NOTES TO FINANCIAL STATEMENTS
December 31, 1998
(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 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 December 31, 1998.
(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 December 31, 1998, 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 U.S. Government Securities
Fund utilized $825,005 of its capital loss carryforwards in 1998 and at December 31, 1998 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 at December 31, 1998. At December 31, 1998 the Large
Cap Value Fund and the Value Plus Fund deferred, on a tax basis, post- October losses of $101,922 and
$2,572,176, respectively. Such amounts may be used to offset future capital gains.
(c) Net investment income, if any, is distributed to each shareholder as a dividend. Dividends from the Value,
Mid Cap Value and Large Cap Value Funds are declared and paid at least annually. Dividends from the Value
Plus Fund are declared and paid quarterly. Dividends from the U.S. Government Securities Fund are declared
daily and distributed monthly. Dividends are recorded on the ex-dividend date. Net realized gains on investments,
if any, are distributed at least annually. During 1998, the Value Fund utilized earnings and profits distributed to
shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes.
Accordingly, at December 31, 1998 reclassifications were recorded to decrease undistributed net investment
income by $1,305,713, decrease undistributed net realized gains on investments by $26,469,354 and increase
paid in capital by $27,775,067.
(d) The Funds record security and shareholder transactions on trade date. 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
20
in proportion to the 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 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 December 31, 1998.

(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
December 31, 1998, the Value Plus Fund held restricted securities equaling 8.4% of net assets.
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 Fund
Number of Expiration Unrealized Notional
Type Contracts Date Depreciation Value
---- ---------- ---------- ------------ ------------
Japanese Yen (325) March 1999 $(997,415) $(36,091,25

U.S. Government Securities Fund
Number of Expiration Unrealized Notional
Type Contracts Date Appreciation Value
---- --------- ----------- ------------ ------------
Treasury Bond Index (15) March 1999 $ 3,084 $ (1,916,71
Value Plus Fund
Shares/ Acquisitio
Security Par Value Cost Fair Value Date
-------- ---------- ------------- ------------ ----------
CORE Cap, Inc. Com. Stock 222,222 $4,444,440 $2,844,442 10/97
CORE Cap, Inc. Pfd. Stock 222,222 5,555,550 5,048,884 10/97
Source Capital Corporation
Conv. Bond
7.5% 03/01/2008 $1,400,000 1,400,000 884,832 2/98
(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.
For the year ended December 31, 1998, the Value Plus and Value Funds had the following transactions in
written covered call options:

(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 made available to seven of the nine series of funds issued by the Corporation, including the
Large Cap Value, Mid Cap Value, Value Plus and Value Funds, a $70 million credit facility pursuant to a Credit
Agreement ("Agreement") dated March 31, 1998. Effective November 6, 1998, the Agreement was amended to
increase the credit facility to $100,000,000. 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 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 March 31, 1998 through December 31, 1998, the Value Plus Fund had
an outstanding average daily balance of $1,576,364, at an average interest rate of 5.98%, a maximum
outstanding balance of $24,600,000 and interest expense amounting to $74,290. Commitment fees for 1998 for
the Large Cap Value, Mid Cap Value, Value Plus, and Value Funds amounted to $189, $891, $4,173 and
$31,571, respectively.
(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 .75% of the daily net asset value of the Funds;
the Value Plus Fund pays the Advisor a monthly management fee at the annual rate of .70% of the daily net asset
value of the Fund; and the U.S. Government Securities Fund pays the Advisor a monthly management fee at the
annual rate of .65% of the first $100 million of the Fund's average daily net assets, .50% of the next $400 million
of net assets, and .40% on net assets in excess of $500 million.
The Advisor has voluntarily committed to waive the entire management and distribution fees and to reimburse all
other expenses for the Large Cap Value Fund and to reimburse the Mid Cap Value Fund to the extent that
annual total fund operating expenses would exceed 1.25%. The Advisor collected a partial management fee for
the U.S. Government Securities Fund at an annual rate of .25% of the Fund's average daily net assets. The
Value Plus Fund
Number of Premium
Contracts Amount
--------------- ----------
Balance at January 1, 1998 -- --
Options opened (ICN Pharmaceuticals, Inc. 3/98) 300 $ 23,194
Options expired (ICN Pharmaceuticals, Inc. 3/98) (300) (23,194)
Options closed -- --
--------------- -----------
Balance at December 31, 1998 -- $ --
=============== ===========

Value Fund
Number of Premium
Contracts Amount
--------------- -----------
Balance at January 1, 1998 -- --
Options opened (Grand Casinos, Inc.8/98 & 11/98) 6,082 $516,382
Options expired (6,082) (516,382)
Options closed -- --
--------------- -----------
Balance at December 31, 1998 -- $ --
=============== ===========
Advisor may reinstate all or a portion of the Funds' fees or discontinue reimbursements at any time.
The Funds have adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The Distributor is Heartland Advisors, Inc. (the "Distributor"). The Plan requires the Funds to pay
to the Distributor a quarterly distribution fee on an annual basis up to .25% of their daily net assets. Additionally,
for the year ended December 31, 1998, the Distributor received for the Value Plus and Value Funds $25,357
and $99,091, respectively, for brokerage fees on the execution of purchases and sales of portfolio investments.
30
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 December 31, 1998, for
the Large Cap Value and Mid Cap Value Funds were $9,036 and $9,036, 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 year ended December 31, 1998, purchases and sales of securities, other than short-term obligations,
were as follows (in thousands):

Included in these transactions were purchases and sales of U.S. obligations as follows (in thousands):

At December 31, 1998, the gross unrealized appreciation and depreciation on investments for tax purposes was
as follows (in thousands):

At December 31, 1998, the cost of securities for federal income tax purposes was as follows (in thousands):
Large Cap Mid Cap Value U.S. Gov't.
Value Value Plus Value Securities
Fund Fund Fund Fund Fund
--------- --------- ---------- ----------- ----------
Cost of purchases $ 3,651 $ 20,937 $ 173,708 $ 632,338 $ 58,967

Proceeds from
sales 4,003 17,478 273,049 865,441 47,459
Large Cap Mid Cap Value U.S. Gov't.
Value Value Plus Value Securities
Fund Fund Fund Fund Fund
--------- --------- ---------- ----------- ----------
Cost of purchases $ -- $ -- $ -- $ 10,455 $ 58,967

Proceeds from
sales $ -- $ -- $ -- 102,023 47,459
Large Cap Mid Cap Value U.S. Gov't.
Value Value Plus Value Securities
Fund Fund Fund Fund Fund
--------- --------- ---------- ----------- ----------
Appreciation $ 1,098 $ 4,909 $ 11,499 $ 370,196 $ 1,913
Depreciation (742) (5,640) (21,921) (232,535) (144)
--------- --------- ---------- ----------- ----------
$ 356 $ (731) $ (10,422) $ 137,661 $ 1,770
========= ========= ========== =========== ==========
Large Cap Mid Cap Value U.S. Gov't.

(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.
31
Value Value Plus Value Securities
Fund Fund Fund Fund Fund
--------- --------- ---------- ----------- ----------
Tax cost $ 7,768 $ 36,822 $ 184,498 $ 1,445,598 $ 59,359
(8) Fund Share Activities
For the year ended December 31, 1998, Fund share transactions were as follows:


For the year ended December 31, 1997, Fund share transactions were as follows:


(9) Transactions with Affiliates
The following companies are affiliated with the Value Plus and Value Funds; that is, the Funds held 5% or more
Large Cap Mid Cap Value
Value Value Plus
Fund Fund Fund
--------- ----------- ------------
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)
========= =========== ============
U.S. Gov't.
Value Securities
Fund Fund
------------ -----------
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
============ ===========
Large Cap Mid Cap Value
Value Value Plus
Fund Fund Fund
--------- ----------- ------------
Shares issued 520,287 2,574,129 23,437,762
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 28,315 67,511 1,736,643
Shares redeemed (157,719) (430,675) (9,180,571)
--------- ----------- ------------
Net increase in Fund shares 390,883 2,210,965 15,993,834
========= =========== ============
U.S. Gov't.
Value Securities
Fund Fund
------------ -----------
Shares issued 14,506,622 1,555,341
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 7,402,442 214,422
Shares redeemed (10,516,915) (2,258,183)
------------ -----------
Net increase (decrease) in Fund shares 11,392,149 (488,420)
============ ===========
of the outstanding voting securities during the year ended December 31, 1998. Affiliated companies are defined
in Section (2)(a)(3) of the Investment Company Act of 1940.
32

(1) Adjusted for 5 for 4 stock split.
(2) Adjusted for conversion of 11,700 shares of Riviera Tool & Die Company 8.0% Conv. Pfd. stock into
194,999 shares of Riviera Tool & Die Company common stock.
(3) Adjusted for 5% stock dividend.
33
Value Plus Fund
Share Share
Balance at Balance at
Security Name Jan. 1, 1998 Purchases Sales Dec. 31, 1998 Divid
---------------------------------------------------------------------------------------------------------
Akita Drilling Ltd. (Class A) 500,000 350,000 850,000 0 $ 54,
Decorator Industries, Inc. 250,000 102,500/(1)/ 40,000 312,500 83,
Riviera Tool Company 8.0% Conv. Pfd. 11,700 0 11,700/(2)/ 0
Riviera Tool Company Common 0 197,318/(2)(3)/ 155,699 41,619 10,
Siam Food Products Public Company Ltd. 0 1,419,400 0 1,419,400 86,
Oil-Dri Corporation of America 212,600 257,400 0 470,000 123,
Salient 3 Communications, Inc. 225,000 75,000 300,000 0 24,
Insteel Industries, Inc. 383,600 79,200 32,000 430,800 101,
------
$ 484,
======
Value Fund

Share Share
Balance at Balance at
Security Name Jan. 1, 1998 Purchases Sales Dec. 31,1998
---------------------------------------------------------------------------------------------------------
3-D Geophysical, Inc. 815,000 0 815,000 0 $
ACT Manufacturing,Inc. 600,000 100,000 700,000 0
ACT Networks,Inc. 900,000 100,000 176,900 823,100
Advocat, Inc. 0 530,500 0 530,500
Akita Drilling Ltd. (Class A) 0 748,600 0 748,600
Aldila, Inc. 0 962,300 0 962,300
Align-Rite International, Inc. 300,000 0 0 300,000
Allied Healthcare Products, Inc. 775,000 775,000 775,000 775,000
The Alpine Group, Inc. 1,000,000 8,100 0 1,008,100
American Buildings Company 500,000 0 0 500,000
Amtech Corporation 1,025,000 75,000 1,100,000 0
Amtran, Inc. 600,000 0 370,000 230,000
Amwest Insurance Group, Inc. 220,000/(1)/ 0 0 220,000
Applied Films Corporation 190,000 60,000 250,000 0
Aseco Corporation 99,500 250,500 350,000 0
Asia Pacific Wire & Cable Corporation Ltd. 727,600 700,000 727,600 700,000
Aster Industries, Inc. 965,000 0 965,000 0
Badger Meter, Inc. 200,000 0 0 200,000 1
Baldwin Piano & Organ Company 325,000 6,500 0 331,500
Barrett Business Services, Inc. 500,000 125,000 0 625,000
Bitstream, Inc. 0 492,200 0 492,200
Blue Wave Systems, Inc./(2)/ 440,400 0 0 440,400
Bonded Motors, Inc. 200,000 0 200,000 0
BTG, Inc. 0 850,000 50,000 800,000
Buckhead American Corporation 175,000 9,600 0 184,600
Business Resource Group 500,000 0 14,000 486,000
Cameron Ashley Building Products, Inc. 595,000 0 95,000 500,000
Campbell Resources, Inc. 10,000,000 2,000,000 0 12,000,000
Caretenders Health Corporation 308,900 0 0 308,900
Catalina Lighting, Inc. 500,000 210,000 0 710,000
Catherine Stores Corporation 0 500,000 0 500,000
Cavell Energy Corporation 1,573,200 387,300 1,960,500 0
Ceanic Corporation/(3)/ 300,000 0 300,000 0
Central Sprinkler Corporation 300,000 25,000 325,000 0
CHC Helicopter Corporation (Class A) 550,000 0 14,000 536,000 1,2
The Cherry Corporation (Class A) 850,100 316,000 209,100 957,000
Chic By H.I.S., Inc. 0 995,500 10,500 985,000
Children's Broadcasting Corporation 590,000 90,000 0 680,000
Ciprico, Inc. 42,500 447,500 0 490,000
Clayton Williams Energy, Inc. 595,000 0 0 595,000
Cohesion Technologies, Inc. 0 878,500/(4)/ 0 878,500
Collaborative Clinical Research, Inc. 600,000 0 0 600,000
Collagen Aesthetics, Inc./(5)/ 878,500 0 0 878,500
Comdial Corporation 650,000 260,000 410,000 500,000
Commonwealth Industries, Inc. 615,000 793,200 445,000 963,200 1
Compass Plastics & Technologies, Inc. 87,900 212,100 300,000 0
Consep, Inc. 900,000 50,000 950,000/(6)/ 0
Cross-Continent Auto Retailers, Inc. 500,000 400,000 40,900 859,100
Crown Central Petroleum Corporation (Class B) 225,000 575,000 0 800,000
Value Fund [CONT'D]

Share Share
Balance at Balance at
Security Name Jan. 1, 1998 Purchases Sales Dec. 31, 1998
---------------------------------------------------------------------------------------------------------
CSP, Inc. 338,800/(7)/ 0 7,500 331,300 $
Cyrk International, Inc. 1,000,000 433,600 433,600 1,000,000
Dakotah, Inc. 300,000 0 300,000 0
Damark International, Inc. (Class A) 800,000 0 800,000 0
Datron Systems, Inc. 250,000 0 0 250,000
Davel Communications, Inc. 0 360,184/(8)/ 0 360,184
Dayton Mining Corporation 2,200,000 1,300,000 3,500,000 0
Designs, Inc. 1,100,000 1,100,000 2,200,000 0
Donnelly Corporation 0 351,800 0 351,800
Duckwall-ALCO Stores, Inc. 360,000 10,000 0 370,000
Durakon Industries, Inc. 500,000 0 0 500,000
Dynamic Materials Corporation 0 250,000 0 250,000
D&N Financial Corporation 440,000 0 0 440,000
Eaton Vance Corporation 894,900/(9)/ 0 644,900 250,000
ECC International Corporation 757,600 700,000 757,600 700,000
EDAP TMS S.A. (ADR) 0 790,000 0 790,000
Edusoft Ltd. 0 373,400 0 373,400
Effective Management Systems, Inc. 375,000 0 0 375,000
Eltek Ltd. 261,200 139,000 400,200 0
Engle Homes, Inc. 551,500 99,800 101,500 549,800
ENStar, Inc. 206,833 0 206,833 0
Environmental Technologies Corporation 330,800 145,200 0 476,000
Eskimo Pie Corporation 271,500 73,500 345,000 0
Esterline Technologies Corporation 600,000/(10)/ 0 0 600,000
Evergreen Resources, Inc. 500,000 0 117,500 382,500
Executone Information Systems, Inc. 0 3,403,400 0 3,403,400
EZCorp, Inc. (Class A) 700,000 0 0 700,000
Fibermark, Inc. 395,000 0 3,400 391,600
Filene's Basement Corporation 1,200,000 800,000 0 2,000,000
Financial Industries Corporation 300,000 0 0 300,000
Forest Oil Corporation 1,500,000 0 0 1,500,000
Gish Biomedical, Inc. 275,000 0 275,000 0
Global Motorsport Group, Inc. 0 290,000 290,000 0
Grist Mill Company 400,000 0 400,000 0
GZA GeoEnvironmental Technologies, Inc. 372,700 0 0 372,700
Hallmark Financial Services, Inc. 0 1,060,000 0 1,060,000
Hallwood Consolidated Resources Corporation 300,000 0 0 300,000
Hallwood Group, Inc. 58,900 23,600 23,000 59,500
Hanover Foods Corporation (Class A) 50,500 0 0 50,500
Harding Lawson Associates Group, Inc. 0 327,500 0 327,500
Harmony Brook, Inc. 720,000 0 720,000 0
Health Power, Inc. 300,000 50,000 0 350,000
HealthRite, Inc. 403,000 97,000 0 500,000
High Plains Corporation 0 1,500,000 0 1,500,000
HMN Financial, Inc. 333,500/(11)/ 0 83,000 250,500
Home Federal Bancorp 290,250 0 0 290,250
Home Products International, Inc. 317,500 0 34,400 283,100
Home Security International, Inc. 0 500,000 0 500,000
Hospital Staffing Services, Inc. 625,658 0 625,658 0
Value Fund [CONT'D]

