net assets, end of period (in thousands)................... $ 161,169 $ 149,643 $ 120,942
Ratio of net expenses to average net assets................ 0.74%(3)(4) 0.62%(4) 0.00%(4)
Ratio of net investment income to average net assets....... 5.63%(3)(4) 5.26%(4) 5.33%(4)
Portfolio turnover rate.................................... 41% 215% 175%
</TABLE>
<TABLE>
High-Yield Municipal
Bond Fund
------------------------------------------------------------
Jan. 1, 1999 to For the Jan. 2, 1997(1)
June 30, 1999 year ended through
(Unaudited) Dec. 31, 1998 Dec. 31, 1997
--------------- ------------- ---------------
<S> <C> <C> <C>
Per Share Data
Net asset value, beginning of period......................... $ 10.38 $ 10.45 $ 10.00
Income from investment operations:
Net investment income...................................... 0.32 0.65 0.68
Net realized and unrealized gains (losses) on investments.. (0.19) 0.03 0.48
--------------- ------------- ---------------
Total income from investment operations.................... 0.13 0.68 1.16
--------------- ------------- ---------------
Less distributions from:
Net investment income...................................... (0.32) (0.65) (0.68)
Net realized gains on investments.......................... -- (0.10) (0.03)
--------------- ------------- ---------------
Total distributions...................................... (0.32) (0.75) (0.71)
--------------- ------------- ---------------
Net asset value, end of period............................... $ 10.19 $ 10.38 $ 10.45
=============== ============= ===============
Total Return................................................. 1.2%(2) 6.7% 11.7%
Ratios and Supplemental Data
Net assets, end of period (in thousands)................... $ 93,912 $ 73,455 $ 30,608
Ratio of net expenses to average net assets................ 0.95%(3)(5) 0.76%(5) 0.00%(5)
Ratio of net investment income to average net assets....... 6.18%(3)(5) 6.01%(5) 6.01%(5)
Portfolio turnover rate.................................... 70%(2) 223% 439%
</TABLE>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) If there had been no fees paid indirectly or expense reimbursement and
management fee waiver by the Advisor, the ratios of net expenses to average
net assets for the periods ended June 30, 1999, December 31, 1998 and
December 31, 1997 would have been 0.86%, 0.80% and 0.84%, respectively, and
the ratios of net investment income to average net assets would have been
5.51%, 5.08% and 4.49%, respectively.
(5) If there had been no fees paid indirectly or expense reimbursement and
management fee waiver by the Advisor, the ratios of net expenses to average
net assets for the periods ended June 30, 1999, December 31, 1998 and
December 31, 1997 would have been 1.13%, 1.08% and 1.25%, respectively, and
the ratios of net investment income to average net assets would have been
6.18%, 5.69% and 4.76%, respectively.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Heartland Group, Inc. (the "Corporation") is registered as an 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"), each of which is a diversified fund, are two of the nine
series of funds issued by the Corporation at June 30, 1999.
(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their 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 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, 1999, the Short Duration High-Yield Municipal Fund had a
Federal income tax capital loss carryforward of $27,690 expiring in
2005 and $500,994 expiring in 2006. The Fund does not intend to make
distributions of any future realized capital gains until its Federal
income tax capital loss carryforward is completely utilized.
Statement of Position 93-2 requires that permanent financial reporting
and tax differences be reclassified to paid in capital. Net assets are
not affected by these reclassifications.
Net realized gains or losses may differ for Federal income tax
purposes primarily as a result of post-October losses which may not be
recognized for tax purposes until the first day of the following
fiscal year, wash sales, and the marking-to-market of open futures
contracts.
(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 at least annually.
(d) The Funds record security and shareholder transactions no later than
trade date plus one. 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 are charged for those expenses that are directly
attributable to them. Expenses that are not directly attributable to
any one Fund are typically allocated among all Funds issued by the
Corporation in proportion to their respective net assets, number of
open shareholder accounts, or net sales, as applicable.
(f) 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 short futures contracts at
June 30, 1999:
Short Duration High-Yield Municipal Fund
<TABLE>
<CAPTION>
Number Expiration Unrealized Notional
Type of Contracts Date Appreciation Value
---- ------------- ----- ------------ -----
<S> <C> <C> <C> <C>
Municipal Bond Index (135) September 1999 $166,413 ($16,875,000)
</TABLE>
(g) The Funds entered into a fee arrangement with their custodian bank
which provided for a reduction in custody fees based upon net amounts
of uninvested cash balances. The reduction of custody expenses, if
any, is shown on the Statement of Operations as "Fees paid
indirectly."
(h) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(3) Credit Facility
Deutsche Bank AG made available to eight of the nine series of funds issued
by the Corporation, including the Short Duration High-Yield Municipal and
High-Yield Municipal Bond Funds, a $100 million credit facility
19
<PAGE>
pursuant to a Credit Agreement ("Agreement"), most recently amended
December 29, 1998. The purpose of the Agreement is to provide liquidity for
meeting portfolio redemptions on a short-term basis. Outstanding principal
amounts under the credit facility bear interest at a rate per annum equal
to the New York Interbank Offering Rate plus 0.4% or the prime rate.
