<PAGE>
[LOGO] Heartland Funds
AMERICA'S VALUE INVESTOR/R/
Value Report
December 31, 1998
Notes on value investing
for investors in
Heartland Funds
Annual Report
to Shareholders
Large Cap Value Fund
Mid Cap Value Fund
Value Plus Fund
Value Fund
U.S. Government Securities Fund
<PAGE>
VALUE REPORT
[Photo of Bill Nasgovitz]
Dear
Fellow
Investor
As we enter 1999, we've discovered there are a large number of investors in our
universe who wish they had never heard of value investing. While large growth
stocks sparkled in 1998 and internet stocks truly took on a life of their own,
investors in most value funds trailed the market badly.
The question that seems to be foremost in shareholders' minds is "What will you
do differently in 1999 to assure good returns for the new year?" Our answer
should be pleasing to all of you--we don't plan any changes to our value
investment style, even though we can't make any promises about how long that
style will stay out of favor.
I've been in this business for 31 years and managing mutual funds for the last
15 of them. The value parameters for investing we use have evolved over that
period, many of them crystallizing during the 1973-74 bear market. I'm proud of
the results we've posted since we started Heartland in 1982, and the clients
who've been with us over the long-term have prospered.
But the very nature of value investing is such that there will be periods when
our style is out of favor. The past couple of years have not been the first time
Heartland customers have suffered from this. Those of you who were with us in
1990 will remember the extraordinarily difficult months leading up to the
Persian Gulf war. Shareholders redeemed heavily and respected rating agencies
like Morningstar slapped us with subpar grades.
So, we redoubled our emphasis on our value parameters, examined and reexamined
every holding in our portfolios, and reminded our customers (and ourselves)
again that value investing sometimes tests the patience of even the most
understanding of us. Those who were patient were justly rewarded. Our Heartland
Value Fund soared near the top of the rankings in the early '90s, the rating
organizations loved us, and I found myself featured in most every major business
publication in the country.
It would likely be imprudent to warrant that another similar inflection point is
near at hand. But at the same time, I'd suggest to you that I can't recall a
period where value stocks have been treated so poorly compared to their growth
counterparts. Traditional growth favorites like Coca Cola and Gillette continue
to trade at very high PEs despite uncertain earnings
<PAGE>
VALUE REPORT
outlooks. Newer growth choices like Microsoft and Cisco have PEs approaching
triple digits, and Internet plays like Amazon.com don't even have any "Es" on
which to base a PE.
It's times like these when it's helpful to look at some long-term results. We
ask that you pay careful attention to the three graphs displayed at right.
You'll note that value stocks of all sizes (large, mid and small cap) have
outperformed growth stocks since the mid 70s. Yes, there have been periods when
value moves out of favor, and we've had to suffer through one of those periods
the last couple of years. But as Willie Nelson once crooned "Nothing Lasts
Forever But Forever." We can't be certain when value investing will reassert
itself as the most fertile part of the market, but we believe it will and we
hope you'll all still be with us when it does.
In the meantime, our investment team is taking the same approach as we did in
1990. We're paying strict attention to our value parameters, reexamining every
holding (and carefully scrutinizing new prospects), and reminding ourselves that
patience is an attribute of every great value investor. Our hunch is that this
combination will pay off in 1999.
Sincerely,
/s/ William J. Nasgovitz
William J. Nasgovitz
President
Appreciation of $1 Invested in 1976
[line chart illustrating performance of an assumed investment of $1 in small cap
value stock and small cap growth stocks beginning on 1/1/76 as follows:
<TABLE>
<CAPTION>
Value Growth Value Growth
<S> <C> <C> <C> <C> <C>
01/01/76 $ 1.00 $1.00 12/31/88 $15.34 $ 9.51
12/31/78 2.04 2.15 12/31/90 13.87 9.87
12/31/80 3.56 4.58 12/31/92 26.30 16.69
12/31/82 5.78 6.09 12/31/94 31.53 18.61
12/31/84 8.61 6.89 12/31/96 50.43 28.55
12/31/86 12.87 9.18 12/31/98 59.12 33.21
</TABLE>
[line chart illustrating performance of an assumed investment of $1 in mid-cap
value stock and mid-cap growth stocks beginning on 1/1/76 as follows:
<TABLE>
<CAPTION>
Value Growth Value Growth
<S> <C> <C> <C> <C> <C>
01/01/76 $1.00 $1.00 12/31/88 $ 9.75 $ 6.84
12/31/78 1.68 1.61 12/31/90 9.80 7.91
12/31/80 2.61 3.12 12/31/92 17.75 13.82
12/31/82 3.72 3.78 12/31/94 20.62 15.98
12/31/84 5.28 4.33 12/31/96 33.08 24.26
12/31/86 8.15 6.34 12/31/98 42.09 28.64
</TABLE>
[line chart illustrating performance of an assumed investment of $1 in large
cap value stock and large cap growth stocks beginning on 1/1/76 as follows:
<TABLE>
<CAPTION>
Value Growth Value Growth
<S> <C> <C> <C> <C> <C>
01/01/76 $1.00 $1.00 12/31/88 $ 6.52 $ 3.50
12/31/78 1.39 1.18 12/31/90 7.86 4.50
12/31/80 2.08 2.11 12/31/92 10.77 6.80
12/31/82 2.51 1.95 12/31/94 12.39 7.21
12/31/84 3.36 2.19 12/31/96 21.69 11.83
12/31/86 5.28 3.04 12/31/98 34.08 21.27
</TABLE>
Source: Prudential Securities, Inc. Prudential selects value stocks primarily
based on low P/E ratios and growth stocks on historical and forecasted sales
growth. Please note these graphs are for illustration only and do not represent
the performance of any Heartland Fund. Also, they do not necessarily correlate
exactly with Heartland's breakdown of market caps. The above data does not
necessarily reflect performance in other historical periods. Past performance is
not indicative of future results.
<PAGE>
VALUE REPORT
[Photo of James P. Holmes]
James P. Holmes, CFA
Portfolio Manager
"In the healthcare area, rather than buying high priced drug stocks, we've
accumulated much more reasonably valued medical care companies that we believe
have comparable long-term earnings growth rates."
Heartland Large Cap Value Fund
In 1998, the Heartland Large Cap Value Fund returned 1.7% compared to the S&P
500 Index's 28.6% gain. In the fourth quarter of 1998, the Fund returned 14.5%
compared to the benchmark index's 21.3% gain. For more information on the Fund,
including top ten holdings, please see the Fund Fact Sheet on page 12.
In 1998's large cap stock market, the rich (high P/E stocks) got richer while
the poor (low P/E stocks) languished. Led by a relative handful of mega-cap
technology and pharmaceutical stocks, the S&P 500 posted its fourth consecutive
year of double digit gains. However, many of its component companies did not
participate. For instance, while the largest half of the S&P 500 had positive
returns in 1998, the smaller half declined. This was not the kind of environment
in which a value investor focusing on smaller companies in out-of-favor
industries could compete.
The Fund's positions in the healthcare, insurance, and utilities sectors managed
some decent gains. We think these industry groups, which are less sensitive to
economic cycles, will perform significantly better as the economy slows in the
year ahead. Our Latin American investments were punished due to fears that the
region's currencies and economies are at risk. We expect Latin American
economies to run into problems. However, our holdings are primarily in newly
privatized telephone utilities and beverage companies, which we consider to be
among the most recession resistant of all industry groups.
The Fund's performance shortfall is explained best not by what we owned, but by
what we didn't own--namely high P/E technology and drug stocks. We can
understand investor's infatuation with the leading companies in these two
industry groups. The drug product cycle has been hot and Y2K problems have
temporarily accelerated
2
<PAGE>
VALUE REPORT
technology purchases. However, we don't think long-term earnings growth trends
justify the sky-high multiples the leaders in both groups now enjoy.
In the healthcare area, rather than buying high priced drug stocks, we've
accumulated much more reasonably valued medical care companies that we believe
have comparable longer term earnings growth rates. Let me give you an example.
The South Shall Rise Again
Healthsouth, that is. Healthsouth Corporation is a leading physical
rehabilitation center operator in the U.S. This business is economically
justifiable for companies and their insurers--it's much better to rehab an
employee than to pay disability forever. New federal reimbursement guidelines
have pinched margins and Healthsouth's earnings growth rate will likely come
down from 30% to 15-20%. That is still an attractive growth rate for a stock
that is trading at just 5.5 times cash flow, 14.0 times projected 1999 earnings,
and at only 1.55 times book value. If Healthsouth's fundamentals don't prove to
be as healthy as our forecasts, we may check out. However, presently we think
the stock will help rehabilitate our performance.
[line chart illustrating performance of an assumed investment of $10,000 in the
Heartland Large Cap Value Fund and the S&P 500 index beginning on 10/11/96
inception date as follows:
<TABLE>
<CAPTION>
Heartland Large
Cap Value Fund S&P 500
<S> <C> <C>
10/11/96 $10,000 $10,000
12/31/96 10,500 10,714
03/31/97 10,660 11,002
06/30/97 12,140 12,923
09/30/97 13,270 13,891
12/31/97 12,905 14,289
03/31/98 14,542 16,283
06/30/98 13,650 16,821
09/30/98 11,468 15,148
12/31/98 13,129 18,372
</TABLE>
Legend in graph states that past performance is not
predictive of future results.
A box below the graph states Average Annual Total
Returns as of 12/31/98 as follows:
1-YEAR 1.7%
since inception 13.0%]
On 12/31/98, the Fund held 31,400 shares of Healthsouth Corporation, valued at
$484,738 and representing 6.1% of the Fund's net assets.
3
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VALUE REPORT
Heartland Mid Cap Value Fund
In 1998, the Heartland Mid Cap Value Fund declined 8.0% compared to the S&P Mid
Cap Index's 19.1% gain. In the fourth quarter of 1998, the Fund returned 5.8%
compared to the benchmark index's 28.2% gain. For more information on the Fund,
including top ten holdings, please see the Fund Fact Sheet on page 13.
My recent analysis of the 1998 performance of mid-cap funds reveals two distinct
trends: high P/E funds materially outperformed low P/E funds, and funds with
high median market capitalizations significantly outperformed funds with small
median market caps. The short and not so sweet of it is that we were penalized
for being value investors with a bias toward smaller mid-cap companies in a year
in which larger mid cap growth stocks enjoyed a distinct performance advantage.
Will things be different in 1999? We can't make any guarantees. However, the
history of the equities market shows that valuations always regress to the mean.
That's why Ben Graham and Thomas Dodd at the beginning of Security Analysis,
their classic book on value investing, quoted Horace: "Many shall be restored
that are now fallen and many shall fall that now are in honor." We continue to
believe that over the long term, owning quality companies selling at low
valuations will reward us.
Specific to the portfolio, REITs (real estate investment trusts) and energy
services stocks were the biggest disappointments. Selected REITs now offer
yields approximating 12% versus a historical industry average yield of around
6%. Commercial real estate occupancy rates remain high, new development is
restrained, and unless we see a major recession in 1999, REIT cash flows,
earnings, and dividends appear quite secure.
[Photo of Michael A. Berry, Ph.D.]
Michael A. Berry, Ph.D.
Portfolio Manager
"Everybody on Wall Street seems to believe oil will stay at $10 per barrel
forever. However . . . the last time we saw such an overwhelming consensus was
in the mid to late '70s, when the "experts" were unanimously projecting $60 per
barrel."
4
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VALUE REPORT
Everybody on Wall Street seems to believe oil will stay at $10 per barrel
forever. However, as a practicing contrarian, I think it's my duty to point out
that the last time we saw such an overwhelming consensus was in the mid to late
'70s, when the "experts" were unanimously projecting $60 per barrel. We believe
the consensus is once again wrong and that oil and energy services stock prices
will rebound strongly from their lows.
A Sterling Opportunity
We jump at the chance to buy quality technology companies trading at reasonable
valuations. Sterling Software, Inc. provides customized applications management
software to a lengthy list of blue chip clients and to the federal government.
Although it could legitimately be classified as a growth stock, this stock is
trading at a value oriented price/earnings ratio of 16.7 times our 1999
estimates. Sterling Software has no debt, $8.60 in cash per share, and is
generating free cash. The company recently bought Texas Instruments'
applications software business. We believe this will add to management's
excellent acquisition record. If earnings disappoint we might sell our Sterling.
But right now, we think its a shining investment opportunity.
On 12/31/98, the Fund held 36,350 shares of Sterling Software, Inc., valued at
$983,722 and representing 2.8% of the Fund's net assets.
[line chart illustrating performance of an assumed investment of $10,000 in the
Heartland Mid Cap Value Fund and the S&P Mid Cap Index beginning on 10/11/96
inception date as follows:
<TABLE>
<CAPTION>
Heartland Mid S&P Mid Cap
Cap Value Fund Index
<S> <C> <C>
10/11/96 $10,000 $10,000
12/31/96 10,660 10,562
03/31/97 10,680 10,405
06/30/97 12,100 11,934
09/30/97 13,420 13,853
12/31/97 13,094 13,969
03/31/98 15,021 15,508
06/30/98 14,273 15,175
09/30/98 11,393 12,980
12/31/98 12,053 16,639
</TABLE>
Legend in graph states that Past performance is not predictive of future
results.
A box below the graph states Average Annual Total Returns as of 12/31/98 as
follows:
1-year -8.0%
Since inception 8.8%]
5
<PAGE>
VALUE REPORT
HEARTLAND VALUE PLUS FUND
In 1998, the Heartland Value Plus Fund declined 10.8% compared to a 2.5% loss
for the Russell 2000 Index. In the fourth quarter of 1998, the Fund returned
3.5% compared to the Russell 2000's 16.3% gain. For more information on the
Fund, including top ten holdings, please see the Fund Fact Sheet on page 14.
The Fund's disappointing results relative to its benchmark reflect the enormous
performance disparity between value and growth stocks and between small and
larger stocks within the small cap universe. Technology stocks with high P/Es
and internet stocks with extremely high valuations were the primary drivers of
the Russell 2000 and the Nasdaq indices. On average, micro cap stocks
(capitalizations of $250 million or less) were down 24.48% in 1998. The Fund's
value discipline and median market cap of $134 million put it squarely in the
least productive segment of the market.
The Fund's convertible security and high yield bond positions, comprising
approximately 20% of the Fund's 1998 portfolio, also disappointed. Generally,
the attractive yields in these investments help support prices during market
downturns. However, this year with global economic turmoil raising questions
about corporate profitability and credit quality, many of our convertible and
high yield bonds were hit hard in the third quarter. This has created some
exceptional opportunities. We are taking advantage of what we believe to be
decent credits of good companies now yielding an almost too good to be true
18-20%.
Today, the Fund's largest sector weightings are insurance, utilities, and REITs
(real estate investment trusts). Utilities and insurance companies are less
sensitive to the business cycle and, therefore, less vulnerable to the risk of
an economic slowdown in 1999. In addition, rapid consolidation in both
[Photo of Bill Nasgovitz]
William J. Nasgovitz
Portfolio Co-Manager
[Photo of Pat Retzer]
Patrick J. Retzer, CPA
Portfolio Co-Manager
"We are taking advantage of what we believe to be decent credits of good
companies now yielding an almost too good to be true 18-20%."
6
<PAGE>
VALUE REPORT
industries should provide a performance tailwind. REITs sold off in 1998 due to
fears of overbuilding in the midst of a slowing economy. The capital market and
credit crunch for commercial real estate developers has effectively limited the
risk of overbuilding. We believe the economy will slow without negatively
impacting REIT earnings and dividends. We are prepared for a very pleasant
upside surprise for this currently depressed group.
Shopping for Value
Fleming Companies, Inc., the Fund's fifth largest position, is a leading
Midwestern grocer and wholesale food distributor. The company is embarking on a
massive restructuring under the leadership of a new, highly respected Chairman
and CEO. The company will be remodeling older stores and opening new stores in
those areas where Fleming's chains have leading market share. Fleming is also
closing seven underutilized wholesale distribution centers. We believe Fleming
can grow earnings from $1 to $3 per share in the next five years. The stock is
now selling at just 1.8 times cash flow and 10.9 times depressed 1998 earnings.
In our opinion, Fleming will either succeed on its own or attract a larger
suitor that will help them. If we are wrong, we may shop elsewhere. But today,
we think Fleming stock will be marked up in the year ahead.
On 12/31/98, the Fund held 700,000 shares of Fleming Companies, Inc., valued at
$7,262,500 and representing 4.2% of the Fund's net assets.
[Line chart illustrating performance of an assumed investment of $10,000 in
the Heartland Value Plus Fund and the Russell 2000 Index beginning on
10/26/93 inception date as follows:
<TABLE>
<CAPTION>
Heartland
Value Plus Fund Russell 2000
<S> <C> <C>
10/26/93 $10,000 $10,000
12/31/94 10,001 9,962
12/31/95 12,441 12,796
12/31/96 16,646 14,905
12/31/97 21,740 18,238
12/31/98 19,396 17,774
</TABLE>
Legend in graph states that Past performance is not predictive of future
results.
A box below the graph states Average Annual Total Returns as of 12/31/98 as
follows:
1-year -10.8%
5-year 13.0%
Since inception 13.6%]
7
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VALUE REPORT
Heartland Value Fund
[PHOTO OF BILL NASGOVITZ]
William J. Nasgovitz
Portfolio Co-Manager
[PHOTO OF ERIC MILLER]
Eric J. Miller, CMA
Portfolio Co-Manager
"We are value investors, not speculators. Our discipline prevents us from
gambling on sexy companies in hot industry groups."
In 1998, the Heartland Value Fund declined 11.5% compared to a 2.5% loss for the
Russell 2000 Index. In the fourth quarter of 1998, the Fund returned 4.6%
compared to the Russell 2000's 16.8% gain. For more information on the Fund,
including top ten holdings, please see the Fund Fact Sheet on page 15.
We are long-term value investors, not speculators. Our disciplined investment
process results in a portfolio of underfollowed small companies with good growth
prospects selling at bargain prices. You will not see us chase after the hot
stocks and industry groups paying any price in hopes for short-term gains. Our
bias towards smaller, and in our opinion, less efficiently priced companies
resulted in a median market cap at December 31, 1998 for the Fund of $74 million
as compared to a median market cap for the Russell 2000 of $430 million. These
two factors alone--our value discipline and smaller company bias--are the single
best explanation for the Fund's absolute and relative performance shortfall in a
year in which high priced internet stocks and a small handful of larger cap,
high P/E technology issues were really about the only big winners in the small
cap segment of the market.
For the year, our utilities holdings (including telephone companies) posted
respectable gains. Most other industry sectors declined. Our overweighting in
energy and energy services companies caused the most damage to the portfolio. We
don't think oil inventories are as excessive relative to demand as currently
depressed oil prices would indicate. If OPEC can enforce some production
discipline among its members and Asian economies begin to recover, the Wall
Street consensus that oil will fall to $10 per barrel or lower for at least the
next several years may prove to be as accurate as its equally strong consensus
for $60 per barrel 20 years ago. We expect this beaten down group to energize
our portfolio in the year ahead.
Our healthcare investments also disappointed. HMOs and other medical care
company stocks were restrained
8
<PAGE>
VALUE REPORT
due to uncertainty over the impact of new federal reimbursement guidelines. This
cloud is starting to lift, and we think some of the healthcare bargains in the
portfolio will take off in the year ahead.
Home Improvement
Beverly Enterprises, Inc. owns and operates more than 500 nursing homes
nationwide, making it the largest publicly-traded company in the industry. It
owns 75% of its nursing homes outright with no mortgages, and has one of the
lowest debt-to-total capital ratios in the business. The nursing home group has
been under pressure due to changes in federal reimbursement guidelines. Beverly
is now operating under these new guide-lines and is still making good money. We
are looking for $0.78 in earnings this year, growing to $0.84 in 1999. Beverly
stock, which in 1998 went from over $16 down to $5.25, now trades at 2.6 times
cash flow, 8.0 times our 1999 earnings estimates, at just 25% of sales, and at a
discount to its $7+ per share tangible book value. The company has authorized a
20 million share repurchase program, nearly 20% of its total shares. Clearly,
management shares our view that the stock is significantly undervalued. If
fundamentals disappoint, we will reappraise our position. But for the time
being, this healthcare bargain has a home in our portfolio.
[line chart illustrating performance of an assumed investment of $10,000 in the
Heartland Value Fund and the Russell 2000 Index beginning on 12/31/88 as
follows:
<TABLE>
<CAPTION>
Heartland Value Fund Russell 2000
<S> <C> <C>
12/31/88 $10,000 $10,000
12/31/89 10,657 11,624
12/31/90 8,836 9,356
12/31/91 13,196 13,664
12/31/92 18,802 16,181
12/31/93 22,331 19,240
12/31/94 22,713 18,891
12/31/95 29,482 24,261
12/31/96 35,670 28,262
12/31/97 43,942 34,581
12/31/98 38,906 33,700
</TABLE>
Legend in graph states that past performance is not predictive of future
results.
A box below the graph states Average Annual Total Returns as of 12/31/98 as
follows:
1-year -11.5%
5-year 11.7%
10-year 14.6%
SINCE INCEPTION (12/28/84) 15.0%]
On 12/31/98, the Fund held 2,000,000 shares of Beverly Enterprises, Inc., valued
at $13,500,000 and representing 0.9% of the Fund's net assets.
9
<PAGE>
VALUE REPORT
Heartland U.S. Government Securities Fund
[PHOTO OF PAT RETZER]
Patrick J. Retzer, CPA
Portfolio Co-Manager
[PHOTO OF LARRY PAVELEC]
Lawrence J. Pavelec
Portfolio Co-Manager
"Value often appears in the wake of panic and fear."
In 1998, the Fund returned 8.1% versus 7.9% for the Lipper General U.S.
Government Fund Index and 8.6% for the Lehman Intermediate Treasury Index. In
the fourth quarter of 1998, the Fund returned -0.39% compared to the benchmark
indexes' -0.25% and 0.21%, respectively. For more information on the Fund,
including top ten holdings, please see the Fund Fact Sheet on page 16.
In our third quarter 1998 Value Report, we listed six factors we believed would
have a positive impact on U.S. Government securities. The list included: low
inflation; deflationary influences due to global weakness; a decelerating
domestic economy; a budget surplus and a very favorable supply/demand outlook
for Treasuries; falling stock markets creating a global "flight to quality"; and
attractive yields versus other developed nations.
Four of six of these factors remain largely in place. The massive "flight to
quality"--money flooding into U.S. Treasuries from stocks and corporate bonds--
reversed itself in the fourth quarter as the Federal Reserve reduced rates two
more times and investors migrated back into equities. The economy has also
remained rather resilient. Looking forward to 1999, the American consumer, armed
with higher wages and lower prices for goods, will hold the key to the economy.
We continue to believe Government bonds offer an attractive alternative and safe
harbor against what we expect to be another year of great uncertainty and
volatility.