Share Share
Balance at Balance at
Security Name Jan. 1, 1998 Purchases Sales Dec. 31,1998
---------------------------------------------------------------------------------------------------------
Howell Corporation 300,000 240,000 0 540,000 $
IBAH, Inc. 750,000 1,000,000 1,750,000 0
ICN Pharmaceuticals, Inc. 3,775,000/(12)/ 722,100 1,696,100 2,801,000
IEC Electronics Corporation 650,000 78,800 0 728,800
ImmuLogic Pharmaceutical Corporation 2,000,000 0 0 2,000,000
In Home Health, Inc. 0 533,333/(13)/ 0 533,333
Intercontinental Life Corporation 207,000 18,800 0 225,800
Interdigital Communications Corporation 4,800,000 96,100 396,100 4,500,000
International Aircraft Investors 250,000 180,000 0 430,000
International Airline Support Group, Inc. 220,000 30,000 0 250,000
Interpore International 600,000 0 0 600,000
Iwerks Entertainment, Inc. 1,100,000 1,100,000 1,100,000 1,100,000
Jaco Electronics, Inc. 380,000 0 0 380,000
John B. Sanfilippo & Son, Inc. 292,500 62,500 0 355,000
Kaye Group, Inc. 353,600 10,000 0 363,600
Kentek Information Systems, Inc. 0 700,000 700,000 0
Kentucky Electric Steel, Inc. 450,000 0 0 450,000
LaCrosse Footwear, Inc. 317,500 130,300 0 447,800
LAI Worldwide,Inc. 0 610,000 0 610,000
LCS Industries, Inc. 350,000 5,000 112,600 242,400
Lindal Cedar Homes, Inc. 155,000 250,400 0 405,400
The Lion Brewery, Inc. 375,000 0 0 375,000
Lithia Motors, Inc. 68,200 231,800 0 300,000
Magal Security Systems Ltd. 600,000 69,800 19,800 650,000
Marisa Christina, Inc. 400,000 188,900 588,900 0
Marten Transport Ltd. 333,300/(14)/ 0 0 333,300
Martin Industries, Inc. 650,000 0 200,000 450,000
Material Sciences Corporation 110,700 694,300 0 805,000
Matrix Service Company 0 600,000 0 600,000
Matrix Pharmaceutical, Inc. 0 2,100,000 0 2,100,000
Maxicare Health Plans, Inc. 1,700,000 1,000,000 1,700,000 1,000,000
Meadowbrook Rehabilitation
Group, Inc. (Class A) 279,999/(15)/ 0 279,999 0
Medical Graphics Corporation 365,550/(16)/ 177,900 0 543,450
Mercury Air Group, Inc. 633,700 66,300 303,000 397,000
MFRI, Inc. 300,000 100,000 0 400,000
Midwest Express Holdings, Inc. 500,000 105,000 505,000 100,000
Minntech Corporation 513,100 86,900 0 600,000
Moore Medical Corporation 0 200,000 0 200,000
Morgan Products Ltd. 750,000 100,000 0 850,000
Motor Club of America 0 146,000 0 146,000
MYR Group, Inc. 500,000 1,600 0 501,600
M/A/R/C, Inc. 300,000 0 0 300,000
M-Wave, Inc. 0 300,000 0 300,000
NABI, Inc. 1,600,000 1,600,000 0 3,200,000
Networks North, Inc. 0 200,000 0 200,000
New Brunswick Scientific Company, Inc. 279,636/(17)/ 0 2,500 277,136
Norstan, Inc. 552,000 0 52,000 500,000
Northwest Equity Corporation 80,000 0 0 80,000
Norwood Promotional Products, Inc. 400,000 0 400,000 0
Nu Horizons Electronics Corporation 600,000 100,000 0 700,000
Value Fund [CONT'D]

Share Share
Balance at Balance at
Security Name Jan. 1, 1998 Purchases Sales Dec. 31, 1998
---------------------------------------------------------------------------------------------------------
Nu-Kote Holding, Inc. (Class A) 1,100,000 100,000 1,200,000 0 $
O.I. Corporation 0 333,100 0 333,100
Ontro, Inc. 0 333,900 0 333,900
Osmonics, Inc. 734,600 611,500 70,500 1,275,600
Outlook Group Corporation 457,500 10,000 0 467,500
Patrick Industries, Inc. 312,000 0 0 312,000
PDK Labs, Inc. 0 380,000 0 380,000
Peoples Telephone Company, Inc. 1,600,000 32,700 1,632,700/(18)/ 0
Petsec Energy Ltd. (ADR) 1,175,000 1,533,300 600,000 2,108,300
PIA Merchandising Services, Inc. 500,000 45,000 0 545,000
Powell Industries, Inc. 600,000 0 0 600,000
Premium Wear, Inc. 0 200,000 0 200,000
Professionals Group, Inc./(19)/ 242,000/(20)/ 0 0 242,000
Prosource, Inc. 300,000 0 300,000 0
Providence & Worcester Railroad Company 0 200,000 0 200,000
Quad Systems Corporation 400,000 0 400,000 0
Quixote Corporation 585,500 0 585,500 0
Ramsay Health Care, Inc. 603,333 96,667 0 700,000
Raytel Medical Corporation 0 880,000 0 880,000
Rehabilicare, Inc. 312,100 0 0 312,100
Remington Oil & Gas Corporation 1,560,000 240,000 300,000 1,500,000
Reptron Electronics, Inc. 165,000 235,000 400,000 0
Republic Automotive Parts, Inc. 195,000 0 195,000 0
Right Management Consultants, Inc. 500,000 0 0 500,000
RightCHOICE Managed Care, Inc. (Class A) 1,002,500 0 42,000 960,500
Riveria Tool Company 0 320,250/(21)/ 0 320,250
The Rottlund Company, Inc. 500,000 50,000 0 550,000
Roy F. Weston, Inc. (Class A) 725,000 265,000 0 990,000
Ryan's Family Steak Houses, Inc. 0 640,000 140,000 500,000
Salient 3 Communications, Inc. 0 300,000 0 300,000
Saucony, Inc. (Class B)/(22)/ 610,000 0 0 610,000
Scan-Optics, Inc. 0 550,000 0 550,000
Schnitzer Steel Industries, Inc. (Class A) 210,000 90,000 300,000 0
Schult Homes Corporation 360,000 0 360,000 0
The Seibels Bruce Group, Inc. 300,000 200,000 0 500,000
Sholodge, Inc. 200,000 350,000 0 550,000
Six Rivers National Bank 0 93,300 0 93,300
Smartflex Systems, Inc. 227,500 325,700 3,200 550,000
Southern Energy Homes, Inc. 700,000 250,000 0 950,000
Speizman Industries, Inc. 0 296,000 0 296,000
Starcraft Corporation 400,000 400,000 400,000 400,000
Strattec Security Corporation 500,000 0 3,000 497,000
Strouds, Inc. 485,000 215,000 0 700,000
Sunrise International Leasing Corporation 630,000 0 0 630,000
Suprema Specialties, Inc. 170,400 170,200 0 340,600
Technology Research Corporation 500,000 0 0 500,000
Tech-Sym Corporation 300,000 53,000 0 353,000
Teltrend, Inc. 500,000 0 0 500,000
Tesoro Petroleum Corporation 1,400,000 0 149,900 1,250,100
Thorn Apple Valley, Inc. 436,000 0 436,000 0
Timber Lodge Steakhouse, Inc. 300,000 0 300,000/(23)/ 0
Value Fund [CONT'D]

(1) Adjusted for 10% stock dividend.
(2) Name changed from Mizar, Inc.
(3) Name changed from American Oilfield Divers, Inc.
(4) Adjusted for reorganization (1 share received for every 1 share of Collagen Corporation held).
(5) Name changed from Collagen Corporation.
(6) Adjusted for acquisition (1 share distributed for every .95 shares of Verdant Brands, Inc. received).
(7) Adjusted for 2 10% stock dividends.
(8) Adjusted for acquisition (.235 shares received for every 1 share of Peoples Telephone Company held).
(9) Adjusted for 2 for 1 stock split.
(10) Adjusted for 2 for 1 stock split.
(11) Adjusted for 3 for 2 stock split.
(12) Adjusted for 3 for 2 stock split.
(13) Adjusted for 1 for 3 reverse stock split.
(14) Adjusted for 10% stock dividend.
(15) Adjusted for 3 for 2 stock split.
(16) Adjusted for 3 for 2 stock split.
(17) Adjusted for 10% stock dividend.
(18) Adjusted for acquisition (1 share distributed for every .235 shares of Davel Communications, Inc. received).

(19) Name changed from Professionals Insurance Company Management Group.
(20) Adjusted for 10% stock dividend.
(21) Adjusted for 5% stock dividend.
(22) Name changed from Hyde Athletic Industries, Inc.
(23) Adjusted for acquisition (1 share distributed for every .9543 shares of GB Foods Corporation received).
(24) Adjusted for 10% stock dividend.
(25) Adjusted for acquisition (.95 shares received for every 1 share of Consep, Inc. held).
38
Share Share
Balance at Balance at
Security Name Jan. 1, 1998 Purchases Sales Dec. 31, 1998 Dividend
---------------------------------------------------------------------------------------------------------
Tipperary Corporation 574,400 725,600 0 1,300,000 $
Todhunter International, Inc. 490,000 0 0 490,000
Total-Tel USA Communications,
Inc. 250,000 0 250,000 0
Trak Auto Corporation 366,500 124,000 0 490,500
TransCoastal Marine Services,
Inc. 0 850,000 0 850,000
Trimark Holdings, Inc. 400,000 0 0 400,000
United Security Bancorporation 187,465(24) 0 0 187,465
URS Corporation 741,700 58,300 0 800,000
U.S.Global Investors, Inc.
(Class A) 502,000 86,300 0 588,300
VECTRA Technologies, Inc. 723,500 0 723,500 0
Verdant Brands, Inc. 0 1,311,000(25) 0 1,311,000
Vicorp Restaurants, Inc. 500,000 0 60,000 440,000
World of Science, Inc. 470,000 116,000 300,000 286,000
Zomax Optical Media, Inc. 0 450,000 450,000 0
--------
$3,860,7
========
[CAPTION]
END OF NOTES TO FINANCIAL STATEMENTS
Federal Income Tax Information (Unaudited)
In early 1999, shareholders received information regarding all distributions paid to them by the Funds during
calendar year 1998. The Funds hereby designate the following amounts as long-term capital gain distributions.

For the Large Cap Value, Mid Cap Value, Value Plus, Value, and Small Cap Contrarian Funds, the percentage
of ordinary income which is eligible for the corporate divided received deduction for the fiscal year ended
December 31, 1998, is 44.3%, 100.0%, 44.2%, 55.9%, and 2.2%, respectively.
Shareholder Meeting Voting Results (Unaudited)
A Special Meeting of the shareholders of the Heartland Small Cap Contrarian Fund, was held at 758 North
Broadway, Milwaukee, Wisconsin, on November 4, 1998. The shareholders cast the following votes on the
resolution presented:
To approve the Plan of Reorganization and Liquidation providing for (a) the transfer of all the assets of the Small
Cap Contrarian Fund (net of its liabilities) to the Value Fund, in exchange for shares of Value Fund Common
Stock, followed by (b) the distribution of shares of Value Fund Common Stock, pro rata, to the Small Cap
Contrarian Fund shareholders in liquidation of the Small Cap Contrarian Fund.
YES 6,726,941.364 NO 329,978.669 ABSTAIN 135,771.868
Large Cap Mid Cap Value U.S. Gov't. Smal
Value Value Plus Value Securties Cont
Fund Fund Fund Fund Fund Fund
----------- --------- --------- ----------- ----------- ----
Capital Gains
Taxed at 20% $ 72,984 $ -- $ --- $57,275,054 $ --- $ 6
[Logo] Heartland Funds

AMERICA'S VALUE INVESTOR/(R)/
Value Report
December 31, 1998
Notes on value investing
for investors in the Heartland
Municipal Funds
Annual Report
to Shareholders
Heartland Short Duration
High-Yield Municipal Fund
Heartland High-Yield
Municipal Bond Fund
VALUE REPORT
Good and Getting Better
Dear Tax Free Investor,
Often, before an asset class gets really cheap, it must first endure a period of falling prices. This is the investment
equivalent of "no pain, no gain." Municipal bonds are now as cheap as they have been since 1986, a volatile year
in which municipal bonds temporarily retreated in the face of uncertainty surrounding the Tax Reform Act of
1986. In 1998, munis became cheap without having experienced any setbacks. In fact, municipal bond prices
rose throughout the year as interest rates declined.
The municipal bond market was largely unaffected by this year's startling economic headlines. This is in sharp
contrast to stocks and corporate bonds, which were hit hard in the third quarter as global economic turmoil
threatened corporate cash flows, earnings, and credit quality. Municipal bonds have become cheap simply
because Treasury bonds performed well as investors worldwide abandoned stocks and corporate bonds for the
safety of the highest of high quality credits.
At year end, investment-grade municipal yields exceeded Treasury yields and offered a buying opportunity for
municipal bonds which hasn't been seen in the last 10 years. High-yield municipal bonds enjoy an even bigger
yield advantage over Treasuries. The federal income tax-free feature of municipal bonds is now pure icing on an
already appetizing cake.
Looking ahead to 1999, the economic outlook for municipal bonds appears bright. There is virtually no inflation.
The Federal Reserve has room to drop interest rates even further if we appear headed toward recession and/or
more international economic turmoil demands greater global liquidity. New municipal bond issuance remains
strong and the need to move this inventory should continue to restrain pricing and boost yields.
Some of our shareholders have asked us whether a slowing domestic economy may have a negative impact on
municipal bonds in general and our portfolios in particular. We believe a weaker economy could put some
pressure on municipal issue financing projects like corporate office parks or golf courses. However, we
concentrate our portfolios in essential service securities (issuers providing a vital service to a large segment of the
public), which are secured by revenue streams not generally tied to the business cycle. We expect this strategy to
continue to help insulate our portfolios from the risks presented by a less vibrant economy.
In past Value Reports, we have addressed the stocks versus bonds issue. We have never been disrespectful of
equities, but have always promoted the idea that the
VALUE REPORT
income and relative safety of principal provided by bonds were essential ingredients in any and all investment
recipes. In this Value Report, we want to discuss bonds versus bonds, specifically municipal bonds versus
Treasuries and corporates. Acknowledging the superior credit quality of Treasuries and the important role they
play in a diversified investment program, we point out that their yields are now quite low. Corporate bond yields
are high, but so are the risks presented by an economy that appears to be decelerating. Municipal bonds now
offer significantly higher after-tax yields than Treasuries and are less vulnerable than corporates to a potential
economic slowdown. Our conclusion, while not totally unbiased, is that municipal bonds have been good and
may be getting better.
Sincerely,
-- Thomas J. Conlin, CFA -- Greg D. Winston, CFA
Portfolio Co-Managers
INVESTMENT PERFORMANCE
Heartland Short Duration High-Yield Municipal Fund

