<PAGE>
Heartland Government Fund
--------------------------------------------------------------------------------
Semi-Annual Report
To Shareholders
June 30, 2000
<PAGE>
HEARTLAND GOVERNMENT FUND
SCHEDULE OF INVESTMENTS - June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Par Percent of
Amount Security Description Coupon Maturity Value Net Assets
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS - 69.1%
-----------------------------
AGENCY SECURITIES - 11.6%
$ 3,000,000 Federal National Mortgage Association
(Callable 02/19/2002) 6.190% 02/19/09 $ 2,772,660 11.6%
------------ -----
$ 2,772,660 11.6%
COLLATERALIZED MORTGAGE OBLIGATIONS - 57.5%
5,000,000 FHLMC CMO-SEQ 1978 BC 6.500 05/15/25 $ 4,558,800 19.0%
1,600,000 FHR GOLD CMO 2134 6.500 09/15/19 1,422,192 5.9
3,000,000 FNMA CMO-PAC 1993 - 38L 5.000 08/25/22 2,510,070 10.5
3,000,000 GNMA GNR 1999 -16 D 6.500 05/16/13 2,766,030 11.5
2,858,000 GNMA GNR 1999 -15 G 6.500 05/16/29 2,537,418 10.6
------------ -----
$ 13,794,510 57.5%
------------ -----
TOTAL LONG-TERM INVESTMENTS (Cost $17,497,635) $ 16,567,170 69.1%
------------ -----
SHORT-TERM INVESTMENTS - 23.4%
------------------------------
VARIABLE RATE DEMAND NOTES - 23.4% (a)
1,194,000 American Family Financial Services 6.31% $ 1,194,000 5.0%
1,194,000 Firstar Bank 6.34% 1,194,000 5.0
1,193,000 General Mills Corporation 6.28% 1,193,000 5.0
1,194,000 Sara Lee Corporation 6.27% 1,194,000 5.0
815,000 Wisconsin Electric Power Company 6.31% 815,000 3.4
------------ -----
TOTAL SHORT-TERM INVESTMENTS (Cost $5,590,000) $ 5,590,000 23.4%
------------ -----
TOTAL INVESTMENTS - (Cost $23,087,635)....................................... $ 22,157,170 92.5%
Cash and receivables, less liabilities....................................... 1,810,721 7.5
------------ -----
TOTAL NET ASSETS............................................................. $ 23,967,891 100.0%
============ =====
</TABLE>
(a) 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, 2000.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
<PAGE>
HEARTLAND GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at cost.............................................. $ 23,087,635
==================
Investments in securities, at value............................................. $ 22,157,170
Cash............................................................................ 2,282,303
Receivable from securities sold................................................. 38,841
Receivable from fund shares sold................................................ 126
Accrued dividends and interest.................................................. 177,219
Prepaid expenses................................................................ 1,052
------------------
Total Assets............................................................ $ 24,656,711
------------------
LIABILITIES:
Payable for fund shares redeemed................................................ $ 544,976
Distributions payable........................................................... 106,958
Accrued expenses................................................................ 36,886
------------------
Total Liabilities....................................................... $ 688,820
------------------
TOTAL NET ASSETS...................................................................... $ 23,967,891
==================
NET ASSETS CONSIST OF:
Paid in capital................................................................. $ 33,590,662
Accumulated undistributed net realized losses on investments.................... (8,692,306)
Net unrealized depreciation on investments...................................... (930,465)
------------------
TOTAL NET ASSETS...................................................................... $ 23,967,891
==================
SHARES OUTSTANDING, $.001 par value (100,000,000 authorized).......................... 2,703,042
==================
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE........................ $ 8.87
==================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
Statement.