Pockets of Value
In years with large interest rate moves, the biggest winners typically are the
few lucky funds that have made big interest rate bets by taking either a very
long or very short duration posture. However, these funds are often unable to
change duration quickly enough when interest
10
<PAGE>
VALUE REPORT
rates reverse direction. The end result is very uneven performance. We maintain
the portfolio's average duration in a relatively tight range between 3-6 years.
This has helped us deliver consistent performance over interest rate cycles and
is one of the reasons the Heartland U.S. Government Securities Fund has finished
in the top 10% of its Lipper peer group (50 funds) over the 10 years ended
December 31, 1998, and in the top 27% of its Lipper peer group (147 funds) over
the three years ended December 31, 1998. Within the Morningstar category the
Fund ranked in the top 27% for the three years ending 12/31/98 and top 1% for
the last 10 years.
The other reason we have achieved this enviable record is that we have been able
to identify and take advantage of pockets of value in the U.S. government
securities market. Value often appears in the wake of panic and fear. We have
found what we believe to be exceptional value in the mortgage market as
investors fled this sector fearing a dramatic increase in pre-payments from
homeowners refinancing their mortgages. We believe this was a classic example of
investor overreaction and took the opportunity to buy mortgages at levels not
seen in ten years. We think this will work to the Fund's advantage in the year
ahead.
The Lehman Intermediate Treasury Index is an unmanaged index of all Treasury
securities issued by the U.S. Government with maturities of greater than one
year but less than ten years and at least $100 million in outstanding issuance.
The Lehman U.S. Government Index is an unmanaged index of all U.S. Treasury or
Agency securities with maturities of greater than one year, at least $100
million in outstanding issuance and investment grade ratings. The Lipper General
U.S. Government Fund Index is an equally weighted index of the performance of
the 30 largest U.S. general government funds as tracked by Lipper, Inc.
[line chart illustrating performance of an assumed investment
of $10,000 in the Heartland U.S. Government Securities Fund, the Lehman
Intermediate Treasury Index, the Lehman U.S. Government Index, and the Lipper
Gen. U.S. Government Fund Index beginning on 12/31/88 as follows:
<TABLE>
<CAPTION>
Heartland Lehman Lipper Gen.
U.S. Gov't. Intermediate Lehman U.S. Gov't.
Securities Treasury U.S. Gov't. Fund
Fund Index Index Index
<S> <C> <C> <C> <C>
12/31/88 10,000 10,000 10,000 10,000
12/31/89 11,130 11,268 11,422 11,242
12/31/90 12,240 12,333 12,419 12,143
12/31/91 14,315 14,072 14,322 13,919
12/31/92 15,758 15,051 15,357 14,770
12/31/93 18,565 16,291 16,994 15,998
12/31/94 16,776 16,002 16,420 15,241
12/31/95 19,963 18,310 19,436 17,822
12/31/96 20,361 19,041 19,971 18,207
12/31/97 22,337 20,504 21,886 19,867
12/31/98 24,161 22,272 24,038 21,423
</TABLE>
Legend in graph states that Past performance is not predictive of future
results.
A box below the graph states Average Annual Total Returns as of 12/31/98 as
follows:
1-year 5-year 10-year Since inception (4/9/87)
8.1% 5.4% 9.2% 8.6%]
11
<PAGE>
VALUE REPORT
Heartland Large Cap Value Fund
This Fund pursues long-term capital appreciation and is our most conservative
equity offering. Using Heartland's value investing criteria, it seeks
undervalued opportunities among companies with stock market capitalizations of
over $1 billion.
AVERAGE ANNUAL TOTAL RETURNS/1/ Since inception
1-year (10/11/96)
Large Cap Value Fund 1.7% 13.0%
S&P 500 Index 28.6% 31.5%
The S&P 500 Index is an unmanaged index of 500 stocks representing major U.S.
industries.
FUND FACTS
Growth of $10,000 Fund vs. S&P 500/2/
since inception (10/11/96).....$ 13,129/1/ Alpha.................. -1.53
Median market cap................$4.4 bil. Beta................... .77
Share price......................$ 11.94 R-squared.............. .75
Net assets.......................$8.0 mil. Number of holdings....... 48
COMPARATIVE VALUATIONS
Heartland Large Cap S&P 500
Value Fund Index
Price/Earnings Ratio ('98) 16.3x 31.3x/3/
Price/Book Value Ratio 2.0x 4.7x/4/
Price/Cash Flow Ratio 10.2x 18.1x/4/
TOP 10 HOLDINGS
<TABLE>
<CAPTION>
<S> <C>
Healthsouth Corporation....................6.1% CalEnergy Company, Inc..............4.1%
Union Pacific Corporation..................5.2 Raychem Corporation.................4.0
Philips Electronics NV (N.Y. Registered)...4.9 Petroleo Brasileiro S.A. (ADR)......3.2
Reynolds and Reynolds Co. (Class A)........4.4 Consolidated Natural Gas Company....3.1
Unicom Corporation.........................4.3 Companhia Cervejaria Brahma (ADR)...2.8
</TABLE>
Past performance is no guarantee of future results.
All statistics are as of December 31, 1998.
/1/Includes reinvestment of all dividends and capital gains distributions.
Without fee waivers and expense reimbursement in effect during the period, total
return for the Fund would have been lower. /2/ Since the Fund commenced
operations on 10/11/96, the measurements are based on weekly data, rather than
monthly data, from inception through 12/31/98. Source: Heartland Advisors, Inc.,
with data on the relevant benchmark index from Russell Analytics. /3/ Source:
Prudential Securities, Inc. /4/ Source: Emerging Growth Research at Schroder &
Co., Inc.
12
<PAGE>
VALUE REPORT
Heartland Mid Cap Value Fund
This fund pursues long-term capital appreciation. Using intensive research and
Heartland's value criteria, it seeks undervalued opportunities among companies
with stock market capitalizations between $750 million and $5 billion.
AVERAGE ANNUAL TOTAL RETURNS/1/ Since inception
1-year (10/11/96)
Mid Cap Value Fund -8.0% 8.8%
S&P Mid Cap Index 19.1% 25.8%
The S&P Mid-Cap Index is an unmanaged index of 400 stocks generally considered
representative of the mid cap market.
FUND FACTS
Growth of $10,000 Fund vs. S&P Mid-Cap Index/2/
since inception (10/11/96).... $12,053/1/ Alpha......................-1.86
Median market cap............... $ 1.5 bil. Beta....................... .81
Share price..................... $ 11.69 R-squared.................. .85
Net assets...................... $34.7 mil. Number of holdings........... 54
COMPARATIVE VALUATIONS
Heartland Mid Cap S&P Mid-Cap
Value Fund Index
Price/Earnings Ratio ('98) 15.1x 27.8x/3/
Price/Book Value Ratio 2.0x 3.2x/4/
Price/Cash Flow Ratio 9.7x 14.1x/4/
TOP 10 HOLDINGS
Southdown, Inc..................3.3% Reliance Group Holdings, Inc.........2.7%
Trigon Healthcare, Inc..........2.9 SUPERVALU, Inc.......................2.7
ICN Pharmaceuticals, Inc........2.9 Lennar Corporation...................2.6
Sterling Software, Inc..........2.8 Wellpoint Health Networks, Inc.......2.6
Reynolds Metals Company.........2.8 Astoria Financial Corporation........2.3
All statistics are as of December 31, 1998.
/1/Includes reinvestment of all dividends and capital gains distributions./2/
Since the Fund commenced operations on 10/11/96, the measurements are based on
weekly data, rather than monthly data, from inception through 12/31/98. Source:
Heartland Advisors, Inc., with data on the relevant benchmark index from Russell
Analytics. /3/ Source: Prudential Securities, Inc. /4/ Source: Emerging Growth
Research at Schroder & Co., Inc.
13
<PAGE>
VALUE REPORT
Heartland Value Plus Fund
An equity-income investment, this Fund seeks both capital appreciation and
current income. By investing chiefly in income-producing equity securities of
smaller companies, it pursues capital appreciation and a dividend yield higher
than the yield of the S&P 500. This approach involves investment risks in
addition to those presented by investments in larger capitalization companies
including the potential for greater price volatility and lower market liquidity.
DECEMBER YIELD
Value Plus Fund.................................................4.1%*
S&P 500 Index...................................................1.4%
*SEC yield annualized for the 30 days ending 12/31/98.
AVERAGE ANNUAL TOTAL RETURNS/1/ Since inception
1-year 5-year (10/26/93)
Value Plus Fund -10.8% 13.0% 13.6%
Russell 2000 -2.5% 11.9% 11.7%
The Russell 2000 Index is an unmanaged index of stocks considered representative
of the small cap market. The S&P 500 Index is an unmanaged index of 500 stocks
representing major U.S. industries. Small company stocks may be more volatile
than those of the S&P 500.
FUND FACTS
Growth of $10,000 Fund vs. Russell 2000/2/
since inception (10/26/93)..... $19,396/1/ Alpha.................... 4.81
Median market cap................ $134 mil. Beta..................... .51
Share price...................... $ 13.80 R-squared................ .72
Net assets.......................$174.3 mil. Number of holdings......... 60
COMPARATIVE VALUATIONS
Heartland Russell
Value Plus Fund 2000
Price/Earnings Ratio ('98) 15.4x 24.9x/3/
Price/Book Value Ratio 1.1x 2.3x/4/
Price/Cash Flow Ratio 7.6x 14.0x/4/
TOP 10 HOLDINGS
<TABLE>
<CAPTION>
<S> <C>
Southwestern Energy Company..........4.5% Oil-Dri Corporation of America..................4.0%
Dames & Moore, Inc...................4.4 Interstate Energy Corporation...................3.7
ICN Pharmaceuticals, Inc.............4.4 Anglogold Ltd. (ADR)............................3.4
London Pacific Group Ltd. (ADR)......4.3 CORE Cap, Inc. (Preferred Stock)................2.9
Fleming Companies, Inc...............4.2 Remington Oil & Gas Corp. 8.25% 12/01/02........2.8
</TABLE>
All statistics are as of December 31, 1998.
/1/Includes reinvestment of all dividends and capital gains distributions.
/2/Based on monthly data for the 3-year period ending 12/31/98. Source:
Heartland Advisors, Inc., with data on the relevant benchmark index from Russell
Analytics. /3/Source: Prudential Securities, Inc. /4/ Source: Emerging Growth
Research at Schroder & Co., Inc.
14
<PAGE>
VALUE REPORT
Heartland Value Fund
This Fund seeks capital appreciation through small company stocks selected on a
value basis. This approach involves investment risks in addition to those
presented by investments in larger capitalization companies, including the
potential for greater price volatility and lower market liquidity.
AVERAGE ANNUAL TOTAL RETURNS/1/
<TABLE>
<CAPTION>
Since inception
1-year 5-year 10-year (12/28/84)
<S> <C> <C> <C> <C>
Value Fund -11.5% 11.7% 14.6% 15.0%
Russell 2000 -2.5% 11.9% 12.9% 12.7%
</TABLE>
The Russell 2000 Index is an unmanaged index of stocks considered representative
of the small cap market.
FUND FACTS
<TABLE>
<CAPTION>
<S> <C>
Growth of $10,000
since inception (12/28/84)................ $70,771/1/
Median market cap........................... $74 mil.
Share price................................. $29.29
Net assets.................................. $1.5 bil.
Fund vs. Russell 2000/2/
Alpha..................................... -.08
Beta...................................... .73
R-squared................................. .83
Number of holdings.......................... 353
</TABLE>
COMPARATIVE VALUATIONS
<TABLE>
<CAPTION>
Heartland Russell
Value Fund 2000
<S> <C> <C>
Price/Earnings Ratio ('98) 17.1x 24.9x/3/
Price/Book Value Ratio 1.7x 2.3x/4/
Price/Cash Flow Ratio 8.8x 14.0x/4/
</TABLE>
TOP 10 HOLDINGS
<TABLE>
<CAPTION>
<S> <C>
ICN Pharmaceuticals, Inc..................... 4.1%
ShopKo Stores, Inc........................... 1.9
Presidential Life Corporation................ 1.8
Associated Banc-Corp......................... 1.5
El Paso Electric Company..................... 1.4
Interdigital Communications Corp............. 1.3%
UniSource Energy Corporation................. 1.3
MAF Bancorp, Inc............................. 1.3
URS Corporation.............................. 1.2
Mentor Corporation........................... 1.1
</TABLE>
All statistics are as of December 31, 1998.
/1/Includes reinvestment of all dividends and capital gains distributions. /2/
Based on monthly data for the 3-year period ending 12/31/98. Source: Heartland
Advisors, Inc., with data on the relevant benchmark index from Russell
Analytics. /3/ Source: Prudential Securities, Inc. /4/ Source: Emerging Growth
Research at Schroder & Co., Inc.
15
<PAGE>
VALUE REPORT
Heartland U.S. Government Securities Fund
This Fund seeks a high level of current income, liquidity, and safety of
principal. It works to minimize credit risk by investing virtually all its
assets in securities issued or guaranteed by the U.S. Government or its
agencies./1/ And although its duration is unrestricted, the Fund generally looks
to limit price fluctuation by managing within a narrow intermediate duration
range of 3 to 6 years.
DECEMBER YIELD...................................... 5.5%/2/
SEC yield annualized for the 30 days ending 12/31/98.
AVERAGE ANNUAL TOTAL RETURNS/3/
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (4/9/87)
<S> <C> <C> <C> <C>
U.S. Government
Securities Fund 8.1% 5.4% 9.2% 8.6%
Lipper General
U.S Gov't Fund Index 7.9% 6.0% 7.9% 7.3%
</TABLE>
The Lipper General U.S. Government Fund Index is an equally weighted index of
the performance of the 30 largest U.S. general government funds as tracked by
Lipper, Inc.
FUND FACTS
<TABLE>
<S> <C>
Growth of $10,000
since inception (4/9/87).................................. $26,205/3/
Share price................................................. $10.06
Net assets.................................................. $54.9 mil.
Avg. weighted duration...................................... 5.37 yrs.
Avg. weighted credit quality................................ AAA
Dividends...........................Declared daily, distributed monthly
Sales commission............................................ None
</TABLE>
TOP 5 HOLDINGS
<TABLE>
<S> <C>
U.S. Treasury Bond 7.875% 2/15/21..................16.8%
FHLMC CMO-SEQ 1978 BC 6.5% 5/15/25................. 9.3
VA VENDEE CMO-SEQ 1992-2F 7.0% 2/15/18............. 9.3
FNMA 6.5% 1/15/28.................................. 9.2
GNMA Pass-through #411360 SF 7.0% 9/15/25.......... 6.2
</TABLE>
All Statistics are as of December 31, 1998.
/1/The Government guarantee of interest and principal payment applies only to
the portfolio's underlying securities, not to the Fund's share price. /2/Without
fee waivers in effect during the period, SEC yield would have been 5.1% and
total return would have been lower. /3/Includes reinvestment of all dividends
and capital gains distributions.
16
<PAGE>
VALUE REPORT
DEFINITIONS
PLEASE NOTE...
Defined below are the Alpha, Beta and R-Squared measurements presented for our
equity funds. These definitions were provided by Russell Analytics, a division
of the Frank Russell Company, highly regarded specialists in investment
information and statistics. When calculating these measurements for each
Heartland equity fund, we have substituted the Fund's benchmark index for a
"market return" as indicated in the presentation for each fund.
Alpha. A measure of a portfolio's return in excess of the market return, both
adjusted for risk. It is a measure of the manager's contribution to performance
due to security selection. A positive Alpha indicates that the portfolio
outperformed the market on a risk-adjusted basis, and a negative Alpha indicates
the portfolio did worse than the market.
Beta. A measure of the sensitivity of a portfolio's rates of return against
those of the market. A Beta greater than 1.00 indicates volatility greater than
that of the market.
R-Squared. A measure that indicates the extent to which fluctuations in
portfolio returns are correlated with those of the general market. An R-Squared
of .75 indicates that 75% of the fluctuation in a portfolio's return is
explained by the fluctuation of the market.
17
<PAGE>
VALUE REPORT
Our Value Criteria for Stock Selection
1 Low price/earnings multiple. We look for a stock's price/earnings
ratio to be less than the market's average. If the stock is then
"discovered" by Wall Street, the low P/E provides opportunity for a
sharp price increase. Also, if the market drops, we believe low P/E
stocks have less downside risk.
2 High cash flow. A strong cash flow permits a company to finance
expansion internally, repurchase shares or increase the dividend.
3 Positive earnings dynamics. We favor companies with improving
earnings or upwardly revised estimates.
4 Discount to book value. A company's book value--its assets minus its
liabilities--gives an indication of what it would be worth if
liquidated. We like to buy a stock for less than that. By contrast, we
find trendy stocks often selling at upwards of 5 or more times book
value.
5 Financial soundness. How much debt does a company have relative to its
equity? We like low-debt balance sheets--with no more than 25% debt to
total capital.
6 High insider ownership. Executives who invest in their own stock have
their interests aligned with those of other shareholders.
7 Capable management. We look for companies with top decision-makers
who have a realistic vision for the company, as well as a history of
success and the drive to accomplish their goals.
8 Hidden assets. We like companies that have undervalued assets. These
can include understated natural resources, over-funded pension plans,
or fixed assets worth substantially more than their stated book value.
9 Positive technical analysis. We analyze how the stock's price has
moved over time. We prefer to buy stocks that have built long-term
bases.
10 Catalyst for recognition. We look for a factor--a new product, for
instance--that could potentially ignite interest in the stock and
close the gap between the stock's price and what we believe is its
intrinsic value.
18
<PAGE>
VALUE REPORT
Heartland Value Research
The following studies were conducted by Heartland's research staff and are
available to you upon request. Please call shareholder services at
1.800.432.7856.
#1 "THE CASE FOR LOW P/E AT MARKET TOPS"
Michael A. Berry, Ph.D.
#2 "OVER TIME, THERE'S BEEN NOTHING LIKE VALUE"
Michael A. Berry, Ph.D.
#3 "USING A MID-CAP VALUE STRATEGY TO HEDGE THE LARGE CAP/SMALL CAP CYCLE"
Michael A. Berry, Ph.D.
#4 "WHY INTERMEDIATE MATURITIES?"
Lawrence J. Pavelec, CFA / Patrick J. Retzer, CPA
#5 "A REVEALING LOOK AT PRICE-TO-BOOK"
James P. Holmes, CFA
#6 "WHY GOVERNMENT BONDS?"
Lawrence J. Pavelec, CFA / Patrick J. Retzer, CPA
#7 "VALUE INVESTING: COME RAIN OR COME SHINE"
Michael A. Berry, Ph.D.
#8 "HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND: THE INVENTION OF A
NEW SECTOR"
Thomas J. Conlin, CFA / Greg D. Winston, CFA
19
<PAGE>
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.
1.800.432.7856
www.heartlandfunds.com
[Photo of Shareholder Services Representative]
20
<PAGE>
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.
<PAGE>
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/S/
790 N. Milwaukee Street, Milwaukee, WI 53202
The performance data quoted represents past performance. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
These are not recommendations to buy or sell the securities discussed, but
rather illustrations of our value investment strategy. Statements regarding
particular securities represent the portfolio manager's views when made and are
subject to change at any time based on market and other considerations. Complete
portfolios for the Funds will be included in the Annual and Semi-Annual Reports
to Shareholders.
This material may only be used when preceded or accompanied by a prospectus for
the Funds listed on the front cover. If you would like more complete information
on any other Fund, including charges and expenses, please call for a prospectus
or visit Heartland's website. Read it carefully before you invest.
Heartland Advisors, Inc., distributor. Member SIPC.
<PAGE>
SCHEDULES OF INVESTMENTS
AND FINANCIAL STATEMENTS
Table of Contents
2 ..................Large Cap Value Fund 18 ......Statements of Operations
4 ....................Mid Cap Value Fund 20 .........Statements of Changes
6 .......................Value Plus Fund in Net Assets
8 ............................Value Fund 24 ..........Financial Highlights
15 .......U.S. Government Securities Fund 28 .Notes to Financial Statements
16 ..Statements of Assets and Liabilities
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Heartland Group, Inc.:
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 Large Cap Value Fund,
Heartland Mid Cap Value Fund, Heartland Value Plus Fund, Heartland Value Fund
and Heartland U.S. Government Securities Fund (five 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 PricewaterhouseCoopers LLP
February 5, 1999
<PAGE>
HEARTLAND LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- December 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS -- 88.5% Shares Industry Value Net Assets
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
Allmerica Financial Corporation 3,255 Insurance $ 188,383 2.4%
Armstrong World Industries, Inc. 1,600 Construction 96,500 1.2
Embratel Participacoes S.A. (ADR) 4,200 Telephone 58,537 0.7
HCR Manor Care, Inc. (a) 4,400 Drugs & Medicine 129,250 1.6
Household International, Inc. 3,800 Miscellaneous Financial 150,575 1.9
J.C.Penney Company, Inc. 800 Retail 37,500 0.5
Jefferson Smurfit Group PLC(ADR) 3,100 Containers 55,025 0.7
Owens Corning 6,200 Construction 219,712 2.7
PartnerRe Ltd. 3,400 Insurance 155,550 1.9
St. Paul Companies, Inc. 6,122 Insurance 212,740 2.6
Tele Centro Sul Participacoes S.A. (ADR) 840 Telephone 35,122 0.4
Telesp Celular Participacoes S.A. (ADR) 1,680 Telephone 29,400 0.4
Telesp Participacoes S.A. (ADR) 4,200 Telephone 92,925 1.2
Tenet Healthcare Corporation (a) 5,000 Drugs & Medicine 131,250 1.6
Toys "R" Us, Inc. (a) 7,900 Retail 133,312 1.7
UST, Inc. 2,200 Tobacco 76,725 1.0
---------- ----
$1,802,506 22.5%
Low Price to Book Value
American General Corporation 1,200 Insurance $ 93,600 1.2%
Columbia/HCA Healthcare Corporation 8,400 Drugs & Medicine 207,900 2.6
Consolidated Natural Gas Company 4,600 Energy & Raw Materials 248,400 3.1
International Paper Company 800 Paper & Forest Products 35,850 0.4
Jefferson-Pilot Corporation 2,400 Insurance 180,000 2.2
Louisiana-Pacific Corporation 8,000 Paper & Forest Products 146,500 1.8
Tele Celular Sul Participacoes S.A. (ADR) 420 Telephone 7,324 0.1
Tele Centro Oeste Celular Participacoes S.A. (ADR) 1,400 Telephone 4,113 0.1
Tele Leste Celular Participacoes S.A. (ADR) 84 Telephone 2,384 0.0
Tele Nordeste Celular Participacoes S.A. (ADR) 210 Telephone 3,885 0.1
Tele Norte Celular Participacoes S.A. (ADR) 84 Telephone 1,895 0.0
Tele Norte Leste Participacoes S.A. (ADR) 4,200 Telephone 52,237 0.6
Tele Sudeste Celular Participacoes S.A. (ADR) 840 Telephone 17,378 0.2
Telemig Celular Participacoes S.A. (ADR) 210 Telephone 4,462 0.1
Unicom Corporation 9,000 Energy & Utilities 347,063 4.3
Union Pacific Corporation 9,200 Railroads & Shipping 414,575 5.2
---------- ----
$1,767,566 22.0%
Below Average Price/Cash Flow Ratio
Aetna, Inc. 2,800 Drugs & Medicine $ 220,150 2.7%
American Financial Group, Inc. 4,100 Insurance 179,887 2.2
CalEnergy Company, Inc. (a) 9,500 Energy & Utilities 329,531 4.1
Companhia Cervejaria Brahma (ADR) 24,000 Food & Agriculture 226,500 2.8
Elf Aquitiane (ADR) 1,200 International Oil 67,950 0.9
Healthsouth Corporation (a) 31,400 Drugs & Medicine 484,738 6.1
Mead Corporation 3,600 Paper & Forest Products 105,525 1.3
OGE Energy Corporation 3,000 Energy & Utilities 87,000 1.1
Petroleo Brasileiro S.A. (ADR) 23,700 International Oil 256,256 3.2
Philips Electronics NV (N.Y.Registered) 5,800 Electronics 392,587 4.9
YPF Sociedad Anonima (ADR) 6,100 International Oil 170,419 2.1
---------- ----
$2,520,543 31.4%
</TABLE>
2
<PAGE>
HEARTLAND LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 88.5% [CONT'D] Shares Industry Value Net Assets
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Situations
Philip Morris Companies, Inc. 1,200 Tobacco $ 64,200 0.8%
Raychem Corporation 9,800 Consumer Durables 316,663 4.0
Reynolds & Reynolds Company (Class A) 15,600 Producer Goods 357,825 4.4
Santa Fe Energy Resources, Inc. (a) 23,900 Domestic Oil 176,263 2.2
SUPERVALU, Inc. 3,400 Food & Agriculture 95,200 1.2
---------- -----
1,010,151 12.6%
----------
TOTAL COMMON STOCKS (Cost $6,745,059) $7,100,766
- --------------------------------------------------------------------------------------------------------
Par Percent of
SHORT-TERM INVESTMENTS 12.7% Amount Value Net Assets
- --------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER - 8.7%
Ford Motor Credit Corporation
0.00% 01/07/1999 $700,000 $ 699,334 8.7%
VARIABLE RATE DEMAND NOTES (+) 4.0%
General Mills, Inc. 5.23% 140,000 140,000 1.7
Pitney Bowes Credit Corporation 5.23% 104,000 104,000 1.3
Sara Lee Corporation 5.23% 80,000 80,000 1.0
-----------
324,000
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,023,334) $ 1,023,334
TOTAL INVESTMENTS (Cost $7,768,393).......................................... $ 8,124,100 101.2%
Liabilities, less cash and receivables....................................... (98,760) (1.2)
----------- -----
TOTAL NET ASSETS............................................................. $ 8,025,340 100.0%
=========== =====
</TABLE>
(a) Non-income producing security.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates.