Commitment fees are computed at a rate per annum equal to 0.08% of the
Funds' proportional daily average unutilized credit. During the period from
January 1, 1999 through June 30, 1999, the Short Duration High-Yield
Municipal Fund had an outstanding average balance of $694,475 at an average
interest rate of 5.36%, and a maximum outstanding balance of $5,800,000;
and the High-Yield Municipal Bond Fund had an outstanding average balance
of $372,928 at an average interest rate of 5.39%, and a maximum outstanding
balance of $5,600,000. Interest expenses accrued and commitment fees paid
for the semi-annual period ended June 30, 1999 were $21,382 and $1,048,
respectively, for the Short Duration High-Yield Municipal Fund, and $16,095
and $649, respectively, for the High-Yield Municipal Bond Fund.
(4) 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 0.40% 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 0.60% 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 0.25% of their daily net assets.
Effective May 1, 1999, the Funds entered into an agreement with the Advisor
to perform certain bookkeeping and accounting services. Under the terms of
the agreement, each Fund pays the Advisor a monthly fee at an annual rate
of $12,500 plus 0.0085% of average daily net assets over $50 million.
The Advisor 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. Effective January 1, 1998, the Advisor
reduced the amount of this waiver and reimbursement each month by 0.15% on
an annualized basis, but voluntarily reimbursed the Funds to the extent
that annual total fund operating expenses exceeded 0.75% for the Short
Duration High-Yield Municipal Fund and 0.95% for the High-Yield Municipal
Bond Fund. Effective May 1, 1999, the Advisor contractually committed to
waive fees paid, through April 30, 2000, to the extent that annual fund
operating expenses exceed 0.75% for the Short Duration High-Yield Municipal
Fund and 0.95% for the High-Yield Municipal Bond Fund. After that date the
Advisor may reinstate all or a portion of the Funds' fees or discontinue
waivers and reimbursements at any time. If a Fund's operating expenses fall
below the expense limitation, the Fund will begin paying the Advisor for
fees previously waived and expenses previously reimbursed. This repayment
will continue for up to three years after the end of the fiscal year in
which a fee is waived or an expense is paid, subject to any expense
limitation then in effect, until the Fund has repaid the Advisor for the
entire amount or such three-year period expires.
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.
(5) 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, 1999, were $11,822 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.
(6) Investment Transactions
For the period from January 1, 1999 through June 30, 1999, purchases and
sales of securities, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
--------------- -------------
<S> <C> <C>
Cost of purchases $82,289,852 $ 87,647,727
Proceeds from sales 66,021,218 64,080,730
At June 30, 1999, the gross unrealized appreciation and depreciation on securities for tax purposes were as follows:
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- ------------
Appreciation $ 470,866 $ 653,895
Depreciation (1,287,641) (2,097,864)
-------------- ------------
Net Unrealized Depreciation $ (816,775) $ (1,443,969)
============== ============
</TABLE>
Cost of investments is substantially the same for financial reporting
purposes and federal income tax purposes.
20
<PAGE>
(7) Fund Share Transactions
For the period from January 1, 1999 through June 30, 1999, Fund share
transactions were as follows:
<TABLE>
<CAPTION>
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- -----------
<S> <C> <C>
Shares issued 7,044,878 5,015,660
Reinvested dividends from net
investment income 322,562 185,684
Shares redeemed (6,042,368) (3,059,547)
----------- ----------
Net increase in Fund shares 1,325,072 2,141,797
=========== ==========
For the year ended December 31, 1998, Fund share transactions were as follows:
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- -----------
Shares issued 15,872,132 8,791,614
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 676,603 333,153
Shares redeemed (13,467,910) (4,978,359)
----------- ----------
Net increase in Fund shares 3,080,825 4,146,408
=========== ==========
</TABLE>
(8) Shareholder Meeting Voting Results
A Special Meeting of the shareholders of the Funds was held at 758 North
Broadway, Milwaukee, Wisconsin, on April 28, 1999. The shareholders cast
the following votes on the proposals presented, as applicable:
<TABLE>
<CAPTION>
Proposal 1 - To amend the policy on borrowing.
Yes No Abstain
------------- ----------- -----------
<S> <C> <C> <C>
Short Duration High-Yield Municipal Fund 6,877,780.241 331,411.893 779,358.210
High-Yield Municipal Bond Fund 4,267,898.350 220,273.835 92,314.562
Proposal 2 - To amend the policy on investing in illiquid and restricted securities.
Yes No Abstain
------------- ----------- -----------
Short Duration High-Yield Municipal Fund 6,490,591.281 721,252.853 776,706.210
High-Yield Municipal Bond Fund 4,271,084.020 275,123.089 88,279.638
Proposal 3 - To eliminate the policy against investing for control or management.
Yes No Abstain
------------- ----------- -----------
Short Duration High-Yield Municipal Fund 6,687,568.995 392,912.953 908,068.396
High-Yield Municipal Bond Fund 4,301,388.785 193,413.324 85,684.638
Proposal 7 - To amend the policy on investing in securities involving real estate.
Yes No Abstain
------------- ----------- -----------
Short Duration High-Yield Municipal Fund 6,723,480.439 488,689.579 776,380.326
High-Yield Municipal Bond Fund 4,273,490.383 219,576.839 87,419.525
Proposal 11 - To eliminate the policy on investing in securities involving oil and gas interests.
