<PAGE> 1
As filed with the Securities and Exchange Commission on October 30, 1995
Registration No. 33-11371
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 21 /x/
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 23 /x/
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(Check appropriate box or boxes)
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HEARTLAND GROUP, INC.
(Exact name of registrant as specified in charter)
790 NORTH MILWAUKEE STREET
MILWAUKEE, WISCONSIN 53202
(Address of Principal Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (414) 347-7777
WILLIAM J. NASGOVITZ, President
790 NORTH MILWAUKEE STREET
MILWAUKEE, WISCONSIN 53202
(Name and Address of Agent for Service)
Copy To:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/x/ on October 30, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
*Registrant has elected to register an indefinite number of shares of Common
Stock, $0.001 par value, pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Registrant's 24f-2 Notice for the year ended December 31, 1994 was
filed on February 16, 1995.
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<PAGE> 2
HEARTLAND GROUP, INC.
FORM N-1A
CROSS-REFERENCE SHEET
TO POST-EFFECTIVE AMENDMENT NO. 21
-----------------------------------------
<TABLE>
<CAPTION>
Form N-1A
Item No. Prospectus Heading
- ---------- ------------------
<S> <C>
PART A
1. Cover Page..................... Cover Page
2. Synopsis....................... Fund Expenses
3. Condensed Financial
Information................. Financial Highlights
4. General Description of
Registrant.................. Description of Fund Shares;
Investment Objectives and
Policies
5. Management of the Fund......... The Funds and the Heartland
Organization; How to Buy
Shares; Net Asset Value Cal-
culation; Portfolio Trans-
actions
5A. Management's Discussion
of Fund Performance......... Not applicable. See Annual
Reports
6. Capital Stock and Other
Securities.................. Description of Fund Shares;
Dividends, Capital Gains
Distributions and Taxes;
Shareholder Services
7. Purchase of Securities Being
Offered..................... How to Buy Shares; Net Asset
Value Calculation; How to
Redeem Shares; The
Distribution Plan
8. Redemption or Repurchase....... How to Redeem Shares;
Shareholder Services
9. Pending Legal Proceedings...... None
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Form N-1A Statement of Additional
Item No. Information Heading
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<S> <C>
PART B
10. Cover Page..................... Cover Page
11. Table of Contents.............. Back Page
12. General Information and
History..................... Not Applicable
13. Investment Objectives and
Policies.................... Investment Policies and
Methods; Investment Restric-
tions; Appendix A - Secur-
ities Ratings
14. Management of the Fund......... Management
15. Control Persons and Principal
Holders of Securities....... Control Persons and Principal
Holders of Securities
16. Investment Advisory and
Other Services.............. The Investment Advisor
17. Brokerage Allocation........... Portfolio Transactions
18. Capital Stock and Other
Securities.................. Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered............... Determination of Net Asset
Value Per Share
20. Tax Status..................... Tax Status
21. Underwriters................... Distribution of Shares
22. Calculation of Performance
Data ....................... Performance Information
23. Financial Statements........... Financial Statements
</TABLE>
<PAGE> 4
HEARTLAND VALUE FUND
HEARTLAND SMALL CAP CONTRARIAN FUND
HEARTLAND VALUE & INCOME FUND
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
Prospectus
October 30, 1995
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INVESTMENT SUMMARY
HEARTLAND VALUE FUND'S investment objective is long-term capital appreciation.
The Fund seeks to achieve its objective through investment in small company
stocks selected on a value basis. The Value Fund closed to new investors
effective July 1, 1995.
HEARTLAND SMALL CAP CONTRARIAN FUND'S investment objective is maximum long-term
growth. The Fund seeks to achieve its objective through aggressive, yet
flexible, value investing in small company stocks.
HEARTLAND VALUE & INCOME FUND'S investment objective is capital growth and
current income. The Fund seeks to achieve its objective through investment in
stocks and bonds.
HEARTLAND U.S. GOVERNMENT SECURITIES FUND'S investment objectives are a high
level of current income, liquidity and safety of principal.
- --------------------------------------------------------------------------------
The Heartland Value Fund, the Heartland Small Cap Contrarian Fund, the
Heartland Value & Income Fund, and the Heartland U.S. Government Securities
Fund (collectively, the "Funds") are separate mutual fund portfolios of
Heartland Group, Inc. ("Heartland"). This Prospectus contains information you
should know about the Funds before you invest. Please keep it for reference.
A Statement of Additional Information for the Funds (dated October 30, 1995)
has been filed with the Securities and Exchange Commission and is incorporated
by reference into this Prospectus. It is available at no charge by calling the
Funds' investment advisor and distributor, Heartland Advisors, Inc. ("Heartland
Advisors"), at 1-800-HEARTLN or (414) 347-7777.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . 6
How to Buy Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
How to Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Dividends, Capital Gains Distributions and Taxes . . . . . . . . . . . . 27
The Funds and the Heartland Organization . . . . . . . . . . . . . . . . 27
The Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Net Asset Value Calculation . . . . . . . . . . . . . . . . . . . . . . . 29
Description of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . 30
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 30
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
- --------------------------------------------------------------------------------
SHARES OF THE FUNDS ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED
OR GUARANTEED BY, ANY BANKING INSTITUTION, ARE NOT INSURED OR GUARANTEED BY THE
FDIC OR ANY OTHER GOVERNMENTAL AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
P R O S P E C T U S
1
<PAGE> 5
FUND EXPENSES
The expense summary format below was developed for use by all mutual funds to
help you make your investment decisions. Of course, you should consider this
expense information along with other important information, including each
Fund's investment objective and performance.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
HEARTLAND HEARTLAND
SMALL CAP HEARTLAND U.S. GOVERNMENT
HEARTLAND CONTRARIAN VALUE & SECURITIES
VALUE FUND FUND INCOME FUND FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None None None None
Maximum sales load imposed on reinvested dividends None None None None
Exchange fees None None None None
Redemption fees (1) None None None None
- ------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees (2) (after fee waivers) .75% .75% .70% .50%
Rule 12b-1 fees .25% .25% .25% .25%
Other expenses (3) .39% .45% .85% .32%
- ------------------------------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.39% 1.45% 1.80% 1.07%
========================================================================================================================
</TABLE>
(1) The Agent charges a wire fee for the return of redemption proceeds
requested by wire transfer. The fee is currently $7.50. Shares of
the Funds purchased between February 12, 1993 and June 1, 1994
subject to a contingent deferred sales charge remain subject to such
charge upon redemption of the shares. See "HOW TO REDEEM SHARES."
(2) The management fee shown in the table applicable to the U.S.
Government Securities Fund gives effect to the voluntary waiver by
Heartland Advisors of 0.15 of 1% of the management fee. Without such
waiver, the Management fees and Total Fund Operating Expenses would
have been .65% and 1.22% of average net assets, respectively.
Heartland Advisors expects to continue the waiver for the current
fiscal year; however, it may reinstate an additional portion or all
of the fee at any time.
(3) Other expenses set forth in the table for the Small Cap Contrarian
Fund are based on management's estimates for the current fiscal year.
P R O S P E C T U S
2
<PAGE> 6
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming: (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
HEARTLAND HEARTLAND
SMALL CAP HEARTLAND U.S. GOVERNMENT
HEARTLAND CONTRARIAN VALUE & SECURITIES
VALUE FUND FUND INCOME FUND FUND
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One year $14 $15 $18 $11
Three years $44 $46 $57 $34
Five years $76 N/A $97 $59
Ten years $167 N/A $212 $131
- --------------------------------------------------------------------------------------
</TABLE>
The purpose of this expense information is to assist in understanding the
various costs and expenses an investor will bear directly or indirectly in each
of the Funds. More detailed information concerning these expenses is set forth
in the sections of this Prospectus entitled "How To Buy Shares," "The
Distribution Plan" and "The Funds and the Heartland Organization." THE ABOVE
EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
Except as indicated below, the following Financial Highlights table has been
examined by Arthur Andersen LLP, independent public accountants, whose reports
on the financial statements of the Value, Value & Income and U.S. Government
Securities Funds for the fiscal year ended December 31, 1994, are included in
the respective Fund's Annual Report to Shareholders for such period, and
incorporated by reference into the Statement of Additional Information. The
information presented in the table for the Small Cap Contrarian Fund for the
period from April 27, 1995 to September 30, 1995 is unaudited. The table should
be read in conjunction with the audited financial statements and related notes
appearing in each Fund's Annual Report and the unaudited financial statements
and related notes for the Small Cap Contrarian Fund contained in the Statement
of Additional Information. Additional information about the Funds' performance
is contained in their respective Annual Reports, which may be obtained without
charge by writing or calling Heartland Advisors.
P R O S P E C T U S
3
<PAGE> 7
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------------
NET
FISCAL ASSET NET REALIZED DIVIDENDS
YEAR VALUE, NET AND UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS
ENDED BEGINNING INVESTMENT GAIN/(LOSS) INVESTMENT INVESTMENT FROM CAPITAL TOTAL
DEC. 31 OF PERIOD INCOME/(LOSS) ON SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
HEARTLAND VALUE FUND
1985 $ 9.52 $ 0.01 $ 3.93 $ 3.94 $ - $ - $ -
1986 13.46 0.08 1.39 1.47 (0.02) (0.90) (0.92)
1987 14.01 0.06 (1.16) (1.10) (0.14) (1.03) (1.17)
1988 11.74 0.13 3.04 3.17 (0.13) (0.43) (0.56)
1989 14.35 0.13 0.81 0.94 (0.13) (1.34) (1.47)
1990 13.82 0.02 (2.38) (2.36) (0.02) (0.12) (0.14)
1991 11.32 (0.08) 5.66 5.58 - (0.84) (0.84)
1992 16.06 (0.09) 6.91 6.82 - (2.47) (2.47)
1993 20.41 (0.12) 3.95 3.83 - (1.02) (1.02)
1994 23.22 (0.09) 0.47 0.38 - (0.88) (0.88)
- -----------------------------------------------------------------------------------------------------------------------
HEARTLAND SMALL CAP CONTRARIAN FUND
4/27/95(1)
to 9/30/95 $10.00 $ 0.04 $ 1.65 $ 1.69 $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
HEARTLAND VALUE & INCOME FUND
10/26/93(1)
to 12/31/93 $10.00 $ 0.07 $ 0.45 $ 0.52 $(0.07) $ - $(0.07)
1994 10.45 0.41 (0.92) (0.51) (0.41) - (0.41)
- -----------------------------------------------------------------------------------------------------------------------
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
4/9/87(1)
to 12/31/87 $ 9.55 $ 0.50 $(0.33) $ 0.17 $(0.50) $ - $(0.50)
1988 9.22 0.76 (0.18) 0.58 (0.76) - (0.76)
1989 9.04 0.77 0.21 0.98 (0.77) - (0.77)
1990 9.25 0.73 0.14 0.87 (0.73) - (0.73)
1991 9.39 0.69 0.83 1.52 (0.69) (0.25) (0.94)
1992 9.97 0.66 0.30 0.96 (0.66) (0.34) (1.00)
1993 9.93 0.56 1.18 1.74 (0.56) (0.61) (1.17)
1994 10.50 0.59 (1.59) (1.00) (0.59) - (0.59)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations
(2) Unaudited
(3) Annualized
(4) Not Annualized
Please refer to page 5a for additional Financial Highlights.
P R O S P E C T U S
4
<PAGE> 8
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
RATIO OF
RATIO OF NET NET INVESTMENT
NET ASSET NET ASSETS, EXPENSES TO INCOME/(LOSS) PORTFOLIO
VALUE, TOTAL END OF AVERAGE TO AVERAGE TURNOVER
END OF PERIOD RETURN* PERIOD NET ASSETS NET ASSETS RATIO
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13.46 41.4%(2) $ 11,348,013 2.47% 0.24% 64%
14.01 11.0%(2) 28,146,987 1.66% 0.71% 89%
11.74 (8.4)%(2) 27,536,584 1.51% 0.43% 78%
14.35 27.1% 28,499,177 1.71% 0.85% 50%
13.82 6.6% 30,797,831 1.65% 0.86% 88%
11.32 (17.1)% 19,942,598 1.74% 0.14% 76%
16.06 49.4% 29,879,996 1.69% (0.54)% 79%
20.41 42.5% 48,391,112 1.48% (0.49)% 76%
23.22 18.8% 186,518,201 1.51% (0.71)% 51%
22.72 1.7% 339,364,388 1.39% (0.52)% 35%
- -------------------------------------------------------------------------------------------
$11.69 16.9%(4) $ 37,271,315 1.45%(3) 1.91%(3) 23%
- -------------------------------------------------------------------------------------------
$10.45 5.2%(4) $ 5,810,983 1.30%(3) 6.52%(3) 6%
9.53 (5.0)% 9,884,142 1.80% 4.39% 127%
- -------------------------------------------------------------------------------------------
$ 9.22 1.9%(2) $ 12,610,076 1.04%(3) 7.16%(3) 64%
9.04 6.4% 12,414,180 0.95%(5) 8.25% 136%
9.25 11.3% 11,594,574 0.89%(5) 8.45% 142%
9.39 10.0% 16,423,750 0.86%(5) 7.98% 127%
9.97 17.0% 29,101,367 0.92%(5) 7.06% 185%
9.93 10.1% 28,377,978 0.92%(5) 6.71% 149%
10.50 17.8% 66,788,763 1.06%(5) 5.09% 200%
8.91 (9.6)% 64,807,074 1.07%(5) 6.30% 95%
- -------------------------------------------------------------------------------------------
</TABLE>
(5) Heartland Advisors voluntarily waived the management fee in its entirety
from May 7, 1988 through November 30, 1990. Effective December 1, 1990,
Heartland Advisors partially reinstated a portion of the fee at the rate of
.25 of 1% of average net assets and, effective January 20, 1992 and
January 1, 1993, respectively, reinstated additional portions of the fee
resulting in a rate of .35 of 1% and .50 of 1% of average daily net assets,
respectively.
* Contingent deferred and initial sales charges in effect for the Funds prior
to June 1, 1994 are not reflected in Total Return as set forth in the
table.
P R O S P E C T U S
5
<PAGE> 9
FINANCIAL HIGHLIGHTS
The following information supplements the information contained in the Financial
Highlights Table on pages 4 and 5 of this Prospectus. The table should be read
in conjunction with the unaudited financial statements and related notes
included in each Fund's Semi-Annual Report for the six months ending June 30,
1995, which are incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
HEARTLAND HEARTLAND HEARTLAND
VALUE VALUE & INCOME U.S. GOVERNMENT
For the six months ending June 30, 1995 FUND(2) FUND(2) SECURITIES FUND(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA:
Net Asset Value, Beginning of Period $ 22.72 $ 9.53 $ 8.91
- -------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.04 0.22 0.30
Net realized and unrealized gains
on securities 4.35 1.48 0.65
-------- ------- -------
Total from investment operations 4.39 1.70 0.95
- -------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income -- (0.22) (0.30)
Distributions from capital gains -- -- --
Total distributions -- (0.22) (0.30)
Net asset value, end period $ 27.11 $ 11.01 $ 9.56
- -------------------------------------------------------------------------------------------------------------------
Total Return(1) 19.3%(4) 17.9%(4) 10.8%(4)
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end period (in thousands) $997,281 $14,284 $66,540
Ratio of net expenses to average net assets 1.12%(3) 1.58%(3) 1.02%(3)(5)
Ratio of net investment income to average net assets 0.49%(3) 4.54%(3) 6.48%(3)
Portfolio turnover rate 25%(3) 160%(3) 74%(3)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Contingent deferred sales charges in effect for the Funds prior to June 1,
1994 are not reflected in Total as set forth in the table.
(2) Unaudited
(3) Annualized
(4) Not annualized
(5) Heartland Advisors voluntarily waived the management fee in its entirety
from May 7, 1988 through November 30, 1990. Effective December 1, 1990,
Heartland Advisors partially reinstated a portion of the fee at the rate
of .025 of 1% of average net assets and, effective January 20, 1992 and
January 1, 1993, respectively, reinstated additional portions of the fee
resulting in a rate of .35 of 1% and .50 of 1% of average daily net assets,
respectively.
P R O S P E C T U S
5a
<PAGE> 10
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES. The investment objectives of each of the Funds are
fundamental and may not be changed without shareholder approval. The investment
policies of the Funds, unless otherwise specified, are not fundamental
policies, and therefore may be changed by the affirmative vote of a majority of
the directors of Heartland. In view of the risks inherent in all investments in
securities, there is no assurance that the investment objectives of the Funds
will be achieved.
The VALUE FUND'S investment objective is long-term capital appreciation.
The SMALL CAP CONTRARIAN FUND'S investment objective is maximum long-term
growth. The Fund seeks to take advantage of both rising and, to a lesser
degree, declining markets.
The VALUE & INCOME FUND'S investment objective is capital growth and current
income.
The U.S. GOVERNMENT SECURITIES FUND'S investment objectives are a high level of
current income, liquidity and safety of principal.
VALUE FUND
Effective July 1, 1995, the Value Fund closed to new investors. Investors who
are shareholders of the Value Fund on July 1, 1995, certain employee benefit
plans and certain financial advisers and planners may continue to add to an
existing account or open new accounts. See "How to Buy Shares." The Fund may
resume sales to new investors at some future date, but it has no present
intention to do so.
To achieve long-term capital appreciation, the Value Fund invests primarily in
equity securities of small companies with market capitalizations of less than
$300 million selected on a value basis. Heartland Advisors selects securities
it considers to be underpriced relative to a set of factors, including:
- - price/earnings ratio
- - market price to book value
- - price/cash flow ratio
- - earnings growth
- - long-term debt/capital
- - management capabilities
- - undervalued assets
- - potential for favorable developments
- - insider and institutional ownership
- - technical analysis
While the Value Fund may invest in securities of companies with market
capitalizations in excess of $300 million, a majority of the Fund's investments
will be in stocks with smaller market capitalizations. As of March 31, 1995,
the median market capitalization of the companies in the Value Fund's portfolio
was approximately $43 million, with a weighted average market capitalization
for the Fund's portfolio of approximately $135 million. Equity securities of
companies with smaller market capitalizations may involve a higher degree of
risk than investments in the general equity markets in that such securities may
be subject to greater price volatility and may have less market liquidity than
equity securities of companies with larger market capitalizations. The Value
Fund will invest at least 65% of its total assets in equity securities
P R O S P E C T U S
6
<PAGE> 11
of value companies as determined by Heartland Advisors in accordance with the
factors listed above. The Value Fund may also invest in convertible securities
and debt securities rated B or above, and warrants, each up to 5% of the Fund's
net assets.
As a matter of fundamental policy, the Value Fund will not purchase the
securities of any company if, as a result: (i) it would own more than 10% of
the outstanding voting securities of such company; (ii) such holdings would
amount to more than 5% of the Value Fund's total assets; or (iii) more than 25%
of its assets would be concentrated in any one industry. These limitations do
not apply to U.S. government securities. The Value Fund may, from time to time
purchase securities issued by broker-dealers that sell or distribute its shares
or that execute portfolio brokerage transactions for the Value Fund; provided
that any such purchases will only be made in accordance with the limitations
imposed on such purchases by the Securities and Exchange Commission. The Value
Fund will not invest in securities issued by Heartland Advisors or any
affiliate of Heartland Advisors.
SMALL CAP CONTRARIAN FUND
The Small Cap Contrarian Fund seeks to achieve maximum long-term growth by
aggressive, yet flexible, value investing world-wide in growing companies that
are attractively priced. The Fund seeks to take advantage of both rising and,
to a lesser degree, declining markets. Under normal market conditions, at least
65% of the Fund's total assets will be invested in equity securities of smaller
companies with market capitalizations of less than $500 million.
The Small Cap Contrarian Fund takes an aggressive investment approach and may
be appropriate for investors who seek potentially high long-term returns, have
an investment horizon of at least three years, and are willing to accept
certain risks, including risks of short selling, futures and options, foreign
securities, leverage and potentially significant short-term fluctuations in the
Fund's share price. See "Other Investment Policies, Practices and Risk Factors
of the Funds."
The Fund focuses its investments primarily on equity securities of domestic,
multinational and foreign companies whose potential values generally have been
overlooked by other investors. Such companies include attractively priced,
viable businesses that have not yet been discovered or become popular,
previously unpopular companies having growth potential due to changed
circumstances, companies that have declined in value and no longer command an
investor following, and previously popular companies temporarily out of favor
due to short-term factors. Heartland Advisors will consider certain factors in
selecting the companies for the Fund's portfolio, including earnings, cash
flows, book values and debt levels.
Equity securities in which the Fund may invest include common stock,
convertible debt, preferred stock, warrants or other securities exchangeable
for shares of common stock, and other equity securities, including real estate
investment trusts. Equity securities of companies with smaller market
capitalizations may involve a higher degree of risk than investments in the
general equity markets in that such securities may be subject to greater price
volatility and may have less market liquidity than equity securities of
companies with larger market capitalizations.
P R O S P E C T U S
7
<PAGE> 12
The Small Cap Contrarian Fund may invest up to, but less than, 35% of its total
assets in debt securities, including lower-quality, high-yielding debt
securities. The Fund may buy debt securities of all types and qualities issued
by both domestic and foreign issuers. For information regarding the risks
associated with investing in lower-quality securities, see "Investment
Quality."
As a matter of fundamental policy, the Small Cap Contrarian Fund will not
purchase the securities of any issuer if, as a result: (i) with respect to 75%
of the Fund's total assets, more than 5% of its total assets would be invested
in such issuer or the Fund would own more than 10% of the outstanding voting
securities of such issuer; or (ii) more than 25% of its assets would be
concentrated in any one industry. These limitations do not apply to U.S.
government securities. The aggressive investment techniques in which the Small
Cap Contrarian Fund may engage may entail risks not encountered by the average
mutual fund. Some techniques, such as short sales, the use of put and call
options and futures, investments in foreign securities, leverage and short-term
trading, may be considered speculative and may also result in higher operating
expenses. See "Other Investment Policies and Practices of the Funds."
VALUE & INCOME FUND
To achieve its objectives, the Value & Income Fund invests in equity and debt
securities. The proportion of the Fund's assets invested in each type of
security will vary from time to time in accordance with Heartland Advisors'
assessment of economic conditions and investment opportunities.
The equity securities in which the Fund primarily invests are securities
selected on a value basis. Heartland Advisors selects equity securities it
considers underpriced relative to a set of factors, including:
- - price/earnings ratio
- - market price to book value
- - price/cash flow ratio
- - earnings growth
- - long-term debt/capital
- - management capabilities
- - undervalued assets
- - potential for favorable developments
- - insider and institutional ownership
- - technical analysis
The Value & Income Fund may invest in debt securities and convertible debt
securities of any type that are considered investment grade by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"),
or unrated securities judged by Heartland Advisors to be of comparable quality.
The Fund may also invest up to 25% of its assets in non-investment grade debt
securities and convertible debt securities, provided that the Fund may not
invest in securities rated below B, or judged by Heartland Advisors to be of
comparable quality, at the time of purchase. See "Investment Quality."
The Fund may also invest up to 5% of its net assets in warrants. The Fund
expects to realize income from dividends earned on equity investments and from
interest earned on debt securities. As a matter of fundamental policy, the
Value & Income Fund will not purchase the securities of any issuer if, as a
result: (i) the Fund would own more than 10% of the outstanding voting
securities of such issuer; (ii) with respect to 75%
P R O S P E C T U S
8
<PAGE> 13
of the Fund's total assets, more than 5% of its total assets would be invested
in such issuer; (iii) with respect to its total portfolio, more than 10% of the
total assets would be invested in such issuer; or (iv) more than 25% of its
assets would be concentrated in any one industry. These limitations do not
apply to U.S. government securities.
U.S. GOVERNMENT SECURITIES FUND
As a fundamental policy, the U.S. Government Securities Fund will invest at
least 65% of its total assets in obligations issued or guaranteed by the U.S.
government or by its agencies or instrumentalities. The government obligations
in which the Fund may invest may be either direct obligations of the Treasury
or securities issued or guaranteed by government agencies or instrumentalities.
Of the obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, some are backed by the full faith and credit of the U.S.
government and others are backed only by the rights of the issuer to borrow
from the U.S. Treasury (such as Federal Home Loan Bank bonds and Federal
National Mortgage Association securities). Investments in this latter category
of obligations are subject to risk based on the creditworthiness of the issuing
agency or instrumentality, and there is no assurance that the U.S. government
will provide financial support for such agencies or instrumentalities.