The rates listed are as of December 31, 1998.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
<PAGE>
HEARTLAND MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS . December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 96.8% Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
Allied Capital Corporation 32,380 Miscellaneous Financial $ 560,579 1.6%
Armstrong World Industries, Inc. 4,000 Construction 241,250 0.7
Carpenter Technology Corporation 20,250 Steel 687,234 2.0
Commercial Federal Corporation 27,650 Banks 641,134 1.8
ICN Pharmaceuticals, Inc. 44,300 Drugs & Medicine 1,002,288 2.9
KLM Royal Dutch Airlines NV (ADR) 21,750 Air Transport 652,500 1.9
Lennar Corporation 35,900 Construction 906,475 2.6
LNR Property Corporation 22,100 Real Property 440,618 1.3
Owens Corning 10,000 Construction 354,375 1.0
Patriot American Hospitality, Inc. 56,950 Real Property 341,700 1.0
Prime Hospitality Corporation (a) 46,450 Travel &Recreation 490,628 1.4
Santa Fe International Corporation 42,900 Domestic Oil 627,413 1.8
Southdown, Inc. 19,604 Construction 1,160,312 3.3
Sun Healthcare Group, Inc. (a) 58,400 Drugs & Medicine 383,250 1.2
Valero Energy Corporation 18,100 Domestic Oil 384,625 1.1
Walden Residential Properties, Inc. 16,500 Real Property 337,219 1.0
Wellman, Inc. 50,900 Chemicals 518,544 1.5
------------ -----
$ 9,730,144 28.1%
Low Price to Book Value
AK Steel Holding Corporation 26,900 Steel $ 632,150 1.8%
Astoria Financial Corporation 17,550 Miscellaneous Financial 802,913 2.3
Bank United Corporation (Class A) 17,700 Miscellaneous Financial 694,725 2.0
Bowater, Inc. 9,500 Paper & Forest Products 393,656 1.1
Dime Bancorp, Inc. 23,900 Miscellaneous Financial 631,856 1.8
Exel Ltd. 9,806 Insurance 735,450 2.1
OGE Energy Corporation 22,600 Energy & Utilities 655,400 1.9
Provident Companies, Inc. 17,250 Insurance 715,874 2.1
Reynold Metals Company 18,250 Non-Ferrous Metals 961,547 2.8
Sterling Software, Inc. (a) 36,350 Business Services 983,722 2.8
Trigon Healthcare, Inc. (a) 27,000 Insurance 1,007,438 2.9
------------ -----
$ 8,214,731 23.6%
Below Average Price/Cash Flow Ratio
BEC Energy 15,000 Energy & Utilities $ 617,813 1.8%
Data General Corporation (a) 42,250 Business Machines 694,484 2.0
El Paso Electric Company (a) 91,100 Energy & Utilities 797,125 2.3
Fleming Companies, Inc. 47,800 Food & Agriculture 495,925 1.4
Integrated Health Services, Inc. 45,900 Drugs &Medicine 648,337 1.9
McDermott International, Inc. 22,350 Construction 551,766 1.6
Modis Professional Services, Inc. (a) 35,850 Business Services 519,825 1.5
Newmont Mining Corporation 15,450 Gold 279,066 0.8
Poco Petroleum Ltd. (b) 68,000 International Oil 565,855 1.6
Precision Drilling Corporation (a) 41,700 International Oil 471,731 1.3
Public Service Co. of New Mexico 23,200 Energy & Utilities 474,150 1.4
Ranger Oil Ltd. 94,500 International Oil 419,344 1.2
Reliance Group Holdings, Inc. 73,200 Insurance 942,450 2.7
Tesoro Petroleum Corporation (a) 38,400 Domestic Oil 465,600 1.4
------------ -----
$ 7,943,471 22.9%
</TABLE>
4
<PAGE>
HEARTLAND MID CAP VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] - December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 96.8% [CONT'D] Shares Industry Value Net Assets
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Situations
Adobe Systems, Inc. 16,450 Business Services $ 769,038 2.2%
Autodesk, Inc. 13,000 Business Services 554,937 1.6
Cracker Barrel Old Country Store 31,500 Food & Agriculture 734,344 2.1
Dean Foods Company 13,150 Food & Agriculture 536,684 1.6
Horace Mann Educators Corporation 20,400 Insurance 581,400 1.7
HSB Group, Inc. 6,000 Insurance 246,375 0.7
Jones Apparel Group, Inc. 20,000 Drugs & Medicine 441,250 1.3
Popular, Inc. 17,200 Banks 584,800 1.7
SPS Technologies, Inc. (a) 12,400 Producer Goods 702,150 2.0
Storage Technology Corporation (a) 20,150 Business Machines 716,584 2.0
SUPERVALU, Inc. 33,100 Food & Agriculture 926,800 2.7
Wellpoint Health Networks, Inc. (a) 10,200 Insurance 887,400 2.6
------------ -----
7,681,762 22.2%
------------
TOTAL COMMON STOCKS (Cost $34,299,401) $ 33,570,108
- ----------------------------------------------------------------------------------------------------------
Par Percent of
SHORT-TERM INVESTMENTS 7.3% Amount Value Net Assets
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER - 4.6%
WPS Resources Corporation
4.50% 01/04/1999 $1,600,000 $ 1,600,000 4.6%
VARIABLE RATE DEMAND NOTES (+) 2.7%
Sara Lee Corporation 5.23% 387,500 387,500 1.1
Pitney Bowes Credit Corporation 5.23% 534,000 534,000 1.6
------------
921,500
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $2,521,500) $ 2,521,500
TOTAL INVESTMENTS (Cost $36,820,901)......................................... $ 36,091,608 104.1%
Liabilities, less cash and receivables....................................... (1,405,445) (4.1)
------------
TOTAL NET ASSETS............................................................. $ 34,686,163 100.0%
------------
</TABLE>
(a) Non-income producing security.
(b) Foreign-denominated security.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates.
The rates listed are as of December 31, 1998.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
5
<PAGE>
HEARTLAND VALUE PLUS FUND
SCHEDULE OF INVESTMENTS . December 31, 1998
<TABLE>
<CAPTION>
Percent of
COMMON STOCKS 75.2% Shares Industry Value Net Assets
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
Amcast Industrial Corporation 100,000 Electronics $ 1,912,500 1.1%
Anglogold Ltd. (ADR) 300,000 Gold 5,868,750 3.4
Capital Automotive 75,000 Real Property 1,115,625 0.7
Chicago Title Corporation 100,000 Insurance 4,693,750 2.7
Cooker Restaurant Corporation 500,000 Non-Durables & Entertainment 3,000,000 1.7
CORE Cap, Inc. (d) 222,222 Real Property 2,844,442 1.6
Decorator Industries, Inc. (b) 312,500 Miscellaneous & Conglomerates 2,460,938 1.4
EMC Insurance Group, Inc. 300,000 Insurance 3,825,000 2.2
Equity Inns, Inc. 200,000 Real Property 1,925,000 1.1
ICN Pharmaceuticals, Inc. 340,200 Drugs & Medicine 7,697,025 4.4
Insteel Industries, Inc. (b) 430,800 Producer Goods 2,100,150 1.2
International Aluminum Company 100,000 Producer Goods 2,956,250 1.7
London Pacific Group Ltd. (ADR) 600,000 Insurance 7,537,500 4.3
Lufkin Industries, Inc. 80,900 Producer Goods 1,496,650 0.9
Prime Retail, Inc. 200,000 Real Property 1,962,500 1.1
Riviera Tool Company (a)(b) 41,619 Producer Goods 197,690 0.1
Siam Food Products Public Company
Ltd. (b)(c) 1,419,400 Food & Agriculture 2,517,306 1.4
Vans, Inc. (a) 104,200 Apparel 657,241 0.4
------------ -----
$ 54,768,317 31.4%
Below Average Price/Cash Flow Ratio
Ashanti Goldfields Company Ltd. (GDR) 503,613 Gold $ 4,721,372 2.7%
Dames & Moore, Inc. 600,000 Business Services 7,725,000 4.4
Fleming Companies, Inc. 700,000 Food & Agriculture 7,262,500 4.2
Flexsteel Industries, Inc. 256,600 Consumer Durables 3,303,725 1.9
Haggar Corporation 369,900 Apparel 4,230,731 2.4
HealthPlan Services Corporation 400,000 Insurance 4,600,000 2.7
ICO Holdings, Inc. 428,000 Energy & Raw Materials 856,000 0.5
Interstate Energy Corporation 200,000 Energy & Utilities 6,450,000 3.7
Oil-Dri Corporation of America (b) 470,000 Non-Durables & Entertainment 7,050,000 4.0
Piccadilly Cafeterias, Inc. 125,500 Non-Durables & Entertainment 1,317,750 0.8
Southwestern Energy Company 1,040,000 Energy & Raw Materials 7,800,000 4.5
Tab Products Company 211,100 Producer Goods 1,240,212 0.7
Trigen Energy Corporation 229,400 Energy & Utilities 2,623,762 1.5
Wellman, Inc. 54,500 Chemicals 555,219 0.3
------------ -----
$ 59,736,271 34.3%
Low Price to Book Value
Aceto Corporation 150,000 Chemicals $ 1,987,500 1.1%
Amada Sonoike Company Ltd. (c) 200,000 Producer Goods 514,460 0.3
Analysis & Technology, Inc. 50,000 Business Services 1,000,000 0.6
Arctic Cat, Inc. 225,000 Motor Vehicles 2,320,313 1.3
Chubu Suisan Company Ltd. (c) 500,000 Miscellaneous & Conglomerates 1,773,400 1.0
Denkyosha Company (c) 500,000 Electronics 2,282,600 1.3
Foster (LB) Company (a) 300,000 Producer Goods 1,987,500 1.2
Klamath First Bancorp, Inc. 100,000 Banks 1,937,500 1.1
Nankai Plywood Company Ltd. (c) 100,000 Construction 412,620 0.2
Yushiro Chemical Industry Company Ltd. (c) 463,000 Chemicals 2,032,385 1.2
------------ -----
$ 16,248,278 9.3%
Special Situations
Bolder Technologies Corporation 20,454 Electronics $ 253,118 0.2%
------------
TOTAL COMMON STOCKS (Cost $135,575,923) $131,005,984
</TABLE>
<PAGE>
HEARTLAND VALUE PLUS FUND
SCHEDULE OF INVESTMENTS [CONT'D] * DECEMBER 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Percent of
PREFERRED STOCKS - 6.3% Shares Industry Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bolder Technologies Corporation
9.00% Ser. A Conv. (144A) (d) 85,000 Electronics $ 3,686,875 2.1%
BTI Cap Trust 6.50% Conv. (144A) (d) 100,000 Non-Durables & Entertainment 2,275,000 1.3
CORE Cap, Inc. 10.00% Series A Conv. (d) 222,222 Real Property 5,048,884 2.9
------------
TOTAL PREFERRED STOCKS (Cost $12,920,550) $ 11,010,759
- -----------------------------------------------------------------------------------------------------------------------
Par Percent of
CONVERTIBLE BONDS - 10.4% Amount Industry Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dura Pharmaceuticals, Inc. 3.50%
07/15/2002 $3,000,000 Drugs & Medicine $ 2,141,250 1.2%
Kent Electronics Corporation 4.50%
09/01/2004 2,048,000 Electronics 1,584,640 0.9
Remington Oil & Gas Corporation 8.25%
12/01/2002 5,000,000 Domestic Oil 4,887,500 2.8
Reptron Electronics, Inc. 6.75% 08/01/2004 1,445,000 Electronics 787,525 0.5
Sholodge, Inc. 7.50% 05/01/2004 5,050,000 Travel & Recreatio 3,131,000 1.8
Source Capital Corporation 7.50%
03/01/2008 (D) 1,400,000 Banks 884,832 0.5
Sun Healthcare Group, Inc. 6.00%
03/01/2004 6,000,000 Drugs & Medicine 3,577,500 2.1
Thorn Apple Valley,Inc. 9.00% 04/01/2007 1,500,000 Food & Agriculture 1,117,500 0.6
------------
TOTAL CONVERTIBLE BONDS (COST $19,700,007) $ 18,111,747
- -----------------------------------------------------------------------------------------------------------------------
PAR PERCENT OF
CORPORATE BONDS - 8.0% AMOUNT INDUSTRY VALUE NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
ABC Rail Products Corporation 9.125%
01/15/2004 $2,100,000 Railroads & Shipping $ 1,995,000 1.1%
Doman Industries Ltd. 9.25% 11/15/2007 2,700,000 Paper & Forest Products 1,991,250 1.2
Hawthorne Financial Corporation 12.50%
12/31/2004 2,000,000 Savings & Loans 1,922,500 1.1
Leucadia National Corporation 7.875%
10/15/2006 3,000,000 Insurance 3,056,250 1.8
Matrix Capital Corporation 11.50%
09/30/2004 3,000,000 Miscellaneous Financial 3,000,000 1.7
Sholodge, Inc. 9.55% 09/01/2007 3,000,000 Travel & Recreation 1,942,500 1.1
------------
TOTAL CORPORATE BONDS (COST $15,839,930) $ 13,907,500
- -----------------------------------------------------------------------------------------------------------------------
PAR PERCENT OF
SHORT-TERM INVESTMENT - 0.0% AMOUNT VALUE NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTE (+) 0.0%
General Mills, Inc. 5.23% $40,000 $ 40,000 0.0%
------------
TOTAL SHORT-TERM INVESTMENT (COST $40,000) $ 40,000
TOTAL INVESTMENTS (Cost $184,076,410)...................................................... $174,075,990 99.9%
Cash and Receivables,less liabilitiesS..................................................... 238,006 0.1
------------ ------
TOTAL NET ASSETS........................................................................... $174,313,996 100.0%
============ ======
</TABLE>
(a) Non-income producing security.
(b) Affiliated company. See Note 9 in Notes to Financial Statements.
(c) Foreign-denominated security.
(d) Restricted security. See Note 2(h) in Notes to Financial Statements.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rate changes periodically on specified dates.