Yes No Abstain
------------- ----------- -----------
Short Duration High-Yield Municipal Fund 6,470,589.858 793,042.160 724,918.326
High-Yield Municipal Bond Fund 4,262,913.045 238,033.064 79,540.638
Proposal 14 - To simplify, standardize or re-define the language of the policy on concentration.
Yes No Abstain
------------- ----------- -----------
Short Duration High-Yield Municipal Fund 6,934,647.789 241,900.097 812,002.458
High-Yield Municipal Bond Fund 4,320,864.551 171,289.558 88,332.638
Proposal 15 - To simplify, standardize or re-define the language of the policy prohibiting loans.
Yes No Abstain
------------- ----------- -----------
Short Duration High-Yield Municipal Fund 6,957,426.873 274,615.668 756,507.803
High-Yield Municipal Bond Fund 4,250,068.544 235,414.863 95,003.340
Proposal 16 - To simplify, standardize or re-define the language of the policy prohibiting underwriting.
Yes No Abstain
------------- ----------- -----------
Short Duration High-Yield Municipal Fund 6,898,192.799 248,248.920 842,108.625
High-Yield Municipal Bond Fund 4,295,269.614 188,523.802 96,693.331
Proposal 17 - To simplify, standardize or re-define the language of the policy prohibiting issuance of senior securities.
Yes No Abstain
------------- ----------- -----------
Short Duration High-Yield Municipal Fund 6,605,740.223 568,122.883 814,687.238
High-Yield Municipal Bond Fund 4,254,366.883 234,844.557 91,275.307
Proposal 18 - To simplify, standardize or re-define the language of the policy prohibiting investments in commodities.
Yes No Abstain
------------- ----------- -----------
Short Duration High-Yield Municipal Fund 6,677,589.411 557,414.695 753,546.238
High-Yield Municipal Bond Fund 4,219,408.207 272,402.902 88,675.638
</TABLE>
21
<PAGE>
The Heartland Family of Funds
Large Cap Value Fund
Mid Cap Value Fund
Value Plus Fund
Value Fund
Government Fund
Taxable Short Duration
Municipal Fund
Short Duration High-Yield
Municipal Fund
High-Yield Municipal Bond Fund
Wisconsin Tax Free Fund
Firstar Money Market Fund
[LOGO] Heartland Funds
----------------------
AMERICA'S VALUE INVESTOR/R/
1.800.HEARTLN (1.800.432.7856)
www.heartlandfunds.com
Financial Advisor Services:1.800.442.6391
790 N. Milwaukee Street, Milwaukee, WI 53202
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.
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. Income from the Wisconsin Tax Free Fund may be subject to
alternative minimum tax and income from the Short Duration High-Yield Municipal
and the High-Yield Municipal Bond Funds may be subject to state, local and
alternative minimum tax.
This material may only be used when preceded or accompanied by a prospectus for
the Funds listed on the front cover. If you would like more complete information
on any other Fund, including charges and expenses, please call for a prospectus.
Read it carefully before you invest.
Heartland Advisors, Inc., distributor. Member SIPC.
Printed on Recycled Paper
<PAGE>
[LOGO OF HEARTLAND FUNDS AMERICA'S VALUE INVESTOR APPEARS HERE]
=====================================
Value Report
June 30, 1999
Notes on value investing
for investors in the Heartland
Taxable Short Duration
Municipal Fund
=====================================
Semi-Annual Report
to Shareholders
Heartland Taxable
Short Duration
Municipal Fund
<PAGE>
Value Report
The Glass is Half Full
It is said that a pessimist always views the glass as half empty and an
optimist as half full. We are realists. But, we view what has been a soft
municipal bond market as "glass half full" opportunity. Yes, municipal bond
prices are lower, as is to be expected with interest rates trending higher in
second quarter 1999. However, yields are now appreciably higher and the "real
rate of return" on munis (the spread between inflation and bond yields) is even
more attractive.
High-yield municipal bonds outperformed Treasuries and investment grade munis
during this reporting period. Why? Because, yield generally represents a higher
percentage then total return from high-yield municipal bonds. In essence, the
higher yield more adequately compensates for price declines. So, when interest
rates rise, high-yield bonds often sustain less damage on a total return basis.
For example, despite a retreating bond market, our Fund closed the quarter with
a positive total return, whereas Treasuries and investment grade munis had
negative total returns. This is not to say that high-yield bonds are less risky
than Treasuries and investment grade munis. In fact, the reverse is true. But,
the greater risk in high-yield bonds is credit risk (the potential for default)
rather than interest rate risk (sharper price declines as interest rates rise).
That is why we favor essential service issues, work so hard to evaluate credit
risk, and maintain very diversified portfolios.
As we write, the big bond market debate centers on how the Federal Reserve will
respond to inflation concerns engendered by the still robust economy. Will the
Fed tighten and by how much? How will the bond market react? Will long bonds
decline further as short term interest rates rise or will they rally because the
Fed is living up to its mandate as an inflation fighter? We don't concern
ourselves with these issues. The interest rate forecasting game is a slippery
slope. We focus on individual securities selection and believe that if we are
good "bond pickers", the Funds will be good performers relative to their peers
in any given interest rate environment.