Heartland High-Yield Municipal Bond Fund

/1/Yields shown are annualized yields for the 30 days ending 12/31/98. Total returns include reinvestment of all
dividends and capital gain 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 5.3% and 8.9% for the Short Duration High-Yield Municipal Fund and 6.0% and 9.9%
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
Average annual total returns
December Equivalent taxable yield as of December 31, 1998
SEC yield/1/ at a 39.6% federal rate 1-year Since Inception (1/2/97)
5.4% 9.0% 3.7% 5.5%
Average annual total returns
December Equivalent taxable yield as of December 31, 1998
SEC yield/1/ at a 39.6% federal rate 1-year Since Inception (1/2/97)
6.4% 10.6% 6.7% 9.2%
VALUE REPORT
Heartland Short Duration High-Yield Municipal Fund
[Photo of
Tom Conlin]
Thomas J. Conlin, CFA
Portfolio Co-Manager
[Photo of
Greg Winston]
Greg D. Winston, CFA
Portfolio Co-Manager
"We believe that bonds like the Shelby County, Tennessee Health, Educational and Housing Facility Board
Health Care Facilities revenue bonds will help our shareholders build a nest egg for their golden years."
In 1998, the Fund's total return was 3.7% compared to the 5.4% advance of the Lehman Brothers Municipal 1-
3 Year Non-Investment Grade Bond Index/1/. In the fourth quarter of 1998, the Fund returned 0.9% compared
to the benchmark index's 1.3% gain. For more information on the Fund, please see the Fund Fact Sheet on page
6.
In the second half of 1998, disappointing performance from four related healthcare credits restrained Fund
returns. These investments were the primary reason the Fund did not perform as well as it had in its first-year-
and-a-half of operations. We dramatically reduced our exposure to these credits and further diversified the Fund,
both among individual credits and their related entities and geographically. Going forward, we believe this will
help smooth out any bumps in the road.
We are pleased the Fund maintained its attractive yield and that its total return outperformed the Lipper Tax-
Exempt Money Market Index/2/ in 1998 as a whole, despite underperforming in the second half. Given the
market environment and the fine tuning of our investment process, we look forward to what we believe will be
another productive year in 1999.
In the Pines
Located outside Memphis, Tennessee, Kirby Pines is a Continuing Care Retirement Community featuring
independent living apartments and cottages, assisted living apartments, an Alzheimer's unit, an adult day care
center, and a modern nursing home facility. First opened in 1983, Kirby Pines has enjoyed average occupancy
rates of 95% or better in all its facilities over the past two years. It is currently adding 43 new independent living
cottages, many of which have already been pre-sold. Presently, there is a 150 unit waiting list for all facilities. Its
six competitors in the region (only one of which offers all of Kirby's services) are at or near 100% occupancy.
2
VALUE REPORT
The Shelby County, Tennessee Health, Educational and Housing Facility Board has issued Health Care Facilities
Revenue Bonds secured by the revenues generated by Kirby Pines and by first lien mortgages on the independent
living apartments, the nursing home, and the Alzheimer's unit. Debt service coverage is expected to range from
1.3 to 1.6 times over the next three years. We have assigned these bonds an equivalent rating of BB, which we
anticipate upgrading to BBB if occupancy levels remain high and the additional capacity meets our forecast for
improved financial results.
The Fund owns $2.45 million of these bonds, which mature on 11/15/2027 but are callable on 11/15/99. They
currently yield 5.5% to call date--providing an attractive return on what we believe is a secure credit. If
fundamentals change, our investment viewpoint may as well, but we currently believe that bonds like these will
help our shareholders build a nest egg for their golden years.
[line chart illustrating performance of an assumed investment of $10,000 in the Heartland Short Duration High-
Yield Fund and the Lehman 1-3yr Non Inv. Municipal Index beginning on January 2, 1997 inception date as
follows:

Legend in graph states that Past performance is not predictive of future results.
A box above the graph states Average Annual Total Returns as of 12/31/98* as follows:

*Total returns include reinvestment of dividends and capital gains distributions.
/1/Lehman Brothers Municipal 1-3 Year Non-Investment Grade Index is an unmanaged index and includes
issues which have a maximum credit rating of Ba1, were issued as part of an offering 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.
/2/Lipper Tax-Exempt Money Market Index is an equally weighted index of the performance of the 30 largest
general tax-exempt money market funds as tracked by Lipper, Inc.
On 12/31/98, the Fund's Shelby County, Tennessee Health, Educational and Housing Facility Board Health Care
Facilities Revenue Bonds--5.5% due 11/15/2027--were valued at $2,471,437 and represented 1.7% of the
Fund's net assets..DOC
3
Heartland Short Duration Lehman 1-3yr
High-Yield Municipal Fund Non Inv. Municipal
01/02/97 $10,000 $10,000
03/31/97 10,138 10,160
06/30/97 10,349 10,341
09/30/97 10,554 10,560
12/31/97 10,744 10,709
03/31/98 10,832 10,854
06/30/98 10,995 10,854
09/30/98 11,038 11,140
12/31/98 11,136 11,290
Heartland Short Duration Lehman 1-3yr
High-Yield Municipal Fund Non Inv. Municipal
1-year 3.7% 5.4%
Since inception 5.5% 6.3%]
VALUE REPORT
Heartland High-Yield Municipal Bond Fund
[Photo of
Tom Conlin]
Thomas J. Conlin, CFA
Portfolio Co-Manager
[Photo of
Greg Winston]
Greg D. Winston, CFA
Portfolio Co-Manager
"For the 12 months ended December 31, 1998, the Fund achieved the highest yield of the 51 funds in Lipper's
high-yield municipal bond fund category and was in the top quartile for total return."
In 1998, the Fund's total return was 6.7% compared to the 6.2% gain of the Lehman Brothers Municipal Non-
Investment Grade Bond Index/1/. In fourth quarter 1998, the Fund returned 1.2% versus the benchmark index's
0.4% advance. For more information on the Fund, please see the Fund Fact Sheet on page 7.
We are pleased to have once again materially exceeded our benchmark index. For the 12 months ended
December 31, 1998, the Fund achieved the highest yield of the 51 funds in Lipper's high-yield municipal bond
fund category and was in the top quartile for total return. We did not accomplish this by making an aggressive bet
on falling interest rates. The Fund's average duration finished 1998 at 7.3 yrs. We did it "the old fashioned way,"
through bottom-up bond picking--taking advantage of truly special situations, particularly in small, less widely
followed non-rated issues.
Our focus on essential service issuers in regional and local areas where the demographics should support these
services continued to pay off. At the close of the year, nearly 58.5% of the portfolio's assets were in hospital,
retirement facility and nursing home credits, and another 30.3% was in multi-family housing, water and sewer,
and resource recovery issues. We believe our essential services investment themes--the aging of America, the
rebuilding of infrastructure, low cost housing development and resource recovery will continue to lead us to
attractive, high-yield investment opportunities.
A Solid Foundation
The key to success for low cost housing projects is the quality of the property and a good management team.
Equally important is a track record of high occupancy and good maintenance. The 204 unit Southside Villa
Apartment Project in Shreveport, Louisiana gets high grades on all these fronts. The 19 brick faced buildings are
getting new roofs and maintenance is being upgraded.
4
VALUE REPORT
As of July 31, 1998, occupancy was a healthy 92%. It is expected this occupancy rate will be sustained and
perhaps grow once renovations are completed. The project is also getting a new and experienced property
management team. The new on-site manager is an approved manager for numerous government sponsored and
government affiliated mortgage programs, and additional oversight is provided by asset manager HIMCO, Inc.
The Louisiana Housing Finance Agency has issued Multifamily Housing Revenue Bonds secured by revenues
from the Southside Villa Apartment Project and by a first mortgage lien on the buildings. Units in the project are
competitively priced and the project's collateral value is estimated to materially exceed the total principal of the
bond issue. Evaluating the project's condition, its experienced management team, its operating history and market
position, and credit features, we give these bonds a BB equivalent rating.
The Fund owns $2.7 million of these bonds, with a current yield to maturity of 7.0%. As always, we reserve the
right to change our opinion on this credit. But right now, you can sign us up for a two bedroom with a garden
view.
[line chart illustrating performance of an assumed investment of $10,000 in the Heartland High-Yield Municipal
Bond Fund and the Lehman Non Inv. Municipal Index beginning on January 2, 1997 inception date as follows:

Legend in graph states that Past performance is not predictive of future results.
A box above the graph states Average Annual Total Returns as of 12/31/98* as follows:

*Total returns include reinvestment of dividends and capital gains distributions.
/1/Lehman Brothers Municipal Non-Investment Grade Index includes issues which have a maximum credit rating
of Ba1, were issued as part of an offering of at least $20 million, have an amount outstanding of at least $3
million, have a maturity of at least one year, and were issued after December 31, 1990.
On 12/31/98, the Fund's Louisiana Housing Finance Agency Southside Villa Apartments Bonds--7% due
7/01/2028--were valued at $2,673,000 and represented 3.6% of the Fund's net assets.
5
Heartland High-Yield Lehman Non
Municipal Bond Inv. Municipal
01/02/97 $10,000 $10,000
03/31/97 10,167 10,083
06/30/97 10,482 10,373
09/30/97 10,778 10,737
12/31/97 11,167 11,094
03/31/98 11,304 11,335
06/30/98 11,564 11,568
09/30/98 11,774 11,735
12/31/98 11,911 11,783
Heartland High-Yield Lehman Non
Municipal Bond Inv. Municipal
1-year 6.7% 6.2%
Since inception 9.2% 8.6%]
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 chiefly in short and intermediate term municipal obligations of medium and lower quality, and maintains
an average portfolio duration of three years or less.
Heartland Short Duration High-Yield Municipal Fund

FUND FACTS


PORTFOLIO COMPOSITION
[graphic - A pie chart displays categories of the Heartland Short Duration High-Yield Municipal Fund's portfolio
as of 12/31/98: Retirement at 25.0%; Nursing at 20.5%; Hospital at 14.2%; Multifamily at 9.5%; Other at
30.8%. Other is further broken down as follows: IDR at 7.3%; Resource recovery at 6.7%; Mental at 6.3%;
Cash & equivalents at 0.4%; Other 10.1%.].DOC
/1/ Yields shown are annualized yields for the 30 days ending 12/31/98. Total returns include reinvestment of all
dividends and capital gain 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 5.3% and 8.9%. Income may be subject to state, local and alternative minimum tax.
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.
All statistics are as of December 31, 1998.
6
Equivalent taxable Average annual total returns as
December yield at a 39.6% of December 31, 1998
SEC yield/1/ federal rate 1-year since inception
5.4% 9.0% 3.7% 5.5%
Sales commission.................. None Net assets................ $149.6 mil.
Share price....................... $9.98 Number of holdings................. 85
Weighted average duration...... 2.5 yrs. Inception...................... 1/2/97
% OF
TOP 3 HOLDINGS COUPON MATURITY CALL NET ASSETS
Tarrant Cty., TX Health Fac. Dev. Corp. ........ 8.25% 8/2028 8/2002 4.8%
Allegheny County, PA Industrial Dev. Auth. ..... 6.8 1/2005 -- 4.3
Independence, MO Tax Increment Rev. ............ 8.75 4/2015 4/2004 3.7
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 chiefly in medium and lower quality municipal obligations. While the duration of its portfolio
is unrestricted, the Fund expects to maintain an average duration of over five years.
Heartland High-Yield Municipal Bond Fund

FUND FACTS


PORTFOLIO COMPOSITION
[graphic - A pie chart displays categories of the Heartland High-Yield Municipal Bond Fund's portfolio as of
12/31/98: Retirement at 25.0%; Nursing at 21.3%; Multifamily at 20.0%; Resource recovery at 7.4%; Hospital
at 12.2%; Other at 14.1%. Other is further broken down as follows: IDR at 5.4%; Mental at 4.9%; Other at
3.5%; Water & sewer at 2.9%; Lease at 1.4%; Cash & equivalents at -4.0%.].DOC
/1/Yields shown are annualized yields for the 30 days ending 12/31/98. Total returns include reinvestment of all
dividends and capital gain 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 6.0% and 9.9%. Income may be subject to state, local and alternative minimum tax.
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.
All statistics are as of December 31, 1998.
7
Equivalent taxable Average annual total returns as
December yield at a 39.6% of December 31, 1998
SEC yield/1/ federal rate 1-year since inception
6.4% 10.6% 6.7% 9.2%
Sales commission.................None Net assets................$73.5 mil.
Share price....................$10.38 Number of holdings................46
Weighted average duration....7.3 yrs. Inception.....................1/2/97
% OF
TOP 3 HOLDINGS COUPON MATURITY CALL NET ASSETS
Fletcher, NC First Mortgage Housing Rev. ...... 7.0% 3/2028 3/2007 5.5%
Tarrant County, TX Health Fac. Dev. Corp. ..... 8.0 8/2025 8/2002 5.1
Pennsylvania Higher Education Facilities....... 7.25 9/2017 9/2001 4.5
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
8
VALUE REPORT
Dear Investor
We are here to help you meet your investment needs.
If you have a question, please call Heartland Shareholder Services. We're confident you'll find our representatives
to be knowledgeable and responsive.
[Photo of Shareholder Services Representative]
1.800.432.7856
www.heartlandfunds.com
9
VALUE REPORT
Heartland's Risk/Return Spectrum
[graphic - A spectrum illustrates the potential risk/return of the following categories, both the categories and the
funds within them being listed in an aggregate order of lower to higher potential risk/return, respectively: Money
Market, which includes the Firstar Money Market; Bond, which includes Short Duration High-Yield Municipal,
Taxable Short Duration Municipal, U.S. Government Securities, Wisconsin Tax Free and High-Yield Municipal
Bond; and Equity or Stock, which includes Large Cap Value, Value Plus, Mid Cap Value and Value.]
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 Milwaukee 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 or visit our website at www.heartlandfunds.com. Read it carefully before you invest.
10
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
--------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 97.4% COUPON MATURITY VALUE
--------------------------------------------------------------------------------
MUNICIPAL BONDS - 97.4%

ALABAMA - 2.7%
$ 370,000 Valley, Alabama Special Care
Facilities Finance Authority -
Lanier Memorial Hospital.......... 5.000% 11/01/2000 $ 375,088

325,000 Valley, Alabama Special Care
Facilities Finance Authority -
Lanier Memorial Hospital.......... 4.650 11/01/2002 326,219

225,000 West Jefferson, Alabama Amusement &
Public Park Authority - Visionland
Alabama (Callable 12/01/2006)..... 7.500 12/01/2008 252,562

2,715,000 West Jefferson, Alabama Amusement &
Public Park Authority - Visionland
Alabama (Callable 12/01/2006)..... 8.000 12/01/2026 3,047,587
----------
4,001,456

COLORADO - 1.1%
1,500,000 Mesa County, Colorado Industrial
Development Revenue - Joy
Technologies, Incorporated
(Callable 03/15/2002)............. 8.500 09/15/2006 1,666,875

CONNECTICUT - 4.3%
1,440,000 Connecticut State Development
Authority - Alzheimers Resource
Center............................ 6.875 08/15/2004 1,533,600
4,625,000 Connecticut State Development
Authority - Alzheimers Resource
Center (Callable 08/15/2004)...... 7.125 08/15/2014 4,966,094
----------
6,499,694