The rate listed is as of December 31, 1998.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS . December 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.4% Shares Industry Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio
ABT Building Products Corporation (a) 430,800 Construction $ 4,415,700 0.3%
Aldila, Inc. (a)(b) 962,300 Non-Durables & Entertainment 2,405,750 0.1
Align-Rite International, Inc. (a)(b) 300,000 Electronics 3,487,500 0.2
American Buildings Company (a)(b) 500,000 Construction 12,250,000 0.8
American Physicians Services Group, Inc. (a) 187,200 Miscellaneous Financial 842,400 0.1
Amtran, Inc. (a)(b) 230,000 Air Transport 6,238,750 0.4
Amwest Insurance Group, Inc. (b) 220,000 Insurance 3,135,000 0.2
Anglogold Ltd. (ADR) 500,000 Gold 9,781,250 0.6
Atlantic American Corporation (a) 337,800 Insurance 1,646,775 0.1
Audiovox Corporation (Class A) (a) 600,000 Consumer Durables 3,562,500 0.2
Baldwin Technology Company, Inc. (a) 400,000 Optical Photo & Equipment 2,250,000 0.1
BancTec, Inc. (a) 500,000 Business Machines 6,281,250 0.4
Bay Bancshares, Inc. 124,900 Banks 1,811,050 0.1
Beverly Enterprises, Inc. (a) 2,000,000 Drugs & Medicine 13,500,000 0.9
Bitstream, Inc. (a)(b) 492,200 Software 784,468 0.1
Buckhead American Corporation (a)(b) 184,600 Travel & Recreation 876,850 0.1
Building One Services Corporation (a) 763,500 Miscellaneous & Conglomerates 15,938,062 1.0
Business Resource Group (a)(b) 486,000 Business Services 1,640,250 0.1
Cameron Ashley Building Products, Inc. (a)(b) 500,000 Construction 6,531,250 0.4
Capital Corp of the West (a) 105,000 Banks 1,036,875 0.1
Capital RE Corporation 300,000 Insurance 6,018,750 0.4
Catalina Lighting, Inc. (a)(b) 710,000 Construction 1,597,500 0.1
Catherine Stores Corporation (a)(b) 500,000 Apparel 5,437,500 0.3
Cavalier Homes, Inc. 350,000 Construction 3,981,250 0.3
CHC Helicopter Corporation (Class A) (b)(c) 536,000 International Oil 1,655,168 0.1
The Cherry Corporation (Class A) (a)(b) 957,000 Consumer Durables 14,115,750 0.9
Chic By H.I.S., Inc. (b) 985,000 Apparel 3,139,687 0.2
Chronimed, Inc. (a) 500,000 Drugs & Medicine 6,468,750 0.4
Collagen Aesthetics, Inc. (b) 878,500 Drugs & Medicine 7,906,500 0.5
Cross-Continent Auto Retailers, Inc. (a)(b) 859,100 Motor Vehicles 8,376,225 0.5
Cyrk International, Inc. (a)(b) 1,000,000 Business Services 7,500,000 0.5
Dain Rauscher Corporation 101,500 Miscellaneous Financial 2,994,250 0.2
Datron Systems, Inc. (a)(b) 250,000 Business Machines 1,359,375 0.1
Davox Corporation (a) 200,000 Telecommunications 1,525,000 0.1
Diamond Home Services, Inc. (a) 569,000 Construction 2,133,750 0.1
Digi International, Inc. (a) 510,000 Business Machines 5,673,750 0.4
Dollar Thrifty Automotive Group, Inc. (a) 600,000 Travel & Recreation 7,725,000 0.5
Drypers Corporation (a) 500,000 Paper & Forest Products 1,625,000 0.1
Duckwall-ALCO Stores, Inc. (a)(b) 370,000 Retail 4,902,500 0.3
Durakon Industries, Inc. (a)(b) 500,000 Trucking & Freight 5,250,000 0.3
Dynamic Materials Corporation (a)(b) 250,000 Chemicals 937,500 0.1
EDAP TMS S.A. (ADR) (a)(b) 790,000 Drugs & Medicine 1,036,875 0.1
Edusoft Ltd. (a)(b) 373,400 Business Services 2,893,850 0.2
El Paso Electric Company (a) 2,500,000 Energy & Utilities 21,875,000 1.4
Encore Wire Corporation (a) 300,000 Non-Ferrous Metals 2,775,000 0.2
Engle Homes, Inc. (b) 549,800 Construction 8,418,812 0.5
Environmental Technologies Corporation (a)(b) 476,000 Chemicals 357,000 0.0
ESCO Electronics Corporation (a) 314,200 Producer Goods 2,847,437 0.2
Esterline Technologies Corporation (a)(b) 600,000 Electronics 13,050,000 0.8
Executone Information Systems, Inc. (a)(b) 3,403,400 Business Services 5,955,950 0.4
EZCorp, Inc. (Class A) (b) 700,000 Miscellaneous Financial 5,862,500 0.4
Fahnestock Viner Holdings, Inc. 200,000 Miscellaneous Financial 3,500,000 0.2
Fibermark, Inc. (a)(b) 391,600 Paper & Forest Products 5,335,550 0.3
Financial Industries Corporation (a)(b) 300,000 Insurance 4,875,000 0.3
Flour City International, Inc. (a) 500,000 Construction 1,718,750 0.1
Fortress Group, Inc. 305,000 Construction 762,500 0.1
Franklin Bank National Association 183,300 Banks 1,993,388 0.1
Friedman Industries, Inc. 220,500 Steel 1,061,156 0.1
Fuji Pharmaceutical Company Ltd. (c) 442,000 Drugs & Medicine 1,338,730 0.1
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . December 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.4% [CONT'D] Shares Industry Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio [CONT'D]
Gehl Company (a) 270,000 Producer Goods $ 4,151,250 0.3%
The General Chemical Group, Inc. 500,000 Chemicals 6,937,500 0.5
Genesis Health Ventures, Inc. (a) 675,000 Drugs & Medicine 5,906,250 0.4
GeoScience Corporation (a) 400,000 Energy & Raw Materials 4,375,000 0.3
Gibson Greetings, Inc. (a) 200,000 Non-Durables & Entertainment 2,375,000 0.1
Gold Fields Ltd. (ADR) (a) 900,000 Gold 4,972,230 0.3
Grand Casinos, Inc. (a) 2,000,000 Travel & Recreation 16,125,000 1.0
Guangshen Railway Company Ltd. (ADR) 500,000 Railroads & Shipping 3,000,000 0.2
Gundle/SLT Environmental, Inc. (a) 662,800 Chemicals 2,651,200 0.2
GZA GeoEnvironmental
Technologies, Inc. (a)(b) 372,700 Business Services 1,630,562 0.1
Hallmark Capital Corporation (a) 110,000 Banks 1,210,000 0.1
Hallmark Financial Services, Inc. (a)(b) 1,060,000 Insurance 463,750 0.0
Hampshire Group Ltd. (a) 206,000 Apparel 2,729,500 0.2
Hanover Foods Corporation (Class A) (b) 50,500 Food & Agriculture 2,903,750 0.2
Harding Lawson Associates Group, Inc. (a)(b) 327,500 Business Services 2,005,937 0.1
Health Power, Inc. (a)(b) 350,000 Drugs & Medicine 896,875 0.1
HealthRite, Inc. (a)(b) 500,000 Drugs & Medicine 1,000,000 0.1
High Plains Corporation (a)(b) 1,500,000 Chemicals 2,531,250 0.2
HMN Financial, Inc. (b) 250,500 Banks 2,943,375 0.2
Home Federal Bancorp (b) 290,250 Banks 6,458,062 0.4
Home Products International, Inc. (a)(b) 283,100 Retail 2,813,306 0.2
Home Security International, Inc. (a)(b) 500,000 Business Services 5,625,000 0.4
ICN Pharmaceuticals, Inc. (b)(d) 2,801,000 Drugs & Medicine 63,372,625 4.1
ICTS International N.V. (a) 300,000 Business Services 1,518,750 0.1
IEC Electronics Corporation (a)(b) 728,800 Electronics 3,006,300 0.2
In Home Health, Inc. (a)(b) 533,333 Drugs & Medicine 966,666 0.1
Intercontinental Life Corporation (a)(b) 225,800 Insurance 4,516,000 0.3
Intermet Corporation 600,000 Non-Ferrous Metals 7,837,500 0.5
International Aircraft Investors (a)(b) 430,000 Miscellaneous Financial 2,633,750 0.2
International Airline Support Group, Inc.(a)(b) 250,000 Air Transport 1,156,250 0.1
The IT Group, Inc. (a) 402,900 Business Services 4,482,262 0.3
John B. Sanfilippo & Son, Inc. (a)(b) 355,000 Food & Agriculture 1,508,750 0.1
The Judge Group, Inc. (a) 400,000 Business Services 875,000 0.1
K-Tron International, Inc. (a) 122,000 Electronics 2,226,500 0.1
Kaye Group, Inc. (b) 363,600 Insurance 2,727,000 0.2
Kentucky Electric Steel, Inc. (a)(b) 450,000 Steel 1,575,000 0.1
Koss Corporation (a) 151,000 Consumer Durables 1,670,437 0.1
LaCrosse Footwear, Inc. (b) 447,800 Apparel 4,142,150 0.3
Lindal Cedar Homes, Inc. (a)(b) 405,400 Construction 658,775 0.0
The Lion Brewery, Inc. (a)(b) 375,000 Liquor 1,687,500 0.1
LSI Industries, Inc. 300,000 Construction 6,731,250 0.4
M.D.C. Holdings, Inc. 250,000 Construction 5,343,750 0.3
M/I Schottenstein Homes, Inc. 278,400 Construction 6,124,800 0.4
Magal Security Systems Ltd. (a)(b) 650,000 Business Services 1,584,375 0.1
Manchester Equipment Company, Inc. (a) 300,000 Business Services 1,031,250 0.1
Marten Transport Ltd. (a)(b) 333,300 Trucking & Freight 4,416,225 0.3
Martin Industries, Inc. (b) 450,000 Producer Goods 1,237,500 0.1
Matrix Service Company (a)(b) 600,000 Construction 2,850,000 0.2
Maxicare Health Plans, Inc. (a)(b) 1,000,000 Drugs & Medicine 5,375,000 0.3
Meadow Valley Corporation (a) 150,000 Construction 721,875 0.1
Mercury Air Group, Inc. (a)(b) 397,000 Air Transport 3,176,000 0.2
MFRI, Inc. (a)(b) 400,000 Producer Goods 2,000,000 0.1
Microtest, Inc. (a) 371,100 Electronics 1,020,525 0.1
Midwest Express Holdings, Inc. (a)(b) 100,000 Air Transport 2,631,250 0.2
Mining Services International Corporation 250,000 Energy & Raw Materials 1,312,500 0.1
MMI Companies, Inc. 400,000 Insurance 6,700,000 0.4
Monro Muffler Brake, Inc. (a) 213,000 Motor Vehicles 1,544,250 0.1
Morgan Products Ltd. (a)(b) 850,000 Construction 2,975,000 0.2
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . December 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.4% [CONT'D] Shares Industry Value Net Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio [CONT'D]
Motor Club of America (a)(b) 146,000 Insurance $ 2,089,625 0.1%
MYR Group, Inc. (b) 501,600 Construction 5,768,400 0.4
Napco Security Systems, Inc. (a) 150,000 Electronics 600,000 0.0
National Home Health Care Corporation (a) 242,900 Drugs & Medicine 1,153,775 0.1
Networks North, Inc. (a)(b) 200,000 Media 562,500 0.0
Norrell Corporation 300,000 Business Services 4,425,000 0.3
Northwest Pipe Company (a) 97,200 Steel 1,567,350 0.1
Novamerican Steel, Inc. (a) 436,200 Steel 3,653,175 0.2
Nu Horizons Electronics Corporation (a)(b) 700,000 Electronics 3,587,500 0.2
O.I. Corporation (a)(b) 333,100 Optical & Photo Equipment 1,852,869 0.1
Orthologic Corporation (a) 1,196,400 Drugs & Medicine 4,000,522 0.3
Osmonics, Inc. (a)(b) 1,275,600 Producer Goods 10,762,875 0.7
Park-Ohio Holdings Corporation (a) 94,000 Producer Goods 1,421,750 0.1
Patrick Industries, Inc. (b) 312,000 Construction 4,797,000 0.3
PBOC Holdings, Inc. (a) 450,000 Banks 4,612,500 0.3
PDK Labs, Inc. (a)(b) 380,000 Drugs & Medicine 1,116,250 0.1
Pentech International, Inc. (a) 694,900 Non-Durables & Entertainment 629,788 0.0
PIA Merchandising Services, Inc. (a)(b) 545,000 Business Services 1,362,500 0.1
PICO Holdings, Inc. (a) 240,000 Insurance Specialty 3,180,000 0.2
Planer Systems, Inc. (a) 400,000 Business Machines 2,725,000 0.2
Play by Play Toys & Novelties, Inc. (a) 400,000 Non-Durables & Entertainment 2,800,000 0.2
Pointe Financial Corporation (a) 84,200 Banks 868,312 0.1
Powell Industries, Inc. (a)(b) 600,000 Electronics 6,000,000 0.4
Printronix, Inc. (a) 100,000 Computer Peripherals 1,437,500 0.1
Professionals Group, Inc. (a)(b) 242,000 Insurance 7,502,000 0.5
PXRE Corporation 600,000 Insurance 15,037,500 1.0
Rainforest Cafe, Inc. (a) 716,500 Non-Durables & Entertainment 4,343,781 0.3
Ramsay Health Care, Inc. (a)(b) 700,000 Drugs & Medicine 1,137,500 0.1
Raytel Medical Corporation (a)(b) 880,000 Drugs & Medicine 4,097,544 0.3
RDO Equipment Company (Class A) (a) 100,000 Motor Vehicles 750,000 0.1
Reliance Steel & Aluminum Company 284,200 Non-Ferrous Metals 7,851,025 0.5
RenaissanceRe Holdings Ltd. 250,000 Insurance 9,156,250 0.6
Resound Corporation (a) 1,000,000 Optical Photo & Equipment 3,750,000 0.2
Riviera Tool Company (a)(b) 320,250 Producer Goods 1,521,187 0.1
The Rottlund Company, Inc. (a)(b) 550,000 Construction 2,200,000 0.1
Rush Enterprises, Inc. (a) 205,000 Motor Vehicles 2,255,000 0.1
Saucony, Inc. (Class B) (a)(b) 610,000 Apparel 3,812,500 0.2
Scan-Optics, Inc. (a)(b) 550,000 Business Machines 2,096,875 0.1
Seacoast Financial Services Corporation (a) 500,000 Banks 5,125,000 0.3
The Seibels Bruce Group, Inc. (a)(b) 500,000 Insurance 1,687,500 0.1
Shiloh Industries, Inc. (a) 209,500 Producer Goods 2,749,688 0.2
SIFCO Industries, Inc. 176,200 Aerospace 2,191,488 0.1
Six Rivers National Bank (a)(b) 93,300 Banks 1,084,613 0.1
Southern Energy Homes, Inc. (a)(b) 950,000 Construction 5,818,750 0.4
Spacehab, Inc. (a) 282,700 Electronics 2,968,350 0.2
Spectrum Control, Inc. (a) 95,200 Electronics 428,400 0.0
Speizman Industries, Inc. (a)(b) 296,000 Producer Goods 1,295,000 0.1
Steel Technologies, Inc. 245,800 Steel 1,659,150 0.1
The Stephan Company 200,000 Soap & Cosmetics 2,050,000 0.1
Stifel Financial Corporation 200,000 Miscellaneous Financial 2,087,500 0.1
Strategic Diagnostics, Inc. (a) 310,000 Chemicals 620,000 0.0
Summit Bank Corporation 48,900 Banks 806,850 0.1
Sunrise International Leasing Corporation (a)(b) 630,000 Business Services 2,047,500 0.1
Tech-Sym Corporation (a)(b) 353,000 Aerospace 7,854,250 0.5
Technology Research Corporation (a)(b) 500,000 Producer Goods 593,750 0.0
Tesoro Petroleum Corporation (a)(b) 1,250,100 Domestic Oil 15,157,463 1.0
Todhunter International, Inc. (a)(b) 490,000 Liquor 3,981,250 0.3
Trak Auto Corporation (a)(b) 490,500 Motor Vehicles 3,556,125 0.2
TransCoastal Marine Services, Inc. (a)(b) 850,000 Domestic Oil 2,523,480 0.2
U.S. Home Corporation (a) 400,000 Construction 13,300,000 0.9
</TABLE>
10
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] - DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.4% [CONT'D] Shares Industry Value Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Earnings Ratio [cont'd]
United Security Bancorporation (a)(b) 187,465 Banks $ 2,835,408 0.2%
United Wisconsin Services, Inc. 790,000 Insurance 6,863,125 0.4
Universal Forest Products, Inc. 293,200 Paper & Forest Products 5,882,325 0.4
UroCor, Inc. (a) 500,000 Drugs & Medicine 3,187,500 0.2
URS Corporation (a)(b) 800,000 Business Services 18,700,000 1.2
Verdant Brands, Inc. (a)(b) 1,311,000 Non-Durables & Entertainment 1,392,938 0.1
Washington Homes, Inc. (a) 180,300 Construction 1,059,263 0.1
Webco Industries, Inc. (a) 300,000 Steel 1,987,500 0.1
Wescast Industries, Inc. (Class A) (c) 149,500 Motor Vehicles 4,363,905 0.3
Wilsons The Leather Experts, Inc. (a) 300,000 Retail 3,300,000 0.2
Winsloew Furniture, Inc. (a) 135,700 Consumer Durables 3,596,050 0.2
Winston Resources, Inc. (a) 100,000 Business Services 362,500 0.0
World Acceptance Corporation (a) 400,000 Miscellaneous Financial 2,600,000 0.2
World of Science, Inc. (a)(b) 286,000 Retail 965,250 0.1
Worldtex, Inc. (a) 555,000 Apparel 2,011,875 0.1
Zindart Ltd. (ADR) (a) 315,700 Miscellaneous & Conglomerates 2,269,094 0.1
------------ ----
$808,886,138 52.3%
Low Price to Book Value
ACT Networks, Inc. (a)(b) 823,100 Business Machines $ 10,082,975 0.7%
Alabama National Bancorporation 110,000 Banks 2,935,625 0.2
Alta Gold Company (a) 800,000 Gold 1,225,040 0.1
American Medical Security Group, Inc. 650,000 Insurance 9,303,125 0.6
Apex Silver Mines Ltd. 190,000 Gold 1,567,500 0.1
Associated Banc-Corp 669,375 Banks 22,884,258 1.5
Baldwin Piano & Organ Company (a)(b) 331,500 Non-Durables & Entertainment 3,190,688 0.2
Banknorth Group, Inc. 100,000 Banks 3,762,500 0.2
Barrett Business Services, Inc. (a)(b) 625,000 Business Services 5,312,500 0.3
BTG, Inc. (a)(b) 800,000 Business Services 4,950,000 0.3
Bunka Shutter Company Ltd. (c) 1,500,000 Construction 3,437,100 0.2
Burlington Coat Factory Warehouse Corp. 700,000 Retail 11,418,750 0.7
Campbell Resources, Inc. (a)(b) 12,000,000 Gold 3,000,000 0.2
Cash America International, Inc. 639,500 Miscellaneous Financial 9,712,406 0.6
Check Technology Corporation (a) 210,000 Electronics 613,599 0.0
Children's Comprehensive Services, Inc. (a) 275,000 Business Services 3,884,375 0.2
Chofu Seisakusho Company Ltd. (c) 300,000 Consumer Durables 3,318,540 0.2
Ciprico, Inc. (a)(b) 490,000 Business Machines 3,307,500 0.2
Cohesion Technologies, Inc. (a)(b) 878,500 Drugs & Medicine 3,184,563 0.2
Collaborative Clinical Research, Inc. (a)(b) 600,000 Business Services 2,400,000 0.2
Commercial Federal Corporation 450,000 Banks 10,434,375 0.7
Copley Pharmaceutical, Inc. (a) 404,700 Drugs & Medicine 4,198,763 0.3
CSP, Inc. (a)(b) 331,300 Electronics 2,629,694 0.2
D & N Financial Corporation (b) 440,000 Banks 10,395,000 0.7
Davel Communications, Inc. (a)(b) 360,184 Telephone 6,573,358 0.4
Denyo Company Ltd. (c) 227,000 Producer Goods 1,215,653 0.1
ECC International Corporation (a)(b) 700,000 Electronics 1,750,000 0.1
Evergreen Resources, Inc. (a)(b) 382,500 Domestic Oil 6,789,375 0.4
Fukuda Denshi Company (c) 500,000 Drugs & Medicine 6,277,150 0.4
GA Financial, Inc. 100,000 Banks 1,550,000 0.1
Gensia Sicor, Inc. (a) 1,500,000 Drugs & Medicine 6,796,950 0.4
Health Management Systems, Inc. (a) 200,000 Business Services 1,575,000 0.1
Hibiya Engineering Company Ltd. (c) 500,000 Construction 2,063,100 0.1
Horipro, Inc. (c) 600,000 Non-Durables & Entertainment 2,923,500 0.2
ImmuLogic Pharmaceutical Corporation (a)(b) 2,000,000 Drugs & Medicine 2,437,600 0.1
Iwerks Entertainment, Inc. (a)(b) 1,100,000 Non-Durables & Entertainment 1,168,750 0.1
Kansai Kosaido Company Ltd. (c) 400,000 Media 2,528,440 0.2
Katsuragawa Electric Company (c) 407,000 Business Machines 1,643,670 0.1
Kentucky Fried Chicken Japan Ltd. (c) 500,000 Non-Durables & Entertainment 4,696,900 0.3
Kofax Image Products, Inc. (a) 100,000 Business Machines 775,000 0.1
Kondotec, Inc. (c) 500,000 Construction 2,418,700 0.1
</TABLE>
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.4% [cont'd] Shares Industry Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Low Price to Book Value [cont'd]
LAI Worldwide, Inc. (a)(b) 610,000 Business Services $ 3,698,125 0.2%
LCS Industries, Inc. (b) 242,400 Business Services 4,166,250 0.3
Life USA Holding, Inc. (a) 200,000 Insurance 2,575,000 0.2
M/A/R/C, Inc. (b) 300,000 Business Services 3,187,500 0.2
MAF Bancorp, Inc. 750,000 Banks 19,875,000 1.3
The Marcus Corporation 225,000 Non-Durables & Entertainment 3,656,250 0.2
Massbank Corporation 133,333 Banks 5,216,654 0.3
Matrix Pharmaceutical, Inc. (a)(b) 2,100,000 Drugs & Medicine 5,512,500 0.4
Matsumoto Yushi-Seiyaku Company (c) 419,000 Chemicals 8,791,626 0.6
Medical Graphics Corporation (a)(b) 543,450 Drugs & Medicine 645,347 0.0
Moore Medical Corporation (a)(b) 200,000 Drugs & Medicine 2,700,000 0.2
NABI, Inc. (a)(b) 3,200,000 Drugs & Medicine 8,600,000 0.6
Network Equipment Technologies, Inc. (a) 470,500 Business Machines 4,852,031 0.3
New Brunswick Scientific Company, Inc. (a)(b) 277,136 Electronics 1,662,816 0.1
Nissui Pharmaceutical Company Ltd. (c) 776,000 Drugs & Medicine 3,413,158 0.2
Northwest Equity Corporation (b) 80,000 Banks 1,760,000 0.1
Ontro, Inc. (a)(b) 333,900 Non-Durables & Entertainment 1,085,175 0.1
Parlex Corporation (a) 213,600 Electronics 2,136,000 0.1
Penn Engineering & Manufacturing Corporation 200,000 Producer Goods 4,475,000 0.3
Precision Response Corporation (a) 350,000 Business Services 2,668,750 0.2
Premium Wear, Inc. (a)(b) 200,000 Apparel 1,437,500 0.1
Presidential Life Corporation 1,362,800 Insurance 27,085,650 1.8
Providence & Worcester Railroad
Company (b) 200,000 Railroads & Shipping 2,500,000 0.2
Rehabilicare, Inc. (a)(b) 312,100 Drugs & Medicine 1,014,325 0.1
Reliance Bancshares, Inc. 50,000 Banks 500,000 0.0
Right Management Consultants, Inc. (a)(b) 500,000 Business Services 7,375,000 0.5
Riken Vitamin Company Ltd. (c) 500,000 Drugs & Medicine 4,385,250 0.3
Ryan's Family Steak Houses, Inc. (a)(b) 500,000 Non-Durables & Entertainment 6,187,500 0.4
Salient 3 Communications, Inc. (a)(b) 300,000 Electronics 2,737,500 0.2
Sangetsu Company Ltd. (c) 500,000 Consumer Durables 7,418,450 0.5
Sanko Sangyo Company (c) 111,000 Business Services 935,519 0.1
Santa Barbara Restaurant Group, Inc. (a) 286,290 Non-Durables & Entertainment 1,091,481 0.1
SCPIE Holdings, Inc. 257,800 Insurance 7,814,563 0.5
Shikoku Coca-Cola Bottling Company (c) 400,000 Food & Agriculture 4,842,640 0.3
SK Kaken Company Ltd. (c) 150,000 Construction 1,711,950 0.1
Smartflex Systems, Inc. (a)(b) 550,000 Electronics 3,987,500 0.2
Spectrian Corporation (a) 230,000 Electronics 2,961,250 0.2
St. Francis Capital Corporation 100,000 Banks 4,225,000 0.3
St. Paul Bancorp, Inc. 258,568 Banks 7,037,911 0.4
Sterling Financial Corporation (a) 275,000 Banks 4,675,000 0.3
Strattec Security Corporation (a)(b) 497,000 Producer Goods 14,910,000 0.9
Teikoku Hormone Manufacturing
Company Ltd. (c) 500,000 Drugs & Medicine 2,941,050 0.2
Tipperary Corporation (a)(b) 1,300,000 Energy & Raw Materials 1,381,250 0.1
Toyo Tec Company Ltd. (c) 200,000 Business Services 1,120,240 0.1
Trimark Holdings, Inc. (a)(b) 400,000 Non-Durables & Entertainment 1,000,000 0.1
U.S. Global Investors, Inc. (Class A) (a)(b) 588,300 Miscellaneous Financial 919,219 0.1
Unionbancorp, Inc. 129,300 Banks 2,165,775 0.1
VTEL Corporation 1,000,000 Telecommunications 2,562,500 0.2
Webster Financial Corporation 200,600 Banks 5,503,963 0.3
Weyco Group, Inc. 177,000 Apparel 4,491,375 0.3
------------ ----
$417,928,565 27.0%
Below Average Price/Cash Flow Ratio
Advocat, Inc. (a)(b) 530,500 Drugs & Medicine $ 2,950,906 0.2%
Akita Drilling Ltd. (Class A) (b)(c) 748,600 International Oil 3,820,405 0.2
Allied Healthcare Products, Inc. (a)(b) 775,000 Drugs & Medicine 1,259,375 0.1
The Alpine Group, Inc. (a)(b) 1,008,100 Producer Goods 15,121,500 1.0
Asia Pacific Wire & Cable
Corporation Ltd. (a)(b) 700,000 Telephone 2,800,000 0.2
</TABLE>
12
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . DECEMBER 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.4% [CONT'D] Shares Industry Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Below Average Price/Cash Flow Ratio [CONT'D]
Beau Canada Exploration Ltd. (a)(c) 1,600,000 International Oil $ 2,007,520 0.1%
Benton Oil & Gas Company (a) 1,000,000 Domestic Oil 3,000,000 0.2
C.P. Clare Corporation (a) 121,100 Electronics 620,638 0.0
Cambior, Inc. (c) 500,000 Gold 2,437,900 0.1
Caretenders Health Corporation (a)(b) 308,900 Drugs & Medicine 849,475 0.1
Chieftan International, Inc. (a) 181,000 Energy & Raw Materials 2,601,875 0.2
Clayton Williams Energy, Inc. (a)(b) 595,000 Domestic Oil 5,950,000 0.4
Comdial Corporation (a)(b) 500,000 Telephone 4,406,250 0.3
Commonwealth Industries, Inc. (b) 963,200 Non-Ferrous Metals 9,030,000 0.6
Crown Central Petroleum Corporation
(ClassB) (a)(b) 800,000 Domestic Oil 5,600,000 0.4
Donnelly Corporation (b) 351,800 Motor Vehicles 4,573,400 0.3
Exabyte Corporation (a) 300,000 Business Machines 1,650,000 0.1
Filene's Basement Corporation (a)(b) 2,000,000 Retail 4,750,000 0.3
Forest Oil Corporation (a)(b) 1,500,000 Domestic Oil 12,750,000 0.8
Fuji Coca-Cola Bottling Company Ltd. (c) 600,000 Food & Agriculture 5,794,320 0.4
Global Industrial Technologies, Inc. (a) 500,000 Construction 5,343,750 0.3
Hallwood Consolidated Resources
Corporation (a)(b) 300,000 Domestic Oil 3,300,000 0.2
Hallwood Group, Inc. (a)(b) 59,500 Domestic Oil 1,115,625 0.1
Howell Corporation (b) 540,000 Domestic Oil 1,113,750 0.1
Jaco Electronics, Inc. (a)(b) 380,000 Electronics 1,520,000 0.1
Jason, Inc. (a) 400,000 Producer Goods 3,350,000 0.2
Landry's Seafood Restaurants, Inc. (a) 500,000 Non-Durables & Entertainment 3,750,000 0.2
Lechters, Inc. (a) 844,700 Retail 2,085,395 0.1
Little Switzerland, Inc. (a) 400,000 Retail 925,000 0.1
Lone Star Steakhouse & Saloon (a) 700,000 Non-Durables & Entertainment 6,431,250 0.4
Louis Dreyfus Natural Gas Corporation (a) 750,000 Domestic Oil 10,687,500 0.7
M-Wave, Inc. (a)(b) 300,000 Electronics 562,500 0.0
Maezawa Kasei Industries Company (c) 262,700 Chemicals 2,882,896 0.2
Material Sciences Corporation (a)(b) 805,000 Producer Goods 6,842,500 0.4
Norstan, Inc. (a)(b) 500,000 Telephone 8,875,000 0.6
Numac Energy, Inc. (a)(c) 2,085,400 International Oil 4,541,793 0.3
Outlook Group Corporation (a)(b) 467,500 Media 1,986,875 0.1
Petsec Energy Ltd. (ADR) (a)(b) 2,108,300 Domestic Oil 3,557,756 0.2
RARE Hospitality International, Inc. (a) 460,200 Non-Durables & Entertainment 6,442,800 0.4
Remington Oil & Gas Corporation (a)(b) 1,500,000 Domestic Oil 4,781,250 0.3
Roy F. Weston, Inc. (Class A) (a)(b) 990,000 Business Services 2,722,500 0.2
Sholodge, Inc. (a)(b) 550,000 Travel & Recreation 3,093,750 0.2
ShopKo Stores, Inc. (a) 900,000 Retail 29,925,000 1.9
Strouds, Inc. (a)(b) 700,000 Retail 1,093,750 0.1
Suprema Specialties, Inc. (a)(b) 340,600 Food & Agriculture 1,703,000 0.1
The UniMark Group, Inc. (a) 500,000 Food & Agriculture 1,093,750 0.1
UniSource Energy Corporation (a) 1,500,000 Energy & Utilities 20,250,000 1.3
United Palm Oil Ind. Public Company Ltd. (c) 699,700 Food & Agriculture 811,372 0.1
Universal Stainless & Alloy Products, Inc. (a) 200,000 Non-Ferrous Metals 1,500,000 0.1
Vicorp Restaurants, Inc. (a)(b) 440,000 Non-Durables & Entertainment 6,820,000 0.5
Willbros Group, Inc. (a) 236,100 Construction 1,313,306 0.1
------------ ----
$242,395,632 15.7%
Special Situations
Autonomous Technologies Corporation (a) 462,000 Drugs & Medicine $ 2,396,625 0.2%
Badger Meter, Inc. (b) 200,000 Electronics 7,125,000 0.5
Balanced Care Corporation (a) 319,600 Drugs & Medicine 2,556,800 0.2
Blue Wave Systems, Inc. (a)(b) 440,400 Business Machines 1,541,400 0.1
Children's Broadcasting Corporation (a)(b) 680,000 Media 1,997,500 0.1
Eaton Vance Corporation (b) 250,000 Miscellaneous Financial 5,218,750 0.4
Effective Management Systems, Inc. (a)(b) 375,000 Business Machines 632,813 0.1
Happy Kids, Inc. (a) 115,000 Apparel 1,466,250 0.1
</TABLE>
13
<PAGE>
HEARTLAND VALUE FUND
SCHEDULE OF INVESTMENTS [CONT'D] . December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Percent of
COMMON STOCKS - 102.4% [CONT'D] Shares Industry Value Net Assets
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special Situations [CONT'D]
Interdigital Communications
Corporation (a)(b) 4,500,000 Telephone $ 20,531,250 1.3%
Interpore International (a)(b) 600,000 Drugs & Medicine 3,562,500 0.2
Lithia Motors, Inc. (a)(b) 300,000 Motor Vehicles 4,950,000 0.3
Mentor Corporation 750,000 Drugs & Medicine 17,578,125 1.1
Minntech Corporation (b) 600,000 Drugs & Medicine 9,300,000 0.6
RightCHOICE Managed Care, Inc.