Sincerely,
/s/ Thomas J. Conlin /s/ Greg D. Winston
Tom Conlin, CFA Greg Winston, CFA
Portfolio Co-Manager Portfolio Co-Manager
<PAGE>
VALUE REPORT
INVESTMENT PERFORMANCE
Heartland Taxable Short Duration Municipal Fund
Total returns
June as of June 30, 1999*
SEC yield/1/ YTD Since Inception (12/29/98)
9.9% 3.1% 4.2%
/*/Not annualized.
/1/Yields are for the 30 days ended 6/30/99. Total returns include reinvestment
of all dividends and capital gains distributions. Performance data reflects
fee waivers in effect during the period. Without subsidization of fees and
expenses, total returns would have been lower, and the SEC yield would have
been 8.2%.
This Fund invests primarily in medium- and lower-quality securities which have
higher yield potential but present greater investment and credit risk than
higher-quality securities. These risks may result in greater share price
volatility.
1
<PAGE>
VALUE REPORT
Heartland Taxable Short Duration Municipal Fund
[PHOTO OF THOMAS J. CONLIN, CFA APPEARS HERE]
Portfolio Co-Manager
[PHOTO OF GREG D. WINSTON, CFA APPEARS HERE]
Portfolio Manager
The Sunshine State
Florida is the Sunshine State and home to many retirees. It is also a growth
market for the nursing home industry. WeCare Nursing Center is an established
210 bed nursing facility in Wildwood, just east of Leesburg (population around
15,000), mid-way between Ocala and Orlando in the beautiful lake country of
north central Florida. WeCare is a full service, skilled nursing home providing
medical care, meals, laundry services, and a full schedule of social and
recreational programs--the only such facility in the northern portion of Sumter
County.
New owner/manager, The Alliance Foundation for Housing and Health Care, Inc., is
a not-for-profit corporation supported by Brandywine Healthcare Services, a
leading consultant to nursing home operators. The 30-bed expansion of the
facility, completed in 1997, and current renovations should help WeCare attract
more private pay residents. And its change in ownership may allow increases in
Medicaid reimbursements. Both of these factors could have a positive impact on
revenues and improve on an already excellent operating track record.
"Florida is the Sunshine State and home to many retirees. It is also a growth
market for the nursing home industry."
The Fund owned $500,000 of the Sumter County Industrial Development Authority
Taxable Healthcare Facility Revenue Bonds (WeCare Nursing Center Project) with a
coupon of 10% maturing 4/1/2004. At June 30, 1999, these bonds were valued at
$486,875 and represented 4.5% of the Fund's net assets. The bonds are dependent
on net revenues from the facility and are further secured by a debt service
reserve fund, and mortgage lien. Given WeCare's proven track record and strong
market position, we believe this to be a solid credit that will bring some
sunshine into our portfolio.
2
<PAGE>
VALUE REPORT
Heartland Taxable Short Duration Municipal Fund
This Fund seeks a high level of current income with a low degree of share price
fluctuation. It invests primarily in medium and lower quality municipal
obligations and maintains an average portfolio duration of three years or less.
TOTAL RETURNS
YTD Since inception
(12/29/98)
Heartland Taxable Short Duration
Municipal Fund 3.1% 4.2%
Includes reinvestment of all dividends and capital gains distributions and
reflects fee waivers in effect during the period.
<TABLE>
<CAPTION>
FUND FACTS
<S> <C> <C> <C>
Sales commission................. None Net assets..................... $10.8 mil.
Share price...................... $ 9.98 Number of holdings............. 43
Weighted average duration........ 2.7 yrs. Inception...................... 12/29/98
</TABLE>
<TABLE>
<CAPTION>
% OF
TOP 5 HOLDINGS COUPON MATURITY CALL NET ASSETS
<S> <C> <C> <C> <C>
Lakeland, FL Retirement Community 11.0% 1/1/05 -- 16.6%
Sholodge, Inc. (Convertible) 7.50% 5/1/04 -- 5.5
Venator Group, Inc. 7.0% 6/1/00 -- 4.9
New Jersey Economic Dev. Authority 9.25% 4/1/03 -- 4.9
RHA Assisted Living of Buckhead, Inc. 10.875% 7/1/09 -- 4.8
</TABLE>
PORTFOLIO COMPOSITION
Retirement 28.2%
Nursing 17.9%
Mental health 9.2%
IDR 8.1%
Other 36.6%
Multifamily 7.2%
Travel & recreation 5.5
Retail apparel 4.9
Paper & forest products 4.5
Resource recovery 3.5
Solid waste 2.8
University 2.1
Airport 0.7
Escrow to maturity-Gov't 0.7
Water & sewer 0.5
Other revenue 0.2
Cash & equiv. 4.0
All statistics are as of June 30, 1999.
