HEARTLAND GROUP INC, 485APOS, 1996-10-18

HEARTLAND GROUP INC
485APOS, 1996-10-18

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<PAGE> 1

As filed with the Securities and Exchange Commission on October 18, 1996
Registration Nos. 33-11371
811-4982

================================================================================

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.
Post-Effective Amendment No. 28
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 30
--------
(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)
[ ] on (date) 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)
[x] on January 2, 1997 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, $0.01 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, 1995
was filed on February 28, 1996.

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<PAGE> 2

HEARTLAND GROUP, INC.

FORM N-1A

CROSS-REFERENCE SHEET

TO POST-EFFECTIVE AMENDMENT NO. 28

FORM N-1A
ITEM NO. PROSPECTUS HEADING
- --------- -------------------

PART A
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page

2. Synopsis . . . . . . . . . . . . . . . . . . . . . Fund Expenses

3. Condensed Financial Information . . . . . . . . . Performance Information

4. General Description of Registrant . . . . . . . . Description of Fund Shares; Investment Objectives and Policies;
Elements of Fixed Income Investing; Implementation of Policies
and Risks; Appendix A -Securities Ratings

5. Management of the Fund . . . . . . . . . . . . . . The Funds and the Heartland Organization; How to Buy Shares;
Net Asset Value Calculation; Portfolio Transactions

5A. Management's Discussion of Fund
Performance . . . . . . . . . . . . . . . . . . . Not applicable

6. Capital Stock and Other Securities . . . . . . . . Description of Fund Shares; Dividends, Distributions and Taxes;
Shareholder Services

7. Purchase of Securities Being Offered . . . . . . . How to Buy Shares; Net Asset Value Calculation; The
Distribution Plan

8. Redemption or Repurchase . . . . . . . . . . . . . How to Redeem Shares

9. Pending Legal Proceedings . . . . . . . . . . . . None

</TABLE>
<PAGE> 3

FORM N-1A
ITEM NO. PROSPECTUS HEADING
- --------- -------------------

PART B
<S> <C> <C>
10. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page

11. Table of Contents . . . . . . . . . . . . . . . . Outside Back Cover

12. General Information and History . . . . . . . . . Introduction to the Funds

13. Investment Objectives and Policies . . . . . . . . Investment Policies and Methods; Investment Risks and
Considerations

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 . . . . . . . . . . . . . . . Not applicable
</TABLE>

-3-
<PAGE> 4
HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND
HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND

Prospectus
January ___, 1997

The Heartland Short Duration High-Yield Municipal Fund and the
Heartland High-Yield Municipal Bond 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 January ___, 1997) 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 1-800-432-7856
or (414) 289-7000.

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.

THE FUNDS MAY INVEST UP TO 100% OF THEIR NET ASSETS IN LOWER-RATED
BONDS, COMMONLY KNOWN AS "JUNK BONDS." BONDS OF THIS TYPE ARE SUBJECT TO
GREATER RISKS WITH REGARD TO PAYMENT OF INTEREST AND RETURN OF PRINCIPAL,
INCLUDING DEFAULT RISKS, THAN ARE HIGHER-RATED BONDS. INVESTORS SHOULD
CAREFULLY CONSIDER THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUNDS. SEE
"RISK FACTORS."

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.

<PAGE> 5

INVESTMENT SUMMARY

HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND'S investment
objective is a high level of federally tax-exempt current income with a low
degree of share-price fluctuation. The Fund invests primarily in short and
intermediate term, medium and lower quality municipal obligations and maintains
an average portfolio duration of three years or less.

HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND'S investment objective is to
maximize after-tax total return by investing for a high level of federally
tax-exempt current income. The Fund invests primarily in medium and lower
quality municipal obligations. While there are no duration restrictions for
the Fund's obligations, it is anticipated that the Fund will maintain an
average portfolio duration of greater than five years.

<PAGE> 6

TABLE OF CONTENTS

Page
----
FUND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . 2

ELEMENTS OF FIXED INCOME INVESTING . . . . . . . . . . . . . . . . . . . 4

IMPLEMENTATION OF POLICIES AND RISKS . . . . . . . . . . . . . . . . . . 6

HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

OPENING AN ACCOUNT AND PURCHASING SHARES . . . . . . . . . . . . . . . . 12

SHAREHOLDER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . 15

DIVIDENDS, CAPITAL GAINS, DISTRIBUTIONS AND TAXES . . . . . . . . . . . . 17

THE FUNDS AND THE HEARTLAND ORGANIZATION . . . . . . . . . . . . . . . . 18

THE DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . 20

NET ASSET VALUE CALCULATION . . . . . . . . . . . . . . . . . . . . . . . 20

DESCRIPTION OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . 21

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 22

PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 23

HOW TO REDEEM SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 24

APPENDIX A - SECURITIES RATINGS

i
<PAGE> 7

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>
SHORT
DURATION HIGH-YIELD
HIGH-YIELD MUNICIPAL
SHAREHOLDER TRANSACTION EXPENSES MUNICIPAL FUND BOND FUND
- -------------------------------- -------------- --------------
<S> <C> <C>
Sales load on purchases None None
Sales load on reinvested dividends None None
Exchange fees None None
Redemption fees(1) None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management fees (after waivers)(2) .17% .25%
Rule 12b-1 fees (after waivers)(2) .10% .10%
Other expenses (after reimbursement)2 .13% .13%
---- ----
TOTAL FUND OPERATING EXPENSES (AFTER FEE WAIVERS AND .40% .48%
EXPENSE REIMBURSEMENT) ==== ====
</TABLE>

(1) The Agent charges a wire fee for the return of redemption proceeds
requested by wire transfer. The fee is currently $10.00. See "HOW TO
REDEEM SHARES."

(2) Other expenses set forth in the table for the Funds are based on
management's estimates for the current fiscal year. The Annual Fund
Operating Expenses shown in the table for each Fund give effect to
Heartland Advisors' commitment to waive the entire management and Rule
12b-1 fees and to reimburse all other expenses through July 31, 1997, and
the reinstatement of the full amounts of those fees and the discontinuance
of all expense reimbursement after that date. Without these waivers and
reimbursements, Annual Fund Operating Expenses would be as follows:
<PAGE> 8

<TABLE>
<CAPTION>
SHORT DURATION HIGH-YIELD
HIGH-YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
-------------- ----------
<S> <C> <C>
Management fees .40% .60%

Rule 12b-1 fees .25% .25%

Other expenses .30% .30%
---- ----

TOTAL .95% 1.15%
==== =====
</TABLE>

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming:
(1) 5% annual return; (2) redemption at the end of each time period; and, (3)
the fee waivers and expense reimbursements discussed above for a portion of the
first year:

<TABLE>
<CAPTION>
SHORT DURATION HIGH-YIELD
HIGH-YIELD MUNICIPAL
MUNICIPAL FUND BOND FUND
-------------- --------------
<S> <C> <C>
One year $4 $5

Three years $25 $30
</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.

INVESTMENT OBJECTIVES AND POLICIES

INVESTMENT OBJECTIVES. The Funds' investment objectives and, except as
otherwise specified, its investment policies are not fundamental, and therefore
may be changed by Heartland's Board of Directors. If there is a future change
in the investment objective, shareholders should consider whether the Funds
remain an appropriate investment in light of their then-current financial
position and needs. 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.

2
<PAGE> 9

The HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND'S investment
objective is a high level of federally tax-exempt current income with a low
degree of share-price fluctuation.

The Fund is designed for investors who are willing to accept some
fluctuation in principal in order to pursue a higher level of income than is
generally available from tax-exempt money market securities. BECAUSE ITS SHARE
PRICE WILL VARY, THE FUND IS NOT AN APPROPRIATE INVESTMENT FOR THOSE WHOSE
PRIMARY OBJECTIVE IS ABSOLUTE PRINCIPAL STABILITY.

The Fund invests primarily in medium and lower-quality municipal
obligations and maintains an average portfolio duration of three years or less.
Although there are no maturity restrictions for the individual obligations in
the portfolio, it is anticipated that the Fund will emphasize investments in
short and intermediate-term obligations. See "Investment Objectives and
Policies - Maturity and Duration."

Under normal market conditions, the Fund invests at least 65% of its
total assets in medium and lower quality municipal obligations. Medium quality
debt obligations are those rated in the fourth highest category (e.g., bonds
rated BBB by Standard & Poor's Corporation ("S&P")) or, if unrated, determined
by Heartland Advisors to be of comparable quality. Medium quality debt
obligations, although considered investment grade, have some speculative
characteristics. Lower quality bonds, commonly referred to as "non-investment
grade" bonds or "junk" bonds, are those rated below the fourth highest category
or, if unrated, determined by Heartland Advisors to be of comparable quality.
The Fund also may invest in debt obligations that are in default, but such
obligations are not expected to exceed 10% of the Fund's net assets. The Fund
also may invest without limitation in higher quality debt obligations. Under
normal market conditions, however, the Fund is unlikely to emphasize higher
quality debt obligations, since generally they offer lower yields than medium
and lower quality bonds with similar maturities.

The HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND'S objective is to maximize
after-tax total return by investing for a high level of federally tax-exempt
current income.

The Fund is designed for long term investors who want to pursue higher
income than higher quality municipal obligations generally provide, and who are
willing to accept the risk of principal fluctuation associated with medium and
lower quality debt obligations. While there are no duration restrictions for
the Fund's obligations, it is anticipated that the Fund will maintain an
average portfolio duration of greater than five years.

Like the Heartland Short Duration High-Yield Municipal Fund, the
Heartland High-Yield Municipal Bond Fund invests primarily in medium and lower
quality municipal obligations. Under normal market conditions, the Fund
invests at least 65% of its total assets in such securities. The Fund also may
invest in debt obligations that are in default, but such obligations are not
expected to exceed 10% of the Fund's net assets. The Fund also may invest
without limitation in higher quality debt obligations. Under normal
conditions, however, the Fund is unlikely to emphasize higher quality debt
obligations,

3
<PAGE> 10

since generally they offer lower yields than medium and lower quality bonds
with similar maturities.