FLORIDA - 5.4%
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 1,282,050
890,000 Lee County, Florida Industrial
Development Authority - Cypress
Cove at Healthpark, Florida, Inc.
Project........................... 5.600 10/01/2004 911,137
585,000 Lee County, Florida Industrial
Development Authority - Cypress
Cove at Healthpark, Florida, Inc.
Project........................... 5.700 10/01/2005 601,087
1,835,000 Seminole County, Florida Industrial
Development Authority - RHA/Fern
Park MR, Incorporated (Callable
04/01/1999)....................... 9.250 04/01/2012 1,890,050
1,225,000 Tarpon Springs, Florida Health
Facilities Authority - Helen Ellis
Memorial Hospital (Callable
05/01/2001)....................... 7.500 05/01/2011 1,284,719
2,000,000 Tarpon Springs, Florida Health
Facilities Authority - Helen Ellis
Memorial Hospital (Callable
05/01/2001)....................... 7.625 05/01/2021 2,102,500
----------
8,071,543


GEORGIA - 4.5%
2,000,000 Athens-Clarke County, Georgia
Residential Care - Wesley Woods of
Athens, Inc. Project (Callable
10/01/2000)....................... 5.300 10/01/2001 2,015,000
1,600,000 Clayton County, Georgia Development
Authority IDR - Outboard Marine
Corporation (Callable 04/01/1999). 6.000 10/01/2002 1,616,000
3,220,000 Houston County, Georgia Development
Authority - Emerald Coast Housing
(Callable 08/01/2008)............. 6.850 08/01/2018 3,163,650
----------
6,794,650

ILLINOIS - 4.8%
3,000,000 Granite City, Illinois Hospital
Facilities Revenue - St. Elizabeth
Medical Center (Callable
06/01/1999)....................... 8.125 06/01/2008 3,060,000
1,500,000 Illinois Health Facilities
Authority - Bohemian Home - Tabor
Hills Health Care (Callable
11/15/2003)....................... 5.250 11/15/2028 1,501,875
2,660,000 Worth, Illinois Nursing Home
Revenue - Belhaven Convalescent
Center (Callable 12/15/2002)...... 6.200 12/15/2007 2,669,975
----------
7,231,850
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS (Cont'd) . DECEMBER 31, 1998
--------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 97.4%
AMOUNT (Cont'd) COUPON MATURITY VALUE
--------------------------------------------------------------------------------
MUNICIPAL BONDS - 97.4% (Cont'd)

INDIANA - 0.9%

$ 650,000 Greensburg, Indiana Economic
Development Revenue -
Kroger Company (Callable
12/01/2004)....................... 7.250% 06/01/2011 $ 745,875
500,000 Indiana Health Facilities Finance
Authority - Hancock Memorial
Hospital
(Callable 08/15/2006)............. 5.900 08/15/2007 537,500
-----------
1,283,375

IOWA - 5.3%
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 1,501,080
1,450,000 Iowa Finance Authority Health Care
Facilities - Care Initiatives..... 5.500 07/01/2008 1,471,750
900,000 Ottumwa, Iowa Revenue - Penn
Place - Regional Retirement
Living (Callable 02/15/2003)...... 5.150 02/15/2028 891,000
-----------
7,863,830

KANSAS - 0.3%
500,000 Topeka, Kansas Industrial Revenue -
Reser's Fine Foods, Incorporated
(Callable 04/01/2001)(a).......... 5.200 04/01/2003 500,000

LOUISIANA - 7.8%
3,875,000 Louisiana Health Education
Authority - Lambeth House
(Callable 01/01/2007)............. 5.625 01/01/2028 3,875,000
1,945,000 Louisiana Public Facilities
Authority - Beverly Enterprises,
Incorporated (Callable
09/01/2002)....................... 8.250 09/01/2008 2,122,481
3,290,000 Louisiana Public Facilities
Authority - Progressive
Healthcare Providers
(Callable 10/01/2000)............. 6.250 10/01/2011 3,335,237
1,420,000 St. Tammany, Louisiana Public
Trust Finance Authority -
Christwood........................ 5.000 11/15/2003 1,407,575
1,000,000 St. Tammany, Louisiana Public
Trust Finance Authority -
Christwood........................ 5.250 11/15/2008 982,500
-----------
11,722,793

MARYLAND - 1.0%
1,500,000 Frederick County, Maryland
Retirement Community -
Buckingham's Choice
(Callable 01/01/2003)............. 5.250 01/01/2027 1,500,990

MASSACHUSETTS - 2.1%
1,260,000 Massachusetts Industrial Finance
Agency - Reeds Landing Project

(Callable 02/01/1999)............. 7.750 10/01/2000 1,282,315
945,000 Massachusetts Industrial Finance
Agency - Glenmeadow Retirement
Community (Callable 02/15/2003)... 5.000 02/15/2026 946,181
970,000 Massachusetts Industrial Finance
Agency - Glenmeadow Retirement
Community (Callable 02/15/2006)... 5.250 02/15/2026 970,000
----------
3,198,496

MISSOURI - 3.7%
4,875,000 Independence, Missouri Tax
Increment Revenue - Homart
Development Company
(Callable 04/01/2004)............. 8.750 04/01/2015 5,478,281

NEW HAMPSHIRE - 0.4%
600,000 New Hampshire Industrial
Development Authority............. 8.000 03/01/2001 602,628

NEW JERSEY - 4.9%
2,500,000 New Jersey Health Care Facilities
Finance Authority - Raritan Bay
Medical Center (Callable
07/01/2004)....................... 7.250 07/01/2027 2,643,750

4,700,000 New Jersey Economic Development
Authority - Leisure Park Project
(Callable 12/01/2007)............. 5.875 12/01/2027 4,741,125
-----------
7,384,875
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [CONT'D] . DECEMBER 31, 1998
--------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 97.4%
AMOUNT [cont'd] COUPON MATURITY VALUE
--------------------------------------------------------------------------------
MUNICIPAL BONDS - 97.4% [cont'd]

NEW MEXICO - 0.7%
$1,000,000 Santa Fe County, New Mexico Project
Revenue - El Castillo Retirement
Residences (Callable 05/15/2000).. 5.250% 05/15/2028 $1,001,250

NEW YORK - 2.3%
3,255,000 Erie County, NY Industrial
Development Agency - Depaul
Properties, Incorporated (Callable
09/01/2002)....................... 6.500 09/01/2018 3,421,819

OHIO - 5.7%
1,000,835 Clark County, Ohio Industrial
Development Revenue - Main
Associates Project (Callable
02/01/1999)....................... 8.000 11/01/2005 1,004,588
745,000 Franklin County, Ohio Mortgage
Revenue - Gateway Apartment Homes
(Callable 01/05/1999)............. 5.375 10/20/2010 745,358
1,050,000 Montgomery County, Ohio Health Care
Facilities - Friendship Village of
Dayton (Callable 02/01/2001)...... 5.375 02/01/2022 1,055,250
2,000,000 Montgomery County, Ohio Hospital
Revenue - Grandview Hospital &
Medical Center.................... 5.250 12/01/2002 1,920,000
1,000,000 Montgomery County, Ohio Hospital
Revenue - Grandview Hospital &
Medical Center.................... 5.250 12/01/2003 960,000
1,700,000 Montgomery County, Ohio Health Care
Facilities - Friendship Village of
Dayton (Callable 02/01/2003)...... 5.500 02/01/2007 1,717,000
1,055,000 Ohio Capital Corporation for
Housing - Bella Vista Section 8
Assisted Project.................. 7.250 02/01/2002 1,056,319
----------
8,458,515

OKLAHOMA - 1.4%
1,065,000 Tulsa County, Oklahoma Industrial
Authority - Multifamily Housing
1st Mortgage Revenue (Callable
12/01/2005)....................... 7.400 12/01/2017 1,066,331
1,000,000 Tulsa County, Oklahoma Industrial
Authority - Multifamily Housing
1st Mortgage Revenue (Callable
12/01/2005)....................... 7.500 12/01/2027 1,001,250
----------
2,067,581

PENNSYLVANIA - 16.8%
255,000 Allegheny County, Pennsylvania
Hospital Development Authority -
Allegheny Valley Hospital......... 7.500 08/01/2000 245,119
275,000 Allegheny County, Pennsylvania
Hospital Development Authority -
Allegheny Valley Hospital
(Callable 08/01/2000)............. 7.600 08/01/2001 258,500
295,000 Allegheny County, Pennsylvania
Hospital Development Authority -
Allegheny Valley Hospital
(Callable 08/01/2000)............. 7.700 08/01/2002 276,931
6,400,000 Allegheny County, Pennsylvania
Industrial Development Authority -

Lanchester Energy Partners........ 6.800 01/01/2005 6,400,000
730,000 Clarion County, Pennsylvania
Industrial Development Authority -
Beverly Enterprises, Inc.
(Callable 05/01/1999)............. 10.125 05/01/2007 760,989
1,855,000 Cumberland County, Pennsylvania
Industrial Development Revenue -
Beverly Enterprises, Inc. ........ 5.300 10/01/2003 1,841,087
2,785,000 Cumberland County, Pennsylvania
Industrial Development Revenue -
Beverly Enterprises, Inc.
(Callable 10/01/2003)............. 5.500 10/01/2008 2,760,631
500,000 Delaware County, Pennsylvania
Industrial Development Authority
Revenue - Martins Run Project
(Callable 12/15/2001)............. 5.750 12/15/2003 508,125
245,000 Green County, Pennsylvania
Industrial Development Revenue -
Beverly Enterprises, Inc.
(Callable 03/01/2003)............. 5.500 03/01/2008 243,163
1,000,000 Montgomery County, Pennsylvania
Industrial Development Authority
Revenue - Meadowood Corporation
(CALLABLE 12/01/1999)............. 5.500 12/01/2019 1,001,770
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS (Cont'd) . DECEMBER 31, 1998
--------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 97.4%
AMOUNT (Cont'd) COUPON MATURITY VALUE
--------------------------------------------------------------------------------
MUNICIPAL BONDS - 97.4% (Cont'd)

PENNSYLVANIA 16.8% (Cont'd)
$ 644,000 Montgomery County, Pennsylvania
Industrial Development Authority
Revenue - Meadowood Corporation
(Callable 12/01/1999).............. 5.150% 12/01/2003 $ 644,586
2,550,000 Philadelphia Authority for
Industrial Development - The
Baptist Home of Philadelphia
(Callable 11/15/2000).............. 5.250 11/15/2028 2,553,188
1,000,000 Philadelphia, Pennsylvania
Hospital & Higher Education
Facilities - Temple University
Hospital (Callable 11/15/2003)..... 6.625 11/15/2023 1,075,000
500,000 Scranton-Lackawanna Health &
Welfare Authority - Allied
Services Rehabilitation Hospitals
(Callable 07/15/2004).............. 7.125 07/15/2005 546,250
2,275,000 Washington County, Pennsylvania
Hospital Authority - Cannonsburg
General Hospital (Callable
06/01/2003)........................ 7.350 06/01/2013 2,366,000
3,600,000 Westmoreland County, Pennsylvania
Industrial Development
Authority - Lancaster Energy
Partners........................... 6.800 01/01/2005 3,600,000
-----------
25,081,339

TENNESSEE - 1.7%
2,450,000 Shelby County, Tennessee Health,
Education & Housing Facilities -
Kirby Pines Retirement Community
(Callable 11/15/1999).............. 5.500 11/15/2027 2,471,437

TEXAS - 16.0%
1,000,000 Danforth, Texas Health Facilities
Corporation - Heritage Duval
Gardens (Callable 07/01/2003)...... 7.375 07/01/2028 1,000,000
2,405,000 Edinburg, Texas Industrial
Development Corporation -
Water Park Project................. 7.000 09/01/2006 2,429,050
2,000,000 Edinburg, Texas Industrial
Development Corporation -
Water Park Project
(Callable 09/01/2008).............. 7.500 09/01/2023 1,992,500
3,000,000 Jefferson County, Texas Health
Facilities Development
Corporation - Baptist Healthcare
System (Callable 06/01/1999)....... 8.875 06/01/2021 3,105,450
190,000 Rusk County, Texas Health
Facilities Corporation - Sugarland
Retirement Communities (Callable
03/01/2000)........................ 6.375 03/01/2006 190,475
270,000 Rusk County, Texas Health
Facilities Corporation - Sugarland
Retirement Communities (Callable
03/01/2000)........................ 6.500 03/01/2007 270,675
155,000 Rusk County, Texas Health
Facilities Corporation - Sugarland
Retirement Communities (Callable
03/01/2000)........................ 6.625 03/01/2008 155,388
1,430,000 Rusk County, Texas Health
Facilities Corporation - Sugarland

Retirement Communities (Callable
03/01/2000)........................ 7.500 03/01/2014 1,433,575
1,800,000 Rusk County, Texas Health
Facilities Corporation - Sugarland
Retirement Communities (Callable
03/01/2000)........................ 7.750 03/01/2019 1,806,750
1,000,000 San Antonio, Texas Health
Facilities Development
Corporation - Beverly Enterprises,
Incorporated (Callable
12/01/2002)........................ 8.250 12/01/2019 1,095,000
810,000 Tarrant County, Texas Health
Facilities Development
Corporation - St. Joseph Long
Term Care Facility (Callable
05/01/1999)........................ 6.500 05/01/2004 810,697
1,150,000 Tarrant County, Texas Health
Facilities Development
Corporation - Westchester
Retirement Communities
(Callable 08/01/2002).............. 8.000 08/01/2025 1,139,937
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS (CONT'D) . DECEMBER 31, 1998

--------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 97.4%
AMOUNT (CONT'D) COUPON MATURITY VALUE
--------------------------------------------------------------------------------
MUNICIPAL BONDS - 97.4% (CONT'D)

TEXAS - 16.0% (CONT'D)
$7,105,000 Tarrant County, Texas Health
Facilities Development
Corporation - Westchester
Retirement Communities (Callable
08/01/2002)....................... 8.250% 08/01/2028 $ 7,167,169
1,345,000 Wharton, Texas Housing Development
Corporation - University Place
Apartments........................ 5.500 06/01/2010 1,343,319
------------
23,939,985

VIRGINIA - 1.8%
2,660,000 Newport News Virginia Redevelopment
& Housing Authority - St. Michaels
Apartments (Callable 11/01/2002)... 7.625 11/01/2018 2,713,200

WISCONSIN - 1.8%
2,455,000 Wisconsin Health &Education
Facilities Authority -
Benchmark Healthcare of Wisconsin
(Callable 10/15/2006)............. 8.500 10/15/2026 2,709,706

TOTAL MUNICIPAL BONDS
(Cost $144,682,554)............... $145,666,168
------------
TOTAL LONG-TERM INVESTMENTS
(Cost $144,682,554)............... $145,666,168
------------
--------------------------------------------------------------------------------
PAR
AMOUNT SHORT-TERM INVESTMENTS - 2.2% COUPON MATURITY VALUE
-------------------------------------------------------------------------------
MUNICIPAL BONDS - 2.2%

NEW JERSEY - 2.1%
$3,125,000 South Amboy, New Jersey Housing
Authority - Shore Gate Village
Grand Project (Callable
01/15/1999)....................... 6.000% 08/15/1999 $ 3,125,750

PENNSYLVANIA - 0.1%
235,000 Allegheny County, Pennsylvania
Hospital Development Authority -
Allegheny Valley Hospital......... 7.400 08/01/1999 229,738
------------
TOTAL MUNICIPAL BONDS
(COST $3,350,600)................. $ 3,355,488
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $3,350,600)................. $ 3,355,488
------------
TOTAL INVESTEMENTS
(COST $148,033,154)............... 99.6% 149,021,656