3
<PAGE>
HEARTLAND TAXABLE SHORT DURATION MUNICIPAL FUND
SCHEDULE OF INVESTMENTS . JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 89.5% COUPON MATURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS - 69.5%
<S> <C> <C> <C> <C>
ALABAMA - 3.1%
$ 50,000 Chattahoochee Valley, Alabama -
Water Supply District (Callable 10/01/2004)............. 9.000% 10/01/2015 $ 54,625
300,000 Russellville, Alabama Industrial Development Board -
Spiral Industry, Inc.................................... 10.000 02/01/2006 282,375
-----------
337,000
FLORIDA - 21.7%
1,805,000 Lakeland, Florida Retirement Community -
Carpenter's Home Estates................................ 11.000 01/01/2005 1,786,950
60,000 Mexico Beach, Florida Public Service Facilities -
Heritage House of Seminole (Callable 12/01/2003)........ 9.400 12/01/2006 57,900
500,000 Sumter County, Florida Industrial Development Authority -
WECARE Nursing Center................................... 10.000 04/01/2004 486,875
-----------
2,331,725
KANSAS - 3.1%
360,000 Wyandotte, Kansas Unified Government Multifamily -
Brookstone Apartments (Callable 05/01/08) (b)........... 8.000 11/01/2009 336,600
MARYLAND - 2.1%
225,000 Maryland Economic Development Corporation -
Collegiate Housing Foundation - Salisbury Project....... 8.750 06/01/2001 225,563
MASSACHUSETTS - 4.0%
60,000 Massachusetts Development Finance Agency -
MCHSP Human Service Providers........................... 9.750 07/01/2000 59,938
360,000 Massachusetts Industrial Finance Agency -
SEMASS Project (Callable 07/01/2001).................... 11.250 07/01/2003 374,400
----------
434,338
MINNESOTA - 2.5%
280,000 Minneapolis, Minnesota Revenue -
Benchmark Healthcare of Minneapolis..................... 9.000 12/01/2006 272,650
NEW JERSEY - 6.0%
535,000 New Jersey Economic Development Authority -
Sayreville Senior Living Centre......................... 9.250 04/01/2003 521,625
120,000 New Jersey Economic Development Authority -
Kapkowski Road Landfill Reclamation..................... 9.500 04/01/2004 118,200
----------
639,825
NEW YORK - 13.1%
45,000 Lakeside Village, New York Housing Corporation -
Multifamily Housing Revenue............................. 8.500 08/01/2001 45,112
60,000 Monroe County, New York Industrial Development Agency -
Depaul Community Facility, Inc.......................... 8.500 08/01/2002 58,275
245,000 Monroe County, New York Industrial Development Agency -
Depaul Community Facility, Inc.......................... 9.000 02/01/2003 242,550
180,000 Monroe County, New York Industrial Development Agency -
Depaul Properties....................................... 9.750 09/01/2003 181,125
25,000 Monroe County, New York Industrial Development Agency -
Empire Sports Centre.................................... 9.500 03/01/2005 26,500
245,000 New York City Industrial Development Agency -
A Very Special Place, Inc............................... 9.250 01/01/2004 240,100
210,000 Riverhead, New York Multifamily Housing Corporation -
Doctors Path Apartments................................. 8.500 08/01/2002 206,850
200,000 Suffolk County, New York Industrial Development Agency -
Spellman High Voltage Electronics Corporation 9.000 12/01/2002 199,500
210,000 Westchester County, New York Industrial Development
Agency - The Children's Village......................... 9.000 03/15/2001 210,263
----------
1,410,275
</TABLE>
4
<PAGE>
HEARTLAND TAXABLE SHORT DURATION MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 89.5% [cont'd] COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAXABLE MUNICIPAL BONDS - 69.5% [cont'd]
NORTH CAROLINA - 1.5%
$ 175,000 Fletcher, North Carolina First Mortgage Housing Revenue -
Avery's View Retirement Facilities (a)........................ 9.500% 03/01/2008 $ 161,656
PENNSYLVANIA - 2.5%
270,000 Cumberland County, Pennsylvania Industrial Development
Authority - The Woods at Cedar Run (b)........................ 8.500 11/01/2002 265,612
TENNESSEE - 0.4%
40,000 Sumner County, Tennessee Industrial Development Board -
Sumner Medical Plaza (Callable 10/01/2005).................... 7.125 10/01/2010 39,050
TEXAS - 4.4%
60,000 Galveston, Texas Wharves & Terminal Revenue -
(Callable 08/01/2003)......................................... 6.020 02/01/2010 56,100
25,000 Tarrant County, Texas Health Facilities Development
Corporation - Westchester Retirement Communities
(Callable 08/01/2002)......................................... 8.750 08/01/2003 24,281
195,000 Tarrant County, Texas Health Facilities Development
Corporation - St. Joseph Long-Term Care Facility.............. 10.000 05/01/2004 191,587
25,000 Tarrant County, Texas Health Facilities Development
Corporation - Westchester Retirement Communities
(Callable 08/01/2002)......................................... 9.000 08/01/2004 24,313
120,000 Tarrant County, Texas Health Facilities Development
Corporation - Heritage Valley Gardens
(Callable 03/01/2004)......................................... 10.250 03/01/2012 117,000
60,000 Tarrant County, Texas Health Facilities Development
Corporation - Heritage Eastwood Gardens
(Callable 12/01/2003)......................................... 10.000 12/01/2013 58,425
----------
471,706
UTAH - 0.9%
95,000 Davis County, Utah Housing Authority -
Country Crossing.............................................. 10.000 02/01/2005 92,031
VIRGINIA - 2.1%
50,000 Brunswick County, Virginia Industrial Development
Authority - Extraction Technologies of Virginia