INVESTMENT LIMITATIONS. The Funds' investment policies and practices
discussed above are subject to further restrictions which are described in the
Statement of Additional Information. As a matter of fundamental investment
policy, neither Fund may purchase a security if, as a result thereof, (i) more
than 25% of its total assets would be invested in a single issuer, other than
securities issued or guaranteed by the United States government, or a state or
territory of the United States, or the District of Columbia, or their agencies,
instrumentalities, municipalities or political subdivisions, or (ii) more than
15% of its net assets would be invested in illiquid securities. Also, each
Fund is a diversified mutual fund portfolio, which means that at least 75% of
the value of each Fund's total assets must be represented by cash and cash
equivalent investments, U.S. Government securities, securities of other
investment companies, and other securities limited in respect of any one issuer
to an amount not greater in value than 5% of the Fund's total assets and to not
more than 10% of the outstanding voting securities of such issuer. The status
of the Funds as diversified versus non-diversified is a fundamental policy.

ELEMENTS OF FIXED INCOME INVESTING

MARKET RISK. The principal value of the Funds' assets would be
expected to vary with changes in interest rates. It may be expected that a
decline in prevailing levels of interest rates generally will increase the
value of securities held by the Funds, and an increase in rates will generally
have the opposite effect. The Funds may employ hedging techniques to reduce
the effects of interest rate fluctuations; however, there can be no assurance
that such techniques will be successful. Thus, interest rate fluctuations will
affect the Funds' net asset value per share, but not the income received by
them from their existing portfolio securities. Because yields on securities
available for purchase by the Funds will vary over time, no specific yield on
the Funds' portfolio can be assured.

MATURITY AND DURATION. Maturity is a measure of the contractual term
over which, or at the end of which, a fixed income security must be repaid. In
general, the longer the maturity of a debt obligation, the higher its yield and
the greater its sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price stability.
Commercial paper is generally considered the shortest form of debt obligation.
Notes, whose original maturities are two years or less, are considered short
term obligations. The term "bond" generally refers to securities with
maturities longer than two years. Bonds with maturities of three years or less
are considered short term, bonds with maturities between three and seven years
are considered intermediate term and bonds with maturities greater than seven
years are considered long term.

While the maturity of an obligation is somewhat indicative of
interest-rate risk, Heartland Advisors believes duration is a more accurate
measure. Duration incorporates a bond's yield, coupon interest payments, final
maturity and call features into a single measure. Depending on the relative
magnitude of these payments and features, the market

<PAGE> 11
values of debt obligations may respond differently to changes in the level and
structure of interest rates. Duration is a measure of the approximate price
sensitivity of a bond or bond portfolio to a one percent rise or fall in
interest rates. The Heartland Short Duration High- Yield Municipal Fund will
have an average portfolio duration of three years or less, and thus would be
expected to experience a decline in price of three percent or less should
interest rates increase one percent. In seeking higher potential returns, the
portfolio of the Heartland High-Yield Municipal Bond Fund will have an
effective duration of greater than five years, and would thus be expected to
experience a decline in price of more than five percent if interest rates were
to rise one percent.

For any fixed-income security with interest payments occurring prior to
the payment of principal, duration is always less than maturity. In general,
all other things being equal, the lower the stated or coupon rate of interest
of a fixed-income security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a fixed-income
security, the shorter the duration of the security. Duration is not a static
measure or a complete measure of portfolio risk. Changing conditions and
perceptions, including market fluctuations and changing credit fundamentals,
may modify an obligation's duration and, independently, have other adverse or
positive effects on the value of a security.

Futures, options and options on futures have durations which, in
general, are closely related to the duration of the securities which underlie
them. Holding long futures or call option positions will lengthen a Fund's
duration by approximately the same amount that holding an equivalent amount of
the underlying securities would. Short futures or put option positions have
durations roughly equal to the negative duration of the securities that
underlie these positions, and have the effect of reducing portfolio duration by
approximately the same amount that selling an equivalent amount of the
underlying securities would have. See "Other Investment Practices - Options,
Futures, Contracts and Options on Futures Contracts."

CREDIT RISKS. The values of debt obligations may also be affected by
changes in the credit rating or financial condition of their issuers.
Generally, the lower the quality rating of a security, the higher the degree of
risk as to the payment of interest and return of principal. To compensate
investors for taking on such increased risk, those issuers deemed to be less
creditworthy generally must offer their investors higher interest rates than do
issuers with better credit ratings.

In conducting its credit research and analysis, Heartland Advisors
considers both qualitative and quantitative factors to evaluate the
creditworthiness of individual issuers. Heartland Advisors also relies, in
part, on credit ratings compiled by a number of nationally recognized
statistical rating organizations. See "Appendix A - Ratings of Debt
Obligations" attached to this Prospectus for a summary of ratings of three
well-known rating organizations: S&P, Moody's Investors Service, Inc. and
Fitch Investors Service, Inc.

5
<PAGE> 12
IMPLEMENTATION OF POLICIES AND RISKS

In addition to the investment program described above, the Funds will
invest in certain securities and employ certain investment techniques which may
present special risks as described below. A more complete discussion of these
securities and investment techniques and their associated risks, as well as
further investment restrictions to which the Funds are subject, is contained in
the Statement of Additional Information.

MUNICIPAL OBLIGATIONS. The term "municipal obligations," as used in
the Prospectus, means debt obligations issued by or on behalf of states,
territories or possessions of the United States, the District of Columbia and
their political subdivisions, agencies, and instrumentalities, the interest on
which is generally exempt from federal income tax. Guam, Puerto Rico and the
Virgin Islands are among the territories of the United States that issue
municipal obligations in which the Funds may invest.

Municipal obligations are classified principally as either "general
obligations" or "revenue obligations." General obligation bonds are secured by
the municipality's pledge of its credit and taxing power for the payment of
principal and interest. Revenue obligations are generally payable only from
the revenues derived from a particular facility or class of facilities, or in
some cases from the proceeds of a special excise tax or other specific revenue
source. Industrial development or revenue bonds are usually bonds the credit
quality of which is related directly to the credit standing of the industrial
user involved or of any entity which has provided a guarantee or enhancement of
such credit.

The Funds' investments in municipal obligations may include
mortgage-backed municipal obligations, which are a type of municipal security
issued by a state, authority or municipality to provide financing for
residential housing mortgages to target groups, generally low income
individuals who are first-time home buyers. A Fund's interest, evidenced by
such obligations, is an undivided interest in a pool of mortgages. Payments
made on the underlying mortgages and passed through to the Fund represent both
regularly-scheduled principal and interest payments. A Fund also may receive
additional principal payments representing prepayments of the underlying
mortgages. While a certain level of prepayments can be expected regardless of
the interest rate environment, it is anticipated that prepayment of the
underlying mortgages will accelerate in periods of declining interest rates.
In the event a Fund receives principal prepayments in a declining interest rate
environment, the Fund may have to invest the unanticipated proceeds in
lower-yielding securities. This prepayment risk causes mortgage-backed
securities to be more significantly affected by changes in interest rates than
is the case for municipal obligations that are not subject to such
prepayments.

The Funds may invest in municipal lease obligations, which are issued
by a state or local government or authority to acquire land, equipment or
facilities and are not fully backed by the municipality's credit. These
obligations typically are secured by the municipality's obligation to make
payments under the lease, which may be subject to certain conditions, including
future appropriation of funds. If the municipality stops making lease
payments, the obligations could lose value. Rather than investing directly in
a municipal

<PAGE> 13
obligation, the Funds may from time to time invest in a participation interest
which gives the Fund an undivided interest in a municipal obligation in the
proportion that the Fund's participation interest bears to the principal amount
of the obligation. A more detailed description of lease obligations is set
forth in the Statement of Additional Information under "Investment Policies and
Practices - Municipal Obligations."

ZERO-COUPON, STEP-COUPON AND PAY-IN-KIND SECURITIES. The Funds may
invest without limitation in zero-coupon, step-coupon and pay-in-kind
securities. These securities are debt securities that do not make regular cash
interest payments. Zero-coupon and step-coupon securities are sold at a deep
discount to their face value. Pay-in-kind securities pay interest through the
issuance of additional securities. Because such securities do not pay current
cash income, the market value of these securities may be subject to greater
volatility than other debt securities when interest rates fluctuate.

STANDBY COMMITMENTS. In order to facilitate portfolio liquidity, the
Funds may acquire standby commitments from brokers, dealers or banks with
respect to securities in their portfolio. The Funds will limit their
acquisition of standby commitments to 10% of their net assets. Standby
commitments entitle the holder to achieve same-day settlement and receive an
exercise price equal to the amortized cost of the underlying security plus
accrued interest. Standby commitments generally increase the cost of the
acquisition of the underlying security, thereby reducing the yield. Standby
commitments are subject to the issuer's ability to fulfill its obligation upon
demand. Although no definitive creditworthiness criteria are used, Heartland
Advisors reviews the creditworthiness of the brokers, dealers and banks from
which the Funds obtain standby commitments to evaluate those risks.

ILLIQUID SECURITIES. Under the supervision of, and pursuant to
guidelines adopted by, Heartland's 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 to sell such an investment promptly at an acceptable price. Each
Fund may invest up to 15% of its net assets in illiquid securities. Certain
restricted securities which may be resold to institutional investors under Rule
144A under the Securities Act of 1993, as well as commercial paper meeting the
definitions set forth in Section 4(2) of the Securities Act of 1993, may be
determined to be liquid under the guidelines. Repurchase agreements maturing
in more than seven days are deemed illiquid.

SECTOR CONCENTRATION. The Funds may invest 25% or more of their total
assets in municipal obligations whose revenue sources are from similar types of
projects or in related sectors, for example, community development, education,
health care, hospitals, retirement housing, single- family housing,
multiple-family housing, redevelopment, transportation, electric utilities, or
water, sewer and gas utilities. There may be economic, business or political
developments or changes that affect all obligations of a similar type, or in
related sectors, such as proposed legislation affecting the financing of
certain projects, judicial decisions relating to the validity of certain
projects or the means of financing them, shortages

<PAGE> 14
or price increases of necessary materials, or declining market needs for such
projects. Therefore, developments affecting a single industry or the
securities financing similar types of projects, could have a significant effect
on the Funds' performance. In addition, each Fund may invest 25% or more of
its total assets in municipal obligations whose issuers are located in the same
state or other geographic territory. In the event a Fund should concentrate
its investments in such a geographic territory, developments and events which
have a greater effect on the economy of that geographic territory as compared
to the national or global economy may tend to have a greater effect on the
Fund's net asset value than would be the case for a less geographically
concentrated investment portfolio.