Cash and Receivables,
Less Liabilities.................. 0.4 621,749
------ ------------
TOTAL NET ASSETS................... 100.0% $149,643,405
====== ============

(A) 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.
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS . DECEMBER 31, 1998
--------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 104.0% COUPON MATURITY VALUE
--------------------------------------------------------------------------------
MUNICIPAL BONDS - 104.0%

ALABAMA - 4.3%
$2,000,000 Mobile, Alabama Industrial
Development Board -
Mobile Energy Services
(Callable 01/01/2005) (a)......... 6.950% 01/01/2020 $ 1,060,000
2,000,000 Vance, Alabama Governmental
Utility Services Corporation -
Sewer Services Revenue
(Callable 10/01/2007)............. 7.500 10/01/2018 2,122,500
-----------
3,182,500

FLORIDA - 6.3%
2,000,000 Mexico Beach, Florida Public
Service Facilities - Heritage
House Of Sarasota (Callable
12/01/2002)....................... 8.000 12/01/2027 2,010,000
2,500,000 Seminole County, Florida
Industrial Development
Authority - RHA/Fern Park MR,
Incorporated (Callable
04/01/1999)....................... 9.250 04/01/2012 2,575,000
-----------
4,585,000

GEORGIA - 3.5%
2,575,000 Houston County, Georgia
Development Authority - Grantley,
Incorporated Project (Callable
04/01/2003)....................... 7.375 04/01/2028 2,558,906

ILLINOIS - 8.4%
200,000 Chicago, Illinois Health
Facilities - Heritage Care of
Chicago (Callable 07/01/2003)..... 7.200 07/01/2010 200,000
200,000 Chicago, Illinois Health
Facilities - Heritage Care of
Chicago (Callable 07/01/2003)..... 7.300 07/01/2011 200,000
1,000,000 Chicago, Illinois Health
Facilities - Heritage Care of
Chicago (Callable 07/01/2003)..... 7.625 07/01/2028 1,000,000
2,000,000 Illinois Development Finance
Authority - Spring Grove
Apartments (Callable
01/01/2009)....................... 7.000 01/01/2029 1,967,500
2,000,000 Robbins Illinois Resource
Recovery Revenue - Robbins
Resource Recovery
(Callable 10/15/2006)............. 8.375 10/15/2016 1,100,000
1,700,000 Worth, Illinois Nursing Home
Revenue - Belhaven Convalescent
Center (Callable 12/15/2002)...... 7.250 12/15/2027 1,706,375
-----------
6,173,875

INDIANA - 2.6%
715,000 Beech Grove, Indiana Economic
Development Revenue - Diplomat
South Apartments
(Callable 01/01/2003)............. 7.000 01/01/2028 715,000
1,200,000 Beech Grove, Indiana Economic
Development Revenue - Beech
Grove Village Apartments

(Callable 01/01/2003)............. 7.000 01/01/2028 1,210,500
-----------
1,925,500

IOWA - 1.4%
1,000,000 Asbury, Iowa Elderly Care
& Retirement Facilities -
Stonehill Project
(Callable 09/01/2003) (a)......... 6.000 09/01/2028 995,000

LOUISIANA - 3.7%
2,700,000 Louisiana Housing Finance
Agency - Southside Villa
Apartments
(Callable 07/01/2003)............. 7.000 07/01/2028 2,673,000

MICHIGAN - 3.6%
1,140,000 Redford Township, Michigan
Economic Development
Corporation - The Malachi
Corporation
(Callable 05/01/2003)............. 7.500 05/01/2028 1,138,575
1,500,000 Riverview, Michigan Economic
Development Corporation -
The Malachi Corporation
(Callable 05/01/2003)............. 7.500 05/01/2028 1,503,750
-----------
2,642,325

MINNESOTA - 2.2%
1,600,000 Oakdale, Minnesota Elderly
Housing Revenue - PMH/Oakdale,
Incorporated
(Callable 03/01/2005)............. 6.000 03/01/2028 1,618,000
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS (cont'd) . DECEMBER 31, 1998
--------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 104.0%
AMOUNT (cont'd) COUPON MATURITY VALUE
--------------------------------------------------------------------------------
MUNICIPAL BONDS - 104.0% (cont'd)

MISSOURI - 3.8%
$1,000,000 Gallatin, Missouri Certificates of
Participation - Electric
Distribution System
(Callable 07/01/2007).............. 7.375% 01/01/2028 $ 1,023,750
1,715,000 St. Louis County, Missouri
Industrial Development
Authority - Dasal Caring Centers
(Callable 12/01/2007).............. 7.750 12/01/2016 1,787,887
-----------
2,811,637

NEW JERSEY - 8.2%
2,500,000 New Jersey Economic Development
Authority - Arbor Glen of
Bridgewater (Callable
05/15/2009) (b).................... 5.875 05/15/2016 2,443,750
1,500,000 New Jersey Health Care Facilities
Finance Authority - Raritan Bay
Medical Center (Callable
07/01/2004)........................ 7.250 07/01/2027 1,586,250
2,000,000 New Jersey Economic Development
Authority - Leisure Park Project
(Callable 12/01/2007).............. 5.875 12/01/2027 2,017,500
-----------
6,047,500

NORTH CAROLINA - 5.5%
4,000,000 Fletcher, North Carolina First
Mortgage Housing Revenue -
Avery's View Retirement
Facilities (Callable
03/01/2007) (c).................... 7.000 03/01/2028 4,015,000

OHIO - 2.9%
515,000 Franklin County, Ohio Hospital
Facilities - Worthington
Christian Village.................. 7.875 06/01/2005 514,356
675,000 Franklin County, Ohio Hospital
Facilities - Worthington
Christian Village (Callable
06/01/2005)........................ 8.000 06/01/2010 674,156
1,000,000 Montgomery County, Ohio Hospital
Revenue - Grandview Hospital
& Medical Center................... 5.250 12/01/2003 960,000
-----------
2,148,512

OKLAHOMA - 5.5%
2,000,000 Tulsa County, Oklahoma Industrial
Authority - Multifamily Housing
1st Mortgage Revenue
(Callable 12/01/2005).............. 7.500 12/01/2027 2,002,500
2,000,000 Tulsa County, Oklahoma Industrial
Authority - Shadybrook Apartments
(Callable 07/01/2003).............. 6.375 07/01/2028 1,997,500
-----------
4,000,000

PENNSYLVANIA - 6.6%
3,750,000 Pennsylvania Higher Education
Facilities Authority - Allegheny
General Hospital (Callable

09/01/2001)........................ 7.250 09/01/2017 3,285,938
1,600,000 Westmoreland County, Pennsylvania
Industrial Development
Authority - Lanchester Energy
Partners........................... 7.000 01/01/2008 1,594,000
-----------
4,879,938

TENNESSEE - 2.6%
630,000 Shelby County, Tennessee Health,
Education & Housing
Facilities - Winfield Village
of Cordova (Callable 08/29/2006)... 8.500 07/01/2026 678,037
1,225,000 Sweetwater, Tennessee Industrial
Development Board - Wood
Presbyterian Home
(Callable 01/01/2006).............. 7.750 01/01/2029 1,229,594
-----------
1,907,631

TEXAS - 17.9%
2,370,000 Bexar County, Texas Housing
Finance Corporation - King's
Point & Thompson Place Apartments
(Callable 07/01/2003).............. 7.000 07/01/2028 2,372,964
665,000 Danforth, Texas Health
Facilities Corporation -
Sam Houston Long Term Care
Facility (Callable 03/01/2004)..... 8.250 03/01/2027 678,300
1,500,000 Danforth, Texas Health Facilities
Corporation - Heritage Duval
Gardens (Callable 07/01/2003)...... 7.375 07/01/2028 1,500,000
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS (cont'd) . DECEMBER 31, 1998
--------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 104.0%
AMOUNT (cont'd) COUPON MATURITY VALUE
--------------------------------------------------------------------------------
MUNICIPAL BONDS - 104.0% (cont'd)

TEXAS - 17.9% (cont'd)
$3,000,000 Jefferson County, Texas Health
Facilities Development
Corporation - Baptist Healthcare
System (Callable 06/01/1999)...... 8.875% 06/01/2021 $3,105,450
1,095,000 Rusk County, Texas Health
Facilities Corporation -
Sugarland Retirement Communities
(Callable 03/01/2000)............. 8.250 03/01/2028 1,099,106
3,750,000 Tarrant County, Texas Health
Facilities Development
Corporation - Westchester
Retirement Communities
(Callable 08/01/2002)............. 8.000 08/01/2025 3,717,187
685,000 Tarrant County, Texas Health
Facilities Development
Corporation - St. Joseph
Long Term Care Facility
(Callable 05/01/2004)............. 8.500 05/01/2027 707,263
-----------
13,180,270

VIRGINIA - 5.9%
2,000,000 Brunswick County, Virginia
Industrial Development
Authority - Extraction
Technologies of Virginia
(Callable 07/01/2007)............. 7.500 07/01/2016 1,925,000
2,500,000 Newport News, Virginia
Redevelopment & Housing
Authority - St. Michaels
Apartment (Callable
11/01/2008)....................... 7.250 11/01/2028 2,425,000
-----------
4,350,000

WISCONSIN - 9.1%
1,000,000 Wisconsin Health & Education
Facilities Authority - Benchmark
Healthcare of Wisconsin
(Callable 10/15/2006)............. 8.500 10/15/2026 1,103,750
2,415,000 Wisconsin Health & Education
Facilities Authority - Benchmark
Healthcare of Green Bay
(Callable 05/01/2007)............. 7.750 05/01/2027 2,523,675
1,000,000 Wisconsin Health & Education
Facilities Authority - RFDF,
Incorporated Project
(Callable 07/15/2007)............. 7.375 07/15/2027 1,016,250
2,000,000 Wisconsin Health & Education
Facilities Authority - The
Millennium Housing Foundation
(Callable 07/01/2008) (a)......... 6.100 01/01/2028 2,032,500
-----------
6,676,175

TOTAL MUNICIPAL BONDS
(Cost $76,064,145).................................... $76,370,769
===========
TOTAL LONG-TERM INVESTMENTS
(Cost $76,064,145).................................... $76,370,769
-----------
TOTAL INVESTMENTS

(a) All or a portion of security committed to cover margin requirements for futures contracts and/or segregated
collateral requirements for when-issued securities.
(b) When-issued security.
(c) Coupon payment periodically increases over the life of the security. Rate stated is in effect on December 31,
1998.
The accompanying Notes to Financial Statements are an integral part of this Schedule.
(Cost $76,064,145)........ 104.0% $76,370,769
Liabilities, less
cash and receivables...... (4.0) (2,915,964)
------ -----------
TOTAL NET ASSETS........... 100.0% $73,454,805
====== ===========

The accompanying Notes to Financial Statements are an integral part of these Statements.
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1998
--------------------------------------------------------------------------------
Short
Duration
High-Yield High-Yield
Municipal Municipal
ASSETS: Fund Bond Fund
------------ -----------
Investments in securities, at cost............ $148,033,154 $76,064,145
============ ===========
Investments in securities, at value........... $149,021,656 $76,370,769
Cash.......................................... 94,718 9,032
Receivable from securities sold............... 2,899,018 --
Receivable from fund shares sold.............. 214,328 1,469,417
Accrued interest.............................. 2,738,023 1,681,839
Variation margin on open futures contracts.... 7,814 1,251
Prepaid expenses.............................. 4,928 1,494
Receivable from custodian..................... 16,841 8,791
Deferred organization expense................. 14,186 14,186
Receivable from Advisor for expense
reimbursement and management fee waiver...... 12,881 24,856
------------ -----------
Total Assets................................ 155,024,393 79,581,635
------------ -----------

LIABILITIES:
Payable for securities purchased.............. 2,890,918 2,448,620
Payable for fund shares redeemed.............. 1,701,943 647,155
Short-term notes payable...................... 600,000 2,900,000
Distributions payable......................... 70,717 44,239
Payable to Advisor for management fee......... 52,000 37,648
Payable to Advisor for deferred
organization expense......................... 14,186 14,186
Accrued expenses.............................. 51,224 34,982
------------ -----------
Total Liabilities........................... 5,380,988 6,126,830
------------ -----------

TOTAL NET ASSETS................................ $149,643,405 $73,454,805
============ ===========

NET ASSETS CONSIST OF:
Paid in capital............................... $151,390,010 $73,335,958
Accumulated undistributed net investment
income....................................... 369 --
Accumulated net realized losses on
investments.................................. (2,726,332) (181,888)
Net unrealized appreciation on investments.... 979,358 300,735
------------ -----------
TOTAL NET ASSETS................................ $149,643,405 $73,454,805
============ ===========

Shares Outstanding, $.001 par value
(100,000,000 shares authorized for
each fund)................................... 14,999,494 7,076,189
============ ===========

NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE..................... $ 9.98 $ 10.38
============ ===========

The accompanying Notes to Financial Statements are an integral part of these Statements.
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
-------------------------------------------------------------------------------
Short
Duration
High-Yield High-Yield
Municipal Municipal
INVESTMENT INCOME: Fund Bond Fund
----------- ----------
Interest...................................... $ 8,664,417 $3,863,045
----------- ----------
Total investment income..................... 8,664,417 3,863,045
----------- ----------
EXPENSES:
Management fees............................... 587,358 332,796
Distribution fees............................. 366,790 138,665
Transfer agent fees........................... 62,157 25,395
Custodian fees................................ 26,005 12,549
Registration fees............................. 23,092 26,127
Directors' fees............................... 13,512 11,119
Audit fees.................................... 11,115 9,549
Postage....................................... 10,777 3,615
Printing and communications................... 8,105 3,010
Legal fees.................................... 6,282 2,011
Amortization of deferred organiation expenses. 4,729 4,729
Other operating expenses...................... 61,473 43,274
----------- ----------
Total expenses.............................. 1,181,395 612,839
Less: Fees paid indirectly.................. (17,690) (10,285)
Less: Expense reimbursement and
management fee waiver...................... (251,735) (169,980)
----------- ----------
Net expenses................................ 911,970 432,574
----------- ----------
NET INVESTMENT INCOME........................... 7,752,447 3,430,471
----------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) on:
Securities.................................. (1,700,929) 261,961)
Futures contracts........................... (1,054,297) (110,567)
Net increase (decrease) in unrealized
appreciation on:
Securities.................................. (156,536) (215,286)
Futures contracts........................... 271,588 68,714
----------- ----------
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS................................. (2,640,174) 4,822
----------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... $ 5,112,273 $3,435,293
=========== ==========
STATEMENTS OF CHANGES IN NET ASSETS

The accompanying Notes to Financial Statements are an integral part of these Statements.
Short Duration High-Yield Hi
Municipal Fund
-------------------------------- -------
Jan. 2, 1997
Year (commencement of Ye
ended operations) to end
Dec. 31, 1998 Dec. 31, 1997 Dec. 31
------------- ---------------- -------
OPERATIONS:
Net investment income...................................... $ 7,752,447 $ 3,076,220 $ 3,4
Net realized gains (losses) on investments................. (2,755,226) 29,263 1
Net increase (decrease) in unrealized appreciation on
investments............................................... 115,052 864,306 (1
------------- ------------ ------
Net increase in net assets resulting from operations.... 5,112,273 3,969,789 3,4
------------- ------------ ------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................... (7,752,971) (3,076,220) (3,4
Net realized gains on investments.......................... -- -- (5
------------- ------------ ------
Total distributions to shareholders..................... (7,752,971) (3,076,220) (4,0
FUND SHARE ACTIVITIES:
Proceeds from shares issued................................ 160,079,181 162,747,963 91,8
Reinvested dividends from net investment income and
distributions from net realized gains on investments...... 6,808,295 2,700,941 3,4
Cost of shares redeemed.................................... (135,545,191) (45,400,655) (51,9
------------- ------------ ------
Net increase in net assets derived from Fund share
activities............................................. 31,342,285 120,048,249 43,4
------------- ------------ ------
TOTAL INCREASE IN NET ASSETS................................. 28,701,587 120,941,818 42,8
NET ASSETS AT THE BEGINNING OF THE PERIOD.................... 120,941,818 -- 30,6
------------- ------------ ------
NET ASSETS AT THE END OF THE PERIOD.......................... $ 149,643,405 $120,941,818 $ 73,4
============= ============ ======
UNDISTRIBUTED NET INVESTMENT INCOME.......................... $ 369 $ 524 $
============= ============ ======
FINANCIAL HIGHLIGHTS