Heartland Advisors buys and sells securities after considering economic
conditions, liquidity factors and interest rate trends. Increases in interest
rates may decrease the value of the U.S. Government Securities Fund's portfolio
and decreases in interest rates may increase the value of its portfolio. The
U.S. Government Securities Fund's return will also vary from time to time
depending on fluctuation in market interest rates. The average maturity within
the portfolio will be shifted in response to anticipated changes in interest
rates. The average maturity will be shortened when Heartland Advisors expects
interest rates to rise, and will be lengthened when lower rates are
anticipated.
The U.S. Government Securities Fund may invest up to 35% of its total assets in
corporate debt securities and convertible debt securities, including up to 25%
of its total assets which may be invested in non-investment grade debt
securities and convertible debt securities, provided that the Fund may not
invest in securities rated below B by Moody's or S&P, or judged by Heartland
Advisors to be of comparable quality, at the time of purchase. See "Investment
Quality."
INVESTMENT QUALITY
INVESTMENT GRADE SECURITIES. Investment grade debt securities in which the
Value Fund, the Small Cap Contrarian Fund, the Value & Income Fund and U.S.
Government Securities Fund may invest are considered by Heartland Advisors to
include securities rated at the time of purchase within the four highest rating
categories assigned by Moody's or S&P, or securities which are unrated,
provided that such securities are judged by Heartland Advisors, at the time of
purchase, to be of comparable quality to securities rated within such four
highest categories. Securities rated in the fourth highest rating category are
more sensitive to economic changes than are securities rated in a higher
category and such securities have speculative characteristics.
P R O S P E C T U S
9
<PAGE> 14
HIGH YIELD SECURITIES. Non-investment grade securities (commonly known as "junk
bonds") in which the Value, Small Cap Contrarian, Value & Income and U.S.
Government Securities Funds may invest may be regarded, on balance, as
predominantly speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of the obligation. While such
bonds typically offer higher rates of return, they involve greater risk,
including greater risk of default and loss of principal. The prices of these
lower rated bonds may be less sensitive to interest rate changes than higher
rated bonds, but more sensitive to adverse economic changes. Periods of
economic uncertainty and change may cause market price volatility in these
higher yielding bonds and corresponding volatility in the Fund's net asset
value. Furthermore, higher yielding bonds may contain redemption or call
provisions which, if exercised during a declining interest rate environment,
may require the Fund to replace the security with a lower yielding security,
resulting in a decreased return to the Fund. Finally, the secondary trading
market for higher yielding bonds may not be as active as for lower yielding
bonds. As a result, it may be difficult to accurately assess the value of such
bonds (and therefore the respective Fund's securities portfolio), and the
Fund's ability to dispose of such bonds may be limited. For a more detailed
discussion of the risks associated with investing in lower rated securities,
see "Investment Policies and Methods - Non-Investment Grade Securities" in the
Statement of Additional Information. Debt securities rated B, the lowest
category in which the Value, Value & Income and U.S. Government Securities
Funds may invest, are regarded by S&P as having a greater vulnerability to
default but having the ability, at the time they are rated, to meet scheduled
interest and principal payments. Moody's notes that the assurance of interest
and principal payments or of maintenance of other terms of the contract over
any long period of time may be small. The Small Cap Contrarian Fund may invest
in debt securities rated as low as the lowest rating category assigned by
Moody's or S&P, which securities may be even more speculative than B rated
debt. A description of the ratings assigned by Moody's and S&P is contained in
the Statement of Additional Information.
ASSET COMPOSITION
The following table provides a summary of the Value & Income Fund's and U.S.
Government Securities Fund's debt holdings as rated by Moody's or, in the case
of unrated securities, as determined by Heartland Advisors. These figures are
dollar-weighted averages of month-end portfolio holdings during the year ended
December 31, 1994, presented as a percentage of total portfolio holdings. These
percentages are historical and are not necessarily indicative of the quality of
current or future Fund holdings, which may vary.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MOODY'S RATING VALUE & INCOME U.S. GOVERNMENT SECURITIES
OR EQUIVALENT FUND AVERAGE FUND AVERAGE
- --------------------------------------------------------------------------------
<S> <C> <C>
Aaa 8.2% 68.0%
Aa 0% 0.2%
A 0% 10.9%
Baa 0% 7.0%
Ba 4.5% 10.9%
B 12.2% 0%
</TABLE>
P R O S P E C T U S
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<PAGE> 15
The dollar-weighted average of debt securities included in these figures and
not rated by Moody's amounted to 3.6% of the Value & Income Fund's total
portfolio. This may include securities rated by other nationally recognized
rating organizations, as well as unrated securities. Unrated securities are not
necessarily lower quality securities. Please refer to the Statement of
Additional Information for a more complete discussion of these ratings.
OTHER INVESTMENT POLICIES, PRACTICES AND RISK FACTORS OF THE FUNDS
In addition to the investments described above for each Fund, the Funds may
invest in securities and employ investment techniques that may present special
risks as described below. Although there is no uniform definition of
"derivative securities," certain instruments in which the Funds may invest may
be considered derivative because the value of the instrument fluctuates
depending upon the value of another security, index, reference interest rate,
or currency. These instruments may include options, futures, options on
futures, forward foreign currency contracts, indexed securities, and certain
stripped obligations and mortgage-backed securities. A more complete
discussion of the Funds' securities and investment techniques and their
associated risks, as well as further investment restrictions to which the Funds
may be subject, is contained in the Statement of Additional Information.
OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Fund may
engage in transactions in options, futures contracts, and options on futures
contracts to hedge protectively against anticipated declines in the market
value of its portfolio securities, or against increases in the market values of
securities it intends to purchase, or to manage exposure to changing interest
rates or, with respect to the Value Fund, the Small Cap Contrarian Fund and the
Value & Income Fund, as a hedge against changes in prevailing levels of
currency exchange rates. The Funds will not use these instruments for
speculation. Some options and futures strategies, including selling futures,
buying puts and writing calls, tend to hedge a Fund's investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the risk
and return characteristics of the Fund's overall strategy.
The Value Fund, the Value & Income Fund and the U.S. Government Securities Fund
each may write covered call options and purchase put options that are traded on
recognized U.S. exchanges with respect to specific securities and enter into
closing transactions with respect to such options. The Value Fund and the Value
& Income Fund also may sell covered call options and purchase put options on
foreign currencies and on stock indices composed of securities of the same
general character as each Fund's portfolio and may enter into closing
transactions with respect to such options.
The Value Fund, the Value & Income Fund and the U.S. Government Securities Fund
each may purchase and sell futures contracts, including interest rate futures,
index futures and, with respect to the Value Fund and the Value & Income Fund,
currency futures, that are traded on a recognized U.S. exchange, board of trade
or similar entity, or quoted on an automated quotation system. Each of those
Funds may also write covered call options and purchase put options on futures
contracts and enter into closing transactions with respect to such options.
P R O S P E C T U S
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<PAGE> 16
The Small Cap Contrarian Fund may buy and sell options and futures, including
purchasing and writing put and call options and options on futures, based on
any type of security, index, or currency related to its investments, including
options and futures traded on foreign exchanges and options not traded on
exchanges. Over-the-counter options generally involve greater credit and
liquidity risks than exchange-traded options.
Each Fund will limit its use of these hedging instruments so that: (i) no more
than 5% of the Fund's total assets would be committed to initial margin
deposits or premiums on futures contracts; (ii) no more than 25% of the Fund's
net assets would be subject to futures contracts; (iii) no more than 5% of the
Fund's total assets would be committed to premiums paid for options; and (iv)
no more than 25% of the Fund's total assets would be subject to options. Each
of these limitations applies immediately after a purchase. A subsequent change
in the applicable percentage resulting from market fluctuations does not
require elimination of any security, option or future from the portfolio.
Consequently, more than 25% of a Fund's assets could be hedged at a date
subsequent to the hedging transaction.
Options and futures can be highly volatile investments and involve certain
risks. Successful hedging strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors.
Heartland Advisors' attempts to use such investments for hedging purposes may
not be successful and could result in reduction of a Fund's total return. A
Fund's potential losses from the use of futures extend beyond its initial
investment in such contracts. Each Fund could also experience losses if the
prices of its options or futures positions were poorly correlated with its
other investments, or if it was unable to close out its positions due to
disruptions in the market or lack of liquidity. Options and futures traded on
foreign exchanges in which the Small Cap Contrarian Fund may invest generally
are not regulated by U.S. authorities, and may offer less liquidity and less
protection to the Fund if the other party to the contract defaults.
SHORT SALES. If the Small Cap Contrarian Fund anticipates that the price of a
security will decline, it may sell the security short (sell a security which
the Fund does not then own for delivery at a future date) and borrow the same
security from a broker or other institution to complete the sale. The Fund may
make a profit or loss depending upon whether the market price of the security
decreases or increases between the date of the short sale and the date on which
the Fund must replace the borrowed security. The Fund will maintain a
segregated account with cash or liquid assets to cover its open short
positions.
The Value Fund, the Small Cap Contrarian Fund and the Value & Income Fund may
each engage in "short sales against the box," a less aggressive short selling
technique which involves selling a security that the Fund owns (or has an
unconditional right to purchase) for delivery at a specified date in the
future, to hedge protectively against anticipated declines in the market price
of its portfolio's securities or to defer an unrealized gain. If the value of
the securities sold short increases prior to the scheduled delivery date, the
Fund loses the opportunity to participate in the gain. Those Funds may also
engage in short sales of securities of an issuer ("acquiror") that has publicly
announced a proposed or a pending transaction in which a portfolio security of
P R O S P E C T U S
12
<PAGE> 17
the Fund will be converted into securities of the acquiror. Each Fund will
maintain a segregated collateral account with its custodian to cover open short
positions in acquiror securities. If the value of an acquiror's security sold
short were to increase relative to the segregated collateral, the Fund would
lose the opportunity to participate in the appreciation and may also be
required to purchase additional shares of the shorted security to close out the
position or settle the position in cash.
The Small Cap Contrarian Fund will not sell short securities whose underlying
value exceeds 25% of its total assets and the Fund will limit short sales,
other than short sales against the box or of acquiror securities, of any one
issuer's securities to 2% of the Fund's total assets and to 2% of any one class
of the issuer's securities. The Value Fund and the Value & Income Fund will
each limit short sales against the box and of acquiror securities so that: (i)
no more than 5% of its total assets would be subject to open short positions;
and (ii) no more than 10% of the Fund's net assets would be held as collateral
for such positions.
FOREIGN SECURITIES. The Value Fund and the Value & Income Fund may invest up to
15% of their respective assets directly in the securities of foreign issuers.
The Small Cap Contrarian Fund may invest up to 25% of its assets in foreign
securities or in any one currency. The Value Fund, the Small Cap Contrarian
Fund and the Value & Income Fund may also invest in foreign securities in
domestic markets through depository receipts and securities of foreign issuers
that are traded on a registered American stock exchange or the NASDAQ National
Market System without regard to the above limitations. While investment in
foreign securities is intended to reduce risk by providing further
diversification, such investments involve certain risks in addition to the
credit and market risks normally associated with domestic securities. Such
risks include: adverse political and economic developments or social
instability; the imposition of foreign withholding taxes or exchange controls;
expropriation or nationalization; currency blockage (which could prevent cash
from being brought back to the United States); the impact of exchange rate and
foreign currency fluctuations on the market value of foreign securities; more
limited availability of public information regarding security issuers; the
degree of governmental supervision regarding securities markets; different
accounting, auditing and financial standards; difficulties in enforcing legal
rights; and the potential for less liquidity and more volatility of foreign
securities markets.
Brokerage commissions, fees for custodial services, and other costs relating to
foreign investments generally are greater than in the U.S. Such markets may
have different clearance and settlement procedures, and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to settle certain
transactions. Inability to sell a portfolio security due to settlement problems
could result either in a loss to the Fund if the value of the portfolio
security subsequently declined, or, if the Fund had entered into a contract to
sell the security, could result in possible claims against the Fund.
FOREIGN CURRENCY TRANSACTIONS. Foreign securities are subject to currency risk,
that is, the risk that the U.S. dollar value of these securities may be
affected favorably or unfavorably by changes in foreign currency exchange
P R O S P E C T U S
13
<PAGE> 18
rates and exchange control regulations. To manage this risk and facilitate the
purchase and sale of foreign securities, the Value Fund, the Small Cap
Contrarian Fund and the Value & Income Fund may engage in foreign currency
transactions involving the purchase and sale of forward foreign currency
exchange contracts (agreements to exchange one currency for another at a future
date), or they may engage in transactions in options on foreign currencies,
currency futures contracts, or options on currency futures contracts. Although
foreign currency transactions will be used to protect the Funds from adverse
currency movements, they involve the risk that anticipated currency movements
will not be accurately predicted and a Fund's total return could be adversely
affected as a result.
MORTGAGE-BACKED SECURITIES. The U.S. Government Securities Fund may invest a
substantial portion of its assets in mortgage-backed securities issued by the
U.S. government, its agencies or instrumentalities. These securities represent
interests in pools of mortgages, and may include stripped mortgage-backed
securities. Mortgage-backed securities may be guaranteed by the issuing
governmental agency and, as is the case with GNMA certificates, may also be
backed by the full faith and credit of the U.S. government. Mortgage-backed
securities are subject to prepayment risk, that is, the possibility that
prepayments on the underlying mortgages will cause the principal and interest
on the mortgage-backed securities to be paid prior to their maturities, and the
value of these securities may be significantly affected by changes in interest
rates. Prepayments during a period of declining interest rates may result in
the Fund having to invest the unanticipated proceeds in lower-yielding
securities.
ZERO COUPON BONDS AND STRIPPED SECURITIES. The Small Cap Contrarian Fund, the
Value & Income Fund and the U.S. Government Securities Fund may invest in zero
coupon bonds, which do not pay current interest, but are purchased at a
discount from their face value with principal and accrued interest paid at
maturity. Those Funds may also invest in stripped obligations, which are the
separate income or principal components of a debt instrument, issued by the
U.S. government or its agencies and instrumentalities. The market value of zero
coupon bonds and stripped obligations may be subject to greater volatility in
response to changes in interest rates than other debt securities.
INDEXED SECURITIES. The Small Cap Contrarian Fund, the Value & Income Fund and
the U.S. Government Securities Fund may invest in indexed securities whose
value is linked to currencies, interest rates, commodities, indices, or other
financial indicators. Most indexed securities are short to intermediate term
fixed-income securities whose values at maturity, or interest rates, rise or
fall according to the change in one or more specified underlying instruments.
Indexed securities may be positively or negatively indexed (i.e., their value
may increase or decrease if the underlying instrument appreciates) and may have
return characteristics similar to direct investments in the underlying
instrument or to one or more options on the underlying instrument. Indexed
securities may be more volatile than the underlying instrument itself and the
market for indexed securities may be thinner than the market for securities in
general, which can adversely affect the availability of market quotations and
the prices at which indexed securities are sold.
P R O S P E C T U S
14
<PAGE> 19
REAL ESTATE INVESTMENT TRUSTS. The Small Cap Contrarian Fund may invest up to
10% of its total assets in real estate investment trusts ("REITs"). REITs are
subject to volatility from risks associated with investments in real estate and
investments dependent on income from real estate, such as fluctuating demand
for real estate and sensitivity to adverse economic conditions. In addition,
the failure of a REIT in which the Fund has invested to continue to qualify as
a REIT for tax purposes would have an adverse impact on the value of the Fund's
investment.
LENDING PORTFOLIO SECURITIES. Each Fund may lend its portfolio securities to
institutional investors or broker-dealers to a maximum of 30% of its assets,
where such loans are callable at any time and are continuously secured by
collateral consisting of cash or liquid assets at least equal to the value of
the security loaned. The collateral received by a Fund will be invested in
short-term debt instruments. The respective Fund receives amounts equal to
earned income for having made the loans. The respective Fund is the beneficial
owner of the loaned securities in that any gain or loss in the market price
during the loan period inures to the Fund. Thus, when the loan is terminated,
the value of the securities may be more or less than their value at the
beginning of the loan. In determining whether to lend its portfolio securities,
each Fund takes into account the creditworthiness of the borrower since the
Fund could experience costs and delays in recovering loaned securities or
exercising its rights to the collateral in the event of bankruptcy of the
borrower. Each Fund may pay a fee to placing brokers in connection with loans
of its portfolio securities.
REPURCHASE AGREEMENTS. The Small Cap Contrarian Fund, Value & Income Fund and
the U.S. Government Securities Fund may enter into repurchase agreements with
banks and broker-dealers, under which the Fund purchases securities and agrees
to sell them back at a specified time and price. The difference between the
amount the Fund pays for the securities and the amount it receives upon resale
is accrued as interest and reflected in its net income. In the event of a
bankruptcy or default of certain sellers of repurchase agreements, the Fund
could experience costs and delays in liquidating the underlying security, which
is held as collateral, and the Fund might incur a loss if the value of the
collateral held declines during this period. In determining whether to enter
into a repurchase agreement, the respective Fund will take into account the
creditworthiness of the counterparty. The Small Cap Contrarian Fund, Value &
Income Fund and the U.S. Government Securities Fund will use repurchase
agreements as a means of making short-term investments, and will invest in
repurchase agreements of a duration of seven days or less in an amount not
exceeding 25% of their respective net assets. Each Fund's ability to invest in
repurchase agreements that mature in more than seven days is subject to an
investment restriction that limits investment in "illiquid" securities,
including such repurchase agreements, to 10% of net assets.
REVERSE REPURCHASE AGREEMENTS. The Small Cap Contrarian Fund may enter into
reverse repurchase agreements with banks and broker- dealers, under which the
Fund sells a portfolio security to such party in return for cash and the Fund
agrees to repurchase the instrument at a particular price and time. While a
P R O S P E C T U S
15
<PAGE> 20
reverse repurchase agreement is outstanding, the Fund will maintain appropriate
liquid assets in a segregated custodial account to cover its obligations under
the agreement. To the extent that the value of the security the Fund agrees to
repurchase declines, the Fund may experience a loss. Reverse repurchase
transactions may increase fluctuations in the market value of the Fund's assets
and may be viewed as a form of leverage. In determining whether to enter into a
reverse repurchase agreement, the Fund will take into account the
creditworthiness of the counterparty.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Small Cap Contrarian, Value
& Income and U.S. Government Securities Funds may purchase and sell securities
on a "when-issued" and "delayed delivery" basis, i.e., obligate themselves to
purchase or sell securities with delivery and payment to occur at a later date
in order to secure what is considered to be an advantageous price and yield at
the time of entering into the obligation. The market value of a security may
increase or decrease between the time that the Fund makes its commitment and
the time the security is delivered. Each Fund will make such commitments only
with the intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for investment
reasons. At the time a Fund makes a commitment to purchase an obligation, it
will record the transaction and reflect the value of the obligation in
determining its net asset value. The custodian will maintain on a daily basis a
separate account consisting of cash or liquid securities with a value at least
equal to the amount of the Fund's commitments to purchase when-issued
obligations. There are no limitations on the percentage of the Fund's assets
which may be invested in such securities; however, it is not expected that at
any one time more than 25% of its assets would be so invested.
SHORT-TERM INVESTMENTS. Each Fund may invest a portion of its portfolio in
liquid reserves to meet its cash flow requirements. Under normal conditions,
none of the Funds anticipates that such reserves will exceed 10% of its assets.
Such reserves may be increased to enable a Fund to take advantage of buying
opportunities or may be increased up to 100% of a Fund's assets for temporary
defensive purposes. Such reserves will be invested in money market instruments,
including certificates of deposit, commercial paper, short- term corporate debt
securities, and U.S. government securities.
BORROWINGS AND LEVERAGE. As a fundamental policy, the Value, Value & Income and
U.S. Government Securities Funds will not borrow money or property except for
temporary or emergency purposes. If one of those Funds ever should borrow
money, it would only borrow from banks and in an amount not exceeding 10% of
the market value of its total assets (not including the amount borrowed). None
of the Value, Value & Income and U.S. Government Securities Funds will pledge
more than 15% of its net assets to secure such borrowings. In the event one of
those Funds' borrowings exceeds 5% of the market value of its total assets, the
Fund will not invest in any additional portfolio securities until its
borrowings are reduced to below 5% of its total assets. For purposes of these
restrictions, collateral arrangements for premium and margin payments in
connection with a Fund's hedging activities are not deemed to be a pledge of
assets.
The Small Cap Contrarian Fund may borrow from banks
P R O S P E C T U S
16
<PAGE> 21
up to one-third of its total assets, and may pledge its assets in connection
with such borrowings. If the Small Cap Contrarian Fund makes additional
investments while borrowings are outstanding, this may be construed as a form
of leverage. This leverage may exaggerate changes in the Small Cap Contrarian
Fund's share value and the gains and losses on the Fund's investments. Leverage
also creates interest expenses that may exceed the return on investments made
with the borrowings.
ILLIQUID INVESTMENTS. Under the supervision of, and pursuant to the guidelines
adopted by, the Board of Directors, Heartland Advisors determines which of a
Fund's investments are classified as illiquid. The absence of a trading market
can make it difficult to ascertain a market value for illiquid investments.
Disposing of illiquid investments may involve time-consuming negotiation and
legal expenses, and it may be difficult or impossible for a Fund to sell such
an investment promptly at an acceptable price. None of the Funds may invest
more than 10% of their respective net assets in illiquid investments.
PORTFOLIO TURNOVER. The Value Fund and the Value & Income Fund will not trade
portfolio securities for short-term profits, but when circumstances warrant,
securities may be sold without regard to their holding period. During the
fiscal years ended December 31, 1994 and 1993, the portfolio turnover rates for
the Value Fund were 35% and 51%, respectively, and for the U.S. Government
Securities Fund were 95% and 200%, respectively. The portfolio turnover rate
for the Value & Income Fund for the fiscal year ended December 31, 1994 was
127% and for the period from October 26, 1993 (commencement of operations) to
December 31, 1993 was 6%. Annual portfolio turnover for the Small Cap
Contrarian Fund is expected to be less than 200%. A high turnover rate may
increase transaction costs and may affect taxes paid by shareholders to the
extent short-term gains are distributed.
- -------------------------------------------------------------------------------
HOW TO BUY SHARES
SHARE PRICE
The Fund's shares are sold without a sales charge. Each Fund's share price is
the net asset value per share next determined following receipt of an order in
proper form or receipt of funds by the Agent if purchase is made by wire. Net
asset value is calculated daily as described under "Net Asset Value
Calculation." Firstar Trust Company serves as the Fund's transfer and dividend
disbursing agent (the "Agent").
P R O S P E C T U S
17
<PAGE> 22
OPENING AN ACCOUNT AND PURCHASING SHARES
BY MAIL TO: BY OVERNIGHT MAIL TO:
Firstar Trust Company Firstar Trust Company
Mutual Fund Services, 3rd Floor Mutual Fund Services, 3rd Floor
P.O. Box 701 615 East Michigan Street
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
To Open an Account:
Complete and sign the Account Application. Make your check payable to either
Heartland Value Fund, Heartland Small Cap Contrarian Fund, Heartland Value &
Income Fund or Heartland U.S. Government Securities Fund and mail to one of the
addresses above.
If you are investing through a tax-sheltered retirement plan, such as an IRA,
you will need to use a special application.
To Add to an Account:
Make your check payable to the Fund you are invested in, indicate your Fund
account number on your check, and mail to one of the addresses above. You may
also include an "Additional Investment Form" from a prior account statement
with your check.
- --------------------------------------------------------------------------------
BY WIRE: (NOT AVAILABLE FOR INVESTMENTS IN RETIREMENT PLANS)
Firstar National Bank
ABA #0750-00022
Firstar Trust MFS A/C #112-952-137
777 East Wisconsin Avenue, Milwaukee, WI 53202
CREDIT TO: Heartland (name of Fund), (your account number and the title of the
account)
To Open an Account:
Call the Agent at 1-800-248-1162 for an account number prior to sending the
wire. Specify Fund name, include your name, and your new account number, and
wire as described above. Then complete, sign and mail the Account Application
to one of the addresses above for mail or overnight mail.
To Add to An Account:
Specify Fund name, include your name and account number, and wire as described
above.
- --------------------------------------------------------------------------------
BY TELEPHONE TO THE AGENT:
1-800-248-1162 or 414-287-3702
To Open an Account:
Unless you have elected not to have this privilege on the Account Application,
you may call to exchange from another Heartland fund account with the same
registration, including name, address and taxpayer ID number. See "Shareholder
Services-Exchange Privilege."
To Add to an Account:
Unless you have elected not to have this privilege on the Account Application,
you may call to exchange from another Heartland fund account with the same
registration, including name, address and taxpayer ID. See "Shareholder
Services-Exchange Privilege."
P R O S P E C T U S
18
<PAGE> 23
AUTOMATICALLY:
To Open an Account:
Not available.
To Add to An Account:
Use Heartland's automatic investment plan. Sign up for this service on your
Account Application, or call 1-800-HEARTLN to add it.