SHORT-TERM INVESTMENTS. Each Fund may invest without limitation in
short-term instruments, including variable rate demand notes, money market
instruments, certificates of deposit, commercial paper and U.S. Government
securities. Each Fund also may invest up to 5% of its net assets in
collateralized repurchase agreements and reverse repurchase agreements. See
"Investment Policies and Practices - Other Investments and Techniques" in the
Statement of Additional Information for more information on these instruments.

Variable rate demand notes are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and which are subject to
an unconditional right of demand to receive payment of the principal balance
plus accrued interest, either at any time or at specified intervals not
exceeding one year, and in either case upon no more than seven days' notice.
Commercial paper in which the Funds may invest includes paper issued without
registration under the Securities Act of 1933 in reliance on certain
exemptions, including the "private placement" exemption provided under Section
4(2) of that Act. Resale of this paper normally is limited to sales to other
institutional investors through or with the assistance of investment dealers
who make a market in the paper, thus providing liquidity. Normally, such
"Section 4(2) paper" is liquid under the guidelines established by Heartland's
Board of Directors.

OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds
may engage in transactions in options, futures contracts and options on futures
contracts to hedge against anticipated declines in the market value of their
portfolio securities, or against increases in the market values of securities
they intend to purchase, or to manage exposure to changing interest 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 the Funds' 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 in order
to adjust the risk and return characteristics of the Funds' overall strategy.

The Funds may purchase and write put and call options that are traded
on recognized U.S. exchanges with respect to any type of security or index
related to its investments, and may enter into closing transactions with
respect to such options. The Funds may purchase and sell futures contracts,
including interest rate futures and index futures, that are traded on a
recognized U.S. exchange, board of trade or similar entity, or quoted on an
automated

<PAGE> 15
quotation system. The Funds may also purchase and write put and call options
on futures contracts and enter into closing transactions with respect to such
options.

The Funds will limit their use of these hedging instruments so that:
(i) no more than 5% of their total assets would be committed to initial margin
deposits or premiums on futures contracts; (ii) no more than 25% of their net
assets would be subject to futures contracts; (iii) no more than 5% of their
total assets would be committed to premiums paid for options; and (iv) no more
than 25% of their 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 a Fund's portfolio.
Consequently, the Funds' assets could be hedged in excess of the above
percentages 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 the Funds'
total return. The Funds' potential losses from the use of futures extends
beyond their initial investment in such contracts.

Because available exchange-traded options and futures contracts will
not match the Funds' current or anticipated investments exactly, there is a
risk that the options or futures positions will not track the performance of
the Funds' other investments. The Funds could also experience losses if the
prices of their options or futures positions were poorly correlated with their
other investments, or if they were unable to close out their positions due to
disruptions in the market or lack of liquidity.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds may purchase
securities on a when-issued or 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 Funds 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 the Funds make a commitment to purchase an
obligation, they will record the transaction and reflect the value of the
obligation in determining their 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 Funds' commitments to purchase
when-issued obligations.

BORROWING. The Funds may borrow from banks for temporary or emergency
purposes up to 10% of their total assets and pledge up to 15% of their net
assets in connection therewith. For purposes of this borrowing restriction,
collateral arrangements for premium and margin payments in connection with a
Fund's hedging activities are not deemed to be a pledge of assets.

INVESTMENT-GRADE DEBT OBLIGATIONS. Debt obligations rated in the
highest through the medium quality categories are commonly referred to as
"investment grade" debt obligations and include the following:

<PAGE> 16
. U.S. government securities;

. bonds or bank obligations rated in one of the four highest rating
categories (e.g., BBB or higher by S&P);

. short-term notes rated in one of the two highest rating categories
(e.g., SP-2 or higher by S&P);

. short-term bank obligations rated in one of the three highest rating
categories (e.g., A-3 or higher by S&P), with respect to obligations
maturing in one year or less;

. commercial paper rated in one of the three highest rating categories
(e.g., A-3 or higher by S&P);

. unrated debt obligations determined by Heartland Advisors to be of
comparable quality; and

. repurchase agreements involving investment-grade debt obligations.

Investment grade debt obligations are generally believed to have
relatively low degrees of credit risk. However, medium quality debt
obligations, while considered investment grade, may have some speculative
characteristics, since their issuers' capacity for repayment may be more
vulnerable to adverse economic conditions or changing circumstances than that
of higher rated issuers.

All ratings are determined at the time of investment. Any subsequent
rating downgrade of a debt obligation will be monitored by Heartland Advisors
to consider what actions, if any, a Fund should take consistent with its
investment objective, but will not necessarily require the Fund to dispose of
the security.

HIGH-YIELD (HIGH-RISK) SECURITIES. High-yield (high-risk) securities,
also referred to as "junk bonds," are those securities that are rated lower
than investment grade and unrated securities determined by Heartland Advisors
to be of comparable quality. Although these securities generally offer higher
yields than investment grade securities with similar maturities, lower quality
securities involve greater risks, including the possibility of default or
bankruptcy. In general, they are regarded to be predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal. The
ability of the Funds to achieve their objectives through investing in these
securities is more dependent on Heartland Advisors' credit analysis than is the
case for higher rated bonds. Other potential risks associated with investing
in high-yield securities include:

. substantial market price volatility resulting from changes in interest
rates (in this regard, zero-coupon, step-coupon and pay-in-kind securities
in which the Funds may invest may be more speculative and subject to
greater fluctuations in value due to changes in interest rates than is the
case for income-bearing

<PAGE> 17
junk bonds), changes in or uncertainty about economic conditions,
and changes in the actual or perceived ability of the issuer
to meet its obligations;

. greater sensitivity of higher leveraged issuers to adverse
economic changes and individual issuer developments;

. subordination to the prior claims or other creditors;

. additional Congressional attempts to restrict the use or limit
the tax and other advantages of these securities; and

. adverse publicity and changing investor perceptions about these
securities.

As with any other asset in a Fund's portfolio, any reduction in the
value of such securities as a result of the factors listed above would be
reflected in the net asset value of the Fund. In addition, a Fund that invests
in lower quality securities may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal and
interest on its holdings. As a result of the associated risks, successful
investments in high-yield, high-risk securities will be more dependent on
Heartland Advisors' credit analysis than generally would be the case with
investments in investment grade securities.

It is uncertain how the high-yield market will perform during a
prolonged period of rising interest rates. A prolonged economic downturn or a
prolonged period of rising interest rates could adversely affect the market for
these securities, increase their volatility, and reduce their value and
liquidity. In addition, lower quality securities tend to be less liquid than
higher quality debt securities because the market for them is not as broad or
active. If market quotations are not available, these securities will be valued
in accordance with procedures established by Heartland's Board of Directors.
Judgment may, therefore, play a greater role in valuing these securities. The
lack of a liquid secondary market may have an adverse effect on market price
and a Fund's ability to sell particular securities.

PORTFOLIO TURNOVER. The Funds may purchase or sell securities without
regard to the length of time the security has been held to take advantage of
short-term differentials in bond yields consistent with their objective of
seeking tax-exempt interest income. The Funds may engage in short-term trading
if the anticipated benefits are expected by Heartland Advisors to exceed the
transaction costs. The annual turnover rate for the Funds is expected to vary
from year to year depending on market conditions. A 100% turnover rate would
occur, for example, if all the securities in a Fund were replaced in a period
of one year. Municipal obligations with remaining maturities of less than one
year are excluded in the computation of the portfolio turnover rate. Higher
portfolio turnover involves higher transaction costs and may result in
realization of short-term capital gains if securities are held for one year or
less. Such gains are taxable to shareholders as ordinary income except to the
extent such gains are offset by any capital losses. Portfolio turnover is not
a limiting

<PAGE> 18
factor in making portfolio decisions, except as limited by the Internal Revenue
Code's requirements for qualification as a regulated investment company.

HOW TO BUY SHARES

SHARE PRICE

The Funds' 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 if purchase is made by wire, by the
Fund or its authorized service agent or sub-agent. Net asset value is
calculated daily as described under "Net Asset Value Calculation." Firstar
Trust Company serves as the Funds' transfer and dividend disbursing agent (the
"Agent").

OPENING AN ACCOUNT AND PURCHASING SHARES

BY MAIL TO:
Firstar Trust Company
Mutual Fund Services
3rd Floor
P.O. Box 701
Milwaukee, WI 53201-0701

BY OVERNIGHT MAIL TO:
Firstar Trust Company
Mutual Fund Services
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202

To Open an Account:

Complete and sign the Account Application. Make your check payable to
either Heartland Short Duration High-Yield Municipal Fund or Heartland
High-Yield Municipal Bond Fund and mail to one of the addresses above.

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.

<PAGE> 19

_____________________________________________________________________________

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 1-800-443-2862 prior to sending the wire. Specify
Fund name, include your name, 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:

1-800-432-7856 or 414-289-7000

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:

<PAGE> 20

_______________________________________________________________________________

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 1-800-432-7856 for information on how to add
this service.

_______________________________________________________________________________

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:

CONDITIONS OF YOUR PURCHASE.

MINIMUM INVESTMENTS. The minimum initial investment for each Fund is
$1,000, except in the case of 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.

<PAGE> 21
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 $20 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 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.

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 another Heartland
fund, 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 or calling
Heartland Advisors. Heartland Advisors must receive any change seven days
prior to a payment date for it to be effective for that payment.

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 or savings 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 unless the Fund receives written instructions to that
effect on or before April 15th. 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 $20
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 quarterly

<PAGE> 22
confirmations of your transactions 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 1-800-432-7856. The systematic withdrawal plan may be terminated by
you or by the Funds at any time by written notice.

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 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 Heartland Advisors by telephone (1-
800-432-7856 or 414-289-7000) 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 Heartland
Advisors 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.

<PAGE> 23

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.