<PAGE>
HEARTLAND GOVERNMENT FUND
STATEMENT OF OPERATIONS
For the period from January 1, 2000 through June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.............................................................. $ 1,342,877
---------------
Total investment income......................................... $ 1,342,877
---------------
EXPENSES:
Management fees....................................................... $ 119,348
Distribution fees..................................................... 45,903
Transfer agent fees................................................... 29,985
Fund accounting fees.................................................. 6,234
Custodian fees........................................................ 4,186
Printing and communications........................................... 5,096
Postage............................................................... 6,687
Legal fees............................................................ 837
Registration fees..................................................... 3,489
Directors' fees....................................................... 6,379
Audit fees............................................................ 6,188
Other operating expenses.............................................. 17,804
--------------
Total expenses................................................ $ 252,136
Less: Management fee waiver................................... (69,758)
--------------
Net expenses.................................................. $ 182,378
--------------
NET INVESTMENT INCOME................................................. $ 1,160,499
--------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized losses on:
Long positions................................................ $ (1,137,040)
Futures contracts............................................. (12,709)
Net increase in unrealized appreciation on:
Long positions................................................ 110,585
Futures contracts............................................. -
--------------
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS........... $ (1,039,164)
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 121,335
==============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
Statement.
<PAGE>
HEARTLAND GOVERNMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Semi-Annual
Period Ended Year
June 30, 2000 Ended
(Unaudited) December 31, 1999
------------------ ---------------------
<S> <C> <C>
OPERATIONS:
Net investment income......................................................... $ 1,160,499 $ 3,002,681
Net realized losses on investments............................................ (1,149,749) (2,127,473)
Net increase (decrease) in unrealized appreciation on investments............. 110,585 (2,894,481)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations............ $ 121,335 $ (2,019,273)
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income......................................................... $ (1,160,499) $ (3,001,225)
Net realized gains on investments............................................. - -
--------------- ---------------
Net distributions to shareholders.......................................... $ (1,160,499) $ (3,001,225)
--------------- ---------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued................................................... $ 1,194,195 $ 12,100,794
Reinvested dividends from net investment income and distributions
from net realized gains on investments..................................... 795,965 2,377,908
Cost of shares redeemed....................................................... (19,743,096) (21,583,715)
--------------- ---------------
Net decrease in net assets derived from Fund share activities.............. $ (17,752,936) $ (7,105,013)
--------------- ---------------
TOTAL DECREASE IN NET ASSETS..................................................... $ (18,792,100) $ (12,125,511)
NET ASSETS AT THE BEGINNING OF THE PERIOD........................................ 42,759,991 54,885,502
--------------- ---------------
NET ASSETS AT THE END OF THE PERIOD.............................................. $ 23,967,891 $ 42,759,991
=============== ===============
UNDISTRIBUTED NET INVESTMENT INCOME.............................................. $ - $ -
=============== ===============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
<PAGE>
HEARTLAND GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
January 1, 2000 -
June 30, 2000 For the year ended December 31,
------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
----------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period................... $ 9.11 $ 10.06 $ 9.85 $ 9.54 $ 9.96 $ 8.91
Income from investment operations:
Net investment income................................ 0.24 0.57 0.57 0.58 0.59 0.60
Net realized and unrealized gains on investments..... (0.24) (0.95) 0.21 0.31 (0.42) 1.05
------------ -------- -------- -------- -------- --------
Total income from investment operations............. - (0.38) 0.78 0.89 0.17 1.65
Less distribution from:
Net investment income................................ (0.24) (0.57) (0.57) (0.58) (0.59) (0.60)
------------ -------- -------- -------- -------- --------
Total distributions................................. (0.24) (0.57) (0.57) (0.58) (0.59) (0.60)
------------ -------- -------- -------- -------- --------
Net asset value, end of period......................... $ 8.87 $ 9.11 $ 10.06 $ 9.85 $ 9.54 $ 9.96
============ ======== ======== ======== ======== ========
Total Return........................................... 0.45% (2) -3.90% 8.15% 9.69% 2.00% 19.00%
Ratios and Supplemental Data
Net assets, end of period (in thousands)............. $ 23,968 $ 42,760 $ 54,886 $ 48,562 $ 51,713 $ 66,261
Ratio of net expenses to average net assets (3)...... 1.00% (1) 0.80% 0.76% 0.87% 1.06% 1.07%
Ratio of net investment income to average net
assets (3).......................................... 6.33% (1) 5.93% 5.73% 6.12% 6.36% 6.31%
Portfolio turnover rate.............................. 31% (1) 185% 90% 143% 30% 97%
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) 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 periods
ended June 30, 2000, December 31, 1999, December 31, 1998, December 31,
1997, December 31, 1996 and December 31, 1995, would have been 1.38%, 1.25%,
1.16%, 1.20%, 1.21%, and 1.22%, respectively, and the ratios of net
investment income to average net assets would have been 5.95%, 5.48%, 5.33%,
5.79%, 6.21%, and 6.16%, respectively.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
<PAGE>
HEARTLAND GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
--------------------------------------------------------------------------------
(1) Organization
Heartland Group, Inc. (the "Corporation") is registered as an open-end
management company under the Investment Company Act of 1940. The Government
Fund (the "Fund"), a diversified fund, is one of the eight series of funds
issued by the Corporation at June 30, 2000.