- --------------------------------------------------------------------------------
THROUGH SECURITIES REPRESENTATIVES:
To Open an Account:
You may purchase shares through a broker-dealer or financial institution which
must promptly forward the order, together with payment, to the Agent. The
broker-dealer or financial institution may charge a fee for such services.
To Add to An Account:
You may purchase shares through a broker-dealer or financial institution which
must promptly forward the order, together with payment, to the Agent. The
broker-dealer or financial institution may charge a fee for such services.
- --------------------------------------------------------------------------------
CONDITIONS OF YOUR PURCHASE.
MINIMUM INVESTMENTS. The minimum initial investment for each Fund is $1,000,
except in the case of retirement plan investors and investors who elect to
invest through the automatic investment plan (see "SHAREHOLDER SERVICES"). The
minimum additional investment, except for reinvestments of distributions and
investments under the automatic investment plan, is $100.
PURCHASES THROUGH SERVICE PROVIDERS. If you purchase shares through a program
of services offered or administered by a broker- dealer, financial institution,
or other service provider, you should read the program materials provided by
the service provider, including information relating to fees, in conjunction
with this Prospectus. Certain features of a Fund may not be available or may be
modified in connection with the program of services provided. When shares are
purchased this way, the service provider, rather than its customer, may be the
shareholder of record of the shares. Certain service providers may receive
compensation from the Funds or Heartland Advisors for providing such services.
OTHER CONDITIONS. All purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks. Cash will not be accepted for the purchase of shares. If a
check fails to clear, the purchase to which the check relates will be cancelled
and the prospective investor will be liable for any losses or fees incurred by
the Funds or the Funds' Agent, including without limitation a $15 fee to cover
bank handling charges for returning checks due to insufficient funds. When
purchases are made by check, a Fund can hold payment on redemption of shares so
purchased until the Fund is reasonably satisfied that the check has cleared. To
avoid such a delay, an investor can wire federal funds as described
P R O S P E C T U S
19
<PAGE> 24
above from a bank, which may charge a fee for that service. Wiring federal
funds means that the bank sends money to a bank account maintained by a Fund
through the Federal Reserve System.
VALUE FUND CLOSED TO NEW INVESTORS
Effective July 1, 1995, the Value Fund closed to new investors, except as
described below. Investors who held shares of the Value Fund, either in their
own name or through a service provider, on July 1, 1995, may continue to add to
an existing account or may open a new Value Fund account (i) through the
purchase of additional Value Fund shares, (ii) through the reinvestment of
dividends and cash distributions on any Value Fund shares owned, and (iii)
through exchanges from other Heartland Fund accounts or a Portico Money Market
Fund account. Shareholders of other Heartland Funds who are not also
shareholders of the Value Fund will not be able to exchange into the Value
Fund. New accounts which a Value Fund investor may open include accounts where
the shareholder is the owner, a joint owner, or a custodian for a minor child.
Employee benefit plans that became shareholders before the July 1, 1995 closing
date may continue to purchase Fund shares in the course of their normal
operations. Employee benefit plans that purchase shares through Heartland
Advisors, or through a program of services offered or administered by a service
provider that had an existing service agreement with the Value Fund or
Heartland Advisors on July 1, 1995, may also purchase Value Fund shares after
the closing date. Financial advisers or planners with at least $3 million of
clients assets invested in the Value Fund as of July 1, 1995 may also continue
to purchase shares of the Fund on behalf of new or existing clients. The
discussion elsewhere in this Prospectus regarding the purchase of shares of the
Value Fund is qualified by this limitation. The Value Fund may resume sales to
new investors at some future date, but it has no present intention to do so.
- -------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Shareholders may have any or all of their shares redeemed as described below on
any day the Funds are open for business at the next determined net asset value
(see "Net Asset Value Calculation"). Shares of the Funds purchased between
February 12, 1993 and June 1, 1994 subject to a contingent deferred sales
charge remain subject to such charge upon redemption of shares.
P R O S P E C T U S
20
<PAGE> 25
BY TELEPHONE TO THE AGENT:
1-800-248-1162
or
(414) 287-3702
You may redeem by calling the Agent, unless you elected not to have this
privilege on your account application.
- --------------------------------------------------------------------------------
THROUGH SECURITIES REPRESENTATIVES:
You may redeem shares through a broker-dealer or financial institution, which
must promptly forward your instructions to the Agent. The broker-dealer or
financial institution may charge a fee for such services.
- --------------------------------------------------------------------------------
BY MAIL TO:
Firstar Trust Company
Mutual Fund Services, 3rd Floor
P.O. Box 701
Milwaukee, WI 53201-0701
Send a written request specifying the name of the Fund, the number of shares
to be redeemed, your name, your account number, and any additional documents
listed below that apply to your particular account. The Agent cannot accept
requests submitted by fax or requests specifying a particular date for
redemption or other special conditions.
BY OVERNIGHT DELIVERY TO:
Firstar Trust Company
Mutual Fund Services, 3rd Floor
615 East Michigan Street
Milwaukee, WI 53202
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
<S> <C>
Individual, Joint Tenants, Letter of instruction signed by all persons authorized
Sole Proprietorship, Custodial, to sign for the account, exactly as it is registered, accompanied
General Partners by signature guarantee(s) if required.
Corporations, Associations Letter of instruction accompanied by a corporate resolution.
The letter must be signed by at least one individual authorized
(via corporate resolution) to act on the account. The corporate
resolution must include a corporate seal or signature guarantee.
Trusts Letter of instruction signed by the Trustee(s) (as Trustee(s)),
with signature guarantee(s). (If the Trustee's name is not
registered on the account, provide a copy of the trust
document, certified within the last 60 days.)
</TABLE>
If you do not fall into any of these registration categories (i.e., executors,
administrators, conservators, or guardians), please call the Agent for further
instructions.
- --------------------------------------------------------------------------------
P R O S P E C T U S
21
<PAGE> 26
TELEPHONE REDEMPTIONS. Shares may be redeemed by telephone to the Agent, unless
the shareholder elects not to have this privilege on the account application.
By establishing the telephone redemption service, the shareholder assumes some
risks for unauthorized transactions. Heartland Advisors has implemented
procedures designed to reasonably assure that telephone instructions are
genuine. These procedures include recording telephone conversations,
requesting verification of various pieces of personal information and providing
written confirmation of such transactions. If the Agent, the Funds, Heartland
Advisors or any of their employees fails to abide by these procedures, the
Funds may be liable to a shareholder for losses he or she suffers from any
resulting unauthorized transaction(s). However, none of the Agent, the
Custodian, the Funds, Heartland Advisors or any of their employees will be
liable for losses suffered by a shareholder which result from following
telephone instructions reasonably believed to be genuine after verification
pursuant to these procedures.
There is currently no charge for telephone redemptions, although a charge may
be imposed in the future. During periods of substantial economic or market
changes, telephone redemptions may be difficult to implement. If a shareholder
is unable to contact the Agent by telephone, shares may also be redeemed by
delivering the redemption request to the Agent in person or by mail as
described above. The Agent and the Funds reserve the right to change, modify or
terminate this telephone redemption service at any time.
SIGNATURE GUARANTEES. To protect your account, the Agent and the Funds from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Agent to be sure that you are the person who has
authorized a redemption from your account. Signature guarantees are required
for: (1) any redemption by mail if the proceeds are to be paid to someone other
than the person(s) or organization in whose name the account is registered or
are to be sent to an address other than the address of the registered holder of
the shares; (2) any redemptions by mail which request that the proceeds be
wired to a bank; (3) any redemptions by mail where the redemption proceeds
exceed $25,000; and (4) requests to transfer the registration of shares to
another owner. These requirements may be waived by the Funds in certain
instances.
The following institutions are acceptable guarantors: (a) commercial banks,
savings and loan associations and savings banks, which are members of the
Federal Deposit Insurance Corporation; (b) credit unions; (c) trust companies;
(d) firms which are members of a domestic stock exchange; and (e) foreign
branches of any of the above. The Agent cannot accept guarantees from notaries
public.
SENDING REDEMPTION PROCEEDS. The Agent will not send redemption proceeds until
all payments for the shares being redeemed have cleared, which may take up to
15 days from the purchase date.
BY MAIL. The Agent mails checks for redemption proceeds typically within one or
two days, but not later than seven days, after it receives the request and all
necessary documents. The Agent will send redemption proceeds in accordance with
your instructions.
BY WIRE. The Agent will normally wire redemption proceeds to your bank the next
business day after receiving the redemption request and all necessary
documents. The signatures on any written request for a wire redemption must be
guaranteed. The Agent currently deducts a $7.50 wire charge from the redemption
proceeds. This charge is subject to change. You will be responsible for any
charges which your bank may make for receiving wires.
P R O S P E C T U S
22
<PAGE> 27
CERTAIN CONDITIONS. If, due to redemption or transfer, a shareholder's account
drops below $500 for three months or more, the Funds have the right to redeem
the shareholder's account, after giving 60 days notice, unless the shareholder
makes additional investments to bring the account value to $1,000. No
contingent deferred sales charge will be imposed on any involuntary redemption.
A Fund may suspend the right to redeem shares for any period during which (a)
the New York Stock Exchange is closed or the Securities and Exchange Commission
determines that trading on the Exchange is restricted; (b) there is an
emergency as a result of which it is not reasonably practicable for the Fund to
sell its portfolio securities or to calculate the fair value of its net assets;
or (c) the Securities and Exchange Commission may permit for the protection of
shareholders.
CONTINGENT DEFERRED SALES CHARGE
The following information regarding redemptions of shares subject to contingent
deferred sales charges applies only to shares of the Funds that were purchased
between February 12, 1993 and June 1, 1994 subject to a contingent deferred
sales charge and does not apply to shares of the Funds purchased on or after
June 1, 1994.
REDEMPTION PRICE. Shares of each Fund purchased between February 12, 1993 and
June 1, 1994 that are redeemed within three years of purchase may be subject to
a contingent deferred sales charge at the rates set forth below. The charge
will be assessed on an amount equal to the lesser of the cost of the shares
being redeemed or their net asset value at the time of redemption. Accordingly,
no sales charge will be imposed on increases in net asset value above the
initial purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the contingent deferred sales charge, if any, will vary depending
on the number of years from the time of payment for the purchase of the shares
until the time of redemption of such shares. The following table sets forth
rates of the contingent deferred sales charge for the Funds:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
CONTINGENT DEFERRED
SALES CHARGE AS A %
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- ------------------------------------------------------------------------------
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
- ------------------------------------------------------------------------------
</TABLE>
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation will be made in the manner that results in the
lowest possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares purchased prior to the adoption of a contingent
deferred sales charge, then of shares held for over three years or shares
acquired pursuant to reinvestment of dividends or distributions and then of
shares held longest during the three-year period. The charge will not be
applied to dollar amounts representing an increase in the net asset value since
the time of purchase.
AN EXAMPLE. Assume an investor purchased one hundred shares at $10 per share
(at a cost of $1,000), and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 40 shares, the charge is applied only to the original
cost of $10 per share and not to the increase in net asset value of $2 per
share. Therefore,
P R O S P E C T U S
23
<PAGE> 28
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase).
REDEMPTIONS AT NET ASSET VALUE. The contingent deferred sales charge is waived
with respect to the following limited classes of redemptions: (i) redemptions
following the death or disability (as defined in the Internal Revenue Code of
1986) of a shareholder if the Fund is notified of the death or disability at
the time redemption is requested and such request is made within one year after
such death or disability; (ii) redemptions in connection with retirement plan
distributions (a) resulting from the death or disability of the employee or the
tax-free return of an excess contribution or (b) to the extent that the
redemption represents a minimum required distribution to a shareholder who has
attained the age at which distributions are required to commence; (iii)
redemptions by current or retired directors and officers of Heartland and
Heartland Advisors, full-time employees of Heartland Advisors and retirement
plans for such employees, and registered representatives of broker-dealers who
have signed dealer agreements with Heartland Advisors for their personal
accounts; (iv) redemptions by managed accounts of Heartland Advisors or an
affiliated company or redemptions by companies affiliated with Heartland; (v)
redemptions by any tax-exempt employee benefit plan for which continuation of
its investment in a Fund would be improper under applicable law or regulation,
subject to the Fund's right to require an opinion of counsel to that effect;
and (vi) redemptions by registered investment companies or their shareholders
resulting from reorganization transactions with a Fund. The term "employee"
includes an employee's spouse (including the surviving spouse of a deceased
employee) and children under 21 and retired employees. The contingent deferred
sales charge is also waived in limited circumstances in conjunction with
certain shareholder services. (See "Shareholder Services.") The shareholder
must certify to the Fund, at the time of redemption, that certain
qualifications are met and that the shareholder is entitled to waiver of the
contingent deferred sales charge. The waiver will be granted subject to
confirmation of the investor's entitlement.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
Each Fund offers a number of shareholder services designed to facilitate
investment in its shares. Full details of each of the services and instructions
as to how to participate in the various services can be obtained from the Funds
or Heartland Advisors.
AUTOMATIC DIVIDEND REINVESTMENT. You may automatically reinvest all dividends
and distributions or elect to receive them in the form of a check. If your
dividends and distributions are reinvested, they will automatically purchase
additional shares of your current Fund, or shares of one of the other three
Funds, as indicated on your account application, at the net asset value
determined on the dividend or distribution payment date, without any sales
charge or fees. You may change your election at any time by writing Heartland
Advisors. Heartland Advisors must receive any change seven days prior to a
payment date for it to be effective for that payment.
TAX-SHELTERED RETIREMENT PLANS. Shares of each Fund are available for purchase
in connection with the following tax-sheltered retirement plans: (i) Keogh
Plans (H.R. 10) for self-employed individuals; (ii) Qualified Corporate Pension
and Profit-Sharing Plans for employees; (iii) Individual Retirement Accounts
and Simplified Employee Pension Plans for individuals and employers; and (iv)
403(b) Plans for employees of most non-profit organizations.
P R O S P E C T U S
24
<PAGE> 29
The minimum initial retirement plan investment in any Fund is $500 ($250 in the
case of a spousal IRA). Firstar Trust Company, as the trustee of the Individual
Retirement Account plan, charges a $12.50 annual maintenance fee with a $25
maximum for multiple accounts with the same social security number (subject to
change by the trustee) for each Individual Retirement Account. For other
tax-sheltered retirement plans, the individual investor must employ a
self-directed plan. Detailed information concerning these plans and copies of
the plans are available from Heartland Advisors. This information should be
read carefully and consultation with an attorney or tax advisor may be
advisable.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan of each Fund offers a
simple way to maintain a regular investment program. By completing the
automatic investment portion of the account application attached to this
Prospectus, you may arrange automatic transfers (minimum $50 per transaction)
from your checking account to your account in one of the Funds on a monthly or
twice-monthly basis. IRA contributions through the automatic investment plan
apply as a current year purchase and may not be applied as prior year
contributions. The application must be accompanied by a "voided" check, and be
received at least 14 business days prior to the initial transaction. Once
enrolled in the automatic investment plan, you may change the monthly amount or
terminate your participation at any time by phoning or writing the Agent. Allow
five business days for a change to become effective. Your bank must be a member
of Automated Clearing House. If the automatic purchase cannot be made due to
insufficient funds or a stop payment, a $15 service fee will be assessed. If
you stop making automatic investments when your aggregate investment in a Fund
is less than $500, the Fund reserves the right to redeem your account after
giving 60 days notice, unless you make additional investments to bring your
account value to $1,000. The program will automatically be terminated upon
redemption of all shares, including an exchange of all shares to another fund.
You will receive a confirmation of each transaction from the Agent and your
regular bank account statement will show the debit transaction each month.
SYSTEMATIC WITHDRAWAL PLAN. You can set up automatic withdrawals from your
account at monthly, quarterly, or annual intervals. To begin distributions, you
must have an initial balance of $25,000 in your account and withdraw at least
$100 per payment but no more than 2%, 6%, 12% or 24% of your initial account
balance each monthly, quarterly, semi-annual or annual payment, respectively.
Shares redeemed under the plan will be redeemed at their net asset value. To
establish the systematic withdrawal plan, request a form by calling
1-800-HEARTLN. The systematic withdrawal plan may be terminated by you or by
the Funds at any time by written notice. The minimum investment accepted while
a withdrawal plan is in effect is $1,000.
EXCHANGE PRIVILEGE. Shares of a Fund which have been registered in your name
for at least 15 days may be exchanged for shares of any other Heartland fund,
or for shares in the Portico Money Market Fund, provided the fund into which
you wish to exchange is qualified for sale in the jurisdiction of residence
which you state at the time you make the exchange. Before initiating an
exchange, you should obtain from Heartland Advisors and carefully read the
prospectus relating to the fund into which you wish to exchange.
Exchanges Among Heartland Funds. Under the exchange privilege, each Heartland
fund offers to exchange its shares for shares of another Heartland fund on the
basis of relative net asset value per share, without the payment of any fees or
charges. In order to qualify for the exchange privilege without further
approval of the Fund, it is required that the shares being exchanged have a net
P R O S P E C T U S
25
<PAGE> 30
asset value of at least $1,000, but not more than $500,000. In addition, if you
have certificates for any shares being exchanged, you must surrender such
certificates in the same manner as in redemption of shares.
Exchanges with Portico. Shareholders may exchange all or a portion of their
shares in the Funds for shares of the Portico Money Market Fund at their
relative net asset values and may also exchange back into a Heartland fund
without the imposition of any charges or fees. These exchanges are subject to
the minimum purchase and redemption amounts set forth in the prospectus for the
Portico Money Market Fund. No charge to shareholders is imposed in connection
with this exchange; however, Heartland Advisors, as distributor, is entitled to
receive a fee from the Portico Money Market Fund for certain distribution and
support services at the annual rate of .20 of 1% of the average daily net asset
value of the shares for which it is the holder or dealer of record.
How to Exchange. To exercise the exchange privilege, you need to do one of the
following: (a) contact the Agent by telephone (1-800-248-1162 or 414-287-3702)
and request the exchange, unless you have elected not to have this telephone
privilege by so indicating on the Account Application; (b) complete an Exchange
Application available from the Fund's Agent and submit it to the Agent; or (c)
contact your broker-dealer or financial institution (either in writing or by
telephone) who will advise Heartland of the exchange, but who may charge a fee
for such service. See "HOW TO REDEEM SHARES - Telephone Redemptions" for
information on transactions by telephone.
Exchanges of Shares Subject to a Contingent Deferred Sales Charge. Shares of
the Funds that were purchased between February 12, 1993 and June 1, 1994
subject to a contingent deferred sales charge that are exchanged for shares of
any other Heartland fund or shares of the Portico Money Market Fund will remain
subject to the contingent deferred sales charge schedule of the original
shares, payable upon ultimate redemption of the new shares. For purposes of
computing the sales charge payable upon redemption of the new shares, the
holding period for the original shares is added to the holding period of the
new shares.
Tax and Other Considerations. An exchange between funds is treated as a sale
for federal income tax purposes and, depending upon the circumstances, a short
or long-term capital gain or loss may be realized. If you have questions as to
the tax consequences of an exchange, you should consult your tax advisor. The
exchange privilege may be modified or terminated at any time upon 60 days prior
written notice. Although an investor may make up to four exchanges in any
calendar year, Heartland reserves the right to limit the number of exchanges
beyond that.
REINVESTMENT PRIVILEGE. If you redeem shares of the Funds that were purchased
between February 12, 1993 and June 1, 1994 subject to a contingent deferred
sales charge, and then reinvest all or part of the redemption proceeds in any
Heartland Fund, you will receive a pro rata credit from Heartland Advisors
based on the amount of any contingent deferred sales charge paid relative to
the number of shares reinvested. In order to exercise the reinvestment
privilege, you must send written notice of your reinvestment to the Fund or the
Agent not more than 30 days after the shares are redeemed. Redemption proceeds
will be reinvested on the basis of net asset value of the shares in effect
immediately after receipt of the written request and the shares will continue
to be subject to the contingent deferred sales charge as if redemption had not
occurred. Any capital gains tax incurred on redemption of shares of a Fund is
not altered by the subsequent exercise of
P R O S P E C T U S
26
<PAGE> 31
this privilege. If redemption resulted in a loss and reinvestment is made in
shares of a Fund, the loss will not be recognized.
- -------------------------------------------------------------------------------
DIVIDENDS, CAPITAL GAINS, DISTRIBUTIONS AND TAXES
DIVIDENDS. Substantially all of the Value Fund's and the Small Cap Contrarian
Fund's net investment income will be paid to shareholders annually as a
dividend. With respect to the Value & Income Fund, dividends will be paid to
shareholders quarterly. In the U.S. Government Securities Fund, dividends will
be declared daily and paid monthly. Dividends may be taken in cash or
additional shares at net asset value. Dividends and capital gain distributions
will be automatically reinvested in additional shares of the same Fund or
another Fund, unless a shareholder has elected in writing to the Agent to
receive dividends and capital gain distributions in cash.
DISTRIBUTIONS. Capital gains distributions for each Fund, if any, will normally
be paid within 30 days after the end of the fiscal year.
TAXES. Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code (the "Code") and, if so qualified,
will not be subject to federal income taxes to the extent its earnings are
timely distributed. Each Fund also intends to make distributions as required by
the Code to avoid the imposition of a 4% excise tax.
Each Fund will distribute substantially all of its net investment income and
net capital gains to investors. Distributions from a Fund's income and
short-term capital gains are taxed as dividends, and long-term capital gain
distributions are taxed as long-term capital gains. Distributions of long-term
capital gains will be taxable to the investor as long-term capital gains
regardless of the length of time shares have been held. A portion of each
Fund's dividends may qualify for the dividends received deduction for
corporations. The Funds' distributions are taxable when they are paid, whether
a shareholder takes them in cash or reinvests them in additional shares, except
that distributions declared in December and paid in January are taxable as if
paid on December 31. The federal income tax status of all distributions will be
reported to shareholders annually.
"BUYING A DIVIDEND." On the record date for a distribution by a Fund, its share
price is reduced by the amount of the distribution. If you buy shares just
before the record date ("buying a dividend"), you will pay the full price for
the shares, and then receive a portion of the price back as a taxable
distribution.
OTHER TAX INFORMATION. Under federal tax law, some shareholders may be subject
to a 31% withholding on reportable dividends, capital gains distributions, and
redemption payments ("backup withholding"). Generally, investors subject to
backup withholding will be those for whom a taxpayer identification number is
not on file with the Fund or who, to the Fund's knowledge, have furnished an
incorrect number. In order to avoid this withholding requirement, an investor
must certify on the account application that the taxpayer identification number
provided is correct and that the investment is not otherwise subject to backup
withholding, or is exempt from backup withholding.
The foregoing tax discussion is general in nature and each investor is advised
to consult his or her tax advisor for additional information.
- -------------------------------------------------------------------------------
THE FUNDS AND THE HEARTLAND ORGANIZATION
The Board of Directors provides broad supervision over the affairs of each
Fund, and the officers are responsible for its operations.
P R O S P E C T U S
27
<PAGE> 32
HEARTLAND ADVISORS
Heartland Advisors provides the Funds with overall investment advisory and
administrative services under an Investment Advisory Agreement with Heartland.
Subject to policies established by Heartland's Board of Directors, Heartland
Advisors makes investment decisions on behalf of each Fund, makes available
research and statistical data, and supervises the acquisition and disposition
of investments by each Fund. Heartland Advisors is also the distributor for
each Fund.
Heartland Advisors, founded in 1982, serves as the investment advisor for the
Heartland Wisconsin Tax Free and Nebraska Tax Free Funds, two additional series
of Heartland, and also provides investment management services for individuals,
and institutional accounts, such as pension funds and profit-sharing plans. As
of September 30, 1995, Heartland Advisors had approximately $1.8 billion in
assets under management. Heartland Advisors' principal mailing address is 790
North Milwaukee Street, Milwaukee, Wisconsin 53202. William J. Nasgovitz, a
Director and President of Heartland and Heartland Advisors, is a controlling
person of Heartland Advisors through his ownership of a majority of its voting
common stock. Hugh F. Denison and Patrick J. Retzer are also Directors of
Heartland and officers and Directors of Heartland Advisors.
Heartland Advisors bears all of its expenses in providing services under its
Investment Advisory Agreement and pays all salaries, fees and expenses of the
officers and directors of Heartland who are affiliated with Heartland Advisors.