DIVIDENDS, CAPITAL GAINS, DISTRIBUTIONS AND TAXES

DIVIDENDS. Dividends will be declared daily and paid monthly by each
of the Funds. 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 in shares of another
Heartland Fund the shareholder designates, unless the shareholder has notified
Heartland Advisors by telephone or in writing that he or she elects 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. Provided a Fund satisfies certain
requirements described under "Taxes" in the Statement of Additional
Information, which each Fund intends to do, dividends paid by that Fund from
the interest earned on municipal obligations will constitute "exempt-interest
dividends" and will not be subject to federal income tax. However, the Funds
may invest in municipal obligations the interest on which is a tax preference
item for purposes of the alternative minimum tax ("AMT"). Exempt interest
dividends distributed to corporate shareholders also may be subject to the AMT
regardless of the types of municipal obligations in which a Fund invests,
depending on the corporation's tax status.

Shareholders will be subject to federal income tax at ordinary income
rates on any income dividends they received that are derived from interest on
taxable securities or from net realized short-term capital gains.
Distributions by a fund of net capital gain (the excess of net long-term
capital gain over net short-term capital loss), when designated as such, are
taxable to shareholders as long-term capital gains, regardless of how long the
shareholders have held their fund shares.

The Funds' distributions, other than exempt interest dividends ("taxable
distributions"), are taxable in the year they are paid to shareholders, whether
they are taken in cash

<PAGE> 24
or are reinvested in additional shares, except that certain taxable
distributions declared in the last three months of the year and paid in January
are taxable as if paid on December 31.

If a Fund's taxable distributions exceed its investment company taxable
income and net capital gain in any year, all or a portion of those
distributions may be treated as a return of capital to shareholders for tax
purposes.

Distributions by the Funds may be subject to state and local taxes,
depending on the laws of a shareholder's home state and locality.

"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.

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 Small Cap Contrarian, Value, Mid Cap Value, Large Cap Value,
Value Plus, U.S. Government Securities and Wisconsin Tax Free Funds, seven
additional series of Heartland, and also provides investment management
services for individuals, and institutional

18
<PAGE> 25
accounts, such as pension funds and profit-sharing plans. As of September 30,
1996, Heartland Advisors had approximately $2.7 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.

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.

Under the terms of Heartland Advisors' Investment Advisory Agreement
with the Funds, Heartland Advisors is entitled to a fee for the advisory
services it provides to the Funds at an annual rate equal to 0.40 of 1% of the
average daily net assets of the Heartland Short Duration High- Yield Municipal
Fund and 0.60 of 1% of the average daily net assets of the Heartland High-Yield
Municipal Bond Fund. Heartland Advisors voluntarily has agreed to waive the
advisory fee for each of the Funds until July 31, 1997, after which date the
entire amount of the fee will be reinstated for each Fund.

PORTFOLIO MANAGERS. Thomas J. Conlin, CFA and Greg D. Winston, CFA
serve as co-managers of the Funds. Mr. Conlin joined Heartland Advisors in
August of 1996 as a municipal bond portfolio manager. Mr. Conlin previously
was managing director of the Municipal Fixed-Income Department at Strong
Capital Management, Inc., where he co-managed the High-Yield Municipal Bond
Fund, Insured Municipal Bond Fund, Municipal Bond Fund and Short-Term Municipal
Bond Fund. Prior to joining Strong in 1991, Mr. Conlin was with Stein, Roe &
Farnham, Inc. in Chicago, Illinois, where he served both as a portfolio manager
and as a director of municipal research. Mr. Conlin holds a B.S. degree in
Business Administration from Illinois State University (1976) and an M.B.A.
degree in Finance from Indiana University (1978).

Mr. Winston recently joined Heartland Advisors as a municipal
securities portfolio manager. He previously was a portfolio manager with
Strong Capital Management, Inc., where he co-managed the Short-Term Municipal
Bond Fund, and also effected securities trades and conducted credit research
for Strong's High-Yield Municipal Bond Fund,

<PAGE> 26
Municipal Bond Fund, Municipal Money Market Fund and Insured Municipal Bond
Fund. Mr. Winston has a B.B.A. degree in Finance and Marketing from the
University of Wisconsin - Madison (1987).

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 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.

<PAGE> 27
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>
Small Cap Contrarian Fund 04/27/95 100,000,000

Value Fund 12/28/84 100,000,000

Mid Cap Value Fund 10/11/96 100,000,000

Large Cap Value Fund 10/11/96 100,000,000

Value Plus Fund 10/26/93 100,000,000

U.S. Government Securities Fund 04/09/87 100,000,000

Wisconsin Tax Free Fund 04/03/92 100,000,000

Short Duration High-Yield Municipal Fund 01/02/97 100,000,000

High-Yield Municipal Bond Fund 01/02/97 100,000,000
</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

<PAGE> 28
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. 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.

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 the provision of supplemental research services and sales of the
shares of any or all of the Heartland funds as factors in the selection of
broker-dealers to execute portfolio transactions.

<PAGE> 29
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 and capital gain distributions and the redemption of the shares at
the end of the period. 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. The Funds also may advertise total returns other
than those described above if such information is deemed informative to
investors for use in evaluating the Funds.

In connection with the standardized yield and total return quotations
described above, the Funds also may advertise a standardized tax equivalent
yield which illustrates the yield that would be required on a fully-taxable
investment to result in the same net income to an investor in the Funds, after
a payment of federal taxes at the stated rate. The yield is computed by
dividing that portion of the Funds' current yield which is exempt from federal
income taxes by one minus a stated federal income tax rate, and then adding the
product to the value of any yield of the Funds which is not exempt from federal
income taxes.

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., Morningstar, Inc., CDA Technologies, Forbes, Fortune, Money,
Business Week, Value Line, Inc. and The Wall Street Journal. These rating
services and magazines rank the performance of the Funds against all funds over
specified periods and in specified categories. The Heartland Short Duration
High-Yield Municipal Fund would appear in the short municipal debt funds
category, and the Heartland High-Yield Municipal Bond Fund would appear in the
high yield municipal debt funds category. Each Fund also may compare its
performance to recognized bond market indices, such as the Lehman Brothers
Municipal Bond Index. Further information is contained in the Statement of
Additional Information.

<PAGE> 30

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").

_______________________________________________________________________________

BY TELEPHONE:

1-800-432-7856
or
(414) 289-7000

You may redeem by calling Heartland Advisors, 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

BY OVERNIGHT

DELIVERY TO:
Firstar Trust Company
Mutual Fund Services
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202

Send a written request specifying the name of the Mutual Fund, the
number of shares to be redeemed, your name, account number, and any additional
documents listed below

<PAGE> 31
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. A signature guarantee is required for certain
redemptions, including written redemptions over $25,000. For further
information, see "Signature Guarantees."

______________________________________________________________________________

<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
-------------------- ------------
<S> <C>
Individual, Joint Tenants, Letter of instruction signed by all persons authorized to sign for the
Custodial, General Partners, account, exactly as it is registered, accompanied by signature
Corporations, Associations guarantee(s) if required. 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 Heartland
Advisors for further instructions.

CHECK-WRITING PRIVILEGES FOR THE HEARTLAND SHORT DURATION HIGH-YIELD
MUNICIPAL FUND. You may also redeem shares by check in an amount of not less
than $250 in the Heartland Short Duration High-Yield Municipal Fund. This
privilege is not available for the Heartland High-Yield Municipal Bond Fund.
There is no charge for check-writing privileges. Redemption by check cannot be
honored if share certificates are outstanding and would need to be liquidated
to honor the check. Checks are supplied free of charge, and additional checks
will be sent to you upon your request. The Heartland Short Duration High-Yield
Municipal Fund does not return the checks you write, although copies are
available upon request.

You may place stop-payment requests on checks by calling Heartland
Advisors at 1-800-432-7856 or (414) 289-7000. A fee of $10.00 will be charged
for each stop-payment request. A stop-payment request will remain in effect
for two weeks following receipt of oral instructions (six months following
written instructions) by Heartland Advisors.

<PAGE> 32
If there are insufficient cleared shares in your Heartland Short
Duration High-Yield Municipal Fund account to cover the amount of your
redemption by check, the check will be returned, marked "insufficient funds,"
and a fee of $10.00 will be charged to the account.

In exercising this check-writing privilege, you should bear in mind
that you in effect are redeeming shares of the Heartland Short Duration
High-Yield Municipal Fund, and you may realize taxable gain or loss on the
redemption.

TELEPHONE REDEMPTIONS. Shares may be redeemed by telephone to
Heartland Advisors, 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. Subject to waiver by the Funds in certain
instances, the minimum amount that may be redeemed by telephone is $1,000; all
other redemptions may be done in writing. During periods of substantial
economic or market changes, telephone redemptions may be difficult to
implement. If a shareholder is unable to contact Heartland Advisors or 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

<PAGE> 33
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 $10 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.

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. Alternatively, the Funds may, after giving notice,
impose a fee on accounts maintained below the minimum investment level without
an active automatic investment plan.

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.

<PAGE> 34
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 ratings used
by Moody's Investors Service, Inc., Standard & Poor's Corporation and Fitch
Investors Service, Inc.

CORPORATE AND MUNICIPAL BOND RATINGS

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
fluctuation 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 present which suggest a susceptibility to
impairment sometime in the future.

A-1

<PAGE> 35
Baa -- Bonds rated in category Baa are considered 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
unreliable 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 futures 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.

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
principal and interest.

AA -- Debt rated AA has a very strong capacity to pay principal and
interest and differs from AAA issues only in small degree.

A -- Debt rated A has a strong capacity to pay principal and interest,
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 principal and interest. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for debt in
this category than for bonds in higher rated categories.

BB -- Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces 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. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.

A-2

<PAGE> 36
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.

Standard & Poor's ratings, other than AAA, may be modified by the
addition of a plus or minus sign to show relative standing in the major
categories.

RATINGS BY FITCH

AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated
in the AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated F-1+.

A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.

BB -- Bonds considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.

B -- Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.

Fitch applies modifiers "Plus(+)" or "Minus(-)" to the AA, A, BBB, BB
and B rating classifications. These modifiers are used to indicate the
relative position of a credit within a rating category.

A-3

<PAGE> 37
MUNICIPAL NOTE RATINGS

RATINGS BY MOODY'S

MIG 1. This designation category denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.