(1) Commencement of operations.
(2) 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 December 31, 1998 and
December 31, 1997 would have been 0.80% and 0.84%, respectively, and the ratios of net investment income
to average net assets would have been 5.08% and 4.49%, respectively.
(3) 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 December 31, 1998 and
December 31, 1997 would have been 1.08% and 1.25%, respectively, and the ratios of net investment income
to average net assets would have been 5.69% and 4.76%, respectively.
The accompanying Notes to Financial Statements are an integral part of these Statements.
Short Duration High-Yield H
Municipal Fund
-------------------------------- -----
For the Jan. 2, 1997(1) Fo
year ended through year
Dec. 31, 1998 Dec. 31, 1997 Dec.
------------- --------------- -----
Per Share Data
Net asset value, beginning of period.......................... $ 10.15 $10.00
Income from investment operations:
Net investment income...................................... 0.53 0.57
Net realized and unrealized gains (losses) on investments.. (0.17) 0.15
------------- --------------- -----
Total income from investment operations.................... 0.36 0.72
Less distributions from:
Net investment income...................................... (0.53) (0.57)
Net realized gains on investments.......................... -- --
------------- --------------- -----
Total distributions.......................................... (0.53) (0.57)
------------- --------------- -----
Net asset value, end of period................................ $ 9.98 $10.15
============= =============== =====
Total Return................................................. 3.7% 7.4%
Ratios and Supplemental Data
Net assets, end of period (in thousands).................. $149,643 $120,942 $
Ratio of net expenses to average net assets............... 0.62%(2) 0.00%(2)
Ratio of net investment income to average net assets....... 5.26%(2) 5.33%(2)
Portfolio turnover rate................................... 215% 175%
NOTES TO FINANCIAL STATEMENTS . December 31, 1998
(1) Organization
The 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 December 31, 1998.
(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 December 31, 1998, 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 at December 31, 1998. At December 31, 1998 the Short
Duration High-Yield Municipal Fund, and the High-Yield Municipal Fund deferred, on a tax basis, post-October
losses of $2,207,316 and $187,882, respectively. Such amounts may be used to offset future capital gains.
(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 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
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 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 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 December 31, 1998:
Short Duration High-Yield Municipal Fund

Number Expiration Unrealized Notional
Type of Contracts Date Depreciation Value
---- ------------- ---------- ------------- -------------
Municipal Bond Index (125) March 1999 ($9,144) ($15,625,000)
High-Yield Municipal Bond Fund

(g) The Funds entered into a fee arrangement with their custodian bank and transfer agent which provided for a
reduction in custody and transfer agent fees based upon net amounts of uninvested cash balances. The reduction
of custody and transfer agent 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.
(3) Credit Facility
Deutsche Bank AG made available to seven of the nine series of funds issued by the Corporation, including the
Short Duration High-Yield Municipal and High-Yield Municipal Bond Funds, a $70 million credit facility pursuant
to a Credit Agreement ("Agreement") dated March 31, 1998. Effective November 6, 1998 the Agreement was
amended to increase the credit facility to $100,000,000. 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 rate plus 0.4% or to 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 March 31, 1998 through December 31, 1998, the Short Duration High-
Yield Municipal Fund had a outstanding average balance of $2,174 at an average interest rate of 5.90% and a
maximum outstanding balance of $600,000; and the High-Yield Municipal Bond Fund had an outstanding
average balance of $23,188 at an average interest rate of 5.65% and a maximum outstanding balance of
$3,500,000. Interest expenses and commitment fees for the year ended December 31, 1998 were $98 and
$3,593, respectively, for the Short Duration High-Yield Municipal Fund, and $1,000 and $1,497, 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.
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 began to reduce the amount of this waiver and reimbursement each month by 0.15% on an annualized
basis, but will voluntarily reimburse the Funds to the extent that annual total fund operating expenses would
exceed 0.75% for the Short Duration High-Yield Municipal Fund and 0.95% for the High-Yield Municipal Bond
Fund. The Advisor may discontinue such reimbursements at any time.
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
Number Expiration Unrealized Notional
Type of Contracts Date Depreciation Value
---- ------------ ---------- ------------ ------------
Municipal Bond Index (20) March 1999 ($5,889) ($2,500,000)
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 December 31, 1998, were $14,186 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


Cost of investments is the same for financial reporting purposes and Federal income tax purposes.
(7) Fund Share Activities
For the year ended December 31, 1998, Fund share transactions were as follows:

For the period ended December 31, 1997, Fund share transactions were as follows:

REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Heartland Group, Inc.
For the year ended December 31, 1998, purchases and sales of securities,
other than short-term obligations, were as follows (in thousands):

Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- -----------
Cost of purchases $ 346,388 $ 167,659
Proceeds from sales 312,419 122,229

At December 31, 1998, the gross unrealized appreciation and depreciation on
securities for tax purposes were as follows (in thousands):
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- -----------
Appreciation $ 1,112 $ 655
Depreciation (123) (348)
------------ -----------
$ 989 $ 307
============ ===========
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
============ ===========
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- ---------
Shares issued 16,144,715 3,358,272
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 267,346 83,609
Shares redeemed (4,493,392) (512,100)
------------ -----------
Net increase in Fund shares 11,918,669 2,929,781
============ ===========
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and
the related statements of operations and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Heartland Short Duration High- Yield Municipal Fund and
Heartland High-Yield Municipal Bond Fund (two of the nine portfolios of Heartland Group, Inc., and hereafter
referred to as the "Funds") at December 31, 1998, the results of each of their operations, the changes in each of
their net assets and the financial highlights for each of the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation of securities at December 31,
1998 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Milwaukee, Wisconsin
February 5, 1999 PricewaterhouseCoopers LLP
END OF NOTES TO FINANCIAL STATEMENTS
Federal Income Tax Information (Unaudited)
In early 1999, shareholders received information regarding all distributions paid to them by the Funds during
calendar year 1998. No long-term capital gain distributions were designated.
The Heartland Family of Funds
Large Cap Value Fund
Mid Cap Value Fund
Value Plus Fund
Value Fund
U.S. Government Securities 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
1.800.432.7856
www.heartlandfunds.com
[Logo] Heartland Funds
AMERICA'S VALUE INVESTOR/(R)/
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 Short Duration
High-Yield Municipal Fund and the High-Yield Municipal Bond Fund 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 or visit Heartland's website. Read it carefully before you invest.
Heartland Advisors, Inc., distributor. Member SIPC.
[Logo] Heartland Funds

AMERICA'S VALUE INVESTOR/(R)/
Value Report
December 31, 1998
Notes on value investing
for investors in the Heartland
Wisconsin Tax Free Fund
Annual Report
to Shareholders
Heartland Wisconsin
Tax Free Fund
VALUE REPORT
[Photo of Pat Retzer]
Patrick J. Retzer, CPA
Portfolio Co-Manager
/1/ For certain investors, a portion of the Fund's income may be subject to the alternative minimum tax.
/2/ Other fees and expenses apply to a continued investment in the Fund and are described in the Fund's current
prospectus.
/3/ According to Lipper, Inc. at 12/31/98 there were four Wisconsin double tax- free funds available with net
assets ranging from $33 to $143 mil.
Smooth Sailing
Dear Fellow Shareholders,
Wisconsin municipal bonds sailed smoothly through the troubled economic waters that rocked stocks and
corporate bonds in 1998. Despite excellent returns, municipal securities are now historically cheap relative to
Treasuries, which were clearly the investment of choice for those fleeing the volatile equities and corporate bond
markets. With nominal investment grade municipal yields now exceeding yields of Treasuries with comparable
maturities, the double tax-free feature of Wisconsin municipals is pure gravy.
Municipal securities' historically high after-tax yield advantage over Treasuries should attract more buyers to our
market in the year ahead. The relatively low yields from Treasuries and the increased credit risk of corporate
bonds in this uncertain economic environment leads us to the conclusion that if you want to buy bonds, you
should buy municipals. This further holds true for higher federal income tax bracket Wisconsin investors, whose
income from the Fund is double income tax-free./1/
Looking ahead into 1999, we expect to continue to enjoy a favorable economic environment for municipal
bonds. There is virtually no inflation. The Federal Reserve has room to drop interest rates even further should a
slowing economy need some stimulus or if the Fed is once again forced to play the role of global financial fireman.
While we are not stock market forecasters, we think currently high equity valuations combined with justifiable
uncertainty over corporate earnings may result in another market dip that may inspire more investors to allocate
more of their assets to bonds.
Recently, a prospective shareholder called and asked us to compare the Fund to other Wisconsin double tax-free
fund alternatives. So, we did some research on our competitors. We thought we would share the results with you.
First and foremost, at year end the Fund was the only no-load fund in the group./2/ This allows for 100% of your
investment to be put to work for you immediately. Second, on the basis of its $143 million of net assets at
December 31, 1998, the Fund is the largest of the four Wisconsin double tax-free funds
VALUE REPORT
currently reviewed by Lipper./3/ This size advantage gives us clout in the new issues market and helps us build a
diversified portfolio. Finally, although we invest in issues from Puerto Rico, the Virgin Islands, and Guam which as
U.S. territories enjoy double tax-free status in Wisconsin, historically, we have invested virtually all of the Fund's
assets in Wisconsin issues. At December 31, 1998, 88% of the Fund's assets were invested right here at home.
This information converted our caller into a Fund shareholder. We wouldn't object if you spread this news to
your friends and family.
Sincerely,
[Signature of Pat Retzer]
Patrick J. Retzer, CPA
Portfolio Co-Manager
[Signature of Tom Conlin]
Thomas J. Conlin, CFA
Portfolio Co-Manager
[Photo of Tom Conlin]
Thomas J. Conlin, CFA Portfolio Co-Manager
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.

Past performance is no guarantee of future results.
/4/ Yields shown are annualized yields for the 30 days ended December 31, 1998. /5/ Based on federal rates,
adjusted for the maximum phase-out of itemized deductions and personal exemptions.
/6/ Based on the Wisconsin rate and the maximum effective federal rate, adjusted to reflect the deductibility of
state taxes.
1
DECEMBER SEC TAX-FREE YIELD/4/ EQUIVALENT TAXABLE YIELDS
4.5% 6.9% 7.2% 7.8% 8.3%
Your Federal Rate 28.0% 31.0% 36.0% 39.6%
Maximum Effective Federal Rate/5/ 29.4 32.6 37.8 41.6
Wisconsin Tax Rate 6.9 6.9 6.9 6.9
Maximum Effective Combined Rate/6/ 34.3 37.2 42.1 45.6
VALUE REPORT
Heartland Wisconsin Tax Free Fund
[Photo of
Pat Retzer]
Patrick J. Retzer, CPA
Portfolio Co-Manager
[Photo of
Tom Conlin]
Thomas J. Conlin, CFA
Portfolio Co-Manager
"We believe Schlitz Park bonds are of a special brew. As such, we're lifting a glass of Schlitz to toast what we
feel will be a very satisfying investment."
In the fourth quarter of 1998, the Fund returned 0.7% compared to the Lehman 10 Year Municipal Bond and 20
Year Municipal Bond Indexes' 0.7% and 0.4% respective gains./1/ In full year 1998, the Fund returned 5.4%
versus the two benchmark indexes' 6.8% and 6.8% respective advances. For the year, the Fund's share price
rose from $10.44 to $10.48 while paying dividends of $.51 per share. Dividends were 100% exempt from both
Wisconsin and federal income tax./2/ For additional information on the Fund, please see the Fund Fact Sheet on
page 4.
As we have discussed in the past, since the Fund's portfolio consists of only bonds exempt from federal and
Wisconsin income tax, its performance can be expected to differ from the unmanaged benchmarks, which consist
of municipal bonds from across the country. Given the high demand for and limited supply of double-exempt
bonds in Wisconsin, our state's municipal bonds are generally less sensitive to interest rate movements than some
of the more widely held securities in the benchmark. This factor contributed to our underperformance as interest
rates cascaded down in 1998. However, it can also work in our favor if interest rates rise. In light of the Fund's
Wisconsin double tax-exempt nature, we are pleased with the results we were able to achieve for our
shareholders in 1998.
The Beer That Made Milwaukee Famous
Schlitz, the beer that made Milwaukee famous, was sold to Stroh's in 1982. The Schlitz brewery complex in
downtown Milwaukee, once the largest brewery in the world, has been converted to a 40-acre office,
warehouse, and light industrial use campus. In November 1998, the Milwaukee, Wisconsin Redevelopment
Authority issued Schlitz Park Mortgage Revenue Refunding bonds to refinance two of the buildings in the Schlitz
Park Campus. With ample parking and bus service, Schlitz Park is a
2
VALUE REPORT
unique and popular downtown property. The occupancy rate for one of the buildings being refinanced,
Bottlehouse B, is currently 100% and includes tenants like Time-Warner, the Wisconsin Department of
Commerce, and the Wisconsin Housing & Economic Development Authority. The second building, the
Powerhouse, houses the air conditioning plant for all eight buildings in the Schlitz Park complex.
These bonds' interest payments are supported by revenues provided by the two buildings' rental income and by
"Chilled Water" (air conditioning) contracts with the other buildings in the Park. They are further secured by a first
lien on the buildings, a security interest in the personal property located in or on the buildings, and an assignment
of leases and rents. Debt service coverage in 1997 was 2.18x. The Funds' holdings include $3.4 million in these
bonds, which are currently yielding 5.6%. We believe Schlitz Park bonds are of a special brew. As such, we're
lifting a glass of Schlitz to toast what we feel will be a very satisfying investment.
[line chart illustrating performance of an assumed investment of $10,000 in the Heartland Wisconsin Tax Free
Fund and the Lehman 20 Year Municipal Bond Index beginning on April 3, 1992 inception date as follows:

Legend in graph states that Past performance is not predictive of future results.
A box above the graph states Average Annual Total Returns as of 12/31/98(3) as follows:

1 The Lehman 10-Year Municipal Bond Index is an unmanaged index of certain investment grade municipal
securities with maturities between 8 and 12 years and the Lehman 20-Year Municipal Bond Index is an
unmanaged index of certain investment grade municipal securities with maturities between 17 and 22 years.
2 For 1998, 17.4% of the Fund's income was an item of tax preference for purposes of computing the federal
alternative minimum tax.
3 Total returns include reinvestment of dividends and capital gain distributions.
On 12/31/98, the Fund's Schlitz Park Mortgage Revenue Refunding Bonds--5.6% due 01/01/2015--were
valued at $3,408,500 and represented 2.4% of the Fund's net assets.
3
Heartland Wisconsin Lehman 20 Year
Tax Free Fund Municipal Bond Index
04/03/92 $10,000 $10,000
12/31/92 10,546 10,900
12/31/93 11,685 12,467
12/31/94 10,926 11,553
12/31/95 12,869 13,972
12/31/96 13,359 14,593
12/31/97 14,436 16,175
12/31/98 15,217 17,279
Heartland Wisconsin Lehman 20 Year
Tax Free Fund Municipal Bond Index
1-year 5.4% 6.8%
5-year 5.4% 6.8%
Since inception 6.4% 8.5%]
VALUE REPORT
Portfolio Profile
OBJECTIVE
The Heartland Wisconsin Tax Free Fund seeks a high level of current income that is exempt from federal and
Wisconsin personal income taxes.