(Callable 07/01/1999)......................................... 10.000 07/01/2005 48,313
180,000 Greensville County, Virginia Industrial Development
Authority - Wheeling-Pittsburgh Steel Corporation............. 9.500 04/01/2001 179,550
----------
227,863
WASHINGTON - 0.1%
15,000 Port Skagit County, Washington Revenue......................... 7.450 12/01/2004 14,963
WISCONSIN - 2.0%
225,000 Wisconsin Health & Education Facilities Authority -
Benchmark Healthcare of Wisconsin............................. 8.250 12/01/2003 219,656
----------
TOTAL TAXABLE MUNICIPAL BONDS (Cost $7,552,033).......................................... $7,480,513
==========
</TABLE>
5
<PAGE>
HEARTLAND TAXABLE SHORT DURATION MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [cont'd] . JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 89.5% [cont'd] COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 11.7%
<S> <C> <C> <C> <C> <C>
$ 255,000 Carillon, Inc..................................... 9.250% 07/01/2002 $ 255,000
520,000 RHA Assisted Living of Buckhead, Inc.............. 10.875 07/01/2009 520,000
480,000 Stone Container Corporation (Callable 07/21/1999). 10.750 04/01/2002 480,000
-----------
TOTAL CORPORATE BONDS (Cost $1,255,982)........... $ 1,255,000
-----------
CONVERTIBLE BOND - 5.5%
1,012,000 Sholodge, Inc..................................... 7.500 05/01/2004 $ 586,960
-----------
TOTAL CONVERTIBLE BOND (Cost $620,113)............ $ 586,960
-----------
TAX-EXEMPT MUNICIPAL BOND - 2.8%
SOUTH CAROLINA - 2.8%
290,000 South Carolina Jobs - Economic Development Authority -
Santee River Rubber Project 9.000 12/01/2011 $ 297,250
-----------
TOTAL TAX-EXEMPT MUNICIPAL BOND (Cost $286,121)......................... $ 297,250
-----------
TOTAL LONG-TERM INVESTMENTS (Cost $9,714,249)........................... $ 9,619,723
-----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PAR
AMOUNT SHORT-TERM INVESTMENTS - 6.5% COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------
CORPORATE BOND - 4.9%
<S> <C> <C> <C> <C> <C>
$ 540,000 Venator Group, Inc................................ 7.000% 06/01/2000 $ 531,225
-----------
TOTAL CORPORATE BOND (Cost $525,785).................................... $ 531,225
-----------
TAXABLE MUNICIPAL BONDS - 1.7%
ILLINOIS - 0.7%
75,000 Illinois Development Finance Authority -
Community Rehabilitation Providers................ 8.500 03/01/2000 76,129
MASSACHUSETTS - 0.9%
95,000 Springfield/Garand Court Development Corporation -
Garand Court Apartments........................... 7.000 02/01/2000 94,567
TOTAL TAXABLE MUNICIPAL BONDS (Cost $170,000)........................... $ 170,696
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $695,785)............................ $ 701,921
-----------
TOTAL INVESTMENTS (Cost $10,410,034)..... 96.0% $10,321,644
Cash and receivables, less liabilities... 4.0 432,583
----- -----------
TOTAL NET ASSETS......................... 100.0% $10,754,227
===== ===========
</TABLE>
(a) Coupon payment periodically increases over the life of the security.
Rate stated is in effect on June 30, 1999.
(b) All or a portion of security committed to cover margin requirements
for futures contracts.
The accompanying Notes to Financial Statements are an integral part of
this Schedule.
6
<PAGE>
HEARTLAND TAXABLE SHORT DURATION MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES . June 30, 1999 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at cost....................................... $10,410,034
===========
Investments in securities, at value...................................... $10,321,644
Cash..................................................................... 16,577
Receivable from fund shares sold......................................... 404,900
Accrued interest......................................................... 284,897
Prepaid expenses......................................................... 16,755
Receivable from Advisor for expense reimbursement........................ 13,090
===========
Total Assets............................................................ 11,057,863
-----------
LIABILITIES:
Short-term notes payable................................................. 200,000
Distributions payable.................................................... 78,167
Variation margin on open futures contracts............................... 1,438
Accrued interest payable................................................. 36
Accrued expenses......................................................... 20,094
Payable to Advisor for management fee.................................... 3,901
-----------
Total Liabilities....................................................... 303,636
-----------
TOTAL NET ASSETS.............................................................. $10,754,227
===========
NET ASSETS CONSIST OF:
Paid in capital.......................................................... $10,831,818
Accumulated undistributed net investment income.......................... 586
Accumulated undistributed net realized gains on investments.............. 7,335
Net unrealized depreciation on investments............................... (85,512)
-----------
TOTAL NET ASSETS.............................................................. $10,754,227
===========
SHARES OUTSTANDING, $.001 par value (100,000,000 shares authorized) 1,077,166
-----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE $ 9.98
===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
Statement.