(Class A) (a)(b) 960,500 Drugs & Medicine 11,045,750 0.7
Starcraft Corporation (a)(b) 400,000 Motor Vehicles 1,100,000 0.1
Syncor International Corporation (a) 293,000 Drugs & Medicine 7,984,250 0.5
Teltrend, Inc. (a)(b) 500,000 Telephone 9,562,500 0.6
The Topps Company, Inc. (a) 1,000,000 Media 5,000,000 0.3
--------------- --------
113,549,513 7.4%
---------------
TOTAL COMMON STOCKS ($1,444,160,472) $1,582,759,848
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Par Percent of
SHORT-TERM INVESTMENT - 0.0% Amount Value Net Assets
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTE (+) - 0.0%
Wisconsin Electric Power Company 5.18% $ 500,000 $ 500,000 0.0%
---------------
TOTAL SHORT-TERM INVESTMENT (COST $500,000) $ 500,000
TOTAL INVESTMENTS (COST $1,444,660,472)......................................$1,583,259,848 102.4%
Liabilities, less cash and receivables....................................... (37,701,291) (2.4)
--------------- --------
TOTAL NET ASSETS.............................................................$1,545,558,557 100.0%
=============== ========
</TABLE>
(a) Non-income producing security.
(b) Affiliated company. See Note 9 in Notes to Financial Statements.
(c) Foreign-denominated security.
(d) All or part of security committed to cover margin requirements for futures
contracts.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rate changes periodically on specified dates.
The rate listed is as of December 31, 1998.
The accompanying Notes to Financial Statements are an integral part of this
Schedule.
14
<PAGE>
<TABLE>
<CAPTION>
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS . December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Par Percent of
Amount LONG TERM INVESTMENTS - 105.5% Coupon Maturity Value Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY AND AGENCY SECURITIES - 38.0%
U.S. TREASURY SECURITIES - 26.6%
<C> <S> <C> <C> <C> <C>
$2,200,000 U.S. Treasury Bond(a) 8.125% 08/15/2019 $ 2,938,449 5.4%
7,000,000 U.S. Treasury Bond(a) 7.875 02/15/2021 9,204,819 16.8
7,500,000 U.S. Treasury Strips 0.000 05/15/2019 2,431,064 4.4
-----------
14,574,332
AGENCY SECURITIES - 11.4%
3,000,000 Federal National Mortgage Association
(Callable 12/12/2001) 6.700 12/12/2006 3,118,575 5.7
3,000,000 Federal National Mortgage Association
(Callable 07/06/2002) 6.760 07/16/2007 3,151,123 5.7
------------
6,269,698
------------
TOTAL U.S. TREASURY AND AGENCY SECURITIES (Cost $19,961,369) 20,844,030
MORTGAGE-RELATED SECURITIES - 67.5%
PASS-THROUGH SECURITIES - 39.9%
234,395 FHLMC #260666 8.250 03/01/2008 245,163 0.4
1,000,321 FHLMC #280656 9.000 06/01/2014 1,070,031 1.9
1,400,000 FNGL #252279 8.000 08/01/2028 1,449,434 2.6
2,555,257 FNMA #190850 CL 7.500 06/01/2001 2,615,146 4.8
831,398 FNMA #208578 CL 7.500 03/01/2013 858,938 1.6
524,913 FNMA #304119 CL 8.500 02/01/2025 554,111 1.0
990,737 FNMA #309494 RE 6.500 09/01/2025 1,000,955 1.8
1,926,687 FNMA #361493 GL 9.000 01/01/2025 2,042,288 3.7
1,523,765 FNMA Grantor Trust 1995 - T5A 7.000 03/17/2035 1,547,443 2.8
5,000,000 FNMA TBA(b) 6.500 01/15/2028 5,029,700 9.2
233,005 GNMA #31652 8.500 09/15/2009 248,879 0.5
182,444 GNMA #293146 MHB 10.250 07/15/2005 190,769 0.4
1,442,225 GNMA #443630 MHD 9.000 11/15/2017 1,643,687 3.0
3,334,265 GNMA #411360 SF 7.000 09/15/2025 3,424,916 6.2
------------
21,921,460
COLLATERALIZED MORTGAGE OBLIGATIONS - 27.6%
5,000,000 FHLMC CMO-SEQ 1978 BC 6.500 05/15/2025 5,123,374 9.4
2,000,000 FHLMC CMO-SEQ 2073 PJ 6.000 10/15/2023 2,017,863 3.7
3,000,000 FNMA CMO-PAC 1993 - 38L 5.000 08/25/2022 2,865,461 5.2
5,000,000 VAVENDEE CMO-SEQ 1992 - 2F 7.000 02/15/2018 5,123,372 9.3
------------
15,130,070
------------
TOTAL MORTGAGE-RELATED SECURITIES (Cost $36,083,844) 37,051,530
------------
TOTAL LONG-TERM INVESTMENTS (Cost $56,045,213) $ 57,895,560
- ------------------------------------------------------------------------------------------------------------------------------------
Par Percent of
Amount SHORT-TERM INVESTMENTS - 5.9% Value Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER - 3.3%
$1,800,000 WPS Resources Corporation
4.50% 01/04/1999 $ 1,800,000 3.3%
VARIABLE RATE DEMAND NOTES (+) 2.6%
745,000 Sara Lee Corporation 5.23% 745,000 1.4
686,000 Wisconsin Electric Power Company 5.18% 686,000 1.2
------------
1,431,000
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $3,231,000) $ 3,231,000
TOTAL INVESTMENTS (Cost $59,276,213).........................................$ 61,126,560 111.4%
Liabilities, less cash and receivables....................................... (6,241,058) (11.4)
------------
TOTAL NET ASSETS.............................................................$ 54,885,502 100.0%
============ ==========
</TABLE>
(a) All or a portion of security committed to cover margin requirements for
futures contracts or when-issued securities.
(b) When-issued security.
(+) Variable rate demand notes are considered short-term obligations and are
payable on demand. The interest rates change periodically on specified
dates. The rates listed are as of December 31, 1998.
The accompanying Notes to Financial Statements are an integral part of this
Schedule
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
Large Cap
Value Fund
-----------
<S> <C>
ASSETS:
Investments in securities, at cost............. $ 7,768.393
=========
Investments in securities, at value............ $ 8,124,100
Cash........................................... 6,022
Receivable from securities sold................ ---
Receivable from fund shares sold............... 41,760
Variation margin on open futures contracts..... ---
Accrued dividends and interest................. 11,698
Prepaid expenses............................... 286
Deferred organization expenses................. 9,036
Receivable from Advisor for expense
reimbursement................................. 16,067
--------
Total Assets............................... 8,208,969
LIABILITIES:
Payable for securities purchased............... ---
Payable for fund shares redeemed............... 155,375
Variation margin on open futures contracts..... ---
Short-term notes payable....................... ---
Distributions payable.......................... ---
Payable to Advisor for management fee.......... 5,111
Payable to Advisor for deferred organization
expenses...................................... 9,036
Accrued expenses............................... 14,107
---------
Total Liabilities.......................... 183,629
TOTAL NET ASSETS................................ $ 8,025,340
NET ASSETS CONSIST OF:
Paid in capital................................ $ 7,631,372
Accumulated undistributed net investment income 2,121
Accumulated undistributed net realized gains
(losses) on investments....................... 36,140
Net unrealized appreciation (depreciation) on
investments................................... 355,707
---------
TOTAL NET ASSETS................................ $ 8,025,340
=========
SHARES OUTSTANDING, $.001 par value (50,000,000;
100,000,000; 100,000,000; 150,000,000 and
100,000,000 shares authorized, respectively).... 671,946
=========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE ................................ $ 11.94
=========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
<PAGE>
<TABLE>
<CAPTION>
<S>
U.S.
Mid Cap Value Plus Government
Value Fund Fund Value Fund Securities Fund
--------------- -------------- -------------- ---------------
<C> <C> <C> <C>
$ 36,820,901 $ 184,076,410 $ 1,444,660,472 $ 59,276,213
=============== ============= =============== =============
$ 36,091,608 $ 174,075,990 $ 1,583,259,848 $ 61,126,560
16,801 60,263 25,326 7,253
165,456 4,032,373 2,478,250 11,692
101,455 238,796 1,393,181 33,503
--- --- --- 1,875
28,845 1,020,940 648,401 575,985
1,347 10,770 74,088 1,712
9,036 --- --- ---
13,616 --- --- ---
--------------- ------------ ------------ ------------
36,428,164 179,439,132 1,587,879,094 61,758,580
=============== ============ ============= ============
1,451,605 745,845 1,459,410 6,489,779
240,984 1,673,087 38,929,568 263,284
--- --- 385,937 ---
--- 2,500,000 --- ---
--- --- --- 75,822
22,223 107,103 1,012,091 11,727
9,036 --- --- ---
18,153 99,101 533,531 32,466
-------------- ------------ --------------- -------------
1,742,001 5,125,136 42,320,537 6,873,078
--------------- ------------ --------------- -------------
$ 34,686,163 $ 174,313,996 $ 1,545,558,557 $ 54,885,502
============== ============= =============== =============
$ 35,535,232 $ 187,367,949 $ 1,407,896,455 $ 58,451,149
--- 201,118 --- ---
(119,776) (3,254,651) 60,141 (5,419,078)
(729,293) (10,000,420) 137,601,961 1,853,431
-------------- ----------- --------------- -------------
$ 34,686,163 $ 174,313,996 $ 1,545,558,557 $ 54,885,502
=============== ============= =============== =============
2,967,782 12,635,983 52,773,735 5,457,502
=============== ============= =============== =============
$ 11.69 $ 13.80 $ 29.29 $ 10.06
=============== ============= =============== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
Large Cap
Value Fund
--------------
<S> <C>
INVESTMENT INCOME:
Dividends................................................... $ 158,088
Interest.................................................... 44,195
Foreign tax withholding..................................... (3,115)
--------------
Total investment income................................... 199,168
--------------
EXPENSES:
Management fees............................................. 63,119
Distribution fees........................................... 21,040
Transfer agent fees......................................... 16,433
Custodian fees.............................................. 2,755
Printing and communications................................. 2,039
Postage..................................................... 3,010
Legal fees.................................................. 427
Registration fees........................................... 7,919
Directors' fees............................................. 10,071
Audit fees.................................................. 9,362
Amortization of organization expenses....................... 3,286
Other operating expenses.................................... 21,916
--------------
Total expenses before interest expense, dividends on short
positions, and expense reimbursement and management
fee waivers.............................................. 161,377
Total interest expense and/or dividends on short positions.. --
--------------
Total expenses before expense reimbursement
and management fee waivers................................. 161,377
Less: Expense reimbursement and management fee waivers...... (161,377)
--------------
Net expenses................................................ 0
--------------
NET INVESTMENT INCOME........................................ 199,168
--------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on:
Long positions............................................ 72,330
Short positions........................................... --
Futures contracts......................................... --
Options................................................... --
Net increase (decrease) in unrealized appreciation on:
Long positions............................................ (198,786)
Futures contracts......................................... --
Options................................................... --
--------------
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS.. $ (126,456)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 72,712
==============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
<PAGE>
<TABLE>
<CAPTION>
U.S.
Mid Cap Value Plus Government
Value Fund Fund Value Fund Securities Fund
--------------- ----------------- ---------------- ---------------
<S> <C> <C> <C>
$ 536,149 $ 7,304,993 $ 10,475,509 $ ---
183,070 6,751,503 16,376,934 3,476,319
(1,512) (23,918) (143,886) ---
--------------- ----------------- ---------------- ---------------
717,707 14,032,578 26,708,557 3,476,319
--------------- ----------------- ---------------- ---------------
308,896 2,030,188 14,781,523 352,945
102,965 725,067 4,927,174 133,425
53,866 299,930 1,503,411 54,907
9,689 62,038 297,642 7,516
5,071 28,047 170,725 9,500
5,058 45,160 170,016 14,014
3,593 13,055 92,687 1,406
9,453 18,699 73,272 7,641
11,145 15,003 53,005 11,426
9,995 16,062 45,253 10,009
3,286 6,352 --- ---
25,523 72,630 197,779 25,460
--------------- ----------------- ---------------- ---------------
548,540 3,332,231 22,312,487 628,249
--- 74,290 2,737 ---
--------------- ----------------- ---------------- ---------------
548,540 3,406,521 22,315,224 628,249
(43,246) --- --- (219,542)
--------------- ----------------- ---------------- ---------------
505,294 3,406,521 22,315,224 408,707
--------------- ----------------- ---------------- ---------------
212,413 10,626,057 4,393,333 3,067,612
--------------- ----------------- ---------------- ---------------
(60,288) (3,277,428) 81,848,292 759,766
--- --- 175,040 ---
--- --- (24,741,971) (20,646)
--- 23,194 516,382 ---
(4,914,405) (35,114,200) (288,727,707) 318,460
--- --- (997,415) 3,084
--- --- --- ---
--------------- ----------------- ---------------- --------------
(4,974,693) (38,368,434) (231,927,379) 1,060,664
--------------- ----------------- ---------------- --------------
$ (4,762,280) $ (27,742,377) $(227,534,046) $ 4,128,276
=============== ================= ================ ==============
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Large Cap
Value Fund
------------------------------------------
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................................... $ 199,168 $ 64,042
Net realized gains (losses) on investments................................ 72,330 419,278
Net increase (decrease) in unrealized appreciation on investments......... (198,786) 475,417
----------- -----------
Net increase (decrease) in net assets resulting from operations......... 72,712 958,737
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................................... (197,047) (64,103)
Net realized gains on investments......................................... (169,485) (284,851)
----------- -----------
Net distributions to shareholders......................................... (366,532) (348,954)
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued............................................... 5,074,757 6,205,875
Reinvested dividends from net investment income and distributions
from net realized gains on investments................................... 355,161 337,665
Cost of shares redeemed................................................... (4,776,114) (1,929,442)
----------- -----------
Net increase (decrease) in net assets derived from Fund
share activities...................................................... 653,804 4,614,098
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................................... 359,984 5,223,881
NET ASSETS AT THE BEGINNING OF THE YEAR..................................... 7,665,356 2,441,475
----------- -----------
NET ASSETS AT THE END OF THE YEAR........................................... $ 8,025,340 $ 7,665,356
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME......................................... $ 2,121 $ - - -
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
20
<PAGE>
<TABLE>
<CAPTION>
---------------------------------- ---------------------------------------
Mid Cap Value Plus
Value Fund Fund
---------------------------------- ---------------------------------------
<S> <C> <C> <C>
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
--------------- ---------------- ----------------- -------------------
$ 212,413 $ 140,656 $ 10,626,057 $ 6,504,237
(60,288) 657,060 (3,254,234) 23,512,585
(4,914,405) 3,851,838 (35,114,200) 18,312,281
--------------- ---------------- ----------------- -------------------
(4,762,280) 4,649,554 (27,742,377) 48,329,103
--------------- ---------------- ----------------- -------------------
(212,413) (140,668) (10,437,624) (6,491,552)
--- (712,944) (539,961) (22,973,041)
--------------- ---------------- ----------------- -------------------
(212,413) (853,612) (10,977,585) (29,464,593)
--------------- ---------------- ----------------- -------------------
29,193,427 30,209,525 225,703,596 369,805,993
211,255 842,673 9,753,798 27,702,491
(26,301,867) (5,224,061) (358,704,802) (146,673,814)
--------------- --------------- ----------------- -------------------
3,102,815 25,828,137 (123,247,408) 250,834,670
--------------- --------------- ----------------- -------------------
(1,871,878) 29,624,079 (161,967,370) 269,699,180
36,558,041 6,933,962 336,281,366 66,582,186
--------------- --------------- ----------------- -------------------
34,686,163 36,558,041 174,313,996 336,281,366
=============== =============== ================= ===================
$ --- $ --- $ 201,118 $ 12,685
=============== =============== ================= ===================
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
OPERATIONS:
Net investment income.........................................................
Net realized gains (losses) on investments....................................
Net increase (decrease) in unrealized appreciation on investments.............
Net increase (decrease) in net assets resulting from operations...............
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.........................................................
Net realized gains on investments.............................................
Net distributions to shareholders............................................
FUND SHARE ACTIVITIES:
Proceeds from shares issued...................................................
Proceeds from Fund merger.....................................................
Reinvested dividends from net investment income and
distributions from net realized gains on investments.........................
Cost of shares redeemed.......................................................
Net increase (decrease) in net assets derived from Fund
share activities.............................................................
TOTAL INCREASE (DECREASE) IN NET ASSETS........................................
NET ASSETS AT THE BEGINNING OF THE YEAR........................................
NET ASSETS AT THE END OF THE YEAR..............................................
UNDISTRIBUTED NET INVESTMENT INCOME (LOSS).....................................
The accompanying Notes to Financial Statements are an integral part of these
Statements.