Each Fund bears all of its other expenses including, but not limited to,
necessary office space, telephone and other communications facilities and
personnel competent to perform administrative, clerical and shareholder
relations functions; a pro rata portion of salary, fees and expenses (including
legal fees) of those directors, officers and employees of Heartland who are not
officers, directors or employees of Heartland Advisors; interest expenses; fees
and expenses of the Custodian, Transfer and Dividend Disbursing Agent; taxes
and governmental fees; brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; expenses of registering and
qualifying shares for sale with the Securities and Exchange Commission and
state securities commissions; accounting and legal costs; insurance premiums;
expenses of maintaining the Fund's legal existence and of shareholder meetings;
expenses of preparation and distribution to existing shareholders of reports,
proxies and prospectuses; and fees and expenses of membership in industry
organizations.
For the fiscal year ended December 31, 1994, the Value Fund paid advisory fees
of $1,985,370, or approximately 0.75 of 1% of average net assets during that
year. The Small Cap Contrarian Fund pays Heartland Advisors an annual fee for
its advisory services at the rate of 0.75 of 1% of the Fund's average daily net
assets. While the advisory fees paid by the Value Fund and the Small Cap
Contrarian Fund are larger than the fees paid by most mutual funds, the Board
of Directors believes they are consistent with the fees paid by many funds with
similar investment characteristics and objectives. For the fiscal year ended
December 31, 1994, the Value & Income Fund paid advisory fees of $63,697, or
approximately 0.70 of 1% of the Fund's average daily net assets.
For the fiscal year ended December 31, 1994, the U.S. Government Securities
Fund paid advisory fees of $361,242, or approximately .50 of 1% of average net
assets. Heartland Advisors voluntarily waived a portion of its fee during that
year; had no fee waiver been in effect, the U.S. Government Securities Fund
would have paid $469,614 in advisory fees, or 0.65 of 1% of average net assets
for the year. At present, Heartland Advisors is voluntarily waiving 0.15 of 1%
of its investment advisory
P R O S P E C T U S
28
<PAGE> 33
fee for the U.S. Government Securities Fund, resulting in a currently effective
annual rate of 0.5 of 1% of average daily net assets. Heartland Advisors may
reinstate an additional portion or all of the fee at any time.
PORTFOLIO MANAGERS. William J. Nasgovitz serves as portfolio manager for the
Value Fund and has managed or co-managed the Fund since commencement of its
operations. Mr. Nasgovitz also serves as portfolio manager for the Small Cap
Contrarian Fund and the Value & Income Fund and has managed those Funds since
commencement of their respective operations. Mr. Nasgovitz has been President
and a Director of Heartland Advisors and Heartland since 1982 and was Senior
Vice President-Investments with Dain Bosworth Incorporated from 1988 to June of
1992.
Patrick J. Retzer serves as portfolio manager of the U.S. Government Securities
Fund and has managed or co-managed the Fund since October of 1988. Mr. Retzer
has been Vice President and Treasurer of Heartland Advisors and Heartland since
1987, a Director of Heartland Advisors since 1988 and a Director of Heartland
since 1993.
- -------------------------------------------------------------------------------
THE DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan which, among other things, requires
it to pay Heartland Advisors, as distributor, a quarterly distribution fee of
up to 0.25 of 1% of its average daily net assets computed on an annual basis.
Under each Plan, the Fund is obligated to pay distribution fees only to the
extent of expenses actually incurred by Heartland Advisors, as distributor, for
the current year, and thus there will be no carry-over expenses from previous
years. These expenses may include expenses incurred for media advertising, the
printing and mailing of prospectuses to persons other than shareholders, the
printing and mailing of sales literature, answering routine questions relating
to a Fund, and payments to selling representatives, authorized securities
dealers, financial institutions, or other service providers for providing
services in assisting investors with their investments and/or for providing
administrative, accounting and other services with respect to a Fund's
shareholders. No fee paid by a Fund under the Plans may be used to reimburse
Heartland Advisors for expenses incurred in connection with another Fund. Each
Distribution Plan will continue in effect, if not sooner terminated in
accordance with its terms, for successive one-year periods, provided that each
such continuance is specifically approved by the vote of the Directors,
including a majority of the Directors who are not interested persons, of
Heartland. For further information regarding the Distribution Plans, see the
Statement of Additional Information.
- -------------------------------------------------------------------------------
NET ASSET VALUE CALCULATION
Each Fund's share price or net asset value per share is computed daily by
dividing the total value of the investments and other assets of the Fund, less
any liabilities, by the total outstanding shares of the Fund. The net asset
value per share is determined as of the close of the New York Stock Exchange
regular trading (generally 4:00 p.m. Eastern time) on each day the New York
Stock Exchange is opened.
Securities owned by the Funds are valued on the basis of market quotations or
at their fair value. Fair value of any of the Funds' debt securities for which
market quotations are not readily available will be determined by a pricing
service approved by Heartland's Board of Directors, based primarily upon
information concerning market transactions and dealer quotations for similar
securities. Debt securities having maturities of 60 days or less may be valued
at acquisition cost, plus or minus
P R O S P E C T U S
29
<PAGE> 34
any amortized discount or premium. Any securities or other assets for which
market quotations are not readily available will be valued in good faith at
their fair market value using methods determined by Heartland's Board of
Directors.
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 current exchange rates. Fluctuations in the value of
such currencies in relation to the U.S. dollar may affect the net asset value
of Fund shares even if there has not been any change in the foreign currency
denominated values of such securities.
- -------------------------------------------------------------------------------
DESCRIPTION OF FUND SHARES
Heartland is a diversified open-end management investment company registered
under the Investment Company Act of 1940, which was organized in 1986 as a
Maryland corporation. The authorized common stock of Heartland consists of one
billion shares, $0.001 par value per share. Heartland is a series company,
which means the Board of Directors may establish additional series, and may
increase or decrease the number of shares in each series. The Funds are each a
separate diversified mutual fund series of Heartland. Currently, the Heartland
family of funds consists of the following series:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
COMMENCED AUTHORIZED
FUND OPERATIONS SHARES
- -------------------------------------------------------------------------------
<S> <C> <C>
Value Fund 12/28/84 100,000,000
Small Cap Contrarian Fund 4/27/95 100,000,000
Value & Income Fund 10/26/93 100,000,000
U.S. Government
Securities Fund 4/9/87 100,000,000
Wisconsin Tax Free Fund 4/3/92 100,000,000
Nebraska Tax Free Fund 9/27/93 100,000,000
</TABLE>
Each share has one vote, and when issued and paid for in accordance with the
terms of the offering will be fully paid and non-assessable. On matters
affecting an individual Heartland fund (such as approval of advisory contracts
and changes in fundamental policy of a fund) a separate vote of the shares of
that fund is required. Shares of a fund are not entitled to vote on any matter
not affecting that fund. All shares of each Heartland fund vote together in the
election of Directors at each meeting of shareholders at which directors are to
be elected and on other matters as provided by law, or Heartland's Articles of
Incorporation or Bylaws. Heartland's Bylaws do not require that meetings of
shareholders be held annually. However, special meetings of shareholders may be
called for purposes such as electing or removing directors, changing
fundamental policies or approving investment advisory contracts.
Shares of stock are redeemable at net asset value, less any applicable
contingent deferred sales charge, at the option of the shareholder. Shares have
no preemptive, cumulative voting, subscription or conversion rights and are
freely transferable. Shares can be issued as full shares or fractions of
shares. A fraction of a share has the same kind of rights and privileges as a
full share on a pro rata basis. Shareholder inquiries should be directed to the
Funds at the address shown on the back cover of the Prospectus.
- -------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
As provided in its Investment Advisory Agreement, Heartland Advisors is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. Purchase and sale orders for a Fund's portfolio securities may be
effected through brokers who charge a commission for their services, although
it is expected that transactions in debt securities will generally be conducted
with dealers acting as principals.
P R O S P E C T U S
30
<PAGE> 35
In executing such transactions, Heartland Advisors seeks to obtain the best net
results for each Fund, taking into account such factors as price (including the
brokerage commission or dealer spread), size of order, competitive commissions
on similar transactions, difficulty of execution and operational facilities of
the firm involved and the firm's risk in positioning a block of securities.
While Heartland Advisors seeks reasonably competitive rates, it does not
necessarily pay the lowest commission or spreads available. Transactions in
smaller companies in which the Value Fund and the Small Cap Contrarian Fund
invest may involve specialized services on the part of the broker and thereby
entail higher commissions or spreads than would be paid in transactions
involving more widely traded securities.
The Funds will not deal with Heartland Advisors in any transaction in which
Heartland Advisors acts as a principal. However, Heartland Advisors may serve
as broker to a Fund in over-the-counter transactions conducted on an agency
basis. Pursuant to plans adopted by Heartland's Board of Directors for each of
the Funds under, and subject to, the provisions of Rule 10f-3 under the
Investment Company Act of 1940, the Funds may purchase securities in an
offering from an underwriter which is a member of an underwriting syndicate of
which Heartland Advisors is also a member. The plans and Rule 10f-3 limit the
securities that may be so purchased, the time and manner of purchase, the
underwriting discount and amount of purchase, and require a review by the Board
of Directors of any such transactions at least quarterly.
Heartland Advisors may serve as a broker for any Heartland fund; however, in
order for Heartland Advisors to effect any portfolio transactions for the
funds, the commissions, fees or other remuneration received by Heartland
Advisors must be reasonable and fair compared to, and will not ordinarily be
larger than, the commissions, fees or other remuneration paid to other brokers
in connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange or on NASDAQ during a comparable
period of time.
Allocation of transactions, including their frequency, to various dealers is
determined by Heartland Advisors in its best judgment and in a manner deemed
fair and reasonable to shareholders. The primary consideration is prompt and
efficient execution of orders in an effective manner at the most favorable
price. Subject to this primary consideration, Heartland Advisors may also
consider sales of the shares of any or all of the Heartland funds as a factor
in the selection of broker-dealers to execute portfolio transactions.
- -------------------------------------------------------------------------------
PERFORMANCE INFORMATION
From time to time each Fund may advertise its "yield" and "total return." Yield
is based on historical earnings and total return is based on historical
distributions; neither is intended to indicate future performance. The "yield"
of a Fund refers to the income generated by an investment in that fund over a
one-month period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during the month is assumed to be generated each month over a
12-month period and is shown as a percentage of the investment.
"Total return" of a Fund refers to the average annual total return for one,
five and ten-year periods (or the portion thereof during which a Fund has been
in existence). Total return is the change in redemption value of shares
purchased with an initial $1,000 investment, assuming the reinvestment of
dividends
P R O S P E C T U S
31
<PAGE> 36
and capital gain distributions and the redemption of the shares at the end of
the period. Prior to June 1, 1994, shares of the Funds had been sold subject to
a contingent deferred sales charge and prior to February 12, 1993, shares of
the Value and U.S. Government Securities Funds had been sold subject to an
initial sales charge, neither of which are reflected in the total return
figures, rather the figures reflect the current no-load sales structure.
Performance information should be considered in light of the particular Fund's
investment objectives and policies, characteristics and quality of its
portfolio securities and the market conditions during the applicable period,
and should not be considered as a representation of what may be achieved in the
future. Further information is contained in the Statement of Additional
Information.
Each Fund may, from time to time, compare its performance to other mutual funds
with similar investment objectives and to the industry as a whole, as quoted by
ranking services and publications, such as Lipper Analytical Services, Inc.,
CDA Technologies, Forbes, Money and Business Week. These rating services and
magazines rank the performance of the Funds against all funds over specified
periods and in specified categories. The Value Fund and the Small Cap
Contrarian Fund would appear in the Small Company Growth or Capital
Appreciation categories, the U.S. Government Securities Fund would appear in
the Fixed Income or U.S. Government Bond categories and the Value & Income Fund
would appear in the Growth and Income category. Each Fund may also compare its
performance to recognized stock and bond market indices, including Standard &
Poors 500 Stock Index, the Russell 2000 Stock Index, and the Lehman
Intermediate Government Bond Index.
P R O S P E C T U S
32
<PAGE> 37
Notes:
P R O S P E C T U S
33
<PAGE> 38
- --------------------------------------------------------------------------------
HEARTLAND FUNDS
General Information:
1-800-HEARTLN or (414) 347-7777
Account/Price Information:
1-800-248-1162 (24 hrs.) or (414) 287-3702
- --------------------------------------------------------------------------------
HEARTLAND FUNDS
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
INVESTMENT ADVISOR AND DISTRIBUTOR
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company
Mutual Fund Services, 3rd Floor
P. O. Box 701
Milwaukee, Wisconsin 53201-0701
AUDITOR
Arthur Andersen LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
P R O S P E C T U S
34
<PAGE> 39
[HEARTLAND FUNDS LOGO]
HEARTLAND FUNDS
===================
Account Application
For help with this application, or for an IRA or KEOGH account application,
please call 1-800-HEARTLN.
OVERNIGHT MAIL TO: REGULAR MAIL TO:
Firstar Trust Company Firstar Trust Company
615 E. Michigan P.O. Box 701
Milwaukee, WI 53202 Milwaukee, WI 53201-0701
- --------------------------------------------------------------------------------
Account/Price Information: 1-800-248-1162 (24 hrs.) or (414) 287-3702
General Information: 1-800-HEARTLN or (414) 347-7777
- --------------------------------------------------------------------------------
1a. INDIVIDUAL AND JOINTS ACCOUNTS
Individual Account: Use Lines 1 & 3
Joint Account: Use Lines 1, 2 & 3
1.
------------------------------------------------------------------------------
First name Initial Last name
2.
------------------------------------------------------------------------------
Joint tenant Initial Last name
SOCIAL SECURITY NUMBER
3.
------------------------------------------------------------------------------
Social Security Number of Individual on Line 1
1b. UNIFORM GIFT MINOR ACCOUNT (UGMA)
4.
------------------------------------------------------------------------------
Custodian's Name
5.
------------------------------------------------------------------------------
Minor's Name Minor's Social Security Number
1c. CORPORATE PARTNERSHIPS, TRUST & OTHER
6.
------------------------------------------------------------------------------
Name of Corporation or Entity Tax ID Number
7. REGISTRATION TYPE: / / Unincorporated Association
/ / Corporation / / Partnership / / Trust
2. MAILING ADDRESS
8.
------------------------------------------------------------------------------
Street or P.O. Box
------------------------------------------------------------------------------
City / State / Zip
------------------------------------------------------------------------------
Home Phone (area code + number) Work Phone
3.EMPLOYER INFORMATION (REQUIRED BY THE NASD)
9.
------------------------------------------------------------------------------
Employer Name
------------------------------------------------------------------------------
Occupation
------------------------------------------------------------------------------
Street or P.O. Box
------------------------------------------------------------------------------
City / State / Zip
/ / Yes / / No I am an associated person of a NASD Member Firm, other than
Heartland Advisors, Inc.
If yes, name of NASD Member Firm
----------------------
4. INVESTMENT
I wish to open a Heartland account in the indicated amount (minimum initial
investment of $1,000, or no minimum investment with the Automatic Investment
Plan):
MAKE CHECK PAYABLE TO: Amount
/ / HEARTLAND VALUE FUND (closed to new
investors effective 7/1/95) $
----------------
/ / HEARTLAND SMALL CAP CONTRARIAN FUND $
----------------
/ / HEARTLAND VALUE & INCOME FUND $
----------------
/ / HEARTLAND U.S. GOVERNMENT
SECURITIES FUND $
----------------
5. AUTOMATIC MONTHLY INVESTMENT PLAN
Each month on the / / 5th, / / 20th or / / 5th and 20th, please withdraw from
my checking account in the amount of $ and invest in my:
-------------
/ / Value Fund account ($50 min., closed to new investors
effective 7/1/95)
/ / Small Cap Contrarian account ($50 min.)
/ / Value & Income Fund account ($50 min.)
/ / U.S. Government Securities Fund account ($50 min.)
I (We) have read and understand the conditions of Heartland Funds Automatic
Investment Plan. I (We) also understand that the Plan may be terminated or
modified at any time without notice by Heartland Funds or Firstar Trust Company.
AUTHORIZATION TO MY BANK
- PLEASE ATTACH VOIDED CHECK -
(Conditions on reverse side.)
- --------------------------------------------------------------------------------
Bank Name
- --------------------------------------------------------------------------------
Name(s) on your Bank Account
- --------------------------------------------------------------------------------
Bank Address
- --------------------------------------------------------------------------------
Account Number
- --------------------------------------------------------------------------------
City / State / Zip
- --------------------------------------------------------------------------------
Signature of Owner(s) - Required for Automatic Investing
<PAGE> 40
BE SURE TO COMPLETE ALL APPLICABLE SECTIONS AND SIGN!
6. DIVIDENDS AND CAPITAL GAINS
All dividends and capital gains distributions will be reinvested in the same
Heartland fund UNLESS a box below is checked.
/ / Pay dividends and capital gains distributions in cash.
/ / I would like to diversify my portfolio by investing my distributions in
another fund:
/ / Value Fund (closed to new
investors effective 7/1/95) A/C #
------------------
/ / Small Cap Contrarian Fund A/C #
------------------
/ / Value & Income Fund A/C #
------------------
/ / U.S. Government Securities Fund A/C #
------------------
7. TELEPHONE PRIVILEGES
I (We) hereby authorize the Agent to honor any telephone requests
believed to be genuine in accordance with the procedures discussed in the
prospectus UNLESS refused by checking the appropriate box below.
TO WITHHOLD SUCH AUTHORIZATION, YOU MUST CHECK THE APPROPRIATE BOX BELOW.
Telephone EXCHANGE Privilege
/ / NO telephone exchange privilege for me or my Advisor.
Telephone REDEMPTION Privilege
/ / NO telephone redemption privilege for me or my Advisor.
8. INVESTMENT INFORMATION
a) What other funds do you own?
------------------------------------------------
- --------------------------------------------------------------------------------
b) What is your average investment?
--------------------------------------------
- --------------------------------------------------------------------------------
c) Annual Income $
--------------------------------------------------
d) Net Worth $
--------------------------------------------------
/ / I am a resident of Wisconsin or Nebraska, please send a prospectus for the
Heartland Wisconsin Tax Free and Nebraska Tax Free Funds.
/ / Please send a prospectus for the Portico Money Market Fund.
9. DUPLICATE STATEMENT FOR ADVISOR/PLANNER
Please send duplicate confirmation statements to the Financial Advisor, Planner
or other interested party as listed below:
------------------------------------------------------------------------------
Name of Advisor / Planner / Dealer
------------------------------------------------------------------------------
Company Name
------------------------------------------------------------------------------
Address
------------------------------------------------------------------------------
City / State / Zip
------------------------------------------------------------------------------
Advisor / Planner / Dealer No.
/x/
------------------------------------------------------------------------------
Customer Signature (authorizes duplicate statements)
10. SHAREHOLDER SIGNATURE(S)
I (We) am (are) of legal age to have received and read the Prospectus and agree
to its terms. I authorize any instruction contained herein and certify, under
penalties of perjury
1. that the social security or other taxpayer identification number is
correct, and (strike if not true)
2. that I am not subject to withholding either because I have not been
notified that I am subject to withholding as a result of a failure to
report all interest or dividends, or I was subject to withholding and the
Internal Revenue Service has notified me that I am no longer subject to
withholding.
/x/
------------------------------------------------------------------------------
Signature of Shareholder Date
/x/
------------------------------------------------------------------------------
Signature of Co-Owner (if any) Date
SIGN HERE IF APPLICABLE TO YOUR ACCOUNT:
------------------------------------------------------------------------------
Corporate Officer / Partner / Trustee Title
------------------------------------------------------------------------------
Corporate Officer / Partner / Trustee Title
- --------------------------------------------------------------------------------
AUTOMATIC INVESTING - AUTHORIZATION TO MY BANK
(continued from reverse side)
I (We) authorize you via the ACH Network to honor all debit entries initiated
by me from time to time through Mellon Bank on behalf of the Firstar Trust
Company. All such debits are subject to sufficient collected funds in my
account to pay the debit when presented.
I (We) agree that your treatment of each entry, and your rights to respect
it, shall be the same as if it were signed personally by me (or either or both
of us as appropriate). I (We) further agree that if any such entries are
dishonored with good and sufficient cause, you shall be under no liability
whatsoever.
<PAGE> 41
HEARTLAND VALUE FUND
HEARTLAND SMALL CAP CONTRARIAN FUND
HEARTLAND VALUE & INCOME FUND
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
Each Fund's address is 790 North Milwaukee Street, Milwaukee, Wisconsin
53202, and its telephone number is 414-347-7777 or 1-800- HEARTLN.
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus dated October 30, 1995. A copy of the
Prospectus may be obtained without charge by telephone or written request to the
distributor, Heartland Advisors, Inc. ("Heartland Advisors"). Shareholder
inquiries should be directed to the Funds in writing or by calling the Agent at
1-414-287-3702 or 1-800-248-1162.
- --------------------------------------------------------------------------------
Statement of Additional Information
- --------------------------------------------------------------------------------
Shares may be purchased directly from Heartland Advisors, 790 North
Milwaukee Street, Milwaukee, Wisconsin 53202, without a sales charge. For more
complete information, including an Account Application form, see the Prospectus
or call Heartland Advisors toll free at 1-800-HEARTLN. Shares may also be
purchased through broker-dealers or financial institutions, which may charge a
fee for such service.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS OCTOBER 30,
1995.
<PAGE> 42
INTRODUCTION TO THE FUNDS
The Heartland family of funds consists of separate series of Heartland
Group, Inc. ("Heartland"), a Maryland corporation registered as a diversified
open-end management investment company. This Statement of Additional Information
relates only to the Heartland Value Fund, the Heartland Small Cap Contrarian
Fund, the Heartland Value & Income Fund, and the Heartland U.S. Government
Securities Fund (the "Value Fund," the "Small Cap Contrarian Fund," the "Value &
Income Fund," and the "U.S. Government Securities Fund", respectively,
collectively referred to herein as the "Funds"), each of which is a diversified
Fund with distinct investment objectives and programs. A separate Prospectus and
related Statement of Additional Information for the other Heartland funds are
available from Heartland Advisors.
INVESTMENT POLICIES AND METHODS
GENERAL
The following information supplements the discussion of each Fund's
investment objectives and policies discussed in the Prospectus. Unless otherwise
specified, the investment policies and restrictions of each Fund are not
fundamental policies and are therefore subject to change by the Board of
Directors of Heartland without shareholder approval. However, shareholders will
be notified prior to a material change in any such policy or restriction. The
fundamental policies of a Fund may not be changed without the approval of at
least a majority of the outstanding shares of the Fund or, if it is less, 67% of
the shares represented at a meeting of shareholders of the Fund at which the
holders of 50% or more of the shares are represented.
OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
WRITING COVERED CALL OPTIONS. Each Fund may write covered call options
on its portfolio securities and enter into closing transactions with respect to
such options. In addition, the Small Cap Contrarian Fund may write covered call
options on any type of security related to its investments, including options
traded on foreign exchanges. In writing covered call options, each Fund expects
to generate additional premium income which should serve to enhance the Fund's
total return and reduce the effect of any decline in the market price of the
security involved in the option.
A call option gives the holder (buyer) the right to purchase a
specified security at a stated price (the exercise price) at any time before a
specified date (the expiration date). The term "covered" call option means that
the Fund will own the securities subject to the option or have an unconditional
right to purchase the same underlying security at a price equal to or less than
the exercise price of the "covered" option, or will establish and
2
<PAGE> 43
maintain with its Custodian, for the term of the option, an account consisting
of cash, U.S. government securities or other liquid high-grade debt obligations
having a value equal to the fluctuating market value of the optioned securities.
Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer must be
prepared to deliver the underlying security in return for the exercise price,
even if its current value is greater, a call writer gives up some ability to
participate in the underlying price increases. If a call option which a Fund has
written expires, the Fund will realize a gain in the amount of the premium;
however, such gain may be offset by a decline in the market value of the
underlying security during the option period. If the call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security.
The premium received is the market value of an option. The premium a
Fund receives from writing a call option reflects, among other things, the
current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security and the length of the option period. The premium received by
a Fund for writing covered call options will be recorded as a cash asset and a
liability of the Fund. The liability will be adjusted daily with a corresponding
adjustment to the Fund's total assets, to reflect the option's current market
value, which will be the latest sale price at the time at which the net asset
value per share of the Fund is computed (close of regular trading on the New
York Stock Exchange), or, in the absence of such sale, the latest asked price.
The liability will be extinguished and the net gain or loss on the option
realized upon expiration of the option, the purchase of an identical option in a
closing transaction, or delivery of the underlying security upon the exercise of
the option. The Funds do not consider a security covered by a call to be
"pledged" as that term is used in the respective Fund's policy limiting the
pledging of its assets.