(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 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 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 their taxable income to their
shareholders. The Fund paid no Federal income taxes, and no Federal
income tax provision is required.
At December 31, 1999 the Fund had Federal income tax capital loss
carryforwards of $4,115,982 expiring in 2002, $858,458 expiring in
2003, $358,754 expiring in 2005, and $1,288,202 expiring in 2007. The
Fund does not intend to make distributions 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 might 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. The Fund declares dividends daily and distributes monthly.
Dividends are recorded on the ex-dividend date. Net realized gains on
investments, if any, are distributed at least annually.
<PAGE>
HEARTLAND GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 [Cont'd]
(Unaudited)
--------------------------------------------------------------------------------
(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. Dividend income is recognized
on the ex-dividend date, and 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.
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 a
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 at June 30, 2000.
(g) The Fund 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. During the semi-annual
period ended June 30, 2000, the Fund did not enter into any put or
call transactions.
(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) Investment Management Fees and Transactions with Related Parties
The Fund has a management agreement with Heartland Advisors, Inc. (the
"Advisor") to serve as investment advisor and manager. Under the terms of
the agreement, the Fund pays the Advisor a monthly management fee at the
annual rate of .65% of the first $100 million of the Fund's average daily
net assets, .50% of the next $400 million of net assets, and .40% on net
assets in excess of $500 million.
<PAGE>
HEARTLAND GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 [Cont'd]
(Unaudited)
--------------------------------------------------------------------------------
The Advisor collected a partial management fee at an annual rate of 0.25%
of the Fund's average daily net assets through March 31, 1999. During the
period from April 1, 1999 through April 30, 2000, the Advisor contractually
committed to waive fees paid, to the extent that annual fund operating
expenses exceeded 0.80%.
The Fund 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 .25%
of their daily net assets.
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.
Each Director who is not affiliated with the Fund receives a fee for
service as a Director and is eligible to participate in a deferred
compensation plan with respect to these fees. Participants in the plan may
designate their deferred Director's fees to be invested in the Heartland
Funds. The value of each Director's deferred compensation account will
increase or decrease as fees are invested in the selected Funds. The Fund
maintains it's proportionate share of the liability for deferred fees. As
of June 30, 2000, $11,563 of deferred Directors' fees were invested in 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 Funds, under certain conditions described in the Rule, to acquire newly
issued securities from syndicates in which the Distributor is a member.
(4) Investment Transactions
During the period from January 1, 2000 through June 30, 2000, the cost of
purchases and proceeds from sales of securities, other than short-term
obligations, made by the Fund, were $5,112,275 and $28,314,695,
respectively. All of these transactions were purchases and sales of U.S.
government obligations.
At June 30, 2000, the gross unrealized appreciation and depreciation on
securities for tax purposes were $44,706 and ($975,171), respectively,
netting to ($930,465).
The cost of securities as of June 30, 2000, was the same for financial
reporting and federal income tax purposes.
(5) Fund Share Transactions
<TABLE>
<CAPTION>
For the Six Months For the Year
Ended Ended
June 30, 2000 December 31, 1999
---------------------- ---------------------
<S> <C> <C>
Shares issued 132,355 1,240,691
Reinvested dividends from net
investment income distributions 88,642 249,068
Shares redeemed (2,213,770) (2,251,446)
----------- -----------
Net decrease in Fund shares (1,992,773) (761,687)
=========== ===========
</TABLE>
<PAGE>
END OF NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Shareholder Meeting Voting Results (Unaudited)
A Special Meeting of the Fund's shareholders was held at 789 N. Water Street,
Milwaukee, Wisconsin on August 8, 2000. The shareholders cast the following
vote on the Heartland Government Fund Plan of Liquidation.
Yes No Abstain
--- -- -------
Heartland Government Fund 1,782,707 39,388 39,952