GENERAL INFORMATION


PORTFOLIO COMPOSITION
[graphic - A pie chart displays categories of the Heartland Wisconsin Tax Free Fund's Portfolio as of 12/31/98:
Housing at 50.5%; Education at 15.2%; Industrial dev. at 14.1%; Public facilities at 8.3%; Other at 11.9%.
Other is further broken down as follows: Utilities at 3.7%; Other revenue at 3.7%; G.O. at 1.7%; Cash & equiv.
at 1.3%; Transportation at 0.9%; Health care at 0.6%]
Past performance is no guarantee of future results.
/1/ Yields shown are annualized yields for the 30 days ended December 31, 1998.
/2/ Based on federal rates, adjusted for the maximum phase-out of itemized deductions and personal exemptions.
/3/ Based on the Wisconsin rate and the maximum effective federal rate, adjusted to reflect the deductibility of
state taxes.
All statistics are as of December 31, 1998.
4
DECEMBER SEC TAX-FREE YIELD/1/ EQUIVALENT TAXABLE YIELDS
4.5% 6.9% 7.2% 7.8% 8.3%
Your Federal Rate 28.0% 31.0% 36.0% 39.6%
Maximum Effective Federal Rate/2/ 29.4 32.6 37.8 41.6
Wisconsin Tax Rate 6.9 6.9 6.9 6.9
Maximum Effective Combined Rate/3/ 34.3 37.2 42.1 45.6
Sales commission.........................None
Share price............................$10.48
Weighted average maturity............9.2 yrs.
Weighted average duration............6.6 yrs.
Net assets........................$143.4 mil.
Number of holdings........................215
TOP 3 HOLDINGS COUPON MATURITY % OF NET ASSETS
Milwaukee Redevelopment Auth. - WI Ave..... 5.5% 09/2012 8.1%
Wisconsin Center - Rev. Bnds. - Pub. Imp... 5.7 12/2020 7.0
Milw. Redevelopment Auth. - Schlitz Park... 5.5 01/2017 2.6
VALUE REPORT
Dear Investor
We are here to help you meet your investment needs.
If you have a question, please call Heartland Shareholder Services. We're confident you'll find our representatives
to be knowledgeable and responsive.
[Photo of Shareholder Services Representative]
1.800.432.7856
www.heartlandfunds.com
5
Heartland's Risk/Return Spectrum
[graphic - A spectrum illustrates the potential risk/return of the following categories, both the categories and the
funds within them being listed in an aggregate order of lower to higher potential risk/return, respectively: Money
Market, which includes the Firstar Money Market; Bond, which includes Short Duration High-Yield Municipal,
Taxable Short Duration Municipal, U.S. Government Securities, Wisconsin Tax Free and High-Yield Municipal
Bond; and Equity or Stock, which includes Large Cap Value, Value Plus, Mid Cap Value and Value.]
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 Milwaukee 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 or visit our website at www.heartlandfunds.com. Read it carefully before you invest.
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS . December 31, 1998

---------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS 98.7% COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------------------
WISCONSIN 87.9%
$ 20,000 Amery, WI Housing Authority - Revenue Bonds............. 7.375% 05/01/2005 $ 20,90
300,000 Appleton, WI Housing Authority - Industrial Park........ 6.500 10/01/2016 302,62
1,390,000 Appleton, WI Housing Authority - Industrial Park........ 6.750 10/01/2026 1,402,16
125,000 Barron, WI Housing Authority - Maplecroft Project....... 0.000 10/01/2004 98,28
130,000 Barron, WI Housing Authority - Maplecroft Project....... 0.000 10/01/2008 82,55
35,000 Barron, WI Housing Authority - Maplecroft Project....... 0.000 10/01/2005 26,07
130,000 Barron, WI Housing Authority - Maplecroft Project....... 0.000 10/01/2006 91,97
85,000 Barron, WI Housing Authority - Maplecroft Project....... 0.000 10/01/2007 56,95
900,000 Bristol, WI Community Development Authority............. 6.125 03/01/2012 952,87
3,085,000 Brown County, WI Housing Authority - R.P. Terrace....... 6.500 06/01/2019 3,216,11
200,000 Brown County, WI Housing Auth. - Univ. Village Housing.. 5.400 04/01/2017 202,50
75,000 Dane County, WI Housing Authority - Forest Harbor Apts.. 5.950 07/01/2013 78,09
25,000 Dane County, WI Housing Authority - Forest Harbor Apts.. 6.000 07/01/2014 26,06
435,000 Deforest, WI Redev. Auth. - Lease Revenue Bonds......... 6.250 02/01/2018 485,02
265,000 Deforest, WI Redev. Auth. - Lease Revenue Bonds......... 6.200 02/01/2014 294,48
685,000 Eau Claire, WI Housing Auth. - London Hill.............. 6.250 05/01/2015 701,26
550,000 Elkhart Lake, WI Community Development Authority........ 6.000 04/01/2015 574,75
190,000 Evansville, WI Housing Authority - Baker Block Project.. 5.750 12/01/2016 190,36
250,000 Franklin, WI Community Development Authority............ 6.150 04/01/2012 275,00
890,000 Franklin, WI Community Development Authority............ 6.100 04/01/2010 977,88
250,000 Franklin, WI Community Development Authority............ 5.850 04/01/2006 271,56
10,000 Franklin, WI Community Development Authority............ 5.400 04/01/2003 10,00
1,000,000 Glendale, WI Community Development Authority............ 5.400 09/01/2018 993,75
2,875,000 Green Bay, WI Housing Authority - Pheasant Run Project.. 6.500 09/01/2019 2,979,21
2,500,000 Green Bay, WI Housing Authority - Moraine Ridge......... 6.150 12/01/2030 2,675,00
200,000 Hartford, WI Community Development Authority............ 5.800 12/01/2005 216,75
100,000 Hartford, WI Community Development Authority............ 5.450 12/01/2002 105,12
210,000 Hartford, WI Community Development Authority............ 6.000 12/01/2007 227,58
225,000 Hartford, WI Community Development Authority............ 6.100 12/01/2008 243,56
75,000 Hudson, WI Christian Community Home..................... 6.800 05/01/2009 76,12
65,000 Hudson, WI Christian Community Home..................... 6.900 05/01/2010 66,05
250,000 Hudson, WI Christian Community Home..................... 7.000 05/01/2023 253,43
55,000 Hudson, WI Christian Community Home..................... 6.700 05/01/2008 55,82
250,000 Hudson, WI Wintergreen Apartments....................... 6.000 07/01/2020 249,68
390,000 Jackson, WI Community Development Authority............. 7.000 12/01/2013 429,97
500,000 Jackson, WI Community Development Authority............. 7.000 12/01/2017 543,12
515,000 Jackson, WI Community Development Authority............. 7.000 12/01/2016 565,85
430,000 Jackson, WI Community Development Authority............. 7.000 12/01/2014 467,08
345,000 Jackson, WI Community Development Authority............. 7.000 12/01/2015 374,75
350,000 Jackson, WI Community Development Authority............. 7.000 12/01/2012 380,18
285,000 Jackson, WI Community Development Authority............. 6.900 12/01/2010 315,99
180,000 Jackson, WI Community Development Authority............. 6.700 12/01/2008 200,47
105,000 Jackson, WI Community Development Authority............. 6.600 12/01/2007 117,33
160,000 Jackson, WI Community Development Authority............. 6.500 12/01/2006 178,60
260,000 Jackson, WI Community Development Authority............. 6.800 12/01/2009 288,60
1,760,000 La Crosse, WI Housing Authority - Forest Park Project... 6.375 12/01/2018 1,812,80
1,100,000 La Crosse, WI Housing Authority - Ping Manor Project.... 6.375 04/01/2012 1,144,00
720,000 La Crosse, WI Housing Authority - Ping Manor Project.... 6.000 04/01/2005 738,90
350,000 La Crosse, WI Housing Authority - Washburn.............. 6.500 10/01/2026 362,25
1,000,000 La Crosse, WI Housing Authority - Meadow Wood Project... 6.250 01/01/2028 1,005,00
100,000 Little Chute, WI Community Development Authority....... 5.625 03/01/2019 103,87
305,000 Madison, WI CDA - Dempsey Manor Project................. 6.400 10/01/2018 315,29
160,000 Madison, WI CDA - Dempsey Manor Project................. 6.665 10/01/2025 164,00
1,435,000 Madison, WI CDA - Edgewood College...................... 6.250 04/01/2014 1,521,10
95,000 Madison, WI CDA - Greentree Project - Series A.......... 7.300 09/01/2032 96,78
1,000,000 Madison, WI CDA - Meriter Retirement Project............ 6.125 12/01/2019 1,077,50
45,000 Madison, WI CDA - Monticello Apartments Project......... 7.125 04/01/2009 46,42
190,000 Madison, WI CDA - Second Mortgage - Revenue Bonds....... 5.875 07/01/2016 202,35
100,000 Marinette, WI Housing Authority - Multifamily - Series A 6.750 02/01/2024 104,12
165,000 Markesan, WI CDA - Elderly Housing Revenue Bonds........ 6.750 10/01/2009 172,21
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS [cont'd] . December 31, 1998

---------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS 98.7% [cont'd] COUPON MATURITY VALU
---------------------------------------------------------------------------------------------------------
WISCONSIN 87.9% [cont'd]
$ 190,000 Markesan, WI CDA - Elderly Housing Revenue Bonds.......... 6.900% 10/01/2011 $ 199
635,000 Mayville, WI Community Development Authority.............. 5.600 04/01/2018 637
100,000 Menomonee Falls, WI CDA - Village Square Project.......... 5.200 09/01/2009 97
950,000 Menomonee Falls, WI CDA - Village Square Project.......... 5.350 09/01/2016 916
215,000 Milwaukee, WI Housing Authority - Blatz Apartments........ 7.500 12/01/2028 222
3,000,000 Milwaukee, WI Redevelopment Auth. - Campus Town........... 5.700 11/01/2018 3,142
55,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.......... 5.300 12/01/2007 57
65,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.......... 5.350 12/01/2008 67
55,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.......... 5.400 12/01/2010 56
225,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.......... 5.500 12/01/2013 231
1,955,000 Milwaukee, WI Redevelopment Auth. - MSOE (Series A)....... 6.000 10/01/2017 2,001
1,385,000 Milwaukee, WI Redevelopment Auth. - MSOE (Series B)....... 6.000 10/01/2017 1,416
3,250,000 Milwaukee, WI Redevelopment Auth. - Multifamily........... 6.300 08/01/2038 3,436
10,000 Milwaukee, WI Redevelopment Auth. - School Improvement.... 0.000 03/01/2004 7
1,755,000 Milwaukee, WI Re. Auth. - Wisc. Ave/M.L. King, Jr. Dr..... 5.600 09/01/2009 1,866
11,000,000 Milwaukee, WI Re. Auth. - Wisc. Ave/M.L. King, Jr. Dr. (b) 5.500 09/01/2012 11,577
3,400,000 Milwaukee, WI Redevelopment Auth. - Schlitz Park.......... 5.600 01/01/2015 3,408
3,740,000 Milwaukee, WI Redevelopment Auth. - Schlitz Park.......... 5.500 01/01/2017 3,725
1,270,000 Milwaukee, WI Housing Auth. - Renaissance Apartments...... 5.250 01/01/2025 1,268
650,000 New Berlin, WI Housing Authority - Apple Glen............. 6.700 11/01/2020 689
1,210,000 New Berlin, WI Housing Authority - Apple Glen............. 6.700 11/01/2017 1,284
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2007 40
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2010 36
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2009 34
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2009 38
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2005 50
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2007 44
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2004 47
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2006 42
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2003 50
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2005 45
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2006 47
165,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.800 11/01/2012 170
190,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.900 11/01/2014 201
135,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.900 05/01/2014 139
165,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.850 11/01/2013 176
160,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.850 05/01/2013 165
105,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.500 05/01/2009 107
155,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.700 11/01/2011 159
150,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.700 05/01/2011 154
125,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.600 05/01/2010 133
125,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.400 11/01/2008 127
125,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.400 05/01/2008 127
1,015,000 New Berlin, WI Housing Authority - Pinewood Creek......... 7.125 05/01/2024 1,078
1,000,000 New Richmond, WI Com. Dev. Auth. - Senior Housing......... 5.850 10/01/2020 995
3,000,000 New Richmond, WI Com. Dev. Auth. - Senior Housing......... 6.000 10/01/2032 2,985
80,000 Oak Creek, WI Housing Authority - Country Oaks II......... 6.000 08/01/2010 82
2,980,000 Oak Creek, WI Housing Authority - Country Oaks II......... 6.300 08/01/2028 3,199
1,440,000 Oak Creek, WI Housing Authority - Country Oaks II......... 6.200 08/01/2017 1,481
10,000 Oak Creek, WI Housing Authority - Multifamily............. 7.750 03/01/2031 10
125,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 01/20/2013 56
2,130,000 Oak Creek, WI Housing Authority - Wood Creek.............. 5.625 07/20/2029 2,172
1,000,000 Oak Creek, WI Housing Authority - Wood Creek.............. 5.500 07/20/2019 1,018
60,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 01/20/2014 25
125,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 07/20/2013 54
65,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 01/20/2012 30
125,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 07/20/2011 61
125,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 01/20/2011 63
35,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 01/20/2010 18
50,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 07/20/2007 31
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS [cont'd]. December 31, 1998