MIG 2. This designation category denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

MIG 3. This designation category denotes favorable quality. All
security elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.

RATINGS BY S & P

SP-1. Notes rated SP-1 have very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are designated as SP-1+.

SP-2. Notes rated SP-2 have satisfactory capacity to pay principal
and interest.

Notes due in three years or less normally receive a note rating.
Notes maturing beyond three years normally receive a bond rating, although the
following criteria are used in making that assessment.

-Amortization schedule (the larger the final maturity relative to
other maturities, the more likely the issue will be rated as a note.)

-Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note.)

RATINGS BY FITCH

Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated
"F-1+."

A-4

<PAGE> 38
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety
is not as great as for issues assigned "F-1+" and "F-1" ratings.

F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these securities to be
rated below investment grade.

Fitch also uses the symbol "LOC" which indicates that the rating is
based on a letter of credit issued by a commercial bank.

COMMERCIAL PAPER RATINGS

RATINGS BY DUFF & PHELPS

CATEGORY 1: TOP GRADE

Duff 1+. Highest certainty of timely payment. Short-Term liquidity,
including internal operating factors and/or ready access to alternative sources
of funds, is clearly outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.

Duff 1. Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.

Duff 1-. High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small.

CATEGORY 2: GOOD GRADE

Duff 2. Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.

CATEGORY 3: SATISFACTORY GRADE

Duff 3. Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless timely payment is expected.

RATINGS BY MOODY'S

Moody's commercial paper ratings are opinions of the ability to repay
punctually promissory obligations. Moody's employs the following three
category designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1 - highest quality; Prime
2 - higher quality; Prime 3 - high quality.

A-5

<PAGE> 39
RATINGS BY STANDARD & POOR'S

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.

Issues assigned the highest rating category, A, are regarded as having
the greatest capacity for timely payment. Issues in this category are
delineated with the numbers "1", "2" and "3" to indicate the relative degree of
safety. The designation A-1 indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. A"+" designation is
applied to those issues rated "A-1" which possess extremely strong safety
characteristics. Capacity for timely payment on issues with the designation
"A-2" is strong. However, the relative degree of safety is not as high as for
issues designated A-1. Issues carrying the designation A-3 have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to
the adverse effect of changes in circumstances than obligations carrying the
higher designations.

A-6
<PAGE> 40
HEARTLAND FUNDS

General Information and Account/Price Information (24 hrs.):
1-800-432-7856 or (414)289-7000

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
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202

COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202

<PAGE> 41

HEARTLAND SHORT DURATION HIGH-YIELD MUNICIPAL FUND

HEARTLAND HIGH-YIELD MUNICIPAL BOND FUND

Each Fund's address is 790 North Milwaukee Street, Milwaukee, Wisconsin
53202, and its telephone number is 414-289-7000 or 1-800-432-7856.

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus dated January ___, 1997. 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
telephone.

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 1-800-432- 7856. 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 JANUARY ___,
1997.

<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 open-end
management investment company. This Statement of Additional Information
relates only to the Heartland Short Duration High-Yield Municipal Fund and the
Heartland High-Yield Municipal Bond Fund (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 PRACTICES

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.

MUNICIPAL OBLIGATIONS

GENERAL. The term "municipal obligations" as used herein refers to
debt obligations issued by or on behalf of states, territories or possessions
of the United States or their agencies, instrumentalities, municipalities and
political subdivisions, the interest payable on which is, in the opinion of
bond counsel, excludable from gross income for purposes of federal income
taxation (except, in certain instances, the alternative minimum tax, depending
upon the shareholder's tax status). Municipal obligations are generally issued
to obtain funds for various public purposes, including the construction or
improvement of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which municipal obligations may be
issued include refunding outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities. In addition, municipal obligations may be issued by or on behalf
of public bodies to obtain funds to provide for the construction, equipping,
repair or improvement of housing facilities, convention or trade show
facilities, airport, mass transit, industrial, port or parking facilities and
certain local facilities for water supply, gas, electricity, sewage or solid
waste disposal.

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<PAGE> 43

The yields on municipal obligations are dependent on a variety of
factors, including the financial condition of the issuer or other obligor
thereon or the revenue source from which debt service is payable, the general
economic and monetary environment, conditions in the relevant market, the size
of a particular issue, maturity of the obligation and the rating of the issue.

Securities in which the Funds may invest, including municipal
obligations, are subject to the provisions of bankruptcy, insolvency,
reorganization and other laws affecting the rights and remedies of creditors,
such as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress, state legislatures or other governmental agencies extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations within constitutional limitations. There
is also the possibility that, as a result of litigation or other conditions,
the power or ability of issuers to make interest and principal payments on
their municipal obligations may be materially impaired.

From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income
tax exemption for interest on municipal obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if
enacted, could affect the availability of municipal obligations for investment
by the Funds and the value of the Funds' portfolios. In such event, management
of the Funds may discontinue the issuance of shares to new investors and may
re-evaluate the Funds' investment objectives and policies and adopt and
implement possible changes to them and the investment programs of the Funds.

As discussed in the Prospectus, the Funds may invest without limit in
non-investment grade bonds (those rated below the four highest categories by
Moody's, S&P or Fitch or, if unrated, judged by Heartland Advisors to be of
comparable quality). These so-called "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 bonds typically offer higher rates of return than investment grade
bonds, they also involve greater risk, including greater risk of default. See
the section of this Statement of Additional Information captioned "Investment
Risks and Considerations - High-Yield (High-Risk) Securities" for a discussion
of investment risks associated with these securities.

OTHER INVESTMENTS AND TECHNIQUES

GOVERNMENT OBLIGATIONS. The Funds may invest in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. These
securities include a variety of Treasury securities, which differ in their
interest rates, maturities and times of issuance. Treasury Bills generally
have maturities of one year or less; Treasury Notes generally have maturities
of one to ten years; and Treasury Bonds generally have maturities of greater
than ten years. Some obligations issued or guaranteed by U.S. Government

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<PAGE> 44

agencies and instrumentalities, such as Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; other obligations, such as those of the Federal
Home Loan Banks, are secured by the right of the issuer to borrow from the
Treasury; other obligations, such as those issued by the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality;
and other obligations, such as those issued by the Student Loan Marketing
Association, are supported only by the credit of the instrumentality itself.
Although the U.S. Government provides financial support to such U.S.
Government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law.

INDEXED SECURITIES. The Funds may purchase securities whose prices are
indexed to the prices of other securities, securities indices, 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. 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 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 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.

ZERO-COUPON, STEP-COUPON AND PAY-IN-KIND SECURITIES. The Funds may
invest in zero-coupon, step-coupon and pay-in-kind securities. These
securities are debt securities that do not make regular cash interest payments.
Zero-coupon and step-coupon securities

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<PAGE> 45

are sold at a deep discount to their face value. Pay-in-kind securities pay
interest through the issuance of additional securities. Because such
securities do not pay current cash income, the price of these securities can be
volatile when interest rates fluctuate. While these securities do not pay
current cash income, federal income tax law requires the holders of the
zero-coupon, step-coupon and pay-in-kind securities to include in income each
year the portion of the original issued discount (or deemed discount) and other
non-cash income on such securities accrued during that year. In order to
continue to qualify for treatment as a "regulated investment company" under the
Internal Revenue Code and avoid a certain excise tax, the Funds may be required
to distribute a portion of such discount and income and may be required to
dispose of other portfolio securities, which could occur in periods of adverse
market conditions, in order to generate cash to meet these distribution
requirements.

WHEN-ISSUED AND DELAYED-DELIVERY PURCHASES. The Funds may make
commitments to purchase municipal obligations on a "when-issued" or "delayed-
delivery basis," that is, delivery and payment for the obligations normally
takes place at a date after the commitment to purchase although the payment
obligation and the coupon rate have been established before the time the Fund
enters into the commitment. The settlement date usually occurs within one week
of the purchase of notes and within one month of the purchase of bonds. The
Funds intend to make commitments to purchase obligations with the intention of
actually acquiring them, but may sell the obligations before the settlement
date if such action is advisable or necessary as a matter of investment
strategy. At the time the 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 Fund's custodian, Firstar Trust Company
(the "Custodian"), will maintain on a daily basis a separate account consisting
of cash or liquid assets with a value at least equal to the amount of the
Fund's commitments to purchase "when-issued" or "delayed-delivery" obligations.

Obligations purchased on a "when-issued" or "delayed-delivery" basis or
held in the Funds' portfolios are subject to changes in market value based not
only upon the public's perception of the creditworthiness of the issuer, but
also upon changes in the level of interest rates. In the absence of a change
in credit characteristics, which would likely cause changes in value, the value
of portfolio investments can be expected to decline in periods of rising
interest rates and to increase in periods of declining interest rates.

When payment is made for "when-issued" or "delayed-delivery"
securities, the Fund will meet its obligation from its then available cash
flow, sale of securities held in the separate account, sale of other securities
or, although it would normally not expect to do so, from sale of the
"when-issued" or "delayed-delivery" securities themselves (which may have a
market value greater or lesser than the Fund's obligation). Sale of securities
to meet such obligations would involve a greater potential for the realization
of capital gains, which could cause the Fund to realize income not exempt from
federal personal income tax.

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<PAGE> 46

FLOATING AND VARIABLE RATE DEMAND NOTES. The Funds may purchase
floating and variable rate demand notes. Generally, such notes are secured by
letters of credit or other credit support arrangements provided by banks. Such
notes normally have a stated long-term maturity but permit the holder to tender
the note for purchase and payment of principal and accrued interest upon a
specified number of days notice. The issuer of floating and variable rate
demand notes normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days notice to the noteholders.

Interest rates on a variable rate demand note are based on a specified
interest index, such as a bank's prime rate, and are adjusted automatically
with changes in the index at specified intervals which may range from daily
(floating rate) to a period of time up to one year. Variable rate demand notes
are subject to a risk of nonpayment upon demand by the issuer, and, therefore,
generally are secured by letters of credit or other credit support arrangements
provided by banks. To minimize the nonpayment risk, Heartland Advisors
monitors the creditworthiness of issuers of floating and variable rate demand
notes in the Funds' portfolios.