22
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------- -------------------------------
Value U.S. Government
Fund Securities Fund
- ---------------------------------- -------------------------------
<S> <C> <C> <C>
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
- ----------------- --------------- -------------- ---------------
$ 4,393,333 $ 9,590,827 $ 3,067,612 $ 2,843,458
57,797,743 273,233,950 739,120 (374,326)
(289,725,122) 109,578,793 321,544 1,726,965
- ----------------- --------------- -------------- ---------------
(227,534,046) 392,403,570 4,128,276 4,196,097
- ----------------- --------------- -------------- ---------------
(3,004,029) (9,680,852) (3,069,809) (2,825,690)
(33,890,119) (270,393,704) --- ---
- ----------------- --------------- -------------- ---------------
(36,894,148) (280,074,556) (3,069,809) (2,825,690)
- ----------------- --------------- -------------- ---------------
343,555,971 512,410,502 26,715,684 15,023,609
104,944,820 --- --- ---
33,363,615 246,872,904 2,330,317 2,054,279
(798,592,335) (371,657,576) (23,781,051) (21,599,173)
- ----------------- --------------- -------------- ---------------
(316,727,929) 387,625,830 5,264,950 (4,521,285)
- ----------------- --------------- -------------- ---------------
(581,156,123) 499,954,844 6,323,417 (3,150,878)
2,126,714,680 1,626,759,836 48,562,085 51,712,963
- ----------------- --------------- -------------- ---------------
$ 1,545,558,557 $2,126,714,680 $ 54,885,502 $ 48,562,085
================= =============== ============== ===============
$ --- $ (90,025) $ --- $ 2,197
================= =============== ============== ===============
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Large Cap Value Fund
----------------------------------------------------------------------------------
Oct. 11, 1996(1)
through
For the year ended December 31, Dec. 31, 1996
1998 1997
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Data
Net asset value, beginning of period.............. $ 12.30 $ 10.50 $ 10.00
Income (loss) from investment operations:
Net investment income......................... 0.30 0.11 ---
Net realized and unrealized gains (losses)
on investments.............................. (0.10) 2.28 0.50
------------ ------------ -----------
Total income (loss) from investment
operations................................ 0.20 2.39 0.50
Less distributions from:
Net investment income......................... (0.30) (0.11) ---
Net realized gains on investments............. (0.26) (0.48) ---
------------ ------------ -----------
Total distributions....................... (0.56) (0.59) ---
------------ ------------ -----------
Net asset value, end of period.................... $ 11.94 $ 12.30 $ 10.50
============ ============ ===========
Total Return...................................... 1.7% 22.9% 5.0%(2)
Ratios and Supplemental Data
Net assets, end of period
(in thousands).............................. $ 8,025 $ 7,665 $ 2,441
Ratio of net expenses to average
net assets.................................. 0.00%(4) 1.36%(4) 2.73%(3)
Ratio of net investment income (loss)
to average net assets....................... 2.37%(4) 1.14%(4) (0.25)%(3)
Portfolio turnover rate....................... 48% 30% 7%
Mid Cap Value Fund
---------------------------------------------------------------------------------
Oct. 11, 1996
through
For the year ended December 31, Dec. 31, 1996
1998 1997
---------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period.............. $ 12.78 $ 10.66 $ 10.00
Income (loss) from investment operations:
Net investment income......................... 0.07 0.05 ---
Net realized and unrealized gains (losses)
on investments.............................. (1.09) 2.38 0.66
------------- ----------- -----------
Total income (loss) from investment
operations................................ (1.02) 2.43 0.66
Less distributions from:
Net investment income......................... (0.07) (0.05) ---
Net realized gains on investments............. --- (0.26) ---
------------- ------------ -----------
Total distributions....................... (0.07) (0.31) ---
------------- ------------ -----------
Net asset value, end of period.................... $ 11.69 $ 12.78 $ 10.66
============= ============ ===========
Total Return...................................... (8.0)% 22.8% 6.6%(2)
Ratios and Supplemental Data
Net assets, end of period
(in thousands).............................. $ 34,686 $ 36,558 $ 6.934
Ratio of net expenses to average
net assets.................................. 1.25%(5) 1.29%(5) 1.94%(3)
Ratio of net investment income (loss)
to average net assets....................... 0.52%(5) 0.54%(5) (0.16)%(3)
Portfolio turnover rate....................... 47% 48% 4%
</TABLE>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) If there had been no expense reimbursement or management fee waiver by the
Advisor, the ratio of net expenses to average net assets for the years ended
December 31, 1998 and 1997 would have been 1.92% and 2.00%, respectively,
and the ratio of net investment income to average net assets would have been
0.45% and 0.50%, respectively.
(5) If there had been no expense reimbursement or management fee waiver by the
Advisor, the ratio of net expenses to average net assets for the years ended
December 31, 1998 and 1997 would have been 1.34% and 1.32%, respectively,
and the ratio of net investment income to average net assets would have been
0.43% and 0.51%, respectively.
The accompanying Notes to Financial Statements are an integral part of these
Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Value Plus Fund
------------------------------------------------------------------------
For the year ended December 31,
1998 1997 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of year................... $ 16.13 $ 13.73 $ 11.17 $ 9.53 $ 10.45
Income (loss) from investment operations:
Net investment income............................. 0.62 0.48 0.38 0.41 0.41
Net realized and unrealized gains (losses)
on investments.................................. (2.32) 3.66 3.33 1.89 (0.92)
--------- --------- -------- --------- --------
Total income (loss) from investment
operations.................................... (1.70) 4.14 3.71 2.30 (0.51)
Less distributions from:
Net investment income............................. (0.60) (0.48) (0.38) (0.41) (0.41)
Net realized gains on investments................. (0.03) (1.26) (0.77) (0.25) --
--------- --------- -------- --------- --------
Total distributions............................. (0.63) (1.74) (1.15) (0.66) (0.41)
--------- --------- -------- --------- --------
Net asset value, end of year......................... $ 13.80 $ 16.13 $ 13.73 $ 11.17 $ 9.53
========= ========= ======== ========= ========
Total Return(1)...................................... (10.8)% 30.6% 33.8% 24.4% (4.9)%
Ratios and Supplemental Data
Net assets, end of year (in thousands)............ $ 174,314 $ 336,281 $ 66,582 $ 19,123 $ 9,854
Ratio of operating expenses to average
net assets...................................... 1.21% 1.12% 1.45% 1.54% 1.80%
Ratio of interest expense to average
net assets...................................... 0.03% -- -- -- --
Ratio of net investment income to average
net assets...................................... 3.77% 3.32% 3.23% 3.90% 4.39%
Portfolio turnover rate........................... 64% 74% 73% 150% 127%
</TABLE>
(1) The contingent deferred sales charge in effect for the Fund prior to June 1,
1994 is not reflected in Total Return.
The accompanying Notes to Financial Statements are an integral part of this
Statement.
25
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Value Fund
--------------------------------------------------------------------
For the year ended December 31,
1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of year............. $ 33.87 $ 31.65 $ 27.95 $ 22.72 $ 23.22
Income (loss) from investment operations:
Net investment income (loss).................. 0.08 0.17 0.06 0.13 (0.09)
Net realized and unrealized gains (losses)
on investments............................... (3.97) 7.09 5.78 6.63 0.47
---------- ---------- ---------- ---------- --------
Total income (loss) from investment
operations................................... (3.89) 7.26 5.84 6.76 0.38
Less distributions from:
Net investment income......................... (0.06) (0.17) (0.06) (0.13) --
Net realized gains on investments............. (0.63) (4.87) (2.08) (1.40) (0.88)
---------- ---------- ---------- ---------- --------
Total distributions.......................... (0.69) (5.04) (2.14) (1.53) (0.88)
---------- ---------- ---------- ---------- --------
Net asset value, end of year................... $ 29.29 $ 33.87 $ 31.65 $ 27.95 $ 22.72
========== ========== ========== ========== ========
Total Return/1/................................ (11.5)% 23.2% 21.0% 29.8% 1.7%
Ratios and Supplemental Data
Net assets, end of year (in thousands)........ $1,545,495 $2,126,715 $1,626,760 $1,190,926 $339,364
Ratio of net expenses to average
net assets................................... 1.15% 1.12% 1.23% 1.29% 1.39%
Ratio of net investment income to average
net assets................................... 0.22% 0.49% 0.22% 0.61% (0.52)%
Portfolio turnover rate....................... 36% 55% 31% 31% 35%
</TABLE>
(1) The contingent deferred and initial sales changes in effect for the Fund
prior to June 1, 1994 are reflected in Total Return.
The accompanying Notes to Financial Statements are an intregal part of this
statement.
26
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. Government Securities Fund
--------------------------------------------------------
For the year ended December 31,
1998 1997 1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of year................. $ 9.85 $ 9.54 $ 9.96 $ 8.91 $ 10.50
Income (loss) from investment operations:
Net investment income ........................... 0.57 0.58 0.59 0.60 0.59
Net realized and unrealized gains (losses)
on investments................................. 0.21 0.31 (0.42) 1.05 (1.59)
------- ------- ------- ------ -------
Total income (loss) from investment
operations..................................... 0.78 0.89 0.17 1.65 (1.00)
Less distributions from:
Net investment income............................ (0.57) (0.58) (0.59) (0.60) (0.59)
------- ------- ------- ------ -------
Total distributions............................ (0.57) (0.58) (0.59) (0.60) (0.59)
------- ------- ------- ------ -------
Net asset value, end of year....................... $ 10.06 $ (9.85) $ (9.54) $(9.96) $ (8.91)
======= ======= ======= ====== =======
Total Return/(1)/.................................. 8.1% 9.7% 2.0% 19.0% (9.6)%
Ratios and Supplemental Data
Net assets, end of year (in thousands)........... $54,886 $48,562 $51,713 $66,261 $64,807
Ratio of net expenses to average net assets(2)... 0.78% 0.87% 1.06% 1.07% 1.07%
Ratio of net investment income to
average net assets(2).......................... 5.73% 6.12% 6.36% 6.31% 6.30%
Portfolio turnover rate.......................... 90% 143% 30% 97% 95%
</TABLE>
(1) The contingent deferred and initial sales charges in effect for the Fund
prior to June 1, 1994 are not reflected in Total Return.
(2) There had been no expense reimbursement or management fee waiver by the
Advisor, the ratios of net expenses to average net assets for the years ended
December 31, 1998, 1997, 1996, 1995, and 1994, would have been 1.16%, 1.20%,
1.21%, 1.22%, and 1.22%, respectively, and the ratios of net investment income
to average net assets would have been 5.33%, 5.79%, 6.21%, 6.16%, and 6.15%,
respectively.
The accompanying Notes to Financial Statements are an integral part of this
Statement.
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
Value Fund
Number of Expiration Unrealized Notional
Type Contracts Date Depreciation Value
---- ---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Japanese Yen (325) March 1999 $(997,415) $(36,091,250)
U.S. Government Securities Fund
Number of Expiration Unrealized Notional
Type Contracts Date Appreciation Value
---- --------- ----------- ------------ --------------
Treasury Bond Index (15) March 1999 $ 3,084 $ (1,916,719)
</TABLE>
(g) The Large Cap Value, Mid Cap Value, Value Plus and Value Funds may each
engage in "short sales against the box." These transactions involve
selling a security that a Fund owns for delivery at a specified date in
the future. Similarly, each of these Funds may also engage in short
sales of securities of an issuer ("acquiror") that has publicly
announced a proposed or pending transaction in which a portfolio
security of the Fund will be converted into securities of the acquiror.
For financial statement purposes, an amount equal to a short sale's
settlement amount is included in the Statement of Assets and
Liabilities as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current value
of the short position. Subsequent fluctuations in the market prices of
securities sold short, at value, may require purchasing the securities
at prices which may differ from the market value reflected on the
Statement of Assets and Liabilities. The Fund is liable for any
dividends payable on securities while those securities are in a short
position.
(h) A restricted security is a security which has been purchased through a
private offering and cannot be resold to the general public without
prior registration under the Securities Act of 1933 (the "Act") or
pursuant to the resale limitations provided by Rule 144 under the Act,
or an exemption from the registration requirements of the Act. At
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.
<TABLE>
<CAPTION>
Value Plus Fund
Shares/ Acquisition
Security Par Value Cost Fair Value Date
-------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
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
</TABLE>
(i) The Funds each may write covered call options and purchase put options
that are traded on recognized U.S. exchanges and enter into closing
transactions with respect to such options. The Large Cap Value and Mid
Cap Value Funds may also purchase call options. The Funds may enter
into options transactions for hedging purposes, and will not use these
instruments for speculation.
<PAGE>
For the year ended December 31, 1998, the Value Plus and Value Funds
had the following transactions in written covered call options:
<TABLE>
<CAPTION>
Value Plus Fund
Number of Premium
Contracts Amount
--------------- ----------
<S> <C> <C>
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 -- $ --
=============== ===========
</TABLE>
(j) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(3) Credit Facility
Deutsche Bank AG 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 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
<PAGE>
Officers and certain directors of the Corporation are also officers and/or
directors of Heartland Advisors, Inc.; however, they receive no
compensation from the Funds.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the
Board of Directors of the Corporation has adopted a plan which will allow
the Funds, under certain conditions described in the Rule, to acquire
newly-issued securities from syndicates in which the Distributor is a
member.
(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):
<TABLE>
<CAPTION>
Large Cap Mid Cap Value U.S. Gov't.
Value Value Plus Value Securities
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
--------- --------- ---------- ----------- ----------
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
</TABLE>
Included in these transactions were purchases and sales of U.S. obligations
as follows (in thousands):
<TABLE>
<CAPTION>
Large Cap Mid Cap Value U.S. Gov't.
Value Value Plus Value Securities
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
--------- --------- ---------- ----------- ----------
Cost of purchases $ -- $ -- $ -- $ 10,455 $ 58,967
Proceeds from
sales $ -- $ -- $ -- 102,023 47,459
</TABLE>
At December 31, 1998, the gross unrealized appreciation and depreciation on
investments for tax purposes was as follows (in thousands):
<TABLE>
<CAPTION>
Large Cap Mid Cap Value U.S. Gov't.
Value Value Plus Value Securities
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
--------- --------- ---------- ----------- ----------
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
========= ========= ========== =========== ==========
</TABLE>
At December 31, 1998, the cost of securities for federal income tax purposes was
as follows (in thousands):
<TABLE>
<CAPTION>
Large Cap Mid Cap Value U.S. Gov't.
Value Value Plus Value Securities
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
--------- --------- ---------- ----------- ----------
Tax cost $ 7,768 $ 36,822 $ 184,498 $ 1,445,598 $ 59,359
</TABLE>
(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
<PAGE>
(8) Fund Share Activities
For the year ended December 31, 1998, Fund share transactions were as
follows:
<TABLE>
<CAPTION>
Large Cap Mid Cap Value
Value Value Plus
Fund Fund Fund
<S> <C> <C> <C>
--------- ----------- ------------
Shares issued 401,310 2,187,851 14,346,157
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 30,175 18,666 642,360
Shares redeemed (382,841) (2,099,901) (23,197,247)
--------- ----------- ------------
Net increase (decrease) in Fund shares 48,644 106,616 (8,208,730)
========= =========== ============
</TABLE>
<TABLE>
<CAPTION>
U.S. Gov't.
Value Securities
Fund Fund
<S> <C> <C>
------------ -----------
Shares issued (non-merger) 10,451,409 2,677,140
Shares issued (merger related) 3,534,686 --
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 1,151,769 233,351
Shares redeemed (25,157,053) (2,383,080)
------------ -----------
Net increase (decrease) in Fund shares (10,019,189) 527,411
============ ===========
</TABLE>
For the year ended December 31, 1997, Fund share transactions were as
follows:
<TABLE>
<CAPTION>
Large Cap Mid Cap Value
Value Value Plus
Fund Fund Fund
<S> <C> <C> <C>
--------- ----------- ------------
Shares issued 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
========= =========== ============
</TABLE>
<TABLE>
<CAPTION>
U.S. Gov't.
Value Securities
Fund Fund
<S> <C> <C>
------------ -----------
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)
============ ===========
</TABLE>
(9) Transactions with Affiliates
The following companies are affiliated with the Value Plus and Value Funds;
that is, the Funds held 5% or more of the outstanding voting securities
during the year ended December 31, 1998. Affiliated companies are defined
in Section (2)(a)(3) of the Investment Company Act of 1940.
32
<PAGE>
<TABLE>
<CAPTION>
Value Plus Fund
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1998 Purchases Sales Dec. 31, 1998 Dividends (Losses)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Akita Drilling Ltd. (Class A) 500,000 350,000 850,000 0 $ 54,173 $(1,911,807)
Decorator Industries, Inc. 250,000 102,500/(1)/ 40,000 312,500 83,251 117,525
Riviera Tool Company 8.0% Conv. Pfd. 11,700 0 11,700/(2)/ 0 0 0
Riviera Tool Company Common 0 197,318/(2)(3)/ 155,699 41,619 10,770 90,847
Siam Food Products Public Company Ltd. 0 1,419,400 0 1,419,400 86,674 0
Oil-Dri Corporation of America 212,600 257,400 0 470,000 123,200 0
Salient 3 Communications, Inc. 225,000 75,000 300,000 0 24,660 (881,704)
Insteel Industries, Inc. 383,600 79,200 32,000 430,800 101,668 (138,019)
--------- ------------
$ 484,396 $(2,723,158)
========= ============
</TABLE>
(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
<PAGE>
Value Fund
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1998 Purchases Sales Dec. 31,1998 Dividends (Losses)
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
3-D Geophysical, Inc. 815,000 0 815,000 0 $ 0 $ 2,284,002
ACT Manufacturing,Inc. 600,000 100,000 700,000 0 0 (5,826,672)
ACT Networks,Inc. 900,000 100,000 176,900 823,100 0 154,188
Advocat, Inc. 0 530,500 0 530,500 0 0
Akita Drilling Ltd. (Class A) 0 748,600 0 748,600 59,387 0
Aldila, Inc. 0 962,300 0 962,300 0 0
Align-Rite International, Inc. 300,000 0 0 300,000 0 0
Allied Healthcare Products, Inc. 775,000 775,000 775,000 775,000 0 (4,917,220)
The Alpine Group, Inc. 1,000,000 8,100 0 1,008,100 0 0
American Buildings Company 500,000 0 0 500,000 0 0
Amtech Corporation 1,025,000 75,000 1,100,000 0 0 (375,522)
Amtran, Inc. 600,000 0 370,000 230,000 0 3,502,706
Amwest Insurance Group, Inc. 220,000/(1)/ 0 0 220,000 88,000 0
Applied Films Corporation 190,000 60,000 250,000 0 0 (1,156,706)
Aseco Corporation 99,500 250,500 350,000 0 0 (2,557,304)
Asia Pacific Wire & Cable Corporation Ltd. 727,600 700,000 727,600 700,000 0 (6,399,464)
Aster Industries, Inc. 965,000 0 965,000 0 0 26,997,235
Badger Meter, Inc. 200,000 0 0 200,000 120,000 0
Baldwin Piano & Organ Company 325,000 6,500 0 331,500 0 0
Barrett Business Services, Inc. 500,000 125,000 0 625,000 0 0
Bitstream, Inc. 0 492,200 0 492,200 0 0
Blue Wave Systems, Inc./(2)/ 440,400 0 0 440,400 0 0
Bonded Motors, Inc. 200,000 0 200,000 0 0 (474,055)
BTG, Inc. 0 850,000 50,000 800,000 0 (96,761)
Buckhead American Corporation 175,000 9,600 0 184,600 0 0
Business Resource Group 500,000 0 14,000 486,000 0 (1,659)
Cameron Ashley Building Products, Inc. 595,000 0 95,000 500,000 0 321,192
Campbell Resources, Inc. 10,000,000 2,000,000 0 12,000,000 0 0
Caretenders Health Corporation 308,900 0 0 308,900 0 0
Catalina Lighting, Inc. 500,000 210,000 0 710,000 0 0
Catherine Stores Corporation 0 500,000 0 500,000 0 0
Cavell Energy Corporation 1,573,200 387,300 1,960,500 0 0 (2,318,643)
Ceanic Corporation/(3)/ 300,000 0 300,000 0 0 4,248,279
Central Sprinkler Corporation 300,000 25,000 325,000 0 0 (3,442,782)
CHC Helicopter Corporation (Class A) 550,000 0 14,000 536,000 1,265,726 66,395
The Cherry Corporation (Class A) 850,100 316,000 209,100 957,000 0 631,486
Chic By H.I.S., Inc. 0 995,500 10,500 985,000 3,000 (16,970)
Children's Broadcasting Corporation 590,000 90,000 0 680,000 0 0
Ciprico, Inc. 42,500 447,500 0 490,000 0 0
Clayton Williams Energy, Inc. 595,000 0 0 595,000 0 0
Cohesion Technologies, Inc. 0 878,500/(4)/ 0 878,500 0 0
Collaborative Clinical Research, Inc. 600,000 0 0 600,000 0 0
Collagen Aesthetics, Inc./(5)/ 878,500 0 0 878,500 87,850 0
Comdial Corporation 650,000 260,000 410,000 500,000 0 1,959,277
Commonwealth Industries, Inc. 615,000 793,200 445,000 963,200 167,200 (4,647,299)
Compass Plastics & Technologies, Inc. 87,900 212,100 300,000 0 0 (1,342,357)
Consep, Inc. 900,000 50,000 950,000/(6)/ 0 0 0