7
<PAGE>
HEARTLAND TAXABLE SHORT DURATION MUNICIPAL FUND
STATEMENT OF OPERATIONS
For the period from January 1, 1999 to June 30, 1999 (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest........................................................ $ 249,273
---------
Total investment income..................................... 249,273
---------
EXPENSES:
Management fees................................................. 11,395
Audit fees...................................................... 9,779
Directors' fees................................................. 9,442
Registration fees............................................... 6,465
Distribution fees............................................... 6,331
Fund accounting fees............................................ 6,311
Legal fees...................................................... 5,257
Transfer agent fees............................................. 5,159
Administrative fees............................................. 3,798
Custodian fees.................................................. 3,515
Printing and communications..................................... 1,032
Postage......................................................... 484
Other operating expenses........................................ 15,888
---------
Total expenses before expense reimbursement.................. 84,856
Less: Expense reimbursement.................................. (60,604)
Net expenses................................................. 24,252
---------
NET INVESTMENT INCOME 225,021
---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains on:
Securities............................................... 608
Futures contracts........................................ 6,727
Net increase in unrealized appreciation (depreciation) on:
Securities............................................... (101,919)
Futures contracts........................................ 3,110
---------
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS........ (91,474)
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $133,547
---------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
Statement.
8
<PAGE>
HEARTLAND TAXABLE SHORT DURATION MUNICIPAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Jan. 1, 1999 to Dec. 29, 1998/(1)/
June 30, 1999 through
(Unaudited) Dec. 31, 1998
--------------- ------------------
<S> <C> <C>
OPERATIONS:
Net investment income.......................................................... $ 225,021 $ 422
Net realized gains on investments.............................................. 7,335 0
Net increase in unrealized appreciation (depreciation) on investments.......... (98,809) 13,297
------------ ------------
Net increase in net assets resulting from operations........................ 133,547 13,719
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................................................... (224,435) (422)
------------ ------------
Total distributions to shareholders......................................... (224,435) (422)
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued.................................................... 11,116,104 1,219,509
Reinvested dividends from net investment income................................ 134,964 396
Cost of shares redeemed........................................................ (1,633,174) (5,981)
------------ ------------
Net increase in net assets derived from Fund share activities............... 9,617,894 1,213,924
------------ ------------
TOTAL INCREASE IN NET ASSETS.......................................................... 9,527,006 1,227,221
NET ASSETS AT THE BEGINNING OF THE PERIOD............................................. 1,227,221 --
------------ ------------
NET ASSETS AT THE END OF THE PERIOD................................................... $ 10,754,227 $ 1,227,221
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME................................................... $ 586 $ --
============ ============
</TABLE>
(1) Commencement of operations.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
9
<PAGE>
HEARTLAND TAXABLE SHORT DURATION MUNICIPAL FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
six months
ended Dec. 29, 1998/(1)/
June 30, 1999 through
Per Share Data (Unaudited) Dec. 31, 1998
------------- ------------------
<S> <C> <C>
Net asset value, beginning of period.................................... $ 10.11 $ 10.00
Income from investment operations:
Net investment income................................................ 0.44 0.00
Net realized and unrealized gains on investments..................... (0.13) 0.11
---------- ----------
Total income from investment operations........................... 0.31 0.11
---------- ----------
Less distributions from:
Net investment income................................................ (0.44) 0.00
Net realized gains on investments.................................... -- --
---------- ----------
Total distributions.............................................. (0.44) 0.00
---------- ----------
Net asset value, end of period....................................... $ 9.98 $ 10.11
========== ==========
Total Return/(2)/....................................................... 3.1% 1.1%
Ratios and Supplemental Data
Net assets, end of period (in thousands).............................. $ 10,754 $ 1,227
Ratio of net expenses to average net assets/(3)//(4)/................. 0.95% 0.48%
Ratio of net investment income to average net assets/(3)//(4)/........ 8.80% 6.36%
Portfolio turnover rate............................................... 8% 0%
</TABLE>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) If there had been no expense reimbursement by the Advisor, the ratios of
annualized net expenses to average net assets for the periods ended June 30,
1999 and December 31, 1998 would have been 3.32% and 4.80%, respectively,
and the ratios of annualized net investment income to average net assets
would have been 6.43% and 2.04%, respectively.
The accompanying Notes to Financial Statements are an integral part of this
Statement.
10
<PAGE>
HEARTLAND TAXABLE SHORT DURATION MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Heartland Group, Inc. (the "Corporation") is registered as an open-end
management company under the Investment Company Act of 1940. The Fund,
which is a diversified fund, is one of the nine series of funds issued by
the Corporation at June 30, 1999.
(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Fund 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 for which
quotations are not readily available are valued at their fair value
using methods determined by the Board of Directors.
(b) The Fund intends 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.
Net realized gains or losses may differ for Federal income tax
purposes primarily as a result of post-October losses which may not be
recognized for tax purposes until the first day of the following
fiscal year, wash sales, and the marking-to-market of open futures
contracts.
Statement of Position 93-2 requires that permanent financial reporting
and tax differences be reclassified to paid in capital. Net assets are
not affected by these reclassifications.
(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
trade date plus one. 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 discount
on investments utilizing the effective interest method.
(e) The Fund is charged for those expenses that are directly attributable
to it. Expenses that are not directly attributable to any one Fund are
typically allocated among all Funds issued by the Corporation in
proportion to their respective net assets, number of open shareholder
accounts, or net sales, as applicable.