STATE AND MUNICIPAL LEASE OBLIGATIONS. The Funds may invest a portion
of their assets in state or municipal leases and participation interests
therein. The leases may take the form of a lease with an option to purchase, an
installment purchase or a conditional sales contract which is entered into by
state and local governments and authorities to purchase or lease a wide array
of equipment such as fire, sanitation or police vehicles or telecommunications
equipment, buildings or other capital assets. State or municipal lease
obligations frequently have the special risks described below which are not
associated with general obligation or revenue bonds issued by public bodies.

The constitution and statutes of many states contain requirements with
which the state and municipalities must comply whenever incurring debt.
Depending on the circumstances, these requirements may include approving voter
referenda, debt limits, interest rate limits and public sale requirements.
Leases have evolved as a means for public bodies to acquire property and
equipment without needing to comply with all of the constitutional and
statutory requirements for the issuance of debt. The debt-issuance limitations
may be inapplicable for one or more of the following reasons: (i) the
inclusion in many leases or contracts of "nonappropriation" clauses that
provide that the public body has no obligation to make future payments under
the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis (the
"nonappropriation" clause); (ii) the exclusion of a lease or conditional sales
contract from the definition of indebtedness under relevant state law; or (iii)
the lease provides for termination at the option of the public body at the end
of each fiscal year for any reason or, in some cases, automatically if not
affirmatively renewed.

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<PAGE> 47

Typically, if the lease is terminated by the public body for
nonappropriation or another reason not constituting a default under the lease,
the lessor, or holder of participation interest in the lease, is without
recourse to the general credit of the public body and may be limited to
repossession of the leased property. The disposition of the leased property by
the lessor in the event of a lease termination might prove difficult and could
result in a loss to the holders of participation interests.

REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements
with certain banks or nonbank dealers. In a repurchase agreement, a Fund buys
a security at one price, and at the time of sale the seller agrees to
repurchase the obligation at a mutually-agreed upon time and price (usually
within seven days). The repurchase agreement thereby determines the yield
during the purchaser's holding period, while the seller's obligation to
repurchase is secured by the value of the underlying security. Heartland
Advisors will monitor, on an ongoing basis, the value of the underlying
securities to ensure that the value equals or exceeds the repurchase price plus
accrued interest. Repurchase agreements could involve certain risks in the
event of a default or insolvency of the other party to the agreement, including
possible delays or restrictions upon a Fund's ability to dispose of the
underlying securities. Although no definitive creditworthiness criteria are
used, Heartland Advisors reviews the creditworthiness of the banks and nonbank
dealers with which the Funds enter into repurchase agreements to evaluate those
risks. A Fund may, under certain circumstances, deem repurchase agreements
collateralized by U.S. government securities to be investments in U.S.
government securities.

REVERSE REPURCHASE AGREEMENTS. The Funds may enter into reverse
repurchase agreements with banks and broker-dealers, under which a Fund sells a
portfolio security to such party in return for cash and agrees to repurchase
the instrument at a particular price and time. While a 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 the value of the security that a Fund agrees to repurchase declines,
the Fund may experience a loss. Reverse repurchase transactions may increase
fluctuations in the market value of a Fund's assets and may be viewed as a form
of leverage. In determining whether to enter into a reverse repurchase
agreement, a Fund will take into account the creditworthiness of the
counterparty.

OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

WRITING COVERED CALL OPTIONS. Each Fund may write covered call
options on securities related to its investments (such as U.S. Government
securities) and enter into closing transactions with respect to such options.
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 securities in the Fund's
portfolio or otherwise involved in the option.

<PAGE> 48

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 maintain with its Custodian, for the term of the option, an account
consisting of cash, or other liquid assets 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 the
transaction costs applicable to purchases and sales of portfolio securities.

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<PAGE> 49

WRITING COVERED PUT OPTIONS. Each Fund may write covered put options
on any type of security related to its investments (such as U.S. Government
securities) 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.

A Fund will write put options only on a covered basis, which means
that the Fund will maintain a segregated account consisting of cash, or other
liquid assets 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. A 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 on any
type of security related to its investments (such as U.S. Government
securities). 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 a
security related to its investments as a defensive technique in order to
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.

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<PAGE> 50

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. Each Fund may purchase call options on any
type of security related to its investments. 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. A 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. Each Fund may buy and sell options on indices related
to its investments (such as municipal bond or U.S. Treasury securities
indices), and may enter into closing transactions with respect to such options.
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. Each Fund may buy and sell options on
futures contracts and enter into closing transactions with respect to such
options. Options on futures would be used in a manner similar 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. The Funds 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

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<PAGE> 51

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.

Futures contracts can be held until their delivery dates, or can be
closed out before then if a liquid secondary market is available. Closing out
an open futures contract purchase or sale is effected by entering into an
offsetting futures contract sale or purchase, respectively, for the same
aggregate amount of the identical securities and the same delivery date. 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.

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<PAGE> 52

A public market exists in futures contracts covering various fixed
income securities (including long-term U.S. Treasury Bonds, ten-year U.S.
Treasury Notes, Government National Mortgage Association modified pass-through
mortgage-backed certificates, three-month U.S. Treasury Bills, and ninety-day
commercial paper), as well as municipal bonds and related indices. Each Fund
reserves the right to effect transactions in other securities and indices which
may be developed in the future.

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.

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.

In addition to the above limitations, neither Fund will: (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 Funds' 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

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<PAGE> 53

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.

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. For example,
even the use of an option or a futures contract on a municipal bond index may
result in an imperfect correlation since the index generally will be composed
of a much broader range of municipal obligations than the securities in which
the Fund likely is to be invested. To the extent that a Fund's hedging
vehicles do not match its current or anticipated investments, there is an
increased risk that the options or futures positions will not track performance
of the Fund's other investments. Moreover, 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.

13
<PAGE> 54

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 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.

FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS, AND FORWARD
FOREIGN EXCHANGE CONTRACTS. The Funds may enter into certain options and
futures 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.

An options or futures contract may be considered a position in a
straddle for tax purposes, in which case a loss on any position in the straddle
may be subject to deferral to the extent of unrealized gain in an offsetting
position.

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). Gains realized on the sale or other disposition of
securities, including options and futures contracts on securities or securities
indices 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 held less than three months, a Fund may be required to defer the
closing out of options or futures contracts beyond the time when it would
otherwise be advantageous to do so. It is anticipated that unrealized gains on
Section 1256 options or futures 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 held less than
three months for purposes of the 30% test.

14
<PAGE> 55

INVESTMENT RISKS AND CONSIDERATIONS

HIGH-YIELD (HIGH-RISK) SECURITIES

GENERAL. The Funds may invest without limitation in non-investment
grade debt obligations. Non-investment grade debt obligations, sometimes
referred to as "junk bonds" (hereinafter referred to as "lower quality
securities") include (a) bonds rated as low as C by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), or Fitch Investors
Service, Inc. ("Fitch"), or CCC by Duff & Phelps, Inc. ("D&P"); (b) commercial
paper rated as low as C by S&P, Not Prime by Moody's, or Fitch 4 by Fitch; and
(c) unrated debt obligations of comparable quality. Lower quality securities,
while generally offering higher yields than investment grade securities with
similar maturities, involve greater risks, including the possibility of default
or bankruptcy. They are regarded as predominately speculative with respect to
the issuer's capacity to pay interest and repay principal. The special risk
considerations in connection with investments in these securities are discussed
below. Refer to Appendix A attached to the Prospectus for a discussion of the
securities ratings.

EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The lower quality and
comparable unrated security market is relatively new and its growth has
paralleled a long economic expansion. As a result, it is not clear how this
market may withstand a prolonged recession or economic downturn. Such
conditions could severely disrupt the market for, and adversely affect the
value of, such securities.

All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of lower quality and comparable unrated securities tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Lower quality and comparable unrated securities also tend to
be more sensitive to economic conditions than are higher rated securities. As
a result, they generally involve more credit risk than securities in the higher
rated categories. During an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of lower quality and comparable
unrated securities may experience financial stress and may not have sufficient
revenues to meet their payment obligations. The issuer's ability to service
its debt obligations may also be adversely affected by specific corporate
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. The risk of loss due
to default by an issuer of the securities is significantly greater than issues
of higher rated securities because such securities are generally unsecured and
are often subordinated to their creditors. Further, if the issuer of a lower
quality and comparable unrated security defaulted, a Fund might incur
additional expenses to seek recovery. Periods of economic uncertainty and
changes would also generally result in increased volatility in the market
prices of these securities and thus in a fund's net asset value.

15
<PAGE> 56

As previously noted, the value of a lower quality or comparable
unrated security will decrease in a rising interest rate market, and a Fund's
net asset value will decline correspondingly. If a Fund experiences unexpected
net redemptions in such a market, the Fund may be forced to liquidate a portion
of its portfolio securities without regard to their investment merits. Due to
the limited liquidity of a lower-quality and comparable unrated securities
(discussed below), a Fund may be forced to liquidate these securities as a
substantial discount. Any such liquidation would force the Fund to sell the
more liquid portion of its portfolio.

CREDIT RATINGS. Credit ratings issued by credit rating agencies are
designed to evaluate the safety of principal and interest payments of rated
securities. They do not, however, evaluate the market value risk of lower
quality securities, and therefore may not fully reflect the true risks of an
investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of
the issuer that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in lower quality and comparable unrated obligations will be more
dependent on Heartland Advisors' credit analysis than would be the case with
investments in investment-grade debt obligations. Accordingly, Heartland's
Board of Directors and Heartland Advisors monitor the issuers of junk bonds
held in the Funds' portfolios to assess and determine whether the issuers will
have sufficient cash flow to meet required principal and interest payments, and
to assure the continued liquidity of such bonds so that the Fund can meet
redemption requests.

LIQUIDITY AND VALUATION. A Fund may have difficulty disposing of
certain lower quality and comparable unrated securities because there may be a
thin trading market for such securities. Because not all dealers maintain
markets in all lower quality and comparable unrated securities, there is no
established retail secondary market for many of these securities. The Funds
anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market
does exist, it generally is not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. As a result, a Fund's
asset value and ability to dispose of particular securities when necessary to
meet the Fund's liquidity needs, or in response to a specific economic event,
may be affected.