Closing transactions may be effected by purchasing a call option in
order to realize a profit on an outstanding call option, to prevent an
underlying security from being called, or, to permit the sale of the underlying
security. Furthermore, effecting a closing transaction may permit a Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. If a Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will seek to effect a closing transaction prior to, or concurrently with, the
sale of the security. There is, of course, no assurance that a Fund will be able
to effect such closing transactions at a favorable price. A Fund may pay
transaction costs in connection with the writing or purchase of options to close
out previously written options, which costs are normally higher than
3
<PAGE> 44
the transaction costs applicable to purchases and sales of portfolio securities.
WRITING COVERED PUT OPTIONS. The Small Cap Contrarian Fund may write
covered put options on any type of security related to its investments,
including options traded on foreign exchanges, and may purchase options to close
out options previously written by the Fund. As the writer (seller) of a put
option, the Fund has the obligation to buy from the purchaser the underlying
security at the exercise price during the option period. In return for receipt
of the premium, the Fund assumes the obligation to pay the exercise price for
the option's underlying security if the other party to the option chooses to
exercise it. The operation of put options in other respects, including their
related risks and rewards, is substantially identical to that of call options.
The Fund will write put options only on a covered basis, which means
that the Fund will maintain a segregated account consisting of cash, U.S.
government securities or other liquid high-grade debt obligations in an amount
not less than the exercise price of the option, or the Fund will own an option
to sell the underlying security subject to the option having an exercise price
equal to or greater than the exercise price of "covered" options at all times
while the put option is outstanding. The Fund may seek to terminate its position
in a put option it writes before exercise by closing out the option in the
secondary market at its current price. If the secondary market is not liquid for
a put option the Fund has written, however, the Fund must continue to be
prepared to pay the exercise price while the option is outstanding, regardless
of price changes, and must continue to segregate assets to cover its position.
If the price of the underlying security rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received for writing the put because it did not own the
underlying security and therefore would not benefit from the appreciation in
price. If the price of the underlying security falls, the put writer would
expect to suffer a loss, which loss could be substantial. However, the loss
should be less than the loss experienced if the Fund had purchased the
underlying security directly because the premium received for writing the option
will mitigate the effects of the decline.
PURCHASING PUT OPTIONS. Each Fund may purchase put options with respect
to its portfolio securities. In addition, the Small Cap Contrarian Fund may
purchase put options on any type of security related to its investments,
including options traded on foreign exchanges. As the holder of a put option,
the Fund has the right to sell the underlying security at the exercise price at
any time during the option period. A Fund may enter into closing transactions
with respect to such options, exercise them or permit them to expire. A Fund may
purchase a put option on an underlying security owned by the Fund as a defensive
technique in order to
4
<PAGE> 45
protect against an anticipated decline in the value of the security. Such hedge
protection is provided only during the life of the put option when the Fund, as
holder of the put option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying security's market
price. The premium paid for the put option and any transaction costs would
reduce any gain otherwise available for distribution when the security is
eventually sold.
The premium paid by a Fund when purchasing a put option will be
recorded as an asset of the Fund. This asset will be adjusted daily to the
option's current market value, which will be the latest sale price at the time
at which the net asset value per share of the Fund is computed (close of regular
trading on the New York Stock Exchange), or, in the absence of such sale, the
latest bid price. This asset will be extinguished upon expiration of the option,
the selling (writing) of an identical option in a closing transaction, or the
delivery of the underlying security upon the exercise of the option.
PURCHASING CALL OPTIONS. The Small Cap Contrarian Fund may purchase
call options on any type of security related to its investments, including
options traded on foreign exchanges. As the holder of a call option, the Fund
has the right to purchase the underlying security at the exercise price at any
time during the option period. The Fund may enter into closing sale transactions
with respect to such options, exercise them or permit them to expire. A call
buyer typically attempts to participate in potential price increases of the
underlying security with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a loss if security
prices do not rise sufficiently to offset the cost of the option.
INDEX OPTIONS. The Value Fund and the Value & Income Fund may sell
covered call options and purchase put options on stock indices composed of
securities of the same general character as each Fund's portfolio and may enter
into closing transactions with respect to such options. The Small Cap Contrarian
Fund may buy and sell options based on any type of index related to its
investments. Options on indices would be used in a manner similar to the use of
options on securities; however, upon the exercise of an index option, settlement
occurs in cash rather than by delivery of an underlying security, with the
exercising option holder receiving the difference between the closing level of
the index upon which the option is based and the exercise price of the option.
OPTIONS ON FUTURES CONTRACTS. The Value Fund, the Value & Income Fund
and the U.S. Government Securities Fund may each write covered call options and
purchase put options on futures contracts and enter into closing transactions
with respect to such options. The Small Cap Contrarian Fund may buy and sell
options on futures based on any type of security, index, or currency related to
its investments. Options on futures would be used in a manner similar
5
<PAGE> 46
to the use of options on securities. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
option exercise. The writer of the option is required upon exercise to assume an
offsetting futures position at a specified exercise price at any time during the
period of the option. When writing an option on a futures contract a Fund will
be required to make margin payments as described below for futures contracts.
FUTURES CONTRACTS. Each Fund may purchase and sell futures contracts,
including interest rate and index futures contracts, that are traded on a
recognized U.S. exchange, board of trade or similar entity, or quoted on an
automated quotation system. In addition, the Small Cap Contrarian Fund may
purchase and sell futures contracts based on any type of security, index or
currency related to its investments, including futures traded on foreign
exchanges. Each Fund will engage in transactions in futures contracts solely for
bona fide hedging purposes.
When a Fund purchases a futures contract, it agrees to purchase a
specified underlying instrument at a specified future date. When a Fund sells a
futures contract, it agrees to sell the underlying instrument at a specified
future date. The price at which the purchase and sale will take place is fixed
when the Fund enters into the contract. The purchaser or seller of a futures
contract is not required to deliver or pay for the underlying instrument unless
the contract is held until the delivery date. However, upon entering into a
futures contract, and to maintain an open position in futures contracts, a Fund
would be required to deposit "initial margin" with its Custodian in a segregated
account in the name of the executing futures commission merchant when the
contract is entered into. The margin required for a particular futures contract
is set by the exchange on which the contract is traded and may be significantly
modified from time to time by the exchange during the term of the contract.
Futures contracts are customarily purchased and sold on margins that may range
upward from less than 5% of the value of the contract being traded.
If the price of an open futures contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss of the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require the payment of "variation margin"
to settle the change in value on a daily basis. If the value of a position
increases because of favorable price changes in the futures contract so that the
margin deposit exceeds the required margin, the broker will pay the excess to
the Fund. In computing daily net asset value, a Fund marks to market the current
value of its open futures contracts. The Funds expect to earn interest income on
their margin deposits.
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Futures contracts can be held until their delivery dates, or can be
closed out before then if a liquid secondary market is available. If a Fund
closes out an open futures contract by entering into an offsetting futures
contract, and the offsetting purchase price is less than the original sale
price, a Fund realizes a gain; if it is more, a Fund realizes a loss.
Conversely, if the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations. There can be no
assurance, however, that a Fund will be able to enter into an offsetting
transaction with respect to a particular futures contract at a particular time.
If a Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the futures contract.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase a Fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a Fund sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options ("OTC options," i.e.,
options not traded on exchanges) in which the Small Cap Contrarian Fund may
invest generally are established through negotiation with the other party to the
option contract. While this type of arrangement allows the Fund greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded. The risk of
illiquidity is also greater with OTC options, since these options generally can
be closed out only by negotiation with the other party to the option. The Small
Cap Contrarian Fund will generally consider OTC options to be illiquid. In
determining whether to enter into an OTC option transaction, the Small Cap
Contrarian Fund will take into account the creditworthiness of the other party
to the contract.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS
Each Fund will engage in transactions in futures contracts and options
thereon only for bona fide hedging and risk management purposes, in each case in
accordance with the rules and regulations of the Commodity Futures Trading
Commission, and not for speculation.
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A Fund will not enter into any futures contract or option on a futures
contract if, as a result, the sum of initial margin deposits on futures
contracts and related options and premiums paid for options on futures contracts
the Fund has purchased, after taking into account unrealized profits and
unrealized losses on such contracts, would exceed 5% of the Fund's total assets;
provided, however, that in the case of an option which is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The Value Fund and the U.S. Government Securities Fund will also be
subject to their fundamental investment restrictions regarding commodities,
futures, and options discussed herein.
In addition to the above limitations, the Small Cap Contrarian Fund and
the Value & Income Fund will not: (a) purchase or sell futures and options on
futures or enter into closing transactions with respect thereto if, as a result
thereof, the then current aggregate futures market prices and financial
instruments required to be delivered under open futures contract sales plus the
then current aggregate purchase price of financial instruments required to be
purchased under open futures contract purchases would exceed 25% of the
respective Fund's net assets (taken at market value at the time of entering into
the contract and excluding the amount by which any of its options on futures are
in-the-money); (b) the aggregate value of all premiums paid for put and call
options purchased by the Fund would exceed 5% of the Fund's total assets (less
the amount by which any such positions are in-the-money); or (c) the aggregate
market value of all portfolio securities covering put and call options written
by the Fund would exceed 25% of the Fund's total assets. The above limitations
on the Small Cap Contrarian Fund's and the Value & Income Fund's investments in
futures contracts and options and the respective Fund's policies regarding
futures contracts and options discussed elsewhere in this Statement of
Additional Information are not fundamental policies of the Funds and may be
changed by Heartland's Board of Directors as permitted by applicable regulatory
authority.
COMBINED POSITIONS. The Funds may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
exercise price and buying a call option at a lower price, in order to reduce the
risks of the written call option in the event of a substantial price increase.
Because combined positions involve multiple trades, they may result in higher
transaction costs and may be more difficult to open and close out.
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RISKS IN OPTIONS AND FUTURES TRANSACTIONS
Options and futures can be highly volatile investments and involve
certain risks. A decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior, or market or interest rate trends.
Successful hedging strategies require the ability to predict future movements in
securities prices, interest rates and other economic factors. There can be no
assurance that price movements in hedging vehicles and in the underlying
instruments will be directly correlated. Options and futures prices are affected
by such factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect prices of the underlying instruments the
same way. Imperfect correlation may also result from different levels of demand
in the options and futures markets and the markets for the underlying
instruments, from structural differences in how options and futures and
securities are traded, or from imposition of daily price fluctuation limits or
trading halts by an exchange. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match a Fund's current or anticipated investments exactly. The Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures positions
will not track the performance of the Fund's other investments. The Funds may
purchase or sell options and futures contracts with a greater or lesser value
than the securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases.
Because of the low margin deposits required, futures trading involves a
high degree of leverage. A relatively small price movement in futures contracts
could result in an immediate and substantial gain or loss to a Fund. Therefore,
a purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract by the Fund.
There can be no assurance that a liquid secondary market will exist for
any particular options or futures contracts at any particular time. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a Fund to enter into new positions or close
out existing positions. If the secondary market for a futures contract is not
liquid because of price fluctuation limits or otherwise, it
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could prevent prompt liquidation of unfavorable positions, and potentially
require a Fund to continue to hold the position until delivery or expiration
regardless of changes in its value. As a result, a Fund's access to other assets
held to cover its options or futures positions could also be impaired.
As discussed above, OTC options in which the Small Cap Contrarian Fund
may invest are subject to risks in addition to the risks related to
exchange-traded options. The Small Cap Contrarian Fund currently intends to
treat the value of any OTC option it purchases as illiquid for the purposes of
its investment limitations. Similarly, for any OTC option it writes, the Fund
will treat as illiquid the value of the option's underlying instrument; however,
if the Fund has a guaranteed right to close out the option with a primary U.S.
government securities dealer, only the maximum price of the closing transaction
less the amount the option is in-the-money will be considered illiquid. The
Small Cap Contrarian Fund may also buy and sell options and futures based on any
type of security, index, or currency related to its investments, including
options and futures traded on foreign exchanges. Investments in foreign
securities are subject to additional risks as described below.
FOREIGN INVESTMENTS
The Value Fund and the Value & Income Fund may invest up to 15% of
their respective assets directly in the securities of foreign issuers. The Small
Cap Contrarian Fund may invest up to 25% of its assets in foreign securities and
options and futures traded on foreign exchanges. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have lower trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the costs
of foreign investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It also may be difficult to enforce legal rights
in foreign countries.
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Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest, or adverse diplomatic
developments. There is no assurance that Heartland Advisors will be able to
anticipate these political events or counter their effects.
The considerations noted above generally are intensified for
investments in developing countries. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities. The above considerations may
also be intensified for investments and equity securities of foreign smaller
companies in which the Funds may invest. Equity securities of foreign companies
with smaller market capitalizations may involve a higher degree of risk than
investments in the general foreign equity markets and such securities may be
subject to even greater price volatility and may have less market liquidity than
equity securities of foreign issuers with larger market capitalizations.
The Value Fund, the Small Cap Contrarian Fund and the Value & Income
Fund each may invest in foreign securities that impose restrictions on transfer
within the U.S. or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
American Depository Receipts and Global Depository Receipts ("ADRs" and
"GDRs") are certificates evidencing ownership of shares of a foreign-based
issuer held by a bank or similar financial institution as depository. Designed
for use in U.S. and global securities markets, respectively, ADRs and GDRs are
alternatives to the direct purchase of the underlying securities in their
national markets and currencies. The limitations as to a respective Fund's
investments in foreign securities do not apply to investments in ADRs and GDRs
or to securities of foreign issuers that are traded on a registered U.S. stock
exchange or the NASDAQ National Market System.
FOREIGN CURRENCY TRANSACTIONS
FORWARD FOREIGN CURRENCY CONTRACTS. To manage the currency risk
accompanying investments in foreign securities and to facilitate the purchase
and sale of foreign securities, the Value Fund, the Small Cap Contrarian Fund
and the Value & Income Fund may engage in foreign currency transactions on a
spot (cash) basis at
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the spot rate prevailing in the foreign currency exchange market or through
entering into contracts to purchase or sell foreign currencies at a future date
("forward foreign currency" contracts or "forward" contracts).
A forward foreign currency contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. These contracts are principally traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement and no commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign
currency involved in the underlying security transaction, the Fund will be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date the security is purchased or sold and the date on
which payment is made or received. This technique is sometimes referred to as a
"settlement hedge" or "transaction hedge." Heartland Advisors may enter into
settlement hedges in the normal course of managing a Fund's foreign investments.
When Heartland Advisors believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell for a fixed amount of U.S. dollars, the
amount of the foreign currency approximating the value of some or all of the
respective Fund's portfolio securities denominated in such foreign currency.
Such a hedge, sometimes referred to as a "position hedge," would tend to offset
both positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. The Value Fund and the Value &
Income Fund will not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the respective Fund's securities or other assets denominated in that
currency. The Small Cap Contrarian Fund could also hedge a position by selling
another currency expected to perform similarly to the currency in which the
Fund's securities are denominated. This type of hedge, sometimes referred to as
a "proxy hedge," could offer advantages in terms of cost, yield or efficiency,
but generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.
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The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult and the successful execution of a
short-term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall diversification
strategies. However, Heartland Advisors believes that it is important to have
the flexibility to enter into such forward contracts when it determines that the
best interests of a Fund will be served.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a foreign currency and
the date it enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
It is impossible to forecast with precision the market value of
securities at the expiration of a forward contract. Accordingly, it may be
necessary for a Fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
The Value Fund's, the Small Cap Contrarian Fund's and the
Value & Income Fund's dealings in forward foreign currency exchange
contracts will be limited to the transactions described above. Of
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course, the Funds are not required to enter into such transactions with regard
to their foreign currency-denominated securities and will not do so unless
deemed appropriate by Heartland Advisors. This method of hedging against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
which one can achieve at some future point in time. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase. Successful use of
forward currency contracts will depend on Heartland Advisors' skill in analyzing
and predicting currency values. Forward contracts may substantially change a
Fund's investment exposure to changes in currency exchange rates, and could
result in losses to the Fund if currencies do not perform as Heartland Advisors
anticipates. For example, if a currency's value rose at a time when Heartland
Advisors had hedged a Fund by selling that currency in exchange for U.S.
dollars, the Fund would be unable to participate in the currency's appreciation.
If Heartland Advisors hedges a currency exposure for the Small Cap Contrarian
Fund through proxy hedges, the Fund could realize currency losses from the hedge
and the security position at the same time if the two currencies do not move in
tandem. Similarly, if Heartland Advisors increases a Fund's exposure to a
foreign currency, and that currency's value declines, the Fund will realize a
loss. There is no assurance that Heartland Advisors' use of forward currency
contracts will be advantageous to a Fund or that it will hedge at an appropriate
time.
Although each of the Value Fund, the Small Cap Contrarian Fund and the
Value & Income Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. The policies described in this section regarding
forward foreign currency contracts and the respective Fund's policies regarding
foreign currency transactions discussed elsewhere in this Statement of
Additional Information are not fundamental policies of the Funds and may be
changed by Heartland's Board of Directors as permitted by applicable regulatory
authority.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward foreign currency contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option
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may be a foreign currency, which generally is purchased or delivered in exchange
for U.S. dollars, or may be a futures contract. The purchaser of a currency call
obtains the right to purchase the underlying currency, and the purchaser of a
currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above. Each
of the Value Fund, the Small Cap Contrarian Fund and the Value & Income Fund may
purchase and sell currency futures and may purchase and write currency options
to increase or decrease its exposure to different foreign currencies. The Value
Fund, the Small Cap Contrarian Fund and the Value & Income Fund may also
purchase and write currency options in conjunction with each other or with
currency futures or forward contracts. Currency futures and options values can
be expected to correlate with exchange rates, but may not reflect other factors
that affect the value of the respective Fund's investments. A currency hedge,
for example, should protect a Yen-denominated security from a decline in the
Yen, but will not protect the respective Fund against a price decline resulting
from deterioration in the issuer's creditworthiness. Because the value of the
respective Fund's foreign-denominated investments changes in response to many
factors other than exchange rates, it may not be possible to match the amount of
currency options and futures to the value of the respective Fund's investments
exactly over time.
FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS AND FORWARD
FOREIGN EXCHANGE CONTRACTS
The Funds may enter into certain option, futures, and, with respect to
the Value Fund, the Small Cap Contrarian Fund and the Value & Income Fund,
forward foreign exchange contracts which will be treated as Section 1256
contracts or straddles under the Internal Revenue Code.
Transactions which are considered Section 1256 contracts will be
considered to have been closed at the end of a Fund's fiscal year and any gains
or losses will be recognized for tax purposes at that time. Such gains or losses
and gains or losses from the normal closing or settlement of such transactions
will be characterized as 60% long-term capital gain or loss and 40% short-term
capital gain or loss regardless of the holding period of the instrument. The
Fund will be required to distribute net gains on such transactions to
shareholders even though it may not have closed the transaction and received
cash to pay such distribution.
Options, futures and forward foreign exchange contracts which offset a
foreign dollar denominated bond or currency position may be considered straddles
for tax purposes in which case a loss on any position in a straddle will be
subject to deferral to the extent of unrealized gain in an offsetting position.
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In order for a Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income (i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies). Pending tax regulations could limit the extent that
net gains realized from options, futures or foreign forward exchange contracts
on currencies are qualifying income for purposes of the 90% requirement. In
addition, gains realized on the sale or other disposition of securities,
including options, futures or foreign forward exchange contracts on securities
or securities indices and, in some cases, currencies, held for less than three
months, must be limited to less than 30% of the Fund's annual gross income. In
order to avoid realizing excessive gains on securities or currencies held less
than three months, the Fund may be required to defer the closing out of options,
futures or foreign forward exchange contracts beyond the time when it would
otherwise be advantageous to do so. It is anticipated that unrealized gains on
Section 1256 options, futures and foreign forward exchange contracts, which have
been open for less than three months, as of the end of the Fund's fiscal year
and which are recognized for tax purposes, will not be considered gains on
securities or currencies held less than three months for purposes of the 30%
test.
NON-INVESTMENT GRADE SECURITIES
Non-investment grade debt securities (those rated below the four
highest categories by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("S&P") or, if unrated, judged by Heartland Advisors to be of
comparable quality, commonly known as "junk bonds") are regarded, on balance, as
predominantly speculative with respect to the capacity of the issuer to pay
interest and repay principal in accordance with the terms of the obligation.
While such securities typically offer higher rates of return than investment
grade securities, they also involve greater risk, including greater risk of
default. An economic downturn could severely disrupt the market for such high
yield securities and adversely affect their value and the ability of the issuers
to repay principal and interest. The rate of incidence of default of
non-investment grade securities is likely to increase during times of economic
downturns and extended periods of increased interest rates. Yields on
non-investment grade securities will fluctuate over time, and are generally more
volatile than yields on investment grade securities.
The secondary trading market for non-investment grade securities may be
less well established than for investment grade securities, and such securities
may therefore be only thinly traded. As a result, there may be no readily
ascertainable market value for such securities, in which case it will be more
difficult for the Funds to value accurately the securities, and consequently the
investment portfolio. Under such circumstances, the subjective judgment of the
Board of Directors will play a greater role in the
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valuation. Additionally, adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidities of
non-investment grade securities, especially in a thinly traded market.
The Value Fund, the Value & Income Fund and the U.S. Government
Securities Fund will not invest in securities that are rated below the fifth or
sixth rating categories by Moody's or S&P (Ba and B for Moody's and BB and B for
S&P) or, if unrated, judged comparable by Heartland Advisors. Securities rated
in the higher of those categories have less near-term vulnerability to default
than other speculative issues, however they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. However,
business and financial alternatives available to obligors of such securities can
generally be identified which could assist them in satisfying their debt service
requirements. Securities rated in the lower of these two categories are
considered highly speculative. While the issuers of such securities currently
must be meeting debt service requirements in order to achieve this rating,
adverse business, financial or economic conditions likely could impair the
issuer's capacity or willingness to pay interest and repay principal.
The Small Cap Contrarian Fund may invest in debt securities rated as
low as the lowest rating category assigned by Moody's or S&P (C for Moody's and
D for S&P). Debt securities rated below B may be even more speculative than B
rated bonds and may either be currently vulnerable to default or may be in
default. A detailed description of the characteristics associated with the
various debt credit ratings established by Moody's and S&P is set forth in
Appendix A to this Statement of Additional Information.
While rating categories help identify credit risks associated with debt
securities, they do not evaluate the market value risk of non-investment grade
securities. Additionally, the credit rating agencies may fail to promptly change
the credit ratings to reflect subsequent events. Accordingly, Heartland's Board
of Directors and Heartland Advisors continuously monitor the issuers of
non-investment grade securities held in each Fund's portfolio. Since the risk of
default is higher for non-investment grade debt securities, Heartland Advisors'
research and credit analysis are an especially important part of managing
securities of this type held by a Fund. In considering investments for the Fund,
Heartland Advisors will attempt to identify those issuers of non-investment
grade securities whose financial condition is adequate to meet future
obligations, has improved, or is expected to improve in the future. Heartland
Advisors' analysis focuses on relative values based on such factors as interest
or dividend coverage, asset coverage, earnings prospects, and the experience and
managerial strength of the issuer.
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A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interests of the Fund's shareholders.
INDEXED SECURITIES
The Small Cap Contrarian Fund, the Value & Income Fund and the U.S.
Government Securities Fund may purchase securities whose prices are indexed to
the prices of other securities, securities indices, currencies, precious metals
or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. For example, certain debt securities in which the Funds may invest
may include securities whose interest rates are determined by reference to one
or more specific financial indicators, such as LIBOR, resulting in a security
whose interest payments tend to rise and fall together with the financial
indicator. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security whose
price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currencyindexed securities
may also have prices that depend on the values of a number of different foreign
currencies relative to each other. Indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified underlying instrument's value increases, resulting in a security that
performs similarly to the underlying instrument, or their maturity value may
decline when the underlying instrument increases, resulting in a security whose
price characteristics are similar to a put on the underlying instrument.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies.
The market for indexed securities may be thinner and less active than
the market for securities in general, which can adversely affect the prices at
which indexed securities are sold. If market quotations are not available,
indexed securities will be valued in accordance with procedures established by
the Board of
18
<PAGE> 59
Directors of Heartland, including the use of outside pricing services. Judgment
plays a greater role in valuing certain indexed securities than is the case for
securities for which more external sources for quotations and last-sale
information are available. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services to value indexed securities
and the Fund's ability to dispose of these securities.
RESTRICTED SECURITIES
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
a Fund may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek registration
and the time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to seek registration of the security.
VALUE FUND - DEBT SECURITIES
The Value Fund may invest up to 5% of its net assets in debt securities
rated at least B by Moody's or S&P, or, if unrated, judged comparable by
Heartland Advisors. See "Non-Investment Grade Securities" above. Debt securities
in which the Value Fund may invest include corporate debt securities, securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and money market instruments, such as certificates of deposit and commercial
paper.