(f) 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
on a daily basis an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as
"variation margin," and are recorded by the Fund as unrealized gains
or losses. When the futures contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed.
The use of futures contracts involves, to varying degrees, elements of
market risk in excess of the amount recognized in the Statement of
Assets and Liabilities. The predominant risk is that the movement of
the futures contract's price may result in a loss which could render a
portfolio's hedging strategy unsuccessful. The Fund had the following
open short futures contracts at June 30, 1999:
<TABLE>
<CAPTION>
Number Expiration Unrealized Notional
Type of Contracts Date Appreciation Value
- ---- ------------ ---- ------------ -----
<S> <C> <C> <C> <C>
Municipal Bond Index (2) September 1999 $2,878 ($250,000)
</TABLE>
11
<PAGE>
(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 those estimates.
(3) Credit Facility
Deutsche Bank AG has made available to eight of the nine series of funds
issued by the Corporation, including the Taxable Short Duration Municipal
Fund, a $100 million credit facility pursuant to a Credit Agreement
("Agreement"), most recently amended December 29, 1998. The purpose of the
Agreement is to provide liquidity for meeting portfolio redemptions on a
short-term basis. Outstanding principal amounts under the credit facility
bear interest at a rate per annum equal to the New York Interbank Offering
Rate plus 0.4% or the prime rate. Commitment fees are computed at a rate
per annum equal to .08% of the Funds' proportional daily average unutilized
credit. During the period from January 1, 1999 through June 30, 1999, the
Fund had an outstanding average balance of $1,105, at an average interest
rate of 6.4%, and a maximum outstanding balance of $200,000. Interest
expenses accrued and commitment fees paid for the semi-annual period ended
June 30, 1999 were $36 and $29, respectively.
(4) 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, a total annual fee of 0.60 of 1% of average daily net assets
has two parts - a management fee in the amount of 0.45 of 1% of average
daily net assets and an administrative fee in the amount of 0.15 of 1% of
average daily net assets.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-
1 under the Investment Company Act of 1940. The Distributor is Heartland
Advisors, Inc. (the "Distributor"). The Plan requires the Fund to pay to
the Distributor a quarterly distribution fee on an annual basis up to 0.25%
of its daily net assets.
The Fund has an agreement with the Advisor to perform certain bookkeeping
and accounting services for the Fund. Under the terms of the agreement, the
Fund pays the Advisor a monthly fee at an annual rate of $12,500 plus
0.0085% of average daily net assets over $50 million.
The Advisor has contractually committed through April 30, 2000, to
reimburse the Fund to the extent that annual total fund operating expenses
would exceed 0.95%. After that date the Advisor may reinstate all or a
portion of the Fund's fees or discontinue waivers and reimbursements at any
time. If the Fund's operating expenses fall below the expense limitation,
the Fund will begin paying the Advisor for fees previously waived and
expenses previously reimbursed. This repayment will continue for up to
three years after the end of the fiscal year in which a fee is waived or an
expense is paid, subject to any expense limitation then in effect, until
the Fund has repaid the Advisor for the entire amount or such three-year
period expires.
Officers and certain directors of the Corporation are also officers and/or
directors of Heartland Advisors, Inc.; 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 the Distributor is a member.
12
<PAGE>
(5) Investment Transactions
During the period from January 1, 1999 through June 30, 1999, the cost of
purchases and proceeds from sales of securities, other than short-term
obligations, were $9,714,681 and $390,000, respectively.
At June 30, 1999 the gross unrealized appreciation and depreciation on
securities for tax purposes were as follows:
Appreciation $ 26,850
Depreciation (115,240)
---------
$ (88,390)
=========
Cost of investments is substantially the same for financial reporting
purposes and federal income tax purposes.
(6) Fund Share Activities
For the period from January 1, 1999 through June 30, 1999, Fund share
transactions were as follows:
<TABLE>
<S> <C>
Shares issued 1,104,951
Reinvested dividends from net
investment income 13,412
Shares redeemed (162,589)
---------
Net increase in Fund shares 955,774
=========
</TABLE>
For the period from December 29, 1998 through December 31, 1998, Fund share
transactions were as follows:
<TABLE>
<S> <C>
Shares issued 121,945
Reinvested dividends from net
investment income 39
Shares redeemed (592)
---------
Net increase in Fund shares 121,392
=========
</TABLE>
13
<PAGE>
The Heartland Family of Funds
Large Cap Value Fund
Mid Cap Value Fund
Value Plus Fund
Value Fund
Government Fund
Taxable Short Duration
Municipal Fund
Short Duration High-Yield
Municipal Fund
High-Yield Municipal Bond Fund
Wisconsin Tax Free Fund
Firstar Money Market Fund
[LOGO OF HEARTLAND FUNDS AMERICA'S VALUE INVESTOR APPEARS HERE]
1.800.HEARTLN (1.800.432.7856)
www.heartlandfunds.com
Financial Advisor Services:1.800.442.6391
790 N. Milwaukee Street, Milwaukee, WI 53202
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.
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.
This material may only be used when preceded or accompanied by a prospectus for
the Funds listed on the front cover. If you would like more complete information
on any other Fund, including charges and expenses, please call for a prospectus.
Read it carefully before you invest.
Heartland Advisors, Inc., distributor. Member SIPC.