The lack of a liquid secondary market for certain securities also may
make it more difficult for a Fund to obtain accurate market quotations for
purposes of valuing the Fund's portfolio. Market quotations are generally
available on many lower quality and comparable unrated issues only from a
limited number of dealers, and may not necessarily represent firm bids of such
dealers or prices for actual sales. During periods of thin trading, the spread
between bid and asked prices is likely to increase significantly. In addition,
adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may

16
<PAGE> 57

decrease the values and liquidity of lower quality and comparable unrated
securities, especially in a thinly-traded market.

LEGISLATION. From time to time, legislation designed to limit the use
of certain lower-quality and comparable unrated securities by certain issuers
may be adopted. It is anticipated that if legislation is enacted or proposed,
it could have a material affect on the value of these securities and the
existence of a secondary trading market for such securities.

ILLIQUID SECURITIES

The Funds may invest in illiquid securities (i.e., securities that are
not readily marketable). However, a Fund may not acquire illiquid securities
if, as a result, more than 15% of the value of the Fund's net assets would be
invested in such securities.

Heartland's Board of Directors has the ultimate authority to determine
which securities are illiquid for purposes of this limitation. Certain
securities exempt from registration or issued in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), such as securities that may be resold to institutional investors under
Rule 144A under the Securities Act and Section 4(2) commercial paper, may be
considered by Heartland Advisors to be liquid under guidelines adopted by
Heartland's Board of Directors.

Heartland's Board of Directors has delegated to Heartland Advisors the
day-to-day determination of the liquidity of a security, although the Board has
retained oversight and ultimate responsibility for such determination. Factors
to be considered include: (a) the frequency of trades or quotes for a security;
(b) the number of dealers willing to purchase and sell the security and the
number of potential buyers; (c) the willingness of dealers to undertake to make
a market in the security; and (d) the nature of the security and the nature of
the marketplace trades, such as the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer. Heartland Advisors
may determine 4(2) commercial paper to be liquid if: (x) the 4(2) commercial
paper is not traded flat or in default as to principal and interest; (y) the
4(2) commercial paper is rated in one of the two highest rating categories by
at least two nationally rated statistical rating organization ("NRSRO"), or, if
rated by only one NRSRO, so rated by that NRSRO, or, if unrated, is determined
by Heartland Advisors to be of comparable quality; and (z) such determination
is made after consideration of the trading market for the specific security,
including the factors listed above.

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

17
<PAGE> 58

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. The Funds
may invest without limitation in restricted securities that are eligible for
resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, provided that such securities have been determined to
be liquid pursuant to the guidelines adopted by the Board of Directors.

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. Each Fund's investment
objective and its operating policies are subject to change by Heartland's 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.

FUNDAMENTAL RESTRICTIONS

The fundamental investment restrictions and policies of each 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 an issuer 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 or sector; provided that there shall be no such limitation on the
purchase of municipal obligations and 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.

18
<PAGE> 59

(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 (1/3) of the value of the
Fund's total assets. For purposes of this restriction, collateralized
repurchase agreements are not considered 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 futures, options, reverse repurchase agreements, and
other hedging activities.

(7) Make loans, except that it may: (i) acquire publicly
distributed bonds, debentures, notes and other debt securities; and (ii) enter
into repurchase agreements.

(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 15% 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, reverse repurchase agreements, or hedging activities.

(11) Invest in commodities, but the Fund may purchase or sell futures
contracts, options on futures, and options.

NON-FUNDAMENTAL RESTRICTIONS

In accordance with the following non-fundamental policies, which may
be changed without shareholder approval, neither Fund may:

(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).

19
<PAGE> 60

(4) Purchase or retain the securities of any issuer if the
officers, directors, advisors or managers of the Fund owning beneficially more
than one-half of one percent (0.5 of 1%) 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 necessary for the
clearance of purchases and sales of its portfolio securities, and except as
required in connection with permissible options and futures activities as
described elsewhere in the Prospectus and Statement of Additional Information.

(6) 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 ten percent (10%) of the value of the
Fund's total assets. For purposes of this restriction, collateralized
repurchase agreements are not considered borrowings.

For the Funds' limitations on futures and options transactions, see
"Investment Policies and Methods - Limitations on Futures and Options
Transactions."

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 Heartland During Past Five Years
---------------- ----------------------- ----------------------
<S> <C> <C>
William J. Nasgovitz President and Director* President and Director Heartland
790 North Milwaukee Street Advisors, Inc., since 1982; Senior
Milwaukee, WI 53201 Vice President Investments, Dain
Bosworth Incorporated from 1988 to
June 1992; Director of Capital
Investments, Inc., since 1989
(closed-end investment company).

Willard H. Davidson Director Financial and business consultant
3726 North Lake Drive since 1984; prior thereto, Chairman
Milwaukee, WI 53211 and a Director, Marine Corporation
(a bank holding company) and Marine
Bank, N.A.

</TABLE>

20
<PAGE> 61

<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position with Heartland During Past Five Years
---------------- ----------------------- ----------------------
<S> <C> <C>
Hugh F. Denison Vice President and Director* Vice President, Heartland Advisors,
790 North Milwaukee Street Inc. since 1988; Director, Heartland
Milwaukee, WI 53201 Advisors, Inc., 1988 through 1996.

Jon D. Hammes Director President, The Hammes Company, since
Suite 305 1991; prior thereto, Managing
18000 West Sarah Lane Partner, Trammell, Crow Co.
Brookfield, WI 53045

Patrick J. Retzer Vice President, Treasurer and Vice President and Treasurer,
790 North Milwaukee Street Director* Heartland Advisors, Inc. since 1987;
Milwaukee, WI 53201 Director of Heartland Advisors, Inc.
since 1988.

A. Gary Shilling Director President, A. Gary Shilling &
500 Morris Avenue Company, Inc. (economic consultants
Springfield, NJ 07081-1020 and investment advisors), since
1978.
Linda F. Stephenson Director President and Chief Executive
100 East Wisconsin Avenue Officer, Zigman Joseph Stephenson (a
Milwaukee, WI 53202 public relations and marketing
communications firm) since 1989.

Lois Schmatzhagen Secretary Secretary, Heartland Advisors, Inc.
790 North Milwaukee Street since 1988.
Milwaukee, WI 53201
- -------------------

</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, 1996:

<TABLE>
<CAPTION>
TOTAL
AGGREGATE PENSION OR ESTIMATED ACTUAL COMPENSATION FROM
COMPENSATION RETIREMENT BENEFITS UPON HEARTLAND AND
DIRECTOR FROM HEARTLAND BENEFITS RETIREMENT FUND COMPLEX
-------- -------------- -------- ---------- ------------

<S> <C> <C> <C> <C>
Willard H. Davidson $7,000 None
None $7,000

Jon D. Hammes $7,000 None
None $7,000
A. Gary Shilling $7,000 None
None $7,000

Linda F. Stephenson $7,000 None
None $7,000

</TABLE>

21
<PAGE> 62

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Since the Funds are first publicly offering their shares on the date
of this Statement of Additional Information, share ownership information is not
available.

THE INVESTMENT ADVISOR

Each Fund is managed by Heartland Advisors, pursuant to an Investment
Advisory Agreement (the "Agreement"). The Agreement with respect to the Funds
was approved by the Board of Directors on October 11, 1996 and by the original
shareholder on January 2, 1997.

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 Advisor to the Funds,
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 Small Cap Contrarian, Value, Mid Cap Value, Large Cap Value, Value
Plus, U.S. Government Securities, Wisconsin Tax Free and Nebraska Tax Free
Funds, eight 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, 1996, Heartland
Advisors had approximately $2.7 billion in assets under 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 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 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

22
<PAGE> 63

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.

The Heartland Short Duration High-Yield Municipal Fund pays Heartland
Advisors an annual fee for its advisory services at the rate of 0.40 of 1% of
the Fund's average daily net assets. The advisory fee for the Heartland
High-Yield Municipal Bond Fund is 0.60 of 1% of the Fund's average daily net
assets. The advisory fees for the Funds are payable in monthly installments.

The Agreement 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. The 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. The 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

GENERAL

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 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.

23
<PAGE> 64

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.

TOTAL RETURN

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:

n
P(1+T) -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).

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.

Since the Funds first commenced the public offering of their shares on
the date of this Statement of Additional Information, no total return
information is quoted herein.

YIELD

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:

24
<PAGE> 65

a-b 6
Yield=2[(-----+1) -1]
cd
Where:

a = dividends and interest earned during the period;

b = expenses accrued for the period (net of
reimbursements);

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.

Taxable equivalent yield is computed by dividing that portion of the
yield of a Fund (as computed above) which is tax-exempt by one minus a stated
income tax rate and adding the product to that portion, if any, of the yield of
such Fund that is not tax-exempt.

Since the Funds first commenced the public offering of their shares on
the date of this Statement of Additional Information, no yield or taxable
equivalent yield quotations are included herein. 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

25
<PAGE> 66

in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market.

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. 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.

DISTRIBUTION PLAN

Each Fund has adopted a Distribution Plan, which is described in the
Prospectus (see "The Distribution Plan"). Under the 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 will
benefit each Fund and its shareholders.

The Plan may be terminated with respect to either Fund 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 a 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.

26
<PAGE> 67

The Distribution Plan of a Fund may be terminated with respect to
either Fund 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.

The Distribution Plan will continue in effect for successive one-year
periods with respect to a Fund, 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.

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, although subject to federal tax. 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

<PAGE> 68

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 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). Some broker-dealers may
indicate that the provision of research services is dependent upon the
generation of certain specified levels of commissions by Heartland Advisors'
clients, including the Funds. In addition, some broker-dealers may supply
research from third party service providers in consideration of their receipt
of brokerage commissions from

28
<PAGE> 69

transactions allocated by Heartland Advisors. 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.

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.

Under the Investment Company Act of 1940, Stifel Financial Corporation
("Stifel") may be deemed an affiliated person of Heartland Advisors since
Heartland Advisors may be deemed to hold or control more than 5% of the
outstanding voting securities of Stifel in Heartland Advisors' capacity as
investment advisor to the Funds and other investment advisory accounts.

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.

29
<PAGE> 70

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.