Cross-Continent Auto Retailers, Inc. 500,000 400,000 40,900 859,100 0 (45,634)
Crown Central Petroleum Corporation (Class B) 225,000 575,000 0 800,000 0 0
</TABLE>
<PAGE>
Value Fund [CONT'D]
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1998 Purchases Sales Dec. 31, 1998 Dividends (Losses)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
CSP, Inc. 338,800/(7)/ 0 7,500 331,300 $ 0 $ 377
Cyrk International, Inc. 1,000,000 433,600 433,600 1,000,000 0 2,018,878
Dakotah, Inc. 300,000 0 300,000 0 0 (1,022,102)
Damark International, Inc. (Class A) 800,000 0 800,000 0 0 926,212
Datron Systems, Inc. 250,000 0 0 250,000 0 0
Davel Communications, Inc. 0 360,184/(8)/ 0 360,184 0 0
Dayton Mining Corporation 2,200,000 1,300,000 3,500,000 0 0 (6,446,437)
Designs, Inc. 1,100,000 1,100,000 2,200,000 0 0 (7,279,807)
Donnelly Corporation 0 351,800 0 351,800 35,180 0
Duckwall-ALCO Stores, Inc. 360,000 10,000 0 370,000 0 0
Durakon Industries, Inc. 500,000 0 0 500,000 0 0
Dynamic Materials Corporation 0 250,000 0 250,000 0 0
D&N Financial Corporation 440,000 0 0 440,000 89,800 0
Eaton Vance Corporation 894,900/(9)/ 0 644,900 250,000 125,190 15,714,999
ECC International Corporation 757,600 700,000 757,600 700,000 0 (5,184,364)
EDAP TMS S.A. (ADR) 0 790,000 0 790,000 0 0
Edusoft Ltd. 0 373,400 0 373,400 0 0
Effective Management Systems, Inc. 375,000 0 0 375,000 0 0
Eltek Ltd. 261,200 139,000 400,200 0 0 (1,182,481)
Engle Homes, Inc. 551,500 99,800 101,500 549,800 84,880 882,921
ENStar, Inc. 206,833 0 206,833 0 0 648,305
Environmental Technologies Corporation 330,800 145,200 0 476,000 0 0
Eskimo Pie Corporation 271,500 73,500 345,000 0 40,725 (749,134)
Esterline Technologies Corporation 600,000/(10)/ 0 0 600,000 0 0
Evergreen Resources, Inc. 500,000 0 117,500 382,500 0 1,604,735
Executone Information Systems, Inc. 0 3,403,400 0 3,403,400 0 0
EZCorp, Inc. (Class A) 700,000 0 0 700,000 17,500 0
Fibermark, Inc. 395,000 0 3,400 391,600 0 (26,164)
Filene's Basement Corporation 1,200,000 800,000 0 2,000,000 0 0
Financial Industries Corporation 300,000 0 0 300,000 0 0
Forest Oil Corporation 1,500,000 0 0 1,500,000 0 0
Gish Biomedical, Inc. 275,000 0 275,000 0 0 (772,867)
Global Motorsport Group, Inc. 0 290,000 290,000 0 0 751,938
Grist Mill Company 400,000 0 400,000 0 0 3,478,570
GZA GeoEnvironmental Technologies, Inc. 372,700 0 0 372,700 0 0
Hallmark Financial Services, Inc. 0 1,060,000 0 1,060,000 0 0
Hallwood Consolidated Resources Corporation 300,000 0 0 300,000 0 0
Hallwood Group, Inc. 58,900 23,600 23,000 59,500 0 121,290
Hanover Foods Corporation (Class A) 50,500 0 0 50,500 63,883 0
Harding Lawson Associates Group, Inc. 0 327,500 0 327,500 0 0
Harmony Brook, Inc. 720,000 0 720,000 0 0 (864,566)
Health Power, Inc. 300,000 50,000 0 350,000 0 0
HealthRite, Inc. 403,000 97,000 0 500,000 0 0
High Plains Corporation 0 1,500,000 0 1,500,000 0 0
HMN Financial, Inc. 333,500/(11)/ 0 83,000 250,500 45,090 1,251,192
Home Federal Bancorp 290,250 0 0 290,250 119,021 0
Home Products International, Inc. 317,500 0 34,400 283,100 0 (5,615)
Home Security International, Inc. 0 500,000 0 500,000 0 0
Hospital Staffing Services, Inc. 625,658 0 625,658 0 0 (1,447,642)
</TABLE>
<PAGE>
Value Fund [CONT'D]
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1998 Purchases Sales Dec. 31,1998 Dividends (Losses)
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Howell Corporation 300,000 240,000 0 540,000 $ 57,600 $ 0
IBAH, Inc. 750,000 1,000,000 1,750,000 0 0 2,832,775
ICN Pharmaceuticals, Inc. 3,775,000/(12)/ 722,100 1,696,100 2,801,000 710,222 52,032,172
IEC Electronics Corporation 650,000 78,800 0 728,800 0 0
ImmuLogic Pharmaceutical Corporation 2,000,000 0 0 2,000,000 0 0
In Home Health, Inc. 0 533,333/(13)/ 0 533,333 0 0
Intercontinental Life Corporation 207,000 18,800 0 225,800 0 0
Interdigital Communications Corporation 4,800,000 96,100 396,100 4,500,000 0 (2,647,520)
International Aircraft Investors 250,000 180,000 0 430,000 0 0
International Airline Support Group, Inc. 220,000 30,000 0 250,000 0 0
Interpore International 600,000 0 0 600,000 0 0
Iwerks Entertainment, Inc. 1,100,000 1,100,000 1,100,000 1,100,000 0 (3,547,702)
Jaco Electronics, Inc. 380,000 0 0 380,000 0 0
John B. Sanfilippo & Son, Inc. 292,500 62,500 0 355,000 0 0
Kaye Group, Inc. 353,600 10,000 0 363,600 35,860 0
Kentek Information Systems, Inc. 0 700,000 700,000 0 14,000 (568,883)
Kentucky Electric Steel, Inc. 450,000 0 0 450,000 0 0
LaCrosse Footwear, Inc. 317,500 130,300 0 447,800 58,214 0
LAI Worldwide,Inc. 0 610,000 0 610,000 0 0
LCS Industries, Inc. 350,000 5,000 112,600 242,400 62,231 999,063
Lindal Cedar Homes, Inc. 155,000 250,400 0 405,400 0 0
The Lion Brewery, Inc. 375,000 0 0 375,000 0 0
Lithia Motors, Inc. 68,200 231,800 0 300,000 0 0
Magal Security Systems Ltd. 600,000 69,800 19,800 650,000 0 (52,324)
Marisa Christina, Inc. 400,000 188,900 588,900 0 0 (2,998,209)
Marten Transport Ltd. 333,300/(14)/ 0 0 333,300 0 0
Martin Industries, Inc. 650,000 0 200,000 450,000 98,200 (1,159,665)
Material Sciences Corporation 110,700 694,300 0 805,000 0 0
Matrix Service Company 0 600,000 0 600,000 0 0
Matrix Pharmaceutical, Inc. 0 2,100,000 0 2,100,000 0 0
Maxicare Health Plans, Inc. 1,700,000 1,000,000 1,700,000 1,000,000 0 (21,731,046)
Meadowbrook Rehabilitation
Group, Inc. (Class A) 279,999/(15)/ 0 279,999 0 0 (970,221)
Medical Graphics Corporation 365,550/(16)/ 177,900 0 543,450 0 0
Mercury Air Group, Inc. 633,700 66,300 303,000 397,000 0 (36,977)
MFRI, Inc. 300,000 100,000 0 400,000 0 0
Midwest Express Holdings, Inc. 500,000 105,000 505,000 100,000 0 7,213,681
Minntech Corporation 513,100 86,900 0 600,000 15,500 0
Moore Medical Corporation 0 200,000 0 200,000 0 0
Morgan Products Ltd. 750,000 100,000 0 850,000 0 0
Motor Club of America 0 146,000 0 146,000 0 0
MYR Group, Inc. 500,000 1,600 0 501,600 70,000 0
M/A/R/C, Inc. 300,000 0 0 300,000 90,000 0
M-Wave, Inc. 0 300,000 0 300,000 0 0
NABI, Inc. 1,600,000 1,600,000 0 3,200,000 0 0
Networks North, Inc. 0 200,000 0 200,000 0 0
New Brunswick Scientific Company, Inc. 279,636/(17)/ 0 2,500 277,136 0 14,175
Norstan, Inc. 552,000 0 52,000 500,000 0 684,610
Northwest Equity Corporation 80,000 0 0 80,000 52,000 0
Norwood Promotional Products, Inc. 400,000 0 400,000 0 0 2,635,593
Nu Horizons Electronics Corporation 600,000 100,000 0 700,000 0 0
</TABLE>
<PAGE>
Value Fund [CONT'D]
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1998 Purchases Sales Dec. 31, 1998 Dividends (Losses)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Nu-Kote Holding, Inc. (Class A) 1,100,000 100,000 1,200,000 0 $ 0 $ (843,377)
O.I. Corporation 0 333,100 0 333,100 0 0
Ontro, Inc. 0 333,900 0 333,900 0 0
Osmonics, Inc. 734,600 611,500 70,500 1,275,600 0 (537,897)
Outlook Group Corporation 457,500 10,000 0 467,500 0 0
Patrick Industries, Inc. 312,000 0 0 312,000 62,400 0
PDK Labs, Inc. 0 380,000 0 380,000 0 0
Peoples Telephone Company, Inc. 1,600,000 32,700 1,632,700/(18)/ 0 0 17,793
Petsec Energy Ltd. (ADR) 1,175,000 1,533,300 600,000 2,108,300 0 (9,376,319)
PIA Merchandising Services, Inc. 500,000 45,000 0 545,000 0 0
Powell Industries, Inc. 600,000 0 0 600,000 0 0
Premium Wear, Inc. 0 200,000 0 200,000 0 0
Professionals Group, Inc./(19)/ 242,000/(20)/ 0 0 242,000 0 0
Prosource, Inc. 300,000 0 300,000 0 0 2,367,403
Providence & Worcester Railroad Company 0 200,000 0 200,000 18,000 0
Quad Systems Corporation 400,000 0 400,000 0 0 (2,834,049)
Quixote Corporation 585,500 0 585,500 0 43,550 2,279,252
Ramsay Health Care, Inc. 603,333 96,667 0 700,000 0 0
Raytel Medical Corporation 0 880,000 0 880,000 0 0
Rehabilicare, Inc. 312,100 0 0 312,100 0 0
Remington Oil & Gas Corporation 1,560,000 240,000 300,000 1,500,000 0 (2,721,826)
Reptron Electronics, Inc. 165,000 235,000 400,000 0 0 (3,298,834)
Republic Automotive Parts, Inc. 195,000 0 195,000 0 0 490,266
Right Management Consultants, Inc. 500,000 0 0 500,000 0 0
RightCHOICE Managed Care, Inc. (Class A) 1,002,500 0 42,000 960,500 0 (236,473)
Riveria Tool Company 0 320,250/(21)/ 0 320,250 0 0
The Rottlund Company, Inc. 500,000 50,000 0 550,000 0 0
Roy F. Weston, Inc. (Class A) 725,000 265,000 0 990,000 0 0
Ryan's Family Steak Houses, Inc. 0 640,000 140,000 500,000 0 (52,911)
Salient 3 Communications, Inc. 0 300,000 0 300,000 0 0
Saucony, Inc. (Class B)/(22)/ 610,000 0 0 610,000 0 0
Scan-Optics, Inc. 0 550,000 0 550,000 0 0
Schnitzer Steel Industries, Inc. (Class A) 210,000 90,000 300,000 0 42,500 (2,707,816)
Schult Homes Corporation 360,000 0 360,000 0 18,000 4,691,242
The Seibels Bruce Group, Inc. 300,000 200,000 0 500,000 0 0
Sholodge, Inc. 200,000 350,000 0 550,000 0 0
Six Rivers National Bank 0 93,300 0 93,300 0 0
Smartflex Systems, Inc. 227,500 325,700 3,200 550,000 0 (833)
Southern Energy Homes, Inc. 700,000 250,000 0 950,000 0 0
Speizman Industries, Inc. 0 296,000 0 296,000 0 0
Starcraft Corporation 400,000 400,000 400,000 400,000 0 (1,823,137)
Strattec Security Corporation 500,000 0 3,000 497,000 0 44,847
Strouds, Inc. 485,000 215,000 0 700,000 0 0
Sunrise International Leasing Corporation 630,000 0 0 630,000 0 0
Suprema Specialties, Inc. 170,400 170,200 0 340,600 0 0
Technology Research Corporation 500,000 0 0 500,000 0 0
Tech-Sym Corporation 300,000 53,000 0 353,000 0 0
Teltrend, Inc. 500,000 0 0 500,000 0 0
Tesoro Petroleum Corporation 1,400,000 0 149,900 1,250,100 0 1,074,802
Thorn Apple Valley, Inc. 436,000 0 436,000 0 0 259,275
Timber Lodge Steakhouse, Inc. 300,000 0 300,000/(23)/ 0 0 0
</TABLE>
<PAGE>
Value Fund [CONT'D]
<TABLE>
<CAPTION>
Share Share Realized
Balance at Balance at Gains
Security Name Jan. 1, 1998 Purchases Sales Dec. 31, 1998 Dividends (Losses)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tipperary Corporation 574,400 725,600 0 1,300,000 $ 0 $ 0
Todhunter International, Inc. 490,000 0 0 490,000 0 0
Total-Tel USA Communications,
Inc. 250,000 0 250,000 0 0 8,402,309
Trak Auto Corporation 366,500 124,000 0 490,500 0 0
TransCoastal Marine Services,
Inc. 0 850,000 0 850,000 0 0
Trimark Holdings, Inc. 400,000 0 0 400,000 0 0
United Security Bancorporation 187,465(24) 0 0 187,465 0 0
URS Corporation 741,700 58,300 0 800,000 0 0
U.S.Global Investors, Inc.
(Class A) 502,000 86,300 0 588,300 0 0
VECTRA Technologies, Inc. 723,500 0 723,500 0 0 (2,180,395)
Verdant Brands, Inc. 0 1,311,000(25) 0 1,311,000 0 0
Vicorp Restaurants, Inc. 500,000 0 60,000 440,000 0 303,435
World of Science, Inc. 470,000 116,000 300,000 286,000 0 (1,133,144)
Zomax Optical Media, Inc. 0 450,000 450,000 0 0 2,427,255
---------- -----------
$3,860,709 $36,274,340
========== ===========
</TABLE>
(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
<PAGE>
[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.
<TABLE>
<CAPTION>
Large Cap Mid Cap Value U.S. Gov't. Small Cap
Value Value Plus Value Securties Contrarian
Fund Fund Fund Fund Fund Fund
----------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Capital Gains
Taxed at 20% $ 72,984 $ -- $ --- $57,275,054 $ --- $ 617,669
</TABLE>
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
<PAGE>
[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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C>
5.4% 9.0% 3.7% 5.5%
</TABLE>
Heartland High-Yield Municipal Bond Fund
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C>
6.4% 10.6% 6.7% 9.2%
</TABLE>
/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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Heartland Short Duration Lehman 1-3yr
High-Yield Municipal Fund Non Inv. Municipal
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Heartland Short Duration Lehman 1-3yr
High-Yield Municipal Fund Non Inv. Municipal
<S> <C> <C>
1-year 3.7% 5.4%
Since inception 5.5% 6.3%]
</TABLE>
*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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Heartland High-Yield Lehman Non
Municipal Bond Inv. Municipal
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION> Heartland High-Yield Lehman Non
Municipal Bond Inv. Municipal
<S> <C> <C>
1-year 6.7% 6.2%
Since inception 9.2% 8.6%]
</TABLE>
*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
<PAGE>
VALUE REPORT
Heartland Short Duration High-Yield Municipal Fund
This Fund seeks a high level of federally tax-exempt current income with a low
degree of share price fluctuation. It invests 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
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
5.4% 9.0% 3.7% 5.5%
</TABLE>
FUND FACTS
<TABLE>
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
% OF
TOP 3 HOLDINGS COUPON MATURITY CALL NET ASSETS
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
VALUE REPORT
Heartland High-Yield Municipal Bond Fund
This Fund seeks to maximize after-tax total return by investing for a high level
of current income that is federally tax-exempt. It invests 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
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
6.4% 10.6% 6.7% 9.2%
</TABLE>
FUND FACTS
<TABLE>
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
% OF
TOP 3 HOLDINGS COUPON MATURITY CALL NET ASSETS
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
VALUE REPORT
Heartland Value Research
The following studies were conducted by Heartland's research staff and are
available to you upon request. Please call shareholder services at
1.800.432.7856.
#1 "THE CASE FOR LOW P/E AT MARKET TOPS"
Michael A. Berry, Ph.D.
#2 "OVER TIME, THERE'S BEEN NOTHING
LIKE VALUE"
Michael A. Berry, Ph.D.
#3 "USING A MID-CAP VALUE STRATEGY TO HEDGE THE LARGE CAP/SMALL CAP CYCLE"
Michael A. Berry, Ph.D.
#4 "WHY INTERMEDIATE MATURITIES?"
Lawrence J. Pavelec, CFA/Patrick J. Retzer, CPA
#5 "A REVEALING LOOK AT PRICE-TO-BOOK"
James P. Holmes, CFA
#6 "WHY GOVERNMENT BONDS?"
Lawrence J. Pavelec, CFA/Patrick J. Retzer, CPA
#7 "VALUE INVESTING: COME RAIN OR
COME SHINE"
Michael A. Berry, Ph.D.
#8 "HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND: THE INVENTION OF A
NEW SECTOR"
Thomas J. Conlin, CFA/Greg D. Winston, CFA
8
<PAGE>
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
<PAGE>
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
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 97.4% COUPON MATURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS (Cont'd) . DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 97.4%
AMOUNT (Cont'd) COUPON MATURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS [CONT'D] . DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 97.4%
AMOUNT [cont'd] COUPON MATURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS (Cont'd) . DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 97.4%
AMOUNT (Cont'd) COUPON MATURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
SCHEDULE OF INVESTMENTS (CONT'D) . DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 97.4%
AMOUNT (CONT'D) COUPON MATURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAR
AMOUNT SHORT-TERM INVESTMENTS - 2.2% COUPON MATURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
====== ============
</TABLE>
(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.
<PAGE>
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS . DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAR
AMOUNT LONG-TERM INVESTMENTS - 104.0% COUPON MATURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS (cont'd) . DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 104.0%
AMOUNT (cont'd) COUPON MATURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS (cont'd) . DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAR LONG-TERM INVESTMENTS - 104.0%
AMOUNT (cont'd) COUPON MATURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
(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
====== ===========
</TABLE>
(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.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
Short
Duration
High-Yield High-Yield
Municipal Municipal
ASSETS: Fund Bond Fund
------------ -----------
<S> <C> <C>
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
============ ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
- -------------------------------------------------------------------------------
Short
Duration
High-Yield High-Yield
Municipal Municipal
INVESTMENT INCOME: Fund Bond Fund
----------- ----------
<S> <C> <C>
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
=========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Short Duration High-Yield High-Yield Municipal
Municipal Fund Bond Fund
-------------------------------- --------------------------------
Jan. 2, 1997 Jan. 2, 1997
Year (commencement of Year (commencement of
ended operations) to ended operations) to
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income...................................... $ 7,752,447 $ 3,076,220 $ 3,430,471 $ 887,447
Net realized gains (losses) on investments................. (2,755,226) 29,263 151,394 345,439
Net increase (decrease) in unrealized appreciation on
investments............................................... 115,052 864,306 (146,572) 447,307
------------- ------------ ------------ -----------
Net increase in net assets resulting from operations.... 5,112,273 3,969,789 3,435,293 1,680,193
------------- ------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................... (7,752,971) (3,076,220) (3,430,471) (887,447)
Net realized gains on investments.......................... -- -- (591,377) (87,344)
------------- ------------ ------------ -----------
Total distributions to shareholders..................... (7,752,971) (3,076,220) (4,021,848) (974,791)
FUND SHARE ACTIVITIES:
Proceeds from shares issued................................ 160,079,181 162,747,963 91,876,973 34,304,367
Reinvested dividends from net investment income and
distributions from net realized gains on investments...... 6,808,295 2,700,941 3,475,849 858,813
Cost of shares redeemed.................................... (135,545,191) (45,400,655) (51,919,536) (5,260,508)
------------- ------------ ------------ -----------
Net increase in net assets derived from Fund share
activities............................................. 31,342,285 120,048,249 43,433,286 29,902,672
------------- ------------ ------------ -----------
TOTAL INCREASE IN NET ASSETS................................. 28,701,587 120,941,818 42,846,731 30,608,074
NET ASSETS AT THE BEGINNING OF THE PERIOD.................... 120,941,818 -- 30,608,074 --
------------- ------------ ------------ -----------
NET ASSETS AT THE END OF THE PERIOD.......................... $ 149,643,405 $120,941,818 $ 73,454,805 $30,608,074
============= ============ ============ ===========
UNDISTRIBUTED NET INVESTMENT INCOME.......................... $ 369 $ 524 $ -- $ --
============= ============ ============ ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Short Duration High-Yield High-Yield Municipal
Municipal Fund Bond Fund
-------------------------------- -------------------------------
For the Jan. 2, 1997(1) For the Jan. 2, 1997(1)
year ended through year ended through
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period.......................... $ 10.15 $10.00 $10.45 $10.00
Income from investment operations:
Net investment income...................................... 0.53 0.57 0.65 0.68
Net realized and unrealized gains (losses) on investments.. (0.17) 0.15 0.03 0.48
------------- --------------- ------------- ---------------
Total income from investment operations.................... 0.36 0.72 0.68 1.16
Less distributions from:
Net investment income...................................... (0.53) (0.57) (0.65) (0.68)
Net realized gains on investments.......................... -- -- (0.10) (0.03)
------------- --------------- ------------- ---------------
Total distributions.......................................... (0.53) (0.57) (0.75) (0.71)
------------- --------------- ------------- ---------------
Net asset value, end of period................................ $ 9.98 $10.15 $10.38 $10.45
============= =============== ============= ===============
Total Return................................................. 3.7% 7.4% 6.7% 11.7%
Ratios and Supplemental Data
Net assets, end of period (in thousands).................. $149,643 $120,942 $73,455 $30,608
Ratio of net expenses to average net assets............... 0.62%(2) 0.00%(2) 0.76%(3) 0.00%(3)
Ratio of net investment income to average net assets....... 5.26%(2) 5.33%(2) 6.01%(3) 6.01%(3)
Portfolio turnover rate................................... 215% 175% 223% 439%
</TABLE>
(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.
<PAGE>
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
<TABLE>
<CAPTION>
Number Expiration Unrealized Notional
Type of Contracts Date Depreciation Value
- ---- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Municipal Bond Index (125) March 1999 ($9,144) ($15,625,000)
</TABLE>
<PAGE>
High-Yield Municipal Bond Fund
<TABLE>
<CAPTION>
Number Expiration Unrealized Notional
Type of Contracts Date Depreciation Value
---- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Municipal Bond Index (20) March 1999 ($5,889) ($2,500,000)
</TABLE>
(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 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.
<PAGE>
(6) Investment Transactions
<TABLE>
<CAPTION>
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
-------------- -----------
<S> <C> <C>
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):
</TABLE>
<TABLE>
<CAPTION>
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- -----------
<S> <C> <C>
Appreciation $ 1,112 $ 655
Depreciation (123) (348)
------------ -----------
$ 989 $ 307
============ ===========
</TABLE>
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:
<TABLE>
<CAPTION>
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- -----------
<S> <C> <C>
Shares issued 15,872,132 8,791,614
Reinvested dividends from net
investment income and distributions
from net realized gains on investments 676,603 333,153
Shares redeemed (13,467,910) (4,978,359)
------------ -----------
Net increase in Fund shares 3,080,825 4,146,408
============ ===========
</TABLE>
For the period ended December 31, 1997, Fund share transactions were as
follows:
<TABLE>
<CAPTION>
Short Duration High-Yield
High-Yield Municipal
Municipal Fund Bond Fund
-------------- ---------
<S> <C> <C>
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
============ ===========
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Heartland Group, Inc.
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.
<PAGE>
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.