U.S. GOVERNMENT SECURITIES FUND - MORTGAGE-BACKED SECURITIES
Depending on market conditions, the U.S. Government Securities Fund may
invest a substantial portion of its assets in mortgage-backed securities issued
by the U.S. government, its agencies or instrumentalities. These are debt
securities that represent interests in pools of mortgages, and may include
stripped mortgage-backed obligations. Mortgage-backed securities in which the
Fund may invest, may be guaranteed by the issuing governmental agency and,
therefore, subject to risk based on the creditworthiness of the issuing agency
or instrumentality. One type of mortgage-backed security in which the Fund may
invest are Government National Mortgage Association ("GNMA") Certificates of the
modified pass-through type, which represent interests in pools of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmers Home
Administration ("FMHA") or guaranteed by the Veterans Administration ("VA").
GNMA guarantees the timely payment of monthly installments of principal and
interest on such Certificates. The GNMA guarantees are backed by the full faith
and credit of the U.S. Government.
19
<PAGE> 60
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will generally result in the return of the greater part of the principal
invested long before the maturity of the mortgage in the pool. Foreclosures
impose limited risk to principal investments to the extent of the governmental
agency or GNMA guarantee.
As prepayment rates of individual mortgage pools will vary widely, it
is not possible to accurately predict the average life of a particular issue of
mortgage-backed securities. However, historical statistics may be used as an
indicator of the expected average life of the security. To the extent the U.S.
Government Securities Fund buys mortgage-backed securities at a premium,
mortgage foreclosures and prepayments of principal by mortgagors may result in
some loss of the Fund's principal investment to the extent of the premium paid.
To avoid loss of this premium and of any gain in value of its mortgage-backed
securities resulting from a decrease in interest rates generally, the U.S.
Government Fund may sell such securities that are trading at a substantial
premium.
SMALL CAP CONTRARIAN FUND - SHORT SALES
The Small Cap Contrarian Fund may seek to hedge investments or realize
additional gains through short sales. Short sales are transactions in which the
Fund sells a security it does not own in anticipation of a decline in the market
value of that security. To complete such a transaction, the Fund must borrow the
security to make delivery to the buyer. The Fund then is obligated to replace
the security borrowed by purchasing it at the market price at or prior to the
time of replacement. The price at such time may be more or less than the price
at which the security was sold by the Fund. Until the security is replaced, the
Fund is required to repay the lender any dividends or interest that accrued
during the period of the loan. To borrow the security, the Fund also may be
required to pay a premium, which would increase the cost of the security sold.
The net proceeds of the short sale will be retained by the broker (or by the
Fund's custodian), to the extent necessary to meet margin requirements, until
the short position is closed out. The Fund may also incur transaction costs in
effecting short sales.
The Fund will incur a loss as a result of the short sale if the price
of the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will realize a gain if
the security declines in price between those dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of the
premium, dividends, interest or expenses a Fund may be required to pay in
connection with a short sale.
20
<PAGE> 61
Whenever the Small Cap Contrarian Fund engages in a short sale, it will
maintain a segregated collateral account with its custodian consisting of an
amount of cash or U.S. government securities or other liquid high-grade debt
obligations equal to the difference between (a) the market value of the
securities sold short at the time they were sold short and (b) any cash or U.S.
government securities required to be deposited as collateral with the broker in
connection with the short sale (not including the proceeds from the short sale).
The Fund will maintain the account on a daily basis so that the amount deposited
with the custodian plus the amount deposited with the broker as collateral will
equal the current market value of the securities sold short; provided, that at
no time will the amount segregated in the account plus the amount deposited with
the broker be less than the market value of the securities at the time they were
sold short.
SMALL CAP CONTRARIAN FUND - LEVERAGE
The Small Cap Contrarian Fund may borrow from banks up to one-third of
its total assets, and may pledge its assets in connection with such borrowings.
If the Small Cap Contrarian Fund makes additional investments while borrowings
are outstanding, this may be construed as a form of leverage. Leveraging the
Small Cap Contrarian Fund may create an opportunity for increased net income;
however, it may also give rise to special risk considerations. For example,
leveraging may exaggerate changes in the net asset value of the Fund's shares
and in the gains and losses on the Fund's investments. Leveraging will create
interest expenses for the Fund that may exceed the return on investments made
with the borrowings. To the extent the income derived from securities purchased
with borrowed funds exceeds the Fund's costs of borrowing, the Fund's net income
may be greater than if leveraging were not used. Conversely, if the income from
the investments made with the borrowed funds is not sufficient to cover the cost
of leveraging, the net income of the Fund will be less than if leveraging were
not used and the value of the Fund's shares may be adversely affected. Reverse
repurchase agreements that are not fully collateralized create leverage, a
speculative factor, and will be considered as borrowings for purposes of the
Fund's investment limitations.
PORTFOLIO TURNOVER
Portfolio turnover for each Fund is the ratio of the lesser of annual
purchases or sales of portfolio securities by the Fund to the average monthly
value of portfolio securities owned by the Fund, not including securities
maturing in less than twelve months. A 100% portfolio turnover rate would occur,
for example, if the lesser of the value of purchases or sales of a Fund's
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned by the Fund during the year. For the
fiscal years ended December 31, 1994 and 1993, the portfolio turnover rates for
the Value Fund were 35% and 51%, respectively, and for the U.S. Government
Securities Fund were 95%
21
<PAGE> 62
and 200%, respectively. The portfolio turnover rate for the Value & Income Fund
for the fiscal year ended December 31, 1994 was 127% and for the period from
October 26, 1993 (commencement of operations) to December 31, 1993 was 6%. The
turnover for the Value & Income Fund was higher in 1994 than is normally
anticipated because interest rates rose dramatically from the beginning of the
year through mid-November. Consequently, in addition to normal portfolio
activity, the Fund experienced two significant shifts in the Bond portion of its
portfolio, resulting in a higher rate of turnover. Annual portfolio turnover for
the Small Cap Contrarian Fund is expected to be less than 200%.
INVESTMENT RESTRICTIONS
Each Fund has adopted investment restrictions and fundamental policies
which cannot be changed without the approval of the holders of the lesser of (i)
a majority of the outstanding shares of the Fund or (ii) 67% of the shares
represented at a meeting of shareholders at which the holders of 50% or more of
the outstanding shares of the Fund are represented. Operating policies are
subject to change by the Board of Directors without shareholder approval.
However, neither Fund will change materially any operating policy without notice
to shareholders. Any investment restriction which involves a maximum percentage
of securities or assets will not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
of securities or assets of, or borrowing by, a Fund.
VALUE FUND AND U.S. GOVERNMENT SECURITIES FUND
The fundamental investment restrictions and policies of the
Value Fund and the U.S. Government Securities Fund provide that
such Funds may not:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer except for United States government agency
securities and securities backed by the United States Government, its agencies
or instrumentalities, which may be purchased without limitation. For the
purposes of this limitation, the Funds will regard the entity which has the
ultimate responsibility for payment of principal and interest as the issuer.
(2) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(3) Invest more than 25% of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the United States government, its agencies or
instrumentalities.
22
<PAGE> 63
(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Invest in securities of other investment companies except as they
may be acquired as part of a merger, consolidation, reorganization or
acquisition of assets.
(6) Buy or sell real estate, real estate investment trusts, or oil and
gas interests, but this shall not prevent the Funds from investing in securities
of companies whose business involves the purchase or sale of real estate, except
that the U.S. Government Securities Fund will not invest in real estate limited
partnerships.
(7) Borrow money or property except for temporary or emergency
purposes. If a Fund ever should borrow money it would only borrow from banks and
in an amount not exceeding 10% of the market value of its total assets (not
including the amount borrowed). Neither Fund will pledge more than 15% of its
net assets to secure such borrowings. In the event a Fund's borrowing exceeds 5%
of the market value of its total assets the Fund will not invest in any
additional portfolio securities until its borrowings are reduced to below 5% of
its total assets. For purposes of these restrictions, collateral arrangements
for premium and margin payments in connection with a Fund's hedging activities
are not to be deemed to be a pledge of assets.
(8) Make loans, except that it may (i) acquire publicly distributed
bonds, debentures, notes and other debt securities and (ii) lend portfolio
securities provided that no such loan may be made if as a result the aggregate
of such loans would exceed 30% of the value of the Fund's total assets.
(9) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(10) Except with respect to investments in repurchase
agreements by the U. S. Government Securities Fund, purchase
securities with legal or contractual restrictions on resale.
(11) Issue senior securities.
(12) Purchase securities on margin or effect short sales of securities,
except that the Value Fund may sell securities short where it either: (a) holds
a long position in the same security which equals or exceeds the number of
shares sold short; or (b) holds a long position in a security with respect to
which there has been a public announcement of a proposed transaction that would
result in the conversion of the securities so held into an equal or greater
number of shares of the securities sold short; provided
23
<PAGE> 64
that the Value Fund may not effect any such short sale of securities if, as a
result thereof, the aggregate value of all of its open short positions would
exceed 5% of the Value Fund's total assets, or if more than 10% of the Value
Fund's net assets would be held as collateral for such short positions.
(13) Buy or sell commodities or commodity contracts or enter into an
interest rate futures contract or an option thereon, except that a Fund may
purchase or sell futures and options on futures and enter into closing
transactions with respect thereto unless, as a result thereof: (a) the then
current aggregate futures market prices and financial instruments required to be
delivered under open futures contract sales plus the then current aggregate
purchase price of financial instruments required to be purchased under open
futures contract purchases would exceed 25% of the Fund's net assets (taken at
market value at the time of entering into the contract and excluding the amount
by which any of its options on futures are in-the-money); and (b) more than 5%
of the Fund's total assets (taken at market value at the time of entering into
the contract and excluding the amount by which any of its options on futures are
in-the-money) would be committed to initial margin and premiums paid on such
futures contracts.
(14) Write, purchase or sell puts, calls, straddles, spreads or any
combination thereof, except that a Fund may write covered call options and
purchase put options on portfolio securities or securities indexes and enter
into closing transactions with respect to such options, and, subject to
restriction (13) above, a Fund may write covered call options and purchase put
options on futures contracts and enter into closing transactions with respect to
such options on futures, unless, as a result of any of the foregoing
transactions: (a) the aggregate market value of all portfolio securities
covering call options written by the Fund would exceed 25% of the Fund's total
assets; or (b) the aggregate value of all premiums paid for put options
purchased by the Fund would exceed 5% of the Fund's total assets (less the
amount by which any such positions are in-the-money), excluding puts purchased
on closing transactions.
(15) Invest in illiquid securities, except that the U.S. Government
Securities Fund may invest up to 10% of its net assets in illiquid securities,
including investments in repurchase agreements which mature in more than seven
days.
(16) Purchase warrants, except that the Value Fund may purchase
warrants which, when valued at lower of cost or market, do not exceed 5% of the
value of the Fund's net assets; included within the 5%, but not in excess of 2%
of the Fund's net assets, may be warrants which are not listed on the New York
or American Stock Exchanges.
(17) With respect to the U.S. Government Securities Fund,
purchase or retain the securities of any issuer if the officers,
24
<PAGE> 65
directors, advisors or managers of the fund owning beneficially more than one
and one-half of one percent of the securities of such issuer together own
beneficially 5% of such securities; provided no officer or director shall be
deemed to own beneficially securities held in other accounts managed by such
person or held in employee or similar plans for which such person acts as
trustee.
SMALL CAP CONTRARIAN FUND
The fundamental investment restrictions and policies of the Small Cap
Contrarian Fund provide that such Fund may not:
(1) With respect to 75% of the Fund's total assets, invest more than 5%
of the fair market value of its assets in securities of any one issuer, other
than securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(2) Invest in a company to get control or manage it or, with respect to
75% of the Fund's total assets, purchase more than 10% of the outstanding voting
securities of an issuer;
(3) Invest more than 25% of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities.
(4) Buy or sell real estate or oil and gas interests or leases, but
this shall not prevent the Fund from investing in securities secured by real
estate or real estate interests or issued by companies, including real estate
investment trusts, that invest in real estate or real estate interests or whose
business involves the purchase or sale of real estate.
(5) Borrow money or property, except from banks for temporary purposes
or in connection with otherwise permissible leverage activities, and then only
in an amount not in excess of one-third of the value of the Fund's total assets.
For purposes of this restriction, collateralized reverse repurchase agreements
are not deemed to be borrowings.
(6) Mortgage, hypothecate, or pledge any of its assets as security for
any of its obligations, except as required for otherwise permissible borrowings
(including reverse repurchase agreements), short sales, futures, options and
other hedging activities.
(7) Make loans, except that it may: (i) acquire publicly distributed
bonds, debentures, notes and other debt securities; (ii) lend portfolio
securities provided that no such loan may be made if as a result the aggregate
of such loans would exceed one-third of the value of the Fund's total assets;
and (iii) enter into repurchase agreements.
25
<PAGE> 66
(8) Underwrite the securities of other issuers, although it may invest
in companies that engage in such businesses if it does so in accordance with
policies established by Heartland's Board of Directors, and except where it
might technically be deemed to be an underwriter for purposes of the Securities
Act of 1933 upon the disposition of certain securities.
(9) Purchase a security if, as a result, more than 10% of the value of
the Fund's total assets would be invested in: (a) securities that are not
readily marketable or that would require registration under the Securities Act
of 1933, as amended, upon disposition; and (b) repurchase agreements which do
not provide for payment within 7 days.
(10) Issue senior securities, as defined in the Investment Company Act
of 1940 (the "1940 Act"), except that this restriction shall not be deemed to
prohibit the Fund from making any otherwise permissible borrowings, mortgages or
pledges, or entering into permissible reverse repurchase agreements, or hedging
activities.
(11) Invest in commodities, but the Fund may purchase or sell futures
contracts, options on futures, and options.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Small Cap Contrarian Fund may not:
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(2) Invest in securities of other investment companies except as
permitted by the 1940 Act or as part of a merger, consolidation, acquisition of
assets, or similar reorganization transaction.
(3) Purchase warrants (other than those that have been acquired in
units or attached to other securities), except that the Fund may purchase
warrants which, when valued at lower of cost or market, do not exceed 5% of the
value of the Fund's net assets; included within the 5%, but not in excess of 2%
of the Fund's net assets, may be warrants which are not listed on the New York
or American Stock Exchanges.
(4) Purchase or retain the securities of any issuer if the officers,
directors, advisors or managers of the Fund owning beneficially more than 0.5%
of the securities of such issuer together own beneficially 5% of such
securities; provided no officer or director shall be deemed to own beneficially
securities held in other accounts managed by such person or held in employee or
similar plans for which such person acts as trustee.
(5) Purchase securities on margin or effect short sales of securities,
except that the Fund may obtain short-term credit
26
<PAGE> 67
necessary for the clearance of purchases and sales of its portfolio securities,
and except as required in connection with permissible options, futures, short
selling and leverage activities as described elsewhere in the Prospectus and
Statement of Additional Information.
(6) Invest more than 10% of its total assets in real estate investment
trusts.
For the Small Cap Contrarian Fund's limitations on futures and options
transactions, see "Investment Policies and Methods Limitations on Futures and
Options Transactions."
VALUE & INCOME FUND
The fundamental investment restrictions and policies of the Value &
Income Fund provide that such Fund may not:
(1) With respect to 75% of the Fund's total assets, invest more than 5%
of the fair market value of its assets in securities of any one issuer, other
than securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(2) Invest more than 10% of the fair market value of its total assets
in securities of any one issuer, other than securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities;
(3) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(4) Invest more than 25% of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities.
(5) Buy or sell real estate, real estate investment trusts, or oil and
gas interests or leases, but this shall not prevent the Fund from investing in
securities of companies whose business involves the purchase or sale of real
estate.
(6) Borrow money or property except for temporary or emergency
purposes. If the Fund ever should borrow money it would only borrow from banks
and in an amount not exceeding 10% of the market value of its total assets (not
including the amount borrowed). The Fund will not pledge more than 15% of its
net assets to secure such borrowings. In the event the Fund's borrowing exceeds
5% of the market value of its total assets the Fund will not invest in any
additional portfolio securities until its borrowings are reduced to below 5% of
its total assets. For purposes of these restrictions, collateral arrangements
for premium and margin payments in
27
<PAGE> 68
connection with the Fund's hedging activities are not to be deemed to be a
pledge of assets.
(7) Make loans, except that it may: (i) acquire publicly distributed
bonds, debentures, notes and other debt securities; (ii) lend portfolio
securities provided that no such loan may be made if as a result the aggregate
of such loans would exceed 30% of the value of the Fund's total assets; and
(iii) enter into repurchase agreements.
(8) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(9) Purchase a security if, as a result, more than 10% of the value of
the Fund's total assets would be invested in: (a) securities with legal or
contractual restrictions on resale (other than investments in repurchase
agreements); (b) securities for which market quotations are not readily
available; and (c) repurchase agreements which do not provide for payment within
7 days.
(10) Issue senior securities.
(11) Invest in commodities, but the Fund may invest in futures
contracts, options on futures, and options.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Value & Income Fund may not:
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(2) Invest in securities of other investment companies except as they
may be acquired as part of a merger, consolidation, reorganization or
acquisition of assets.
(3) Purchase warrants, except that the Fund may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Fund's net assets; included within the 5%, but not in excess of 2% of the
Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchanges.
(4) Purchase or retain the securities of any issuer if the officers,
directors, advisors or managers of the Fund owning beneficially more than 0.5%
of the securities of such issuer together own beneficially 5% of such
securities; provided no officer or director shall be deemed to own beneficially
securities held in other accounts managed by such person or held in employee or
similar plans for which such person acts as trustee.
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<PAGE> 69
(5) Purchase securities on margin or effect short sales of securities,
except as required in connection with permissible options and futures activities
as described elsewhere in the Prospectus and Statement of Additional Information
and except that the Fund may sell securities short where it either: (a) holds a
long position in the same security which equals or exceeds the number of shares
sold short; or (b) holds a long position in a security with respect to which
there has been a public announcement of a proposed transaction that would result
in the conversion of the securities so held into an equal or greater number of
shares of the securities sold short; provided that the Fund may not effect any
such short sale of securities if, as a result thereof, the aggregate value of
all of its open short positions would exceed 5% of the Fund's total assets, or
if more than 10% of the Fund's net assets would be held as collateral for such
short positions.
For the Value & Income Fund's limitations on futures and options
transactions, see "Investment Policies and Methods Limitations on Futures and
Options Transactions."
INVESTMENT POLICIES AND METHODS - MANAGEMENT
The Board of Directors of Heartland provides broad supervision over the
affairs of each Fund, and the officers are responsible for its operations. The
Directors and officers are listed below, together with their principal
occupations during the past five years. Subject to the direction of the Board of
Directors, Heartland Advisors is responsible for investment management of the
assets of each Fund. Although each Fund is offering only its own shares, it is
possible that one Fund might become liable for any misstatement in the
Prospectus about another Fund. The Board of Directors has considered this factor
in approving the use of a single combined prospectus.
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position with each Fund During Past Five Years
- ---------------- ----------------------- ----------------------
<S> <C> <C>
William J. Nasgovitz President and Director* President and Director
790 North Milwaukee Street Heartland Advisors,
Milwaukee, WI 53201 Inc., since 1982;
Senior Vice President
Investments, Dain
Bosworth Incorporated
from 1988 to June
1992; Director of
Rexworks, Inc., since
1992 (manufacturer of
heavy equipment);
Director of Capital
Investments, Inc.,
since 1989 (closed-end
investment company).
</TABLE>
29
<PAGE> 70
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position with each Fund During Past Five Years
- ---------------- ----------------------- ----------------------
<S> <C> <C>
Willard H. Davidson Director Financial and business
3726 North Lake Drive consultant since 1984;
Milwaukee, WI 53211 prior thereto,
Chairman and a
Director, Marine
Corporation (a bank
holding company) and
Marine Bank, N.A.
Hugh F. Denison Director* Vice President and a
790 North Milwaukee Street Director, Heartland
Milwaukee, WI 53201 Advisors, Inc. since
1988.
Jon D. Hammes Director President, Great Lakes
Suite 115 Partners, since 1991;
325 North Corporate Drive prior thereto, Managing
Brookfield, WI 53045 Partner, Trammel, Crow
Co.
Patrick J. Retzer Vice President, Vice President and
790 North Milwaukee Street Treasurer and Director* Trea- surer, Heartland
Milwaukee, WI 53201 Advisors, Inc. since
1987; Director of
Heartland Advisors,
Inc. since 1988.
A. Gary Shilling Director President, A. Gary
500 Morris Avenue Shilling & Company,
Springfield, NJ 07081-1020 Inc. (economic
consultants and
investment advisors),
since 1978.
Linda F. Stephenson Director President and Chief
100 East Wisconsin Avenue Executive Officer,
Milwaukee, WI 53202 Zigman Joseph
Stephenson (a public
relations and marketing
communications firm)
since 1989.
Lois Schmatzhagen Secretary Secretary, Heartland
790 North Milwaukee Street Advisors, Inc. since
Milwaukee, WI 53201 1988.
</TABLE>
- -------------------
*Directors who are "Interested Persons" (as defined in the 1940 Act) of
Heartland Advisors.
Heartland pays the compensation of the four Directors who are not
officers, directors or employees of Heartland Advisors. The following
compensation was paid to those Directors for their services during the fiscal
year ended December 31, 1994:
30
<PAGE> 71
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION PENSION OR ESTIMATED ACTUAL FROM HEARTLAND
FROM RETIREMENT BENEFITS UPON AND FUND
DIRECTOR HEARTLAND BENEFITS RETIREMENT COMPLEX
-------- ------------ ---------- ---------------- --------------
<S> <C> <C> <C> <C>
Willard H. Davidson $2,500 None None $2,500
Jon D. Hammes $2,000 None None $2,000
Linda F. Stephenson $2,000 None None $2,000
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September 30, 1995, the Directors and officers of Heartland
Group, Inc. as a group (8 persons) owned 63,087 (4.1%) of the shares of the
Value & Income Fund and less than 1% of the outstanding shares of the Value
Fund, the U.S. Government Securities Fund and the Small Cap Contrarian Fund. As
of such date, no person was known to management to own, beneficially or of
record, 5% or more, of the outstanding shares of any of the Funds, except that
Charles Schwab & Co., Inc., ATTN: Mutual Funds, 101 Montgomery Street, San
Francisco, CA 94104-4122 held of record 8,964,973 shares (or 22.7%) of the Value
Fund, 186,084 shares (or 12.2%) of the Value & Income Fund and 877,900 shares
(or 27.5%) of the Small Cap Contrarian Fund, Datalynx, P.O. Box 173736, Denver,
CO 80217-3736, held of record 166,631 shares (or 5.2%) of the Small Cap
Contrarian Fund, and Merrill Lynch Pierce Fenner & Smith, Inc., P.O. Box 41621,
Jacksonville, FL 33203-1621, held of record 451,700 shares (or 6.7%) of the U.S.
Government Securities Fund.
THE INVESTMENT ADVISOR
Each Fund is managed by Heartland Advisors, pursuant to an Investment
Advisory Agreement with respect to the Value Fund and a separate Investment
Advisory Agreement with respect to the Small Cap Contrarian Fund, the Value &
Income Fund and the U.S. Government Securities Fund (the "Agreements"). The
Agreements were most recently approved by the Board of Directors, including a
majority of the Directors who are not Interested Persons of the Fund or of
Heartland Advisors, on July 27, 1995.
Heartland Advisors is controlled by William J. Nasgovitz, a Director
and the President of Heartland, by virtue of his ownership of a majority of its
outstanding capital stock. In addition to serving as investment advisor,
Heartland Advisors also serves as the distributor for the shares of each Fund.
Heartland Advisors, founded in 1982, serves as the investment adviser for the
Heartland Wisconsin Tax Free and Nebraska Tax Free Funds, two additional series
of Heartland, and also provides investment management services for individuals,
and institutional accounts, such as pension funds and profit-sharing plans. As
of March 31, 1995, Heartland Advisors had approximately $1.1 billion in assets
under
31
<PAGE> 72
management. Mr. Nasgovitz intends to retain control of Heartland Advisors
through the continued ownership of a majority of its outstanding voting stock.
Heartland Advisors provides each Fund with overall investment advisory
and administrative services. Subject to such policies as the Board of Directors
may determine, Heartland Advisors makes investment decisions on behalf of each
Fund, makes available research and statistical data in connection therewith, and
supervises the acquisition and disposition of investments by each Fund,
including the selection of broker-dealers to carry out portfolio and hedging
transactions. Heartland Advisors will permit any of its officers or employees to
serve without compensation from the Funds as directors or officers of Heartland
if elected to such positions.