---------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS 98.7% [cont'd] COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------------------
WISCONSIN 87.9% [cont'd]
$ 3,000,000 Oconto Falls, WI Community Development Authority......... 7.750% 12/01/2022 $ 3,176,2
335,000 Omro, WI CDA - Revenue Bonds............................. 5.875 12/01/2011 358,8
50,000 Omro, WI CDA - Revenue Bonds............................. 5.750 12/01/2006 54,5
200,000 Outagamie, WI Housing Authority - First Mortgage......... 5.000 11/15/2003 200,0
10,000 Racine, WI Elderly Housing Authority - Lincoln Lutheran.. 7.150 10/01/2005 10,0
5,000 Racine, WI Elderly Housing Authority - Lincoln Lutheran.. 7.100 10/01/2004 5,0
200,000 River Falls, WI Housing Authority - Lutheran Home Project 5.750 04/01/2028 200,2
170,000 Schofield, WI CDA - Lease Revenue........................ 6.000 10/01/2012 179,9
500,000 Schofield, WI CDA - Lease Revenue........................ 6.200 10/01/2017 527,5
970,000 SE WI Professional Baseball Park District................ 0.000 12/15/2015 417,1
1,000,000 SE WI Professional Baseball Park District................ 0.000 12/15/2017 381,2
315,000 Sheboygan, WI Housing Authority - Multifamily Housing.... 6.900 02/01/2024 325,4
125,000 Sheboygan, WI Housing Authority - Rocky Knoll Project.... 5.300 12/01/2016 126,2
175,000 Sheboygan, WI Housing Authority - Rocky Knoll Project.... 5.250 12/01/2013 176,0
35,000 Slinger, WI Redevelopment Auth. Lease Revenue............ 5.800 09/01/2007 36,8
95,000 Slinger, WI Redevelopment Auth. Lease Revenue............ 5.850 09/01/2008 100,1
250,000 Sparta, WI Housing Authority - Morrow Memorial Home...... 5.750 06/01/2022 250,0
560,000 Stevens Point, WI CDA - Mrtge. Refunding - Edgewater..... 6.625 09/01/2009 592,2
100,000 Stevens Point, WI CDA - Mrtge. Refunding - Edgewater..... 6.500 09/01/2006 106,3
435,000 Sturtevant, WI CDA - Redevelopment Lease................. 5.700 12/01/2009 456,2
375,000 Sturtevant, WI CDA - Redevelopment Lease................. 5.800 12/01/2010 393,7
200,000 Sturtevant, WI CDA - Redevelopment Lease................. 5.900 12/01/2011 210,2
1,000,000 Sturtevant, WI CDA - Redevelopment Lease................. 6.000 12/01/2015 1,055,0
200,000 Sturtevant, WI CDA - Redevelopment Lease................. 6.500 12/01/2015 216,5
1,190,000 St. Croix Falls, WI CDA Lease Revenue.................... 6.400 12/01/2014 1,253,9
115,000 St. Croix Falls, WI CDA Lease Revenue.................... 6.000 12/01/2007 122,3
105,000 St. Croix Falls, WI CDA Lease Revenue.................... 5.900 12/01/2006 111,3
310,000 Superior, WI Housing Authority - St. Francis Project.... 6.000 01/20/2022 321,6
195,000 Sussex, WI CDA - Revenue Bond........................... 5.700 04/01/2007 212,0
1,900,000 Sussex, WI CDA - Revenue Bond........................... 6.100 04/01/2015 2,106,6
270,000 Two Rivers, WI CDA - Arch Forest Project................. 6.350 12/15/2012 278,4
500,000 Waukesha, WI HA - Multifamily - Brookfield Woods......... 6.750 12/01/2034 511,2
405,000 Waukesha, WI HA - Multifamily - The Court Apartments..... 5.800 04/01/2025 416,1
1,000,000 Waukesha, WI HA - Multifamily - The Court Apartments..... 6.000 04/01/2036 1,015,0
2,800,000 Waukesha, WI HA - The Arboretum Project.................. 5.250 12/01/2021 2,796,5
1,500,000 Waukesha, WI HA - Multifamily - Oak Hill Terrace Project. 5.450 06/01/2027 1,518,7
1,000,000 Waukesha, WI HA - Westgrove Woods - A.................... 6.000 12/01/2031 1,057,5
715,000 Waukesha, WI HA - Westgrove Woods - C.................... 6.750 02/01/2027 734,6
750,000 Waukesha, WI HA - Riverwalk Apartments................... 5.625 12/01/2020 750,0
95,000 Waupaca, WI CDA - Series A............................... 6.100 10/01/2008 100,8
100,000 Waupaca, WI CDA - Series A............................... 6.200 10/01/2010 106,5
110,000 Waupaca, WI CDA - Series A............................... 6.200 10/01/2011 117,1
100,000 Waupaca, WI CDA - Series A............................... 6.100 10/01/2009 106,1
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2010 54,3
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2009 57,8
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2009 53,6
1,060,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 6.700 11/01/2019 1,101,0
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2010 50,2
1,200,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 6.700 11/01/2015 1,249,5
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2008 62,0
615,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 6.700 11/01/2022 638,8
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2008 57,5
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2006 65,7
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2007 61,8
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2004 79,5
75,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2003 60,0
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2003 78,1
70,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2005 50,0
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2004 73,8
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2007 66,8
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS [cont'd] . December 31, 1998

(a) When-issued security.
(b) All or a 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.
--------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS 98.7% [cont'd] COUPON MATURITY
---------------------------------------------------------------------------------------------------------
WISCONSIN 87.9% [cont'd]
$ 100,000 Wauwatosa, WI HA - Hawthorne Terrace Project..................... 0.000% 11/01/2005 $
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project..................... 0.000 05/01/2006
2,720,000 West Allis, WI CDA - Poblocki Investments Project................ 6.100 05/01/2007
145,600 Whitewater, WI Multifamily Housing - Revenue Bonds............... 5.375 11/15/2005
100,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2005
115,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2007
120,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2008
125,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2009
135,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2010
105,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2006
10,000 Winnebago County, WI Housing Authority - Series A................ 6.200 03/01/2001
15,000 Winnebago County, WI Housing Authority - Series A................ 6.300 03/01/2003
10,000 Winnebago County, WI Housing Authority - Series A................ 6.000 03/01/1999
10,000 Winnebago County, WI Housing Authority - Series A................ 6.100 03/01/2000
380,000 Winnebago County, WI Housing Authority - Series A................ 7.125 03/01/2022
195,000 Winnebago County, WI Housing Authority - Series A................ 6.875 03/01/2012
9,650,000 Wisconsin Center - Revenue Bond - Public Improvements............ 5.700 12/15/2020
2,500,000 Wisconsin Center - Revenue Bond - Public Improvements............ 0.000 12/15/2026
50,000 WHEDA Home Ownership............................................. 0.000 12/01/2007
60,000 Wittenberg, WI HA - Multifamily - Forest Park.................... 7.200 06/20/2030
200,000 Wrightstown, WI Community Development Authority................. 5.950 06/01/2014
600,000 Wrightstown, WI Community Development Authority................. 6.000 06/01/2019
-

-
GUAM 4.9%
3,400,000 Guam Power Authority - Series A.................................. 6.300 10/01/2012
250,000 Guam Power Authority - Series A.................................. 5.250 10/01/2013
1,000,000 Guam Power Authority - Series A.................................. 6.400 10/01/2005
1,000,000 Guam Power Authority - Series A.................................. 5.250 10/01/2023
1,000,000 Guam Government G.O. - Series A.................................. 5.375 11/15/2013
-

-
PUERTO RICO 2.2%
1,000,000 Puerto Rico Commonwealth G.O..................................... 5.000 07/01/2027
420,000 Puerto Rico Commonwealth Public Improvement...................... 5.500 07/01/2013
1,205,000 Puerto Rico Commonwealth Hwy./Transportation..................... 5.500 07/01/2017
990,000 Puerto Rico Electric Power Authority - Series O.................. 0.000 07/01/2017
135,000 Puerto Rico Housing Finance Corporation - Multifamily............ 7.500 10/01/2015
-

-
VIRGIN ISLANDS 3.7%
3,000,000 Virgin Islands Water & Power Authority (a)....................... 5.500 07/01/2017
1,250,000 Virgin Islands Public Finance Authority.......................... 5.875 10/01/2018
1,000,000 Virgin Islands Public Finance Authority.......................... 6.000 10/01/2022
-

-
TOTAL INVESTMENTS (Cost $135,811,131) 98.7% $
Cash and receivables, less liabilities......................1.3%
------ -
TOTAL NET ASSETS..........................................100.0% $
======= =
HEARTLAND WISCONSIN TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES . December 31, 1998

The accompanying Notes to Financial Statements are an integral part of this Statement.
ASSETS:
Investments in securities, at cost............................. $135,811,131
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Investments in securities, at value............................ $141,509,138
Cash........................................................... 605,733
Receivable from securities sold................................ 2,787,069
Receivable from fund shares sold............................... 44,238
Receivable from custodian...................................... 21,636
Accrued interest............................................... 1,734,831
Prepaid expenses............................................... 4,577
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Total Assets.................................................. 146,707,222
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LIABILITIES:
Payable for securities purchased............................... 2,961,287
Payable for fund shares redeemed............................... 30,838
Distributions payable.......................................... 161,489
Payable to Advisor for management fee.......................... 78,904
Accrued expenses............................................... 57,614
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Total Liabilities............................................. 3,290,132
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TOTAL NET ASSETS................................................. $143,417,090
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NET ASSETS CONSIST OF:
Paid in capital................................................ $138,451,928
Accumulated net realized losses on investments................. (732,845)
Net unrealized appreciation on investments..................... 5,698,007
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TOTAL NET ASSETS................................................. $143,417,090
=============
SHARES OUTSTANDING, $.001 par value (100,000,000
shares authorized)........................................... 13,682,883
=============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE... $ 10.48
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HEARTLAND WISCONSIN TAX FREE FUND
STATEMENT OF OPERATIONS
For the year ended December 31, 1998

HEARTLAND WISCONSIN TAX FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
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INVESTMENT INCOME:
Interest.............................................................................. $7,798,638
----------
Total investment income.............................................................. 7,798,638
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EXPENSES:
Management fees....................................................................... 889,967
Transfer agent fees................................................................... 70,355
Printing and communications........................................................... 23,999
Postage............................................................................... 20,391
Custodian fees........................................................................ 15,589
Directors' fees....................................................................... 13,345
Audit fees............................................................................ 10,741
Legal fees............................................................................ 5,361
Registration fees..................................................................... 1,811
Other operating expenses.............................................................. 46,793
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Total expenses....................................................................... 1,098,352
Less: Fees paid indirectly........................................................... (21,636)
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Net expenses......................................................................... 1,076,716
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NET INVESTMENT INCOME................................................................. 6,721,922
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REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:

Net realized gains (losses) on:
Securities........................................................................... 1,354,138
Futures contracts.................................................................... (769,370)
Net increase (decrease) in unrealized appreciation on:
Securities........................................................................... 20,303
Futures contracts.................................................................... (56,788)
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TOTAL REALIZED AND UNREALIZED GAINS ON INVESTMENTS.................................... 548,283
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................. $7,270,205
==========
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Year ended Year ended
Dec. 31, Dec. 31,
1998 1997
---------------------------
OPERATIONS:
Net investment income.............................................. $ 6,721,922 $ 6,371,342
Net realized gains (losses) on investments......................... 584,768 (782,935)
Net increase (decrease) in unrealized appreciation on investments.. (36,485) 4,203,774
------------ ------------
Net increase in net assets resulting from operations............ 7,270,205 9,792,181
============ ============
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................. (6,721,922) (6,371,342)
============ ============
Total distributions to shareholders............................. (6,721,922) (6,371,342)
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued........................................ 25,777,610 18,773,769
Reinvested dividends from net investment income.................... 4,871,431 4,507,242
Cost of shares redeemed............................................ (19,128,276) (19,898,571)
------------ ------------

The accompanying Notes to Financial Statements are an integral part of these Statements..DOC
Net increase in net assets derived from Fund share activities... 11,520,765 3,382,440
------------ ------------
TOTAL INCREASE IN NET ASSETS.............................................. 12,069,048 6,803,279
NET ASSETS AT THE BEGINNING OF THE YEAR................................... 131,348,042 124,544,763
------------ ------------
NET ASSETS AT THE END OF THE YEAR......................................... $143,417,090 $131,348,042
============ ============
FINANCIAL HIGHLIGHTS

(1) The front-end sales charge in effect for the Fund prior to June 1, 1994 is not reflected in Total Return.
(2) The ratio does not include fees paid indirectly. If the Fund did not have fees paid indirectly, the expense ratio
would have been 0.80% for 1998, 0.82% for 1997 and 0.81% for 1996. Disclosure of fees paid indirectly was
not required prior to December 31, 1995.
The accompanying Notes to Financial Statements are an integral part of this Statement.
Wisconsin Tax Free Fu
--------------------------------------
For the year ended Decemb
1998 1997 1996
-------- -------- -------- --
Per Share Data
Net asset value, beginning of year ............................. $ 10.44 $ 10.16 $ 10.30 $
Income (loss) from investment operations:
Net investment income ...................................... 0.51 0.52 0.51
Net realized and unrealized gains (losses) on investments .. 0.04 0.28 (0.14)
-------- -------- -------- --
Total income (loss) from investment operations ......... 0.55 0.80 0.37
Less distributions from:
Net investment income ...................................... (0.51) (0.52) (0.51)
-------- -------- -------- --
Total distributions .................................... (0.51) (0.52) (0.51)
-------- -------- -------- --
Net asset value, end of year ................................... $ 10.48 $ 10.44 $ 10.16 $
======== ======== ======== ==
Total Return(1) ................................................ 5.4% 8.1% 3.8%
Ratios and Supplemental Data
Net assets, end of year (in thousands) ..................... $143,417 $131,348 $124,545 $1
Ratio of net expenses to average net assets ................ 0.78%(2) 0.81%(2) 0.80%(2)
Ratio of net investment income to average net assets ....... 4.90% 5.05% 5.12%
Portfolio turnover rate .................................... 16% 8% 14%
HEARTLAND WISCONSIN TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS . December 31, 1998
(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 December 31, 1998.
(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 Funds' policy is to comply with the requirements of the Internal Revenue Code which are applicable to
regulated investment companies and to distribute substantially all of its taxable income to its shareholders. The
Fund accordingly paid no Federal income taxes, and no Federal income tax provision is required.
The Fund utilized $135,143 of its capital loss carryforwards in 1998. At December 31, 1998, 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 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 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 December 31, 1998.
(g) The Fund entered into a fee arrangement with its custodian bank and transfer agent which provided for a
reduction in custody fees and transfer agent fees based upon net amounts of uninvested cash balances. The
reduction of custody and transfer agent 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.
(3) Credit Facility Deutsche Bank AG made available to seven of the nine series of funds issued by the
Corporation, including the Wisconsin Tax Free Fund, a $70 million credit facility pursuant to a Credit Agreement
("Agreement") dated March 31, 1998. Effective November 6, 1998 the Agreement was amended to increase the
credit facility to $100,000,000. 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 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 March 31, 1998 through December 31, 1998, the Fund did not borrow against the facility.
Commitment fees for the year ended December 31, 1998 were $3,181.
(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 .65% of the daily net asset value of the Fund.
Officers and certain directors of the Corporation are also officers and/or directors of the Advisor; however, they
receive no compensation from the Fund.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the Board of Directors of the
Corporation has adopted a plan which will allow the Fund, under certain conditions described in the Rule, to
acquire newly- issued securities from syndicates in which the Advisor is a member.
(5) Investment Transactions
During the year ended December 31, 1998, cost of purchases and proceeds from sales of securities, other than
short-term obligations, were $29,142,397 and $22,126,326, respectively.
At December 31, 1998, the gross unrealized appreciation and depreciation on securities for tax purposes were
$5,824,375 and ($126,368), respectively, netting to $5,698,007.
Cost of investments is the same for financial reporting purposes and Federal income tax purposes.
(6) Fund Share Activities
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)
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Net increase in Fund shares................................... 1,100,475
==========
For the year ended December 31, 1997, Fund share transactions
were as follows:
Shares issued................................................. 1,831,502
Reinvested dividends from net investment income............... 439,922

Shares redeemed............................................... (1,946,717)
----------
Net increase in Fund shares................................... 324,707
==========

Federal Income Tax Information (Unaudited)
In early 1999, shareholders received information regarding all distributions paid to them by the Funds during
calendar year 1998. No long-term capital gain distributions were designated.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Heartland Group, Inc.
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the
related statements of operations and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Heartland Wisconsin Tax Free Fund (one of the nine portfolios of
Heartland Group, Inc., and hereafter referred to as the "Fund") at December 31, 1998, the results of its
operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of
securities at December 31, 1998 by correspondence with the custodian and brokers, provide a reasonable basis
for the opinion expressed above.
Milwaukee, Wisconsin
February 5, 1999 PricewaterhouseCoopers LLP
END OF NOTES TO FINANCIAL STATEMENTS
The Heartland Family of Funds
Large Cap Value Fund
Mid Cap Value Fund
Value Plus Fund
Value Fund
U.S. Government Securities 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
1.800.432.7856
www.heartlandfunds.com
[Logo] Heartland Funds
AMERICA'S VALUE INVESTOR(R)
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. Wisconsin Tax Free Fund
income may be subject to 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 or visit Heartland's website. Read it carefully before you invest.
Heartland Advisors, Inc., distributor. Member SIPC.