<PAGE>
[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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
DECEMBER SEC TAX-FREE YIELD/4/ EQUIVALENT TAXABLE YIELDS
4.5% 6.9% 7.2% 7.8% 8.3%
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Heartland Wisconsin Lehman 20 Year
Tax Free Fund Municipal Bond Index
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Heartland Wisconsin Lehman 20 Year
Tax Free Fund Municipal Bond Index
<S> <C> <C>
1-year 5.4% 6.8%
5-year 5.4% 6.8%
Since inception 6.4% 8.5%]
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
DECEMBER SEC TAX-FREE YIELD/1/ EQUIVALENT TAXABLE YIELDS
4.5% 6.9% 7.2% 7.8% 8.3%
<S> <C> <C> <C> <C>
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
</TABLE>
GENERAL INFORMATION
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
<TABLE>
<CAPTION>
TOP 3 HOLDINGS COUPON MATURITY % OF NET ASSETS
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS . December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS 98.7% COUPON MATURITY VALUE
- ----------------------------------------------------------------------------------------------------------
WISCONSIN 87.9%
<C><S> <C> <C> <C> <C>
$ 20,000 Amery, WI Housing Authority - Revenue Bonds............. 7.375% 05/01/2005 $ 20,900
300,000 Appleton, WI Housing Authority - Industrial Park........ 6.500 10/01/2016 302,625
1,390,000 Appleton, WI Housing Authority - Industrial Park........ 6.750 10/01/2026 1,402,163
125,000 Barron, WI Housing Authority - Maplecroft Project....... 0.000 10/01/2004 98,281
130,000 Barron, WI Housing Authority - Maplecroft Project....... 0.000 10/01/2008 82,550
35,000 Barron, WI Housing Authority - Maplecroft Project....... 0.000 10/01/2005 26,075
130,000 Barron, WI Housing Authority - Maplecroft Project....... 0.000 10/01/2006 91,975
85,000 Barron, WI Housing Authority - Maplecroft Project....... 0.000 10/01/2007 56,950
900,000 Bristol, WI Community Development Authority............. 6.125 03/01/2012 952,875
3,085,000 Brown County, WI Housing Authority - R.P. Terrace....... 6.500 06/01/2019 3,216,112
200,000 Brown County, WI Housing Auth. - Univ. Village Housing.. 5.400 04/01/2017 202,500
75,000 Dane County, WI Housing Authority - Forest Harbor Apts.. 5.950 07/01/2013 78,094
25,000 Dane County, WI Housing Authority - Forest Harbor Apts.. 6.000 07/01/2014 26,062
435,000 Deforest, WI Redev. Auth. - Lease Revenue Bonds......... 6.250 02/01/2018 485,025
265,000 Deforest, WI Redev. Auth. - Lease Revenue Bonds......... 6.200 02/01/2014 294,481
685,000 Eau Claire, WI Housing Auth. - London Hill.............. 6.250 05/01/2015 701,269
550,000 Elkhart Lake, WI Community Development Authority........ 6.000 04/01/2015 574,750
190,000 Evansville, WI Housing Authority - Baker Block Project.. 5.750 12/01/2016 190,361
250,000 Franklin, WI Community Development Authority............ 6.150 04/01/2012 275,000
890,000 Franklin, WI Community Development Authority............ 6.100 04/01/2010 977,887
250,000 Franklin, WI Community Development Authority............ 5.850 04/01/2006 271,563
10,000 Franklin, WI Community Development Authority............ 5.400 04/01/2003 10,000
1,000,000 Glendale, WI Community Development Authority............ 5.400 09/01/2018 993,750
2,875,000 Green Bay, WI Housing Authority - Pheasant Run Project.. 6.500 09/01/2019 2,979,219
2,500,000 Green Bay, WI Housing Authority - Moraine Ridge......... 6.150 12/01/2030 2,675,000
200,000 Hartford, WI Community Development Authority............ 5.800 12/01/2005 216,750
100,000 Hartford, WI Community Development Authority............ 5.450 12/01/2002 105,125
210,000 Hartford, WI Community Development Authority............ 6.000 12/01/2007 227,587
225,000 Hartford, WI Community Development Authority............ 6.100 12/01/2008 243,563
75,000 Hudson, WI Christian Community Home..................... 6.800 05/01/2009 76,125
65,000 Hudson, WI Christian Community Home..................... 6.900 05/01/2010 66,056
250,000 Hudson, WI Christian Community Home..................... 7.000 05/01/2023 253,438
55,000 Hudson, WI Christian Community Home..................... 6.700 05/01/2008 55,825
250,000 Hudson, WI Wintergreen Apartments....................... 6.000 07/01/2020 249,687
390,000 Jackson, WI Community Development Authority............. 7.000 12/01/2013 429,975
500,000 Jackson, WI Community Development Authority............. 7.000 12/01/2017 543,125
515,000 Jackson, WI Community Development Authority............. 7.000 12/01/2016 565,856
430,000 Jackson, WI Community Development Authority............. 7.000 12/01/2014 467,088
345,000 Jackson, WI Community Development Authority............. 7.000 12/01/2015 374,756
350,000 Jackson, WI Community Development Authority............. 7.000 12/01/2012 380,188
285,000 Jackson, WI Community Development Authority............. 6.900 12/01/2010 315,994
180,000 Jackson, WI Community Development Authority............. 6.700 12/01/2008 200,475
105,000 Jackson, WI Community Development Authority............. 6.600 12/01/2007 117,337
160,000 Jackson, WI Community Development Authority............. 6.500 12/01/2006 178,600
260,000 Jackson, WI Community Development Authority............. 6.800 12/01/2009 288,600
1,760,000 La Crosse, WI Housing Authority - Forest Park Project... 6.375 12/01/2018 1,812,800
1,100,000 La Crosse, WI Housing Authority - Ping Manor Project.... 6.375 04/01/2012 1,144,000
720,000 La Crosse, WI Housing Authority - Ping Manor Project.... 6.000 04/01/2005 738,900
350,000 La Crosse, WI Housing Authority - Washburn.............. 6.500 10/01/2026 362,250
1,000,000 La Crosse, WI Housing Authority - Meadow Wood Project... 6.250 01/01/2028 1,005,000
100,000 Little Chute, WI Community Development Authority....... 5.625 03/01/2019 103,875
305,000 Madison, WI CDA - Dempsey Manor Project................. 6.400 10/01/2018 315,294
160,000 Madison, WI CDA - Dempsey Manor Project................. 6.665 10/01/2025 164,000
1,435,000 Madison, WI CDA - Edgewood College...................... 6.250 04/01/2014 1,521,100
95,000 Madison, WI CDA - Greentree Project - Series A.......... 7.300 09/01/2032 96,781
1,000,000 Madison, WI CDA - Meriter Retirement Project............ 6.125 12/01/2019 1,077,500
45,000 Madison, WI CDA - Monticello Apartments Project......... 7.125 04/01/2009 46,423
190,000 Madison, WI CDA - Second Mortgage - Revenue Bonds....... 5.875 07/01/2016 202,350
100,000 Marinette, WI Housing Authority - Multifamily - Series A 6.750 02/01/2024 104,125
165,000 Markesan, WI CDA - Elderly Housing Revenue Bonds........ 6.750 10/01/2009 172,219
</TABLE>
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS [cont'd] . December 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS 98.7% [cont'd] COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------
WISCONSIN 87.9% [cont'd]
<C> <S> <C> <C> <C>
$ 190,000 Markesan, WI CDA - Elderly Housing Revenue Bonds.......... 6.900% 10/01/2011 $ 199,025
635,000 Mayville, WI Community Development Authority.............. 5.600 04/01/2018 637,381
100,000 Menomonee Falls, WI CDA - Village Square Project.......... 5.200 09/01/2009 97,625
950,000 Menomonee Falls, WI CDA - Village Square Project.......... 5.350 09/01/2016 916,750
215,000 Milwaukee, WI Housing Authority - Blatz Apartments........ 7.500 12/01/2028 222,525
3,000,000 Milwaukee, WI Redevelopment Auth. - Campus Town........... 5.700 11/01/2018 3,142,500
55,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.......... 5.300 12/01/2007 57,475
65,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.......... 5.350 12/01/2008 67,681
55,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.......... 5.400 12/01/2010 56,650
225,000 Milwaukee, WI Redevelopment Auth. - Dynapro, Inc.......... 5.500 12/01/2013 231,188
1,955,000 Milwaukee, WI Redevelopment Auth. - MSOE (Series A)....... 6.000 10/01/2017 2,001,431
1,385,000 Milwaukee, WI Redevelopment Auth. - MSOE (Series B)....... 6.000 10/01/2017 1,416,162
3,250,000 Milwaukee, WI Redevelopment Auth. - Multifamily........... 6.300 08/01/2038 3,436,875
10,000 Milwaukee, WI Redevelopment Auth. - School Improvement.... 0.000 03/01/2004 7,300
1,755,000 Milwaukee, WI Re. Auth. - Wisc. Ave/M.L. King, Jr. Dr..... 5.600 09/01/2009 1,866,881
11,000,000 Milwaukee, WI Re. Auth. - Wisc. Ave/M.L. King, Jr. Dr. (b) 5.500 09/01/2012 11,577,500
3,400,000 Milwaukee, WI Redevelopment Auth. - Schlitz Park.......... 5.600 01/01/2015 3,408,500
3,740,000 Milwaukee, WI Redevelopment Auth. - Schlitz Park.......... 5.500 01/01/2017 3,725,975
1,270,000 Milwaukee, WI Housing Auth. - Renaissance Apartments...... 5.250 01/01/2025 1,268,412
650,000 New Berlin, WI Housing Authority - Apple Glen............. 6.700 11/01/2020 689,812
1,210,000 New Berlin, WI Housing Authority - Apple Glen............. 6.700 11/01/2017 1,284,113
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2007 40,137
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2010 36,575
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2009 34,775
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2009 38,500
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2005 50,138
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2007 44,450
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2004 47,938
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2006 42,737
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2003 50,700
65,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 11/01/2005 45,337
70,000 New Berlin, WI Housing Authority - Apple Glen............. 0.000 05/01/2006 47,250
165,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.800 11/01/2012 170,362
190,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.900 11/01/2014 201,163
135,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.900 05/01/2014 139,388
165,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.850 11/01/2013 176,962
160,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.850 05/01/2013 165,200
105,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.500 05/01/2009 107,494
155,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.700 11/01/2011 159,650
150,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.700 05/01/2011 154,500
125,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.600 05/01/2010 133,281
125,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.400 11/01/2008 127,969
125,000 New Berlin, WI Housing Authority - Pinewood Creek......... 6.400 05/01/2008 127,969
1,015,000 New Berlin, WI Housing Authority - Pinewood Creek......... 7.125 05/01/2024 1,078,438
1,000,000 New Richmond, WI Com. Dev. Auth. - Senior Housing......... 5.850 10/01/2020 995,000
3,000,000 New Richmond, WI Com. Dev. Auth. - Senior Housing......... 6.000 10/01/2032 2,985,000
80,000 Oak Creek, WI Housing Authority - Country Oaks II......... 6.000 08/01/2010 82,300
2,980,000 Oak Creek, WI Housing Authority - Country Oaks II......... 6.300 08/01/2028 3,199,775
1,440,000 Oak Creek, WI Housing Authority - Country Oaks II......... 6.200 08/01/2017 1,481,400
10,000 Oak Creek, WI Housing Authority - Multifamily............. 7.750 03/01/2031 10,283
125,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 01/20/2013 56,094
2,130,000 Oak Creek, WI Housing Authority - Wood Creek.............. 5.625 07/20/2029 2,172,600
1,000,000 Oak Creek, WI Housing Authority - Wood Creek.............. 5.500 07/20/2019 1,018,750
60,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 01/20/2014 25,275
125,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 07/20/2013 54,063
65,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 01/20/2012 30,875
125,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 07/20/2011 61,406
125,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 01/20/2011 63,281
35,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 01/20/2010 18,856
50,000 Oak Creek, WI Housing Authority - Wood Creek.............. 0.000 07/20/2007 31,375
</TABLE>
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS [cont'd]. December 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS 98.7% [cont'd] COUPON MATURITY VALUE
- -----------------------------------------------------------------------------------------------------------
WISCONSIN 87.9% [cont'd]
<S> <C> <C> <C> <C>
$ 3,000,000 Oconto Falls, WI Community Development Authority......... 7.750% 12/01/2022 $ 3,176,250
335,000 Omro, WI CDA - Revenue Bonds............................. 5.875 12/01/2011 358,869
50,000 Omro, WI CDA - Revenue Bonds............................. 5.750 12/01/2006 54,500
200,000 Outagamie, WI Housing Authority - First Mortgage......... 5.000 11/15/2003 200,000
10,000 Racine, WI Elderly Housing Authority - Lincoln Lutheran.. 7.150 10/01/2005 10,000
5,000 Racine, WI Elderly Housing Authority - Lincoln Lutheran.. 7.100 10/01/2004 5,000
200,000 River Falls, WI Housing Authority - Lutheran Home Project 5.750 04/01/2028 200,250
170,000 Schofield, WI CDA - Lease Revenue........................ 6.000 10/01/2012 179,988
500,000 Schofield, WI CDA - Lease Revenue........................ 6.200 10/01/2017 527,500
970,000 SE WI Professional Baseball Park District................ 0.000 12/15/2015 417,100
1,000,000 SE WI Professional Baseball Park District................ 0.000 12/15/2017 381,250
315,000 Sheboygan, WI Housing Authority - Multifamily Housing.... 6.900 02/01/2024 325,480
125,000 Sheboygan, WI Housing Authority - Rocky Knoll Project.... 5.300 12/01/2016 126,250
175,000 Sheboygan, WI Housing Authority - Rocky Knoll Project.... 5.250 12/01/2013 176,094
35,000 Slinger, WI Redevelopment Auth. Lease Revenue............ 5.800 09/01/2007 36,838
95,000 Slinger, WI Redevelopment Auth. Lease Revenue............ 5.850 09/01/2008 100,106
250,000 Sparta, WI Housing Authority - Morrow Memorial Home...... 5.750 06/01/2022 250,000
560,000 Stevens Point, WI CDA - Mrtge. Refunding - Edgewater..... 6.625 09/01/2009 592,200
100,000 Stevens Point, WI CDA - Mrtge. Refunding - Edgewater..... 6.500 09/01/2006 106,375
435,000 Sturtevant, WI CDA - Redevelopment Lease................. 5.700 12/01/2009 456,206
375,000 Sturtevant, WI CDA - Redevelopment Lease................. 5.800 12/01/2010 393,750
200,000 Sturtevant, WI CDA - Redevelopment Lease................. 5.900 12/01/2011 210,250
1,000,000 Sturtevant, WI CDA - Redevelopment Lease................. 6.000 12/01/2015 1,055,000
200,000 Sturtevant, WI CDA - Redevelopment Lease................. 6.500 12/01/2015 216,500
1,190,000 St. Croix Falls, WI CDA Lease Revenue.................... 6.400 12/01/2014 1,253,962
115,000 St. Croix Falls, WI CDA Lease Revenue.................... 6.000 12/01/2007 122,331
105,000 St. Croix Falls, WI CDA Lease Revenue.................... 5.900 12/01/2006 111,300
310,000 Superior, WI Housing Authority - St. Francis Project.... 6.000 01/20/2022 321,625
195,000 Sussex, WI CDA - Revenue Bond........................... 5.700 04/01/2007 212,062
1,900,000 Sussex, WI CDA - Revenue Bond........................... 6.100 04/01/2015 2,106,625
270,000 Two Rivers, WI CDA - Arch Forest Project................. 6.350 12/15/2012 278,438
500,000 Waukesha, WI HA - Multifamily - Brookfield Woods......... 6.750 12/01/2034 511,250
405,000 Waukesha, WI HA - Multifamily - The Court Apartments..... 5.800 04/01/2025 416,138
1,000,000 Waukesha, WI HA - Multifamily - The Court Apartments..... 6.000 04/01/2036 1,015,000
2,800,000 Waukesha, WI HA - The Arboretum Project.................. 5.250 12/01/2021 2,796,500
1,500,000 Waukesha, WI HA - Multifamily - Oak Hill Terrace Project. 5.450 06/01/2027 1,518,750
1,000,000 Waukesha, WI HA - Westgrove Woods - A.................... 6.000 12/01/2031 1,057,500
715,000 Waukesha, WI HA - Westgrove Woods - C.................... 6.750 02/01/2027 734,663
750,000 Waukesha, WI HA - Riverwalk Apartments................... 5.625 12/01/2020 750,000
95,000 Waupaca, WI CDA - Series A............................... 6.100 10/01/2008 100,819
100,000 Waupaca, WI CDA - Series A............................... 6.200 10/01/2010 106,500
110,000 Waupaca, WI CDA - Series A............................... 6.200 10/01/2011 117,150
100,000 Waupaca, WI CDA - Series A............................... 6.100 10/01/2009 106,125
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2010 54,338
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2009 57,881
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2009 53,625
1,060,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 6.700 11/01/2019 1,101,075
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2010 50,250
1,200,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 6.700 11/01/2015 1,249,500
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2008 62,081
615,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 6.700 11/01/2022 638,831
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2008 57,500
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2006 65,750
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2007 61,875
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2004 79,538
75,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2003 60,094
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2003 78,125
70,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2005 50,050
100,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 11/01/2004 73,875
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project............. 0.000 05/01/2007 66,806
</TABLE>
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
SCHEDULE OF INVESTMENTS [cont'd] . December 31, 1998
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
PAR
AMOUNT MUNICIPAL BONDS 98.7% [cont'd] COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------
WISCONSIN 87.9% [cont'd]
<S> <C> <C> <C>
$ 100,000 Wauwatosa, WI HA - Hawthorne Terrace Project..................... 0.000% 11/01/2005 $ 69,625
105,000 Wauwatosa, WI HA - Hawthorne Terrace Project..................... 0.000 05/01/2006 70,875
2,720,000 West Allis, WI CDA - Poblocki Investments Project................ 6.100 05/01/2007 2,879,800
145,600 Whitewater, WI Multifamily Housing - Revenue Bonds............... 5.375 11/15/2005 148,806
100,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2005 102,125
115,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2007 112,988
120,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2008 117,000
125,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2009 120,625
135,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2010 135,000
105,000 Winnebago County, WI HA - 1st Mortgage Revenue Bonds............. 5.625 05/01/2006 103,950
10,000 Winnebago County, WI Housing Authority - Series A................ 6.200 03/01/2001 10,275
15,000 Winnebago County, WI Housing Authority - Series A................ 6.300 03/01/2003 15,563
10,000 Winnebago County, WI Housing Authority - Series A................ 6.000 03/01/1999 10,020
10,000 Winnebago County, WI Housing Authority - Series A................ 6.100 03/01/2000 10,150
380,000 Winnebago County, WI Housing Authority - Series A................ 7.125 03/01/2022 391,875
195,000 Winnebago County, WI Housing Authority - Series A................ 6.875 03/01/2012 200,606
9,650,000 Wisconsin Center - Revenue Bond - Public Improvements............ 5.700 12/15/2020 10,023,938
2,500,000 Wisconsin Center - Revenue Bond - Public Improvements............ 0.000 12/15/2026 587,500
50,000 WHEDA Home Ownership............................................. 0.000 12/01/2007 21,000
60,000 Wittenberg, WI HA - Multifamily - Forest Park.................... 7.200 06/20/2030 60,570
200,000 Wrightstown, WI Community Development Authority................. 5.950 06/01/2014 207,750
600,000 Wrightstown, WI Community Development Authority................. 6.000 06/01/2019 621,750
------------
126,102,720
------------
GUAM 4.9%
3,400,000 Guam Power Authority - Series A.................................. 6.300 10/01/2012 3,612,500
250,000 Guam Power Authority - Series A.................................. 5.250 10/01/2013 251,563
1,000,000 Guam Power Authority - Series A.................................. 6.400 10/01/2005 1,085,000
1,000,000 Guam Power Authority - Series A.................................. 5.250 10/01/2023 998,750
1,000,000 Guam Government G.O. - Series A.................................. 5.375 11/15/2013 1,013,750
------------
6,961,563
------------
PUERTO RICO 2.2%
1,000,000 Puerto Rico Commonwealth G.O..................................... 5.000 07/01/2027 980,000
420,000 Puerto Rico Commonwealth Public Improvement...................... 5.500 07/01/2013 432,075
1,205,000 Puerto Rico Commonwealth Hwy./Transportation..................... 5.500 07/01/2017 1,232,112
990,000 Puerto Rico Electric Power Authority - Series O.................. 0.000 07/01/2017 389,812
135,000 Puerto Rico Housing Finance Corporation - Multifamily............ 7.500 10/01/2015 140,231
------------
3,174,230
------------
VIRGIN ISLANDS 3.7%
3,000,000 Virgin Islands Water & Power Authority (a)....................... 5.500 07/01/2017 2,928,750
1,250,000 Virgin Islands Public Finance Authority.......................... 5.875 10/01/2018 1,296,875
1,000,000 Virgin Islands Public Finance Authority.......................... 6.000 10/01/2022 1,045,000
------------
5,270,625
------------
TOTAL INVESTMENTS (Cost $135,811,131) 98.7% $141,509,138
Cash and receivables, less liabilities......................1.3% 1,907,952
------ ------------
TOTAL NET ASSETS..........................................100.0% $143,417,090
======= ============
</TABLE>
(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.
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES . December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at cost............................. $135,811,131
=============
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
-------------
Total Assets.................................................. 146,707,222
-------------
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
-------------
Total Liabilities............................................. 3,290,132
-------------
TOTAL NET ASSETS................................................. $143,417,090
=============
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
-------------
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
=============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
this Statement.
<PAGE>
HEARTLAND WISCONSIN TAX FREE FUND
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C>
Interest.............................................................................. $7,798,638
----------
Total investment income.............................................................. 7,798,638
==========
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
----------
Total expenses....................................................................... 1,098,352
Less: Fees paid indirectly........................................................... (21,636)
----------
Net expenses......................................................................... 1,076,716
----------
NET INVESTMENT INCOME................................................................. 6,721,922
----------
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)
----------
TOTAL REALIZED AND UNREALIZED GAINS ON INVESTMENTS.................................... 548,283
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................. $7,270,205
==========
</TABLE>
HEARTLAND WISCONSIN TAX FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Year ended Year ended
Dec. 31, Dec. 31,
1998 1997
---------------------------
<S> <C> <C>
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)
------------ ------------
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
============ ============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
Statements..DOC
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Wisconsin Tax Free Fund
--------------------------------------------------------
For the year ended December 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of year ............................. $ 10.44 $ 10.16 $ 10.30 $ 9.21 $ 10.38
Income (loss) from investment operations:
Net investment income ...................................... 0.51 0.52 0.51 0.51 0.51
Net realized and unrealized gains (losses) on investments .. 0.04 0.28 (0.14) 1.09 (1.17)
-------- -------- -------- -------- --------
Total income (loss) from investment operations ......... 0.55 0.80 0.37 1.60 (0.66)
Less distributions from:
Net investment income ...................................... (0.51) (0.52) (0.51) (0.51) (0.51)
-------- -------- -------- -------- --------
Total distributions .................................... (0.51) (0.52) (0.51) (0.51) (0.51)
-------- -------- -------- -------- --------
Net asset value, end of year ................................... $ 10.48 $ 10.44 $ 10.16 $ 10.30 $ 9.21
======== ======== ======== ======== ========
Total Return(1) ................................................ 5.4% 8.1% 3.8% 17.8% (6.5)%
Ratios and Supplemental Data
Net assets, end of year (in thousands) ..................... $143,417 $131,348 $124,545 $118,513 $101,749
Ratio of net expenses to average net assets ................ 0.78%(2) 0.81%(2) 0.80%(2) 0.84% 0.85%
Ratio of net investment income to average net assets ....... 4.90% 5.05% 5.12% 5.23% 5.28%
Portfolio turnover rate .................................... 16% 8% 14% 11% 22%
</TABLE>
(1) The front-end sales charge in effect for the Fund prior to June 1, 1994 is
not reflected in Total Return.
(2) 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.
<PAGE>
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.
<PAGE>
(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)
----------
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
==========
<PAGE>
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.
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
<PAGE>
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.