Heartland Advisors bears all of its own expenses in providing services
under the Agreements and pays all salaries, fees and expenses of the officers
and directors of Heartland who are affiliated with Heartland Advisors. Each Fund
bears all its other expenses including, but not limited to, necessary office
space, telephone and other communications facilities and personnel competent to
perform administrative, clerical and shareholder relations functions; a pro rata
portion of salary, fees and expenses (including legal fees) of those directors,
officers and employees of Heartland who are not officers, directors or employees
of Heartland Advisors; interest expenses; fees and expenses of the Custodian,
Agent and Dividend Disbursing Agent; taxes and governmental fees; brokerage
commissions and other expenses incurred in acquiring or disposing of portfolio
securities, expenses of registering and qualifying shares for sale with the
Securities and Exchange Commission and with various state securities
commissions; accounting and legal costs; insurance premiums; expenses of
maintaining the Fund's legal existence and of shareholder meetings; expenses of
preparation and distribution to existing shareholders of reports, proxies and
prospectuses; and fees and expenses of membership in industry organizations.
Each of the Value Fund and the Small Cap Contrarian Fund pays Heartland
Advisors an annual fee for its services at the rate of 0.75 of 1% of the
respective Fund's average daily net assets. While the advisory fee is larger
than the fee paid by most mutual funds, it is consistent with the fee paid by
funds with investment characteristics and objectives similar to that of the
Value Fund and the Small Cap Contrarian Fund. The Value & Income Fund pays
Heartland Advisors an annual fee for its advisory services at the rate of 0.70
of 1% of the Fund's average daily net assets. The advisory fee for the U.S.
Government Securities Fund is 0.65 of 1% of the first $100 million of the Fund's
average daily net assets, 0.50 of 1% of the next $400 million of assets, and
0.40 of 1% on assets in excess of $500 million. The advisory fees for the Funds
are payable in monthly installments.
32
<PAGE> 73
For the fiscal years ended December 31, 1992, 1993 and 1994, the Value
Fund paid advisory fees of $278,703, $990,902, and $1,985,370, respectively. For
the fiscal year ended December 31, 1994, the Value & Income Fund paid advisory
fees of $63,697 and for the period from October 26, 1993 (commencement of
operations) to December 31, 1993, the Value & Income Fund paid advisory fees of
$3,186. For the years ended December 31, 1992, 1993 and 1994, the U.S.
Government Securities Fund paid advisory fees of $97,900, $232,062 and $361,242,
respectively. During those periods, advisory fees provided under the U.S.
Government Securities Fund's Agreement totaled $184,562, $316,429 and $469,614,
respectively, but Heartland Advisors voluntarily waived $86,662, $84,367 and
$108,372, of the fees during those respective periods.
The Agreements provide that Heartland Advisors' fee will be reduced, or
Heartland Advisors will reimburse a Fund (up to the amount of its fee), by an
amount necessary to prevent the total expenses of a Fund (excluding taxes,
interests, brokerage commissions or transactions costs, distribution fees and
extraordinary expenses) from exceeding limits applicable to the Fund in any
state in which its shares are then qualified for sale. Presently the most
restrictive expense ratio limitation imposed by any state is 2-1/2% of the first
$30 million of a Fund's average net assets, 2% of the next $70 million and
1-1/2% of the remaining assets. For the purposes of these tests, average net
assets will be computed in the same manner as average daily net assets are
computed in determining the investment advisory fee. Such reimbursements would
be made monthly, subject to annual adjustment.
Each of the Agreements will continue in effect from year to year, as
long as it is approved at least annually by the Board of Directors or by a vote
of the outstanding voting securities of the appropriate Fund and in either case
by a majority of the Directors who are not parties to the Agreement or
interested persons of any such party. Each Agreement terminates automatically if
it is assigned and may be terminated without penalty by either party on not more
than 60 nor less than 30 days' notice. Each Agreement provides that neither
Heartland Advisors nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for any act
or omission in the execution and management of the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
Agreement.
PERFORMANCE INFORMATION
From time to time the Funds may advertise their "yield" and "total
return." Yield is based on historical earnings and total return is based on
historical distributions; neither is intended to indicate future performance.
The "yield" of a Fund refers to the income generated by an investment in that
Fund over a one-month
33
<PAGE> 74
period (which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
the month is assumed to be generated each month over a twelve-month period and
is shown as a percentage of the investment. "Total return" of the Funds refers
to the annual average return for 1, 5 and 10-year periods (or the portion
thereof during which a Fund has been in existence). Total return is the change
in redemption value of shares purchased with an initial $1,000 investment,
assuming the reinvestment of dividends and capital gain distributions and the
redemption of the shares at the end of the period. Prior to June 1, 1994, shares
of the Funds had been sold subject to a contingent deferred sales charge and
prior to February 12, 1993, shares of the Value and U.S. Government Securities
Funds had been sold subject to an initial sales charge, neither of which is
reflected in the total return figures, rather the figures reflect the current
no-load sales structure.
Performance information should be considered in light of the particular
Fund's investment objectives and policies, characteristics and quality of its
portfolio securities and the market conditions during the applicable period, and
should not be considered as a representation of what may be achieved in the
future. Investors should consider these factors and possible differences in the
methods used in calculating performance information when comparing a Fund's
performance to performance figures published for other investment vehicles.
Average annual total return is computed by finding the average annual
compounded rates of return over the 1, 5 and 10-year periods (or the portion
thereof during which a Fund has been in existence) ended on the date of the
respective Fund's balance sheet that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
P(1+T)n=ERV
Where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value for a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10-
year periods at the end of the 1, 5 and 10-year
period (or fractional portion thereof).
34
<PAGE> 75
In some circumstances a Fund may advertise its total return for a 1, 2
or 3-year period, or the total return since the Fund commenced operations. In
such circumstances the Fund will adjust the values used in computing return to
correspond to the length of the period for which the information is provided.
The average annual total return for the Value Fund for the one-year,
five-year and ten-year periods ended June 30, 1995 and the average annual total
return for the U.S. Government Securities Fund for the one-year and five-year
periods ended June 30, 1995 and for the period from April 9, 1987 (commencement
of operations) to June 30, 1995, and the average annual total return for the
Value & Income Fund for the one-year period ended June 30, 1995 and for the
period from October 26, 1993 (commencement of operations) to June 30, 1995 are
as follows:
<TABLE>
<CAPTION>
10 Years
or, if Less,
From
Commencement
1 Year 5 Years of Operations
------ ------- -------------
<S> <C> <C> <C>
Heartland Value Fund.......... 19.16% 18.95% 14.86%
Heartland Value & Income
Fund........................ 16.16 N/A 10.37%
Heartland U.S. Government
Securities Fund............. 9.35% 10.13% 8.90%
</TABLE>
Yield quotations are based on a 30-day (or one-month) period, and are
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield=2[(a-b+1)6-1]
---
cd
Where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimburse-
ments);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends; and
d = the maximum offering price per share on the last
day of the period.
35
<PAGE> 76
Since the Value Fund's investment objective is long-term capital
appreciation, this Fund will typically not calculate or advertise its yield. The
yield for the Value & Income Fund for the month ended June 30, 1995 was 4.5%.
The yield for the U.S. Government Securities Fund for the month ended June 30,
1995 was 6.4%. When advertising yield, a Fund will not advertise a one-month or
a 30-day period which ends more than 45 days before the date on which the
advertisement is published.
DETERMINATION OF NET ASSET VALUE PER SHARE
Each Fund's shares are sold at their next determined net asset value
per share. Each Fund determines the net asset value per share by subtracting the
Fund's liabilities (including accrued expenses and dividends payable) from the
Fund's total assets (the value of the securities a Fund holds plus cash or other
assets, including interest accrued but not yet received) and dividing the result
by the total number of shares outstanding.
The next determined net asset value per share will be calculated as of
the close of regular trading on the New York Stock Exchange at least once every
weekday, Monday through Friday, except on (i) customary national business
holidays which result in the closing of the New York Stock Exchange which are
New Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas; (ii) days when no security is
tendered for redemption and no customer order is received; or (iii) days when
changes in the value of the investment company's portfolio securities do not
affect the current net asset value of the Fund's redeemable securities.
Portfolio securities which are traded on stock exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued, or, lacking any sales, at the mean between closing bid and asked prices.
Each over-the-counter security for which the last sale price on the day of
valuation is available from NASDAQ and falls within the range of the latest bid
and asked quotations is valued at that price. All other securities traded in the
over-the-counter market are valued at the most recent bid prices as obtained
from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market.
Foreign securities are valued at the last sale price in the principal
market where they are traded, or, if last sale prices are unavailable, at the
last bid price available prior to the time the Fund's net asset value is
determined. Foreign securities prices may be furnished by quotation services who
express the value of securities in their local currency. Heartland Advisors
translates the value of foreign securities from the local currency into U.S.
dollars at current exchange rates. Any changes in the value of forward contracts
due to exchange rate fluctuations are included in
36
<PAGE> 77
the determination of net asset value. Because foreign securities markets may
close prior to the time a Fund determines its net asset value, events affecting
the value of portfolio securities occurring between the time securities prices
are determined and the time the Fund calculates its net asset value may not be
reflected in the Fund's calculation.
Securities and other assets for which quotations are not readily
available will be valued at their fair value as determined by the Board of
Directors.
DISTRIBUTION OF SHARES
Heartland Advisors, each Fund's investment advisor, also acts as the
distributor of the shares of each Fund. Prior to April 3, 1992, Dain Bosworth
Incorporated ("Dain Bosworth"), Dain Bosworth Plaza, 60 South Sixth Street,
Minneapolis, MN 55402-4422 , served as the distributor of each Fund's shares.
Heartland Advisors has agreed to use its "best-efforts" to distribute
each Fund's shares, but has not committed to purchase or sell any specific
number of shares. The Distribution Agreement for the Funds is renewable annually
by the vote of the directors at a meeting called for such purpose and may be
terminated upon 60 days' written notice by either party. The Distribution
Agreement will automatically terminate in the event of its assignment. Under the
Agreement, Heartland Advisors will pay for the costs and expenses of preparing,
printing and distributing materials not prepared by the Fund and used by
Heartland Advisors in connection with its offering of shares for sale to the
public, including the additional costs of printing copies of the prospectus and
of annual and interim reports to shareholders other than copies required for
distribution to shareholders or for filing under the federal securities laws,
and any expenses of advertising incurred by Heartland Advisors in connection
with the offering of the shares.
For the fiscal year ended December 31, 1994, Heartland Advisors
received contingent deferred sales charges with respect to redemptions of shares
of the Value Fund, the Value & Income Fund and the U.S. Government Securities
Fund in the amounts of $239,548, $13,392 and $118,949, respectively. For the
fiscal year ended December 31, 1993, Heartland Advisors received contingent
deferred sales charges with respect to redemptions of shares of the Value Fund
and U.S. Government Securities Fund in the amounts of $139,549 and $14,060,
respectively. For the period from October 26, 1993 through December 31, 1993,
Heartland Advisors received contingent deferred sales charges with respect to
redemptions of shares of the Value & Income Fund in the amount of $69. For the
period from April 3, 1992 (the date on which Heartland Advisors first began
serving as distributor) through December 31, 1992, Heartland Advisors received
commissions on purchases of shares of the Value Fund and U.S. Government
Securities Fund in the amounts of $164,205
37
<PAGE> 78
and $80,307, respectively, of which $62,323 and $17,341 were retained by
Heartland Advisors.
DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan, which is described in the
Prospectus (see "The Distribution Plan"). Under each Plan, Heartland Advisors
provides the Directors for their review promptly after the end of each quarter a
written report setting forth all amounts expended under the Plan, including all
amounts paid to dealers as distribution or service fees. In approving the Plan
in accordance with the requirements of Rule 12b-1, the Directors considered
various factors, including the amount of the distribution fee. The Directors
determined that there is a reasonable likelihood that the Plan of each
respective Fund will benefit the Fund and the shareholders of the Fund.
Each Plan may be terminated by vote of a majority of the Directors who
are not interested persons, or by vote of a majority of the outstanding voting
securities of the Fund. Any change in the Plan that would materially increase
the distribution cost to the Fund requires shareholder approval; otherwise, it
may be amended by the Directors, including a majority of the Directors who are
not interested persons, by vote cast in person at a meeting called for the
purpose of voting upon such amendment. So long as a Distribution Plan is in
effect, the selection or nomination of the Directors who are not interested
persons is committed to the discretion of such Directors.
The Distribution Plan of a Fund may be terminated by the Directors at
any time on 60 days written notice without payment of any penalty by Heartland
Advisors, by vote of a majority of the outstanding voting securities of the
Fund, or by vote of a majority of the Directors who are not interested persons.
Each Distribution Plan will continue in effect for successive one-year
periods, if not sooner terminated in accordance with its terms, provided that
each such continuance is specifically approved by the vote of the Directors,
including a majority of the Directors who are not interested persons.
During the fiscal year ended December 31, 1994, the Value Fund paid
$708,460 under its Plan, of which $470,347 was spent on compensation to dealers,
financial institutions and other service providers, $143,325 was spent on
printing and mailing prospectuses and sales literature to other than current
shareholders and $94,788 was spent on advertising. During the fiscal year ended
December 31, 1994, the Value & Income Fund paid $24,176 under its Plan, of which
$8,424 was spent on compensation to dealers, financial institutions and other
service providers, $13,492 was spent on printing and mailing prospectuses and
sales literature to other than current shareholders and $2,260 was spent on
38
<PAGE> 79
advertising. During the fiscal year ended December 31, 1994, the U.S. Government
Securities Fund paid $204,650 under its Plan, of which $105,918 was spent on
compensation to dealers, financial institutions and other service providers,
$51,735 was spent on printing and mailing prospectuses and sales literature to
other than current shareholders and $46,997 was spent on advertising.
TAX STATUS
The information in this section supplements that in the Prospectus (see
"Dividends, Capital Gains Distributions And Taxes").
Each series of a series company, such as Heartland is treated as a
single entity for federal income tax purposes, so that the net realized capital
gains and losses of one series are not combined with those of another series in
the same company.
Gain or loss on the sale of securities held by a Fund for more than one
year will generally be long-term capital gain or loss. Gain or loss on the sale
of securities held for one year or less will be short-term capital gain or loss.
If a shareholder exchanges shares of one Fund for shares of another
Fund, the shareholder will recognize gain or loss for federal income tax
purposes. That gain or loss will be measured by the difference between the
shareholder's basis in the shares exchanged and the value of the shares
acquired.
It is possible that each Fund's income dividends may, to the extent
such dividends consist of interest from obligations of the U.S. Government and
certain of its agencies and instrumentalities, be exempt from all state and
local income taxes. Each Fund intends to advise shareholders of the proportion
of its dividends which consist of such interest. Shareholders are urged to
consult their tax advisers regarding the possible exclusion of such portion of
their dividends for state and local income tax purposes.
DESCRIPTION OF SHARES
In the interest of economy and convenience, certificates representing
shares purchased are not ordinarily issued. However, such purchases are
confirmed to the investor and credited to their accounts on the books maintained
by Firstar Trust Company (the "Agent"), Milwaukee, Wisconsin. The investor will
have the same rights of ownership with respect to such shares as if certificates
had been issued. Investors may receive a certificate representing whole shares
by specifically requesting one by letter to the Agent. If a stock certificate is
requested, it will not be sent for at least 14 days. The Directors require
payment of any lost instrument bond premiums or federal and state taxes due in
connection
39
<PAGE> 80
with the replacement of certificates and may require a fee for each new stock
certificate that is issued by the Fund not connected with the purchase of new
shares.
Shareholders have the right to vote on the election of directors at
each meeting of shareholders at which directors are to be elected and on other
matters as provided by law or the Articles of Incorporation or Bylaws of
Heartland. Heartland's Bylaws do not require that meetings of shareholders be
held annually. However, special meetings of shareholders may be called for
purposes such as electing or removing directors, changing fundamental policies
or approving investment advisory contracts. Shareholders of each series of a
series company, such as Heartland, vote together with each share of each series
in the company on matters affecting all series (such as election of directors),
with each share entitled to a single vote. On matters affecting only one series
(such as a change in that series' fundamental investment restrictions), only the
shareholders of that series are entitled to vote. On matters relating to all the
series but affecting the series differently (such as a new Investment Advisory
Agreement), separate votes by series are required.
PORTFOLIO TRANSACTIONS
The information in this section supplements the information in
the Prospectus under "Portfolio Transactions."
Allocation of the portfolio brokerage transactions, including their
frequency, to various dealers is determined by Heartland Advisors in its best
judgment and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt and efficient execution of orders in an effective manner
at the most favorable price. Subject to this consideration, dealers who provide
supplemental investment research, statistical or other services to Heartland
Advisors may receive orders for transactions by the Funds. Information so
received will enable Heartland Advisors to supplement its own research and
analysis with the views and information of other securities firms, and may be
used for the benefit of clients of Heartland Advisors other than one of the
Funds. Research services may include advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; the availability
of securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). Each Fund may also consider sales of its own shares or the shares
of other Heartland funds, or both, as a factor in the selection of
broker-dealers to execute portfolio transactions, subject to the policy of
obtaining best price and execution.
40
<PAGE> 81
For particular transactions, the Funds may pay higher commissions to
brokers (other than Heartland Advisors or its affiliates) than might be charged
if a different broker had been selected, if, in Heartland Advisor's opinion,
this policy furthers the objective of obtaining best price and execution. The
allocation of orders among brokers and the commission rates paid will be
reviewed periodically by Heartland's Board of Directors.
Subject to the above considerations, Heartland Advisors may itself
effect portfolio transactions as a broker for the Funds. The commissions, fees
or other remuneration received by Heartland Advisors must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities or commodities exchange, or on the National
Association of Securities Dealers Automated Quotation System during a comparable
period of time. This standard would allow Heartland Advisors to receive no more
than the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arms' length transaction. Furthermore, the Board of
Directors, including a majority of the directors who are not interested persons,
have adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to Heartland Advisors are
consistent with the foregoing standard. Brokerage transactions with Heartland
Advisors are also subject to such fiduciary standards as may be imposed upon
Heartland Advisors by applicable law.
Prior to April 3, 1992, Dain Bosworth served as the distrib-
utor of the shares of both the Value and U.S. Government Securities
Funds. Mr. Nasgovitz was an employee of Dain Bosworth at that
time, in addition to his positions with the Funds and Heartland
Advisors.
For the period from April 3, 1992 (the date on which Heartland Advisors
first began serving as distributor) through December 31, 1993, the aggregate
amount of brokerage commissions paid to Heartland Advisors was $214,822 for the
Value Fund, $3,587 for the Value & Income Fund (for the period from October 26,
1993, commencement of operations, to December 31, 1993), and $4,800 for the U.S.
Government Securities Fund.
During the fiscal year ended December 31, 1993, the Value Fund and the
U.S. Government Securities Fund paid $198,964 and $0, respectively, in brokerage
commissions to Heartland Advisors. For the period from October 26, 1993
(commencement of operations) to December 31, 1993, the Value & Income Fund paid
a total of $3,587 in brokerage commissions to Heartland Advisors.
During the fiscal year ended December 31, 1994, the Value Fund paid a
total of $833,464 in brokerage commissions on $136,184,587 of transactions, of
which $235,899 (or 28.3%) was paid to Heartland Advisors for effecting
$44,986,959 of transactions, or
41
<PAGE> 82
approximately 33% of the dollar value of portfolio transactions for which a
brokerage commission was paid. During the fiscal year ended December 31, 1994,
the Value & Income Fund paid a total of $36,958 in brokerage commissions on
$10,725,042 of transactions, of which $12,195 (or 33%) was paid to Heartland
Advisors for effecting $4,092,314 of transactions, or approximately 38.2% of the
dollar value of portfolio transactions for which a brokerage commission was
paid. During that year, the U.S. Government Securities Fund paid a total of
$10,751 in brokerage commissions on $71,605,480 of transactions, none of which
was paid to Heartland Advisors.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company acts as Custodian of each Fund's investments, and
acts as Transfer and Dividend Disbursing Agent (the "Custodian" and the "Agent",
respectively). Its address is Mutual Funds Services, 3rd Floor, P.O. Box 701,
Milwaukee, Wisconsin 53201-0701.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Quarles & Brady serves as legal counsel for the Funds. Arthur Andersen
LLP, independent public accountants, are auditors of the Funds.
FINANCIAL STATEMENTS
The audited financial statements, related notes and related reports of
Arthur Andersen LLP, independent public accountants, contained in the respective
Annual Reports to Shareholders of the Value Fund, Value & Income Fund and U.S.
Government Securities Fund as of December 31, 1994 and for the fiscal year then
ended, together with the unaudited financial statements and related notes
contained in the respective Semi-Annual Reports to Shareholders of the Value
Fund, Value & Income Fund and U.S. Government Securities Fund as of June 30,
1995 and for the six-months then ended, are hereby incorporated by reference.
Copies of the Annual and Semi-Annual Reports may be obtained without charge by
writing to Heartland Advisors, Inc., 790 North Milwaukee Street, Milwaukee,
Wisconsin 53202, or by calling 1-800-HEARTLN or (414) 347-7777.
The following pages present unaudited financial statements of the Small
Cap Contrarian Fund as of September 30, 1995 and for the period from April 27,
1995 through September 30, 1995. In the opinion of management of Heartland, all
adjustments, consisting only of normal recurring adjustments which are necessary
for a fair presentation of the results of operations for the interim period
ended September 30, 1995 are reflected.
42
<PAGE> 83
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
April 27, 1995 (1)
through
September 30, 1995
(Unaudited)
------------------
<S> <C>
Net asset value, beginning of period............................. $ 10.00
Income from investment operations:
Net investment income ....................................... 0.04
Net realized and unrealized gains (losses) on securities..... 1.65
-------
Total from investment operations............................. 1.69
Less distributions:
Dividends from net investment income........................ --
Distributions from net realized gains........................ --
-------
Total distributions.......................................... --
Net asset value, end of period................................... $ 11.69
=======
Total return .................................................... 16.90%(2)
Supplemental data and ratios
Net assets, end of period (in thousands)..................... $37,271
Ratio of expenses to average net assets...................... 1.45%(3)
Ratio of net investment income to average net assets......... 1.90%(3)
Portfolio turnover rate...................................... 37%(3)
</TABLE>
(1) Commencement of operations
(2) Not annualized
(3) Annualized
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE> 84
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
STATEMENTS OF CHANGES IN NET ASSETS
For the period from April 27, 1995
(commencement of operations)
to September 30, 1995
(Unaudited)
<TABLE>
<S> <C>
OPERATIONS:
Net investment income.................................................................... $ 133,782
Net realized gains on investments........................................................ 524,298
Net increase in unrealized appreciation on investments .................................. 869,530
-----------
Net increase in net assets resulting from operations....................... 1,527,610
-----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (3,605,371 shares)........................................... 40,497,820
Cost of shares redeemed (415,779 shares)................................................. (4,754,114)
-----------
Net increase in net assets derived from Fund share activities............. 35,743,706
-----------
TOTAL INCREASE .......................................................................... 37,271,316
TOTAL INCREASE AND NET ASSETS AT SEPTEMBER 30, 1995................................................ $37,271,316
===========
</TABLE>
The accompanying notes to financial statements are an integral part of
this statement.
<PAGE> 85
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at quoted market value (cost $36,716,103)........ $37,781,878
Cash........................................................................ 11,451
Deposits with brokers for securities sold short............................. 1,195,373
Variation margin on open futures contract................................... 6,000
Receivable from fund shares sold............................................ 37,373
Receivable from securities sold short....................................... 3,150,054
Accrued dividends and interest.............................................. 10,367
Deferred organization expense (Note 3)...................................... 28,630
------------
Total Assets......................................................... 42,221,126
------------
LIABILITIES:
Securities sold short, at current market value (proceeds $3,150,054)........ 3,359,938
Payable for investments purchased........................................... 888,049
Payable for fund shares redeemed............................................ 652,630
Payable to transfer agent................................................... 4,990
Payable to Distributor for distribution fees (Note 2)....................... 15,573
Payable to Advisor for deferred organization expenses (Note 3).............. 28,630
------------
Total Liabilities.................................................... 4,949,810
------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES
($.001 par value, 100,000,000 shares authorized, 3,189,592 shares
outstanding)................................................................ $37,271,316
===========
NET ASSET VALUE PER SHARE
Net asset value and offering price per share ($.001 par value, 100,000,000
shares authorized [$37,271,316 -- 3,189,592 shares outstanding])............ $ 11.69
===========
</TABLE>
The accompanying notes to financial statements are an integral part
of this statement.
<PAGE> 86
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
STATEMENT OF OPERATIONS
For the period ending September 30, 1995 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................... $ 223,722
Dividends.................................................................. 12,572
----------
Total investment income................................................ 236,294
----------
EXPENSES:
Management fees (Note 2)................................................... 52,073
Transfer agent fees........................................................ 34,108
Custodian fees............................................................. 3,684
Amortization of organization expenses (Note 3)............................. 3,537
Legal fees................................................................. 2,364
Registration fees.......................................................... 2,300
Distribution fees (Note 2)................................................. 1,785
Printing and communications................................................ 1,339
Postage.................................................................... 1,290
Other operating expenses................................................... 32
----------
Total expenses........................................................ 102,512
----------
Net investment income................................................. 133,782
----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS-NET:
NET REALIZED GAINS ON INVESTMENTS.......................................... 524,298
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS FOR THE PERIOD...... 869,530
----------
NET GAINS ON INVESTMENTS................................................... 1,393,828
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $1,527,610
==========
</TABLE>
The accompanying notes to financial statements are an integral part of
this statement.
<PAGE> 87
HEARTLAND SMALL CAP CONTRARIAN FUND
(A Series of Heartland Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 (Unaudited)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The Heartland Small Cap Contrarian Fund ("The Fund") is a separate series of
Heartland Group, Inc. The assets and liabilities of each portfolio of
Heartland Group, Inc. are segregated with a shareholder's interest limited to
the portfolio in which the shareholder owns shares. The following is a
summary of significant accounting policies of the Fund:
(a) Each security is valued at the last sale price reported by the principal
security exchange on which the issue is traded, or if no sale is reported,
the latest bid price. Net realized gains and losses on investments are
computed on the first-in, first-out cost method. Short-term investments are
recorded at cost which approximates market. Debt securities having maturities
of 60 days or less may be valued at acquisition cost, plus or minus any
amortized discount or premium.
(b) Provision has not been made for Federal income taxes since the Fund has
elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies.
(c) Net investment income and undistributed capital gains are distributed to
shareholders annually and recorded on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting principles.
To the extent these book and tax differences are permanent in nature, such
amounts are re-classified to paid-in capital in excess of par value.
(d) The Fund records security transactions at cost no later than the first
business day after the trade date. The cost amount as reflected in the
Schedule of Investments is the same for Federal income tax purposes.
(e) The Fund may enter into futures contracts to provide protection against
adverse movements in the prices of securities in the portfolio. Upon entering
into futures contracts, the Fund pledges to the broker stock or U.S.
government securities equal to the minimum "initial margin" requirements of
the exchange. Additionally, the Fund receives from or pays to the broker an
amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin," and are recorded by the
Fund as unrealized gains or losses. When the futures contract is closed, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it
was closed.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statements of assets and
liabilities. The predominant risk is that the movement of the futures
contracts price may result in a loss which could render the portfolio's
hedging strategy unsuccessful. Futures contracts open at September 30, 1995,
were as follows:
<TABLE>
<CAPTION>
Collateral Contracts Expiration Unrealized Appreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock: 12 S&P 500 Dec 1995 $13,640
15,000 ICN Pharmaceuticals Short
</TABLE>
<PAGE> 88
2) INVESTMENT ADVISOR, MANAGEMENT AGREEMENT AND TRANSACTIONS WITH
RELATED PARTIES.
The Fund has a management agreement with Heartland Advisors, Inc. (the
"Advisor") with whom certain officers and directors of the Fund are
affiliated, to serve as investment advisor and manager. Under the terms of
the agreement, the Fund will pay the Advisor a monthly management fee at the
annual rate of .75% of the daily net asset value of the Fund.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Distributor is Heartland
Advisors, Inc. (The "Distributor") with whom certain officers and directors
of the Fund are affiliated. The Plan requires the Fund to pay the Distributor
a quarterly distribution fee on an annual basis up to .25% of its daily net
assets. In addition, for the period April 27, 1995 (commencement of
operations) to September 30, 1995, the Distributor received $33,305 from the
Fund for brokerage fees on the execution of purchases and sales of portfolio
investments.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the
Board of Directors of the Fund has adopted a plan which will allow the Fund,
under certain conditions described in the Rule, to acquire newly-issued
securities from syndicates in which the Distributor is a member.
3) 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 Fund 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 September 30, 1995 were $28,630.
4) INVESTMENT TRANSACTIONS.
For the period from April 27, 1995 (commencement of operations) to September
30, 1995, the cost of purchases and the proceeds from sales of investment
securities (excluding short-term securities) were $26,488,180 and $2,132,863,
respectively.
5) SOURCES OF NET ASSETS.
As of September 30, 1995, the sources of net assets were as follows:
<TABLE>
<S> <C>
Fund shares issued and outstanding.................................... $35,743,706
Net unrealized appreciation on investments and futures................ 869,530
Accumulated net realized gains on investments......................... 524,298
Undistributed net income.............................................. 133,782
-----------
$37,271,316
===========
Aggregate gross unrealized appreciation (depreciation) as of
September 30, 1995, based on investment cost for Federal income tax
purposes is as follows:
Aggregate gross unrealized appreciation............................... $ 1,970,917
Aggregate gross unrealized depreciation............................... (1,115,027)
Unrealized appreciation on open futures contracts..................... 13,640
-----------
Net unrealized appreciation on investments and futures contracts...... $ 869,530
===========
</TABLE>
<PAGE> 89
APPENDIX A
SECURITIES RATINGS
GENERAL
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards as to the creditworthiness of an issuer.
Consequently, Heartland Advisors believes that the quality of debt securities in
which the Funds invest should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell or hold a security,
because it does not take into account market value or suitability for a
particular investor. When a security has received a rating from more than one
service, each rating should be evaluated independently. Ratings are based on
current information furnished by the issuer or obtained by the rating services
from other sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
The following is a description of the characteristics of bond ratings
used by Moody's Investors Service, Inc. and Standard & Poor's Corporation.
RATINGS BY MOODY'S
Aaa -- Bonds which are rated in category Aaa are judged to be of the
best quality and carry the smallest degree of investment risk. Interest payments
are protected by a large or by an exceptionally stable margin, and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds which are rated in category Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities.
A -- Bonds which are rated in category A are judged to possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be
A-1
<PAGE> 90
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unrealizable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact may have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to the Aa through
B rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
RATINGS BY STANDARD & POOR'S
AAA -- This is the highest rating category assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong capacity to pay
interest and repay principal.
AA -- Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A-2
<PAGE> 91
A -- Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB -- Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major on-going uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest
is being paid.
D -- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made
A-3
<PAGE> 92
during such grace period. The D rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Standard & Poor's ratings, from AA to CCC, may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
A-4
<PAGE> 93
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction To The Funds 2
Investment Policies And Methods 2
Investment Restrictions 22
Investment Policies And Methods - Management 29
Control Persons And Principal Holders Of Securities 31
The Investment Advisor 31
Performance Information 33
Determination Of Net Asset Value Per Share 36
Distribution Of Shares 37
Distribution Plan 38
Tax Status 39
Description Of Shares 39
Portfolio Transactions 40
Custodian And Transfer And Dividend Disbursing Agent 42
Counsel And Independent Public Accountants 42
Financial Statements 42
HEARTLAND VALUE FUND
HEARTLAND SMALL CAP CONTRARIAN FUND
HEARTLAND VALUE & INCOME FUND
HEARTLAND U.S. GOVERNMENT SECURITIES FUND
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Investment Advisor and Distributor
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Custodian, Transfer and Dividend Disbursing Agent
Firstar Trust Company
Mutual Funds Services, Third Floor
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Counsel
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Auditor
Arthur Andersen LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
</TABLE>
<PAGE> 94
Part C. Other Information.
Item 24. Financial Statements and Exhibits
(a) Financial Statements and related footnotes for each
of the Heartland Funds included or incorporated by
reference in Part B are:
(1) Reports of Independent Public Accountants
(2) Statement of Net Assets
(3) Statement of Changes in Net Assets
(4) Statement of Operations
(b) Exhibits:
See Exhibit Index following the signature page of
this registration statement, which index is
incorporated herein by this reference.
Item 25. Persons Controlled by or under Common Control with Registrant
Not Applicable. See "Control Persons and Principal Holders of
Securities" in Part B.
Item 26. Number of Holders of Securities
On September 29, 1995, the number of record holders of each
class of securities of the Registrant was:
<TABLE>
<CAPTION>
Number of Holders of
Fund Record of Common Stock
- ----------------------------------------- ----------------------
<S> <C>
Heartland Value Fund 106,447
Heartland Small Cap Contrarian Fund 4,839
Heartland Value & Income Fund 2,002
Heartland U.S. Government Securities Fund 3,549
Heartland Wisconsin Tax Free Fund 3,424
Heartland Nebraska Tax Free Fund 586
</TABLE>
Item 27. Indemnification
Reference is made to Article IX of the Registrant's Bylaws
filed as Exhibit No. 2 to Registrant's Registration Statement
with respect to the indemnification of Registrant's directors
and officers, which is set forth below:
<PAGE> 95
Section 9.1. Indemnification of Officers, Directors, Employees
and Agents. The Corporation shall indemnify each person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he is or was a
Director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a Director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against all expenses
(including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in
connection with such Proceeding to the fullest extent permitted
by law; provided that:
(a) whether or not there is an adjudication of
liability in such Proceeding, the Corporation
shall not indemnify any person for any
liability arising by reason of such person's
willful misfeasance, bad faith, gross
negligence, or reckless disregard of the
duties involved in the conduct of his office
or under any contract or agreement with the
Corporation ("disabling conduct"); and
(b) the Corporation shall not indemnify any
person unless:
(1) the court or other body before which
the Proceeding was brought (i) dismisses the
Proceeding for insufficiency of evidence of
any disabling conduct, or (ii) reaches a
final decision on the merits that such person
was not liable by reason of disabling
conduct; or
(2) absent such a decision, a reasonable
determination is made, based upon a review of
the facts, by (i) the vote of a majority of a
quorum of the Directors of the Corporation
who are neither interested persons of the
Corporation as defined in the Investment
Company Act of 1940 nor parties to the
Proceeding, or (ii) if such quorum is not
obtainable, or even if obtainable, if a
majority of a quorum of Directors described
in paragraph (b)(2)(i) above so directs, by
independent legal counsel in a written
opinion, that such person was not liable by
reason of disabling conduct.
-2-
<PAGE> 96
Expenses (including attorneys' fees) incurred
in defending a Proceeding will be paid by the
Corporation in advance of the final
disposition thereof upon an undertaking by
such person to repay such expenses (unless it
is ultimately determined that he is entitled
to indemnification),
(1) such person shall provide adequate
security for his undertaking;
(2) the Corporation shall be insured
against losses arising by reason of such
advance; or
(3) a majority of a quorum of the
Directors of the Corporation who are neither
interested persons of the Corporation as
defined in the Investment Company Act of 1940
nor parties to the Proceeding, or independent
legal counsel in a written opinion, shall
determine, based on a review of readily
available facts, that there is reason to
believe that such person will be found to be
entitled to indemnification.
Section 9.2. Insurance of Officers, Directors, Employees and
Agents. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a Director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted
against him and incurred by him in or arising out of his
position. However, in no event will the Corporation purchase
insurance to indemnify any such person for any act for which
the Corporation itself is not permitted to indemnify him.
Registrant undertakes that insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
-3-
<PAGE> 97
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Advisor
(a) Heartland Advisors, Inc.
Heartland Advisors, Inc. acts as the Investment
Advisor and Distributor to each of the Funds. William
J. Nasgovitz, a director and President of Heartland
Group, Inc., is a controlling person of Heartland
Advisors through his ownership of a majority of its
voting common stock. Mr. Nasgovitz has indicated he
intends to retain control of the Advisor through
continued ownership of a majority of its outstanding
voting stock.
Set forth below is a list of the officers and
directors of Heartland Advisors, Inc. as of January
31, 1995, together with information as to any other
business, profession, vocation or employment of a
substantial nature of those officers and directors
during the past two years:
-4-
<PAGE> 98
<TABLE>
<CAPTION>
Position
With Heartland
Name Advisors, Inc. Other
- ---- ------------------------ -----
<S> <C> <C>
William J. President and Director President and
Nasgovitz Director, Heartland
Group, Inc.
Patrick J. Director and Vice Vice President,
Retzer President, Treasurer Treasurer, and
Director, Heartland
Group, Inc.
Hugh F. Director and Director Director, Heartland
Denison of Research Group, Inc.
Lois J. Secretary Secretary, Heartland
Schmatzhagen Group, Inc.
</TABLE>
Item 29. Principal Underwriters
(a) Heartland Advisors, Inc. acts as the Distributor of
each of the Heartland funds shares. Heartland
Advisors, Inc. does not act as the principal
underwriter or distributor for any open-end mutual
funds other than the Heartland funds.
(b) See response to item 28(a) above.
(c) Not applicable.
Item 30. Location of Accounts and Records
(a) Heartland Group, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
(b) Firstar Trust Company
Mutual Funds Services, Third Floor
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
(c) Firstar National Bank-Milwaukee
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Item 31. Management Services
Not applicable
-5-
<PAGE> 99
Item 32. Undertakings
The Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered a copy of the Registrant's
latest annual report to shareholders, upon request and without
charge.
-6-
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Milwaukee, and
State of Wisconsin, on the 26th day of October, 1995.
HEARTLAND GROUP, INC.
By: WILLIAM J. NASGOVITZ
----------------------------------
WILLIAM J. NASGOVITZ
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed on this 26th day of
October, 1995, by or on behalf of the following persons in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
WILLIAM J. NASGOVITZ Director and President (Chief Executive Officer)
- ----------------------------------------
WILLIAM J. NASGOVITZ
PATRICK J. RETZER Director, Vice President and Treasurer (Chief Financial and
- ---------------------------------------- Accounting Officer)
PATRICK J. RETZER
HUGH F. DENISON Director
- ----------------------------------------
HUGH F. DENISON
/s/ A. Gary Shilling * Director
- ----------------------------------------
A. GARY SHILLING
/s/ Willard H. Davidson * Director
- ----------------------------------------
WILLARD H. DAVIDSON
/s/ Jon D. Hammes * Director
- ----------------------------------------
JON D. HAMMES
/s/ Linda F. Stephenson * Director
- ----------------------------------------
LINDA F. STEPHENSON
</TABLE>
* By: WILLIAM J. NASGOVITZ
---------------------------------------------------
WILLIAM J. NASGOVITZ
Pursuant to Power of Attorney dated April 27, 1995
C-7
<PAGE> 101
HEARTLAND GROUP, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints William J. Nasgovitz and Patrick J.
Retzer, or either of them, with full power of substitution, as his or her true
and lawful attorneys and agents, to execute in his or her name and on his or
her behalf, in any and all capacities, Heartland Group, Inc.'s Registration
Statement on Form N-1A (Registration No. 33-11371 under the Securities Act of
1933; File No. 811-4982 under the Investment Company Act of 1940) filed with
the Securities and Exchange Commission under both the Securities Act of 1933,
as amended and the Investment Company Act of 1940, as amended, together with
any and all other instruments which such attorneys and agents, or any of them,
deem necessary or advisable to enable Heartland Group, Inc. to comply with such
Acts and the rules, regulations and requirements of the Securities and Exchange
Commission and the securities or Blue Sky laws of any state or other
jurisdiction and the undersigned hereby ratifies and confirms as his or her own
act and deed any and all actions that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any such attorneys and
agents have, and may exercise, all of the powers confirmed herein.
IN WITNESS WHEREOF, each of the undersigned directors of Heartland
Group, Inc. has hereunto set his or her hand as of this 27th day of April,
1995.
WILLARD H. DAVIDSON HUGH F. DENISON
- ----------------------------- ------------------------------
Willard H. Davidson Hugh F. Denison
JON D. HAMMES WILLIAM J. NASGOVITZ
- ----------------------------- -------------------------------
Jon D. Hammes William J. Nasgovitz
PATRICK J. RETZER A. GARY SHILLING
- ----------------------------- -------------------------------
Patrick J. Retzer A. Gary Shilling
LINDA F. STEPHENSON
- -----------------------------
Linda F. Stephenson
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Numbered
Number Description Page
- ------- ----------- --------
<S> <C> <C>
1(a) Articles of Incorporation*
(b) Articles Supplementary to Articles of
Incorporation as filed with Maryland
Department of Assessments and Taxation
to create the series known as the
Heartland Wisconsin Tax Free Fund*
(c) Articles Supplementary to Articles of
Incorporation as filed with Maryland
Department of Assessments and Taxation
to create two series known as Heartland
Nebraska Tax Free Fund and Heartland
Value & Income Fund, respectively*
(d) Articles Supplementary to Articles of
Incorporation as filed with Maryland
Department of Assessments and Taxation
to redesignate the name of the
Heartland U.S. Government Fund to the
Heartland U.S. Government Securities
Fund*
(e) Articles Supplementary to Articles of
Incorporation as filed with Maryland
Department of Assessments and Taxation
to create the series known as the
Heartland Small Cap Contrarian Fund*
2 Amended and Restated By-Laws*
4(a) Form of specimen security for Heartland
Wisconsin Tax Free Fund*
(b) Form of specimen security for Heartland
Value Fund*
(c) Form of specimen security for Heartland
U.S. Government Fund*
5(a) Investment Advisory Agreement for
Heartland Value Fund*
5(b) Investment Advisory Agreement for
Heartland U.S. Government, Wisconsin
Tax Free, Nebraska Tax Free, Value &
Income and Small Cap Contrarian Funds*
</TABLE>
<PAGE> 103
<TABLE>
<S> <C>
6(a)(i) Distribution Agreement between
Heartland Group, Inc. and Heartland
Advisors, Inc.*
(a)(ii) Amendment No. 1 to Distribution Agree-
ment between Heartland Group, Inc. and
Heartland Advisors, Inc.*
(b) Form of Selected Dealer Agreements*
(c) Form of Selling Agreement for Banks*
8(a) Custodian Agreement*
(b) Transfer Agent/Dividend Disbursing
Agent Agreement*
9(a) Heartland Group, Inc.'s Rule 10f-3
Plan*
(b) Heartland Value Fund, Inc.'s Rule 10f-3
Plan*
10 Opinion of Quarles & Brady*
11(a) Consent of Arthur Andersen LLP*
(b) Consent of Quarles & Brady*
(c) Rule 438 Consent of Linda F. Stephenson*
13 Subscription Agreements*
14(a) Form of Model Retirement Plans*
(b) Form of Heartland Funds Individual Re-
tirement Account Agreement and Forms*
15(a) The Value Fund's Rule 12b-1 Plan*
(b) Heartland Group Inc.'s Amended and
Restated Rule 12b-1 Plan*
(c) Form of Related Distribution Agreement
for Rule 12b-1 Plan*
16(a) Schedules for Computation of Perfor-
mance Information for the Heartland
Value Fund and the Heartland U.S.
Government Fund*
</TABLE>
<PAGE> 104
<TABLE>
<S> <C>
(b) Schedules for Computation of Perfor-
mance Information for the Heartland
Wisconsin Tax Free Fund*
(c) Schedules for Computation of
Performance Information for the
Heartland Nebraska Tax Free Fund*
(d) Schedules for Computation of
Performance Information for the
Heartland Value & Income Fund*
27.1 Financial data schedule for the
Heartland Value Fund
27.2 Financial data schedule for the
Heartland Small Cap Contrarian Fund
27.3 Financial data schedule for the
Heartland Value & Income Fund
27.4 Financial data schedule for the
Heartland U.S. Government Securities
Fund
</TABLE>
- ------------------
*Previously filed and incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> HEARTLAND VALUE FUND
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 324,701,623
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 4,273,548
<ASSETS-OTHER> 10,605
<OTHER-ITEMS-ASSETS> 14,091,935
<TOTAL-ASSETS> 343,077,711
<PAYABLE-FOR-SECURITIES> 2,824,370
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 888,953
<TOTAL-LIABILITIES> 3,713,323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 325,256,030
<SHARES-COMMON-STOCK> 14,936,596
<SHARES-COMMON-PRIOR> 8,033,483
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,108,358
<NET-ASSETS> 339,364,388
<DIVIDEND-INCOME> 1,588,755
<INTEREST-INCOME> 710,079
<OTHER-INCOME> 0
<EXPENSES-NET> (3,667,549)
<NET-INVESTMENT-INCOME> (1,368,715)
<REALIZED-GAINS-CURRENT> 13,857,139
<APPREC-INCREASE-CURRENT> (10,922,622)
<NET-CHANGE-FROM-OPS> 1,565,802
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 12,488,424
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,982,846
<NUMBER-OF-SHARES-REDEEMED> 1,575,199
<SHARES-REINVESTED> 495,466
<NET-CHANGE-IN-ASSETS> 152,846,187
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,985,370
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,667,549
<AVERAGE-NET-ASSETS> 264,716,000
<PER-SHARE-NAV-BEGIN> 23.22
<PER-SHARE-NII> (.09)
<PER-SHARE-GAIN-APPREC> .47
<PER-SHARE-DIVIDEND> .0
<PER-SHARE-DISTRIBUTIONS> .88
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.72
<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 30, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH DOCUMENT.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> HEARTLAND SMALL CAP CONTRARIAN FUND
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-27-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 36,716,103
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 4,427,797
<ASSETS-OTHER> 11,451
<OTHER-ITEMS-ASSETS> (3,884,035)
<TOTAL-ASSETS> 37,271,316
<PAYABLE-FOR-SECURITIES> 888,049
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,061,761
<TOTAL-LIABILITIES> 4,949,810
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,743,706
<SHARES-COMMON-STOCK> 3,189,592
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 133,782
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 524,298
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 869,530
<NET-ASSETS> 37,271,316
<DIVIDEND-INCOME> 12,572
<INTEREST-INCOME> 223,722
<OTHER-INCOME> 0
<EXPENSES-NET> 102,512
<NET-INVESTMENT-INCOME> 133,782
<REALIZED-GAINS-CURRENT> 524,298
<APPREC-INCREASE-CURRENT> 869,530
<NET-CHANGE-FROM-OPS> 1,527,610
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,605,371
<NUMBER-OF-SHARES-REDEEMED> 415,779
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 37,271,316
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52,073
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 102,512
<AVERAGE-NET-ASSETS> 16,590,344
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.65
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.69
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> HEARTLAND VALUE & INCOME FUND
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 10,313,870
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 368,809
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> (644,258)
<TOTAL-ASSETS> 10,038,421
<PAYABLE-FOR-SECURITIES> 62,130
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 92,149
<TOTAL-LIABILITIES> 154,279
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,682,843
<SHARES-COMMON-STOCK> 1,037,119
<SHARES-COMMON-PRIOR> 556,258
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (154,443)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (644,258)
<NET-ASSETS> 9,884,142
<DIVIDEND-INCOME> 289,643
<INTEREST-INCOME> 266,224
<OTHER-INCOME> 0
<EXPENSES-NET> 161,779
<NET-INVESTMENT-INCOME> 394,088
<REALIZED-GAINS-CURRENT> (146,073)
<APPREC-INCREASE-CURRENT> (781,560)
<NET-CHANGE-FROM-OPS> (533,545)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 394,088
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 713,208
<NUMBER-OF-SHARES-REDEEMED> 267,351
<SHARES-REINVESTED> 35,004
<NET-CHANGE-IN-ASSETS> 4,073,158
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 63,697
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63,697
<AVERAGE-NET-ASSETS> 9,099,571
<PER-SHARE-NAV-BEGIN> 10.45
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> (.92)
<PER-SHARE-DIVIDEND> .41
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.53
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> HEARTLAND U.S. GOVERNMENT SECURITIES FUND
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 68,897,947
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 863,027
<ASSETS-OTHER> 65,208
<OTHER-ITEMS-ASSETS> 4,698,662
<TOTAL-ASSETS> 65,127,520
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 320,446
<TOTAL-LIABILITIES> 320,446
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 75,103,400
<SHARES-COMMON-STOCK> 7,275,315
<SHARES-COMMON-PRIOR> 6,363,307
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,597,664)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4,698,662)
<NET-ASSETS> 64,807,074
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,283,843
<OTHER-INCOME> 0
<EXPENSES-NET> 769,713
<NET-INVESTMENT-INCOME> 4,514,130
<REALIZED-GAINS-CURRENT> (5,597,664)
<APPREC-INCREASE-CURRENT> (6,692,365)
<NET-CHANGE-FROM-OPS> (7,775,899)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,514,130
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,520,667
<NUMBER-OF-SHARES-REDEEMED> 2,924,054
<SHARES-REINVESTED> 315,395
<NET-CHANGE-IN-ASSETS> (1,981,689)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 469,614
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 878,085
<AVERAGE-NET-ASSETS> 72,248,400
<PER-SHARE-NAV-BEGIN> 10.50
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> (1.59)
<PER-SHARE-DIVIDEND> .59
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.91
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