<PAGE> 71

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION TO THE FUNDS 2
INVESTMENT POLICIES AND PRACTICES 2
INVESTMENT RISKS AND CONSIDERATIONS 15
INVESTMENT RESTRICTIONS 18
MANAGEMENT 20
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 22
THE INVESTMENT ADVISOR 22
PERFORMANCE INFORMATION 23
DETERMINATION OF NET ASSET VALUE PER SHARE 25
DISTRIBUTION OF SHARES 26
DISTRIBUTION PLAN 26
TAX STATUS 27
DESCRIPTION OF SHARES 27
PORTFOLIO TRANSACTIONS 28
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT 29
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS 30

</TABLE>

Heartland Short Duration High-Yield Municipal Fund
Heartland High-Yield Municipal Bond 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
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202

<PAGE> 72

Part C. Other Information.

Item 24. Financial Statements and Exhibits

(a) Financial Statements and related footnotes for the
Funds (except for the Mid Cap Value Fund, the
Large Cap Value Fund, the Short Duration High-Yield
Municipal Fund and High-Yield Municipal Bond Fund)
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 30, 1996, 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 Small Cap Contrarian Fund 16,024

Heartland Value Fund 70,575

Heartland Mid Cap Value Fund 0

Heartland Large Cap Value Fund 0

Heartland Value Plus Fund 2,541

Heartland U.S. Government Securities Fund 3,058

Heartland Wisconsin Tax Free Fund 3,594

Heartland Nebraska Tax Free Fund 524

</TABLE>

<PAGE> 73

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:

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.

C-2
<PAGE> 74

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 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.

C-3
<PAGE> 75

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 Heartland 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 executive officers and
directors of Heartland Advisors, Inc. as of June 30, 1996,
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:

<TABLE>
<CAPTION>
POSITION WITH
NAME HEARTLAND ADVISORS, INC. OTHER
---- ------------------------ -----
<S> <C> <C>
William J. Nasgovitz President and Director President and Director, Heartland
Group, Inc.

Patrick J. Retzer Director and Vice President, Treasurer Vice President, Treasurer, and
Director, Heartland Group, Inc.

Hugh F. Denison Vice President Director, Heartland Group, Inc.

Kevin D. Clark Vice President, Trading

Mitchell L. Kohls Chief Operating Officer Communications Manager, GE Medical
Systems (General Electric) (8/88 to
6/95)

Kenneth J. Della Chief Financial Officer None

Lorraine J. Koeper Vice President and General Counsel and Attorney, Quarles & Brady (9/92 to
Director 7/95)

Lois J. Schmatzhagen Secretary Secretary, Heartland 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-4

<PAGE> 76

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

Item 31. Management Services

Not applicable

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.

The Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified, for
the Heartland Short Duration High-Yield Municipal Fund and the
Heartland High-Yield Municipal Bond Fund, within four to six
months from the effective date of this Post-Effective
Amendment.

C-5
<PAGE> 77

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 17th day of October, 1996.

HEARTLAND GROUP, INC.

By: /s/ 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 17th day of
October, 1996, by or on behalf of the following persons in the capacities
indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>

/s/ William J. Nasgovitz Director and President
- ------------------------ (Chief Executive Officer)
WILLIAM J. NASGOVITZ

/s/ Patrick J. Retzer Director, Vice President and Treasurer
- ------------------------ (Chief Financial and Accounting Officer)
PATRICK J. RETZER

Hugh F. Denison * Director
- -------------------------
HUGH F. DENISON

A. Gary Shilling * Director
- -------------------------
A. GARY SHILLING

Willard H. Davidson * Director
- -------------------------
WILLARD H. DAVIDSON

Jon D. Hammes * Director
- -------------------------
JON D. HAMMES

Linda F. Stephenson * Director
- -------------------------
LINDA F. STEPHENSON

</TABLE>

* By: /s/ William J. Nasgovitz
--------------------------
WILLIAM J. NASGOVITZ
Pursuant to Power of Attorney dated April 27, 1995

C-6
<PAGE> 78
EXHIBIT INDEX

EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- --------
<S> <C> <C>

1(a) Articles of Incorporation*

(b) Form of Articles Supplementary to Articles of Incorporation to be filed
with Maryland Department of Assessments and Taxation
to create two series known as the Heartland Short Duration High-Yield
Municipal Fund and the Heartland High-Yield Municipal
Bond Fund

2 Amended and Restated By-Laws*

5(a) Investment Advisory Agreement for Heartland Value Fund*

5(b) Investment Advisory Agreement for Heartland U.S. Government, Wisconsin Tax
Free, Value Plus, Small Cap Contrarian, Mid Cap
Value and Large Cap Value Funds(1)

5(c) Amended Schedule A to Investment Advisory Agreement adding Heartland Short
Duration High-Yield Municipal and Heartland High-
Yield Municipal Bond Funds

6(a)(i) Distribution Agreement between Heartland Group, Inc. and Heartland Advisors, Inc.(1)

(a)(ii) Amendment No. 1 to Distribution Agreement between Heartland Group,
Inc. and Heartland Advisors, Inc.(1)

(b) Form of Selected Dealer Agreements*

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*

</TABLE>

C-7
<PAGE> 79

EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- --------
<S> <C> <C>

11(a) Consent of Arthur Andersen LLP - Not Applicable

(b) Consent of Quarles & Brady*

13 Subscription Agreements*

14(a) Form of Model Retirement Plans*

(b) Form of Heartland Funds Individual Retirement
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(1)

16(a) Schedules for Computation of Performance Information for the Heartland
Value Fund and the Heartland U.S. Government Fund*

(b) Schedules for Computation of Performance Information for the
Heartland Wisconsin Tax Free Fund*

(d) Schedules for Computation Performance Information for the
Heartland Small Cap Contrarian Fund*

17 Financial Data Schedules (See Exhibit 27)

27 Financial Data Schedules - Not Applicable

</TABLE>
__________________

* Previously filed and incorporated herein by reference.

(1) Previously filed on August 7, 1996 as an Exhibit to Post-Effective
Amendment No. 26 to this Registration Statement and incorporated
herein by reference.
C-8
<PAGE> 80

EXHIBIT 1(b)

FORM OF ARTICLES SUPPLEMENTARY

C-9
<PAGE> 81

ARTICLES SUPPLEMENTARY

HEARTLAND GROUP, INC.

The Board of Directors of Heartland Group, Inc., a corporation
organized under the laws of the State of Maryland and registered as an open-end
investment company under the Investment Company Act of 1940, by Resolution
adopted October 11, 1996 by a majority of the Directors of said corporation,
has established and designated two additional series of its common stock, to be
effective as of January 2, 1997 and to be known as the Heartland Short Duration
High-Yield Municipal Fund and the Heartland High-Yield Municipal Bond Fund.
The Corporation, having been authorized to issue one billion (l,000,000,000)
shares of capital stock with a value of one-thousandth of one cent ($.001) per
share with an aggregate par value of one million dollars ($l,000,000), shall
have the following nine designated series, including the two new series
designated by the action described herein to be effective as of January 2,
1997:

<TABLE>
<CAPTION>
Series No. of Shares
------ -------------
<S> <C>
Heartland Value Fund 100 Million
Heartland U.S. Government Securities Fund 100 Million
Heartland Wisconsin Tax Free Fund 100 Million
Heartland Value Plus Fund 100 Million
Heartland Small Cap Contrarian Fund 100 Million
Heartland Mid Cap Value Fund 100 Million
Heartland Large Cap Value Fund 100 Million
Heartland Short Duration High-Yield Municipal Fund 100 Million
Heartland High-Yield Municipal Bond Fund 100 Million
</TABLE>

All of such designated shares have the relative preferences, rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as set forth in Section 7.2 of the Corporation's
Articles of Incorporation. The Board of Directors has taken this action
pursuant to the power conferred upon it under Section 7.1 of the Corporation's
Articles of Incorporation and Section 2.08 of the Maryland General Corporation
Law.

HEARTLAND GROUP, INC.

By: _________________________________
William J. Nasgovitz, President

Attest: ________________________________
Lois J. Schmatzhagen, Secretary

Dated: December __, 1996

C-10
<PAGE> 82

STATE OF WISCONSIN )
) SS
COUNTY OF MILWAUKEE )

On this _____ day of ______________, 1996, before me, a Notary Public
for the State and County aforesaid, personally came William J. Nasgovitz as
President of Heartland Group, Inc., and in his said capacity acknowledged the
foregoing Articles Supplementary to be the act and deed of said corporation and
further acknowledged that, to the best of his knowledge, the matters and facts
set forth therein are true in all material respects under the penalties of
perjury.

WITNESS, my official seal and signature this day and year aforesaid.

_______________________________________
Notary Public, State of Wisconsin
My Commission Expires: ________________

(SEAL)

C-11
<PAGE> 83

EXHIBIT 5(c)

C-12
<PAGE> 84

INVESTMENT ADVISORY AGREEMENT

SCHEDULE A

The investment advisory services to be provided under this Investment
Advisory Agreement by and between the parties hereto shall pertain to the
Fund's investment activities relating to the assets allocated to the following
Series of the Fund's shares.

1. Heartland U.S. Government Fund.

a. Effective Date: April 9, 1987.

b. Management Fee: The management fee for this Series,
calculated in accordance with paragraph 3 of this
Investment Advisory Agreement, shall be at the annual
rate of 0.65 of 1% of the average daily net assets of
the Series up to $100 million, 0.50 of 1% on the next
$400 million, and 0.40 of 1% on average daily net
assets in excess of $500 million.

2. Heartland Wisconsin Tax Free Fund.

a. Effective Date: April 3, 1992.

3. Heartland Value Plus Fund

a. Effective Date: October 26, 1993.

b. Management Fee: The management fee for this Series,
calculated in accordance with paragraph 3 of this
Investment Advisory Agreement, shall be at the annual
rate of 0.70 of 1% of the average daily net assets
of the Series.

4. Heartland Small Cap Contrarian Fund

a. Effective Date: April 27, 1995.

b. Management Fee: The management fee for this
Series, calculated in accordance with paragraph 3
of this Investment Advisory Agreement, shall be at
the annual rate of 0.75 of 1% of the average daily
net assets of the Series.

C-13

<PAGE> 85

5. Heartland Mid Cap Value Fund

a. Effective Date: October 11, 1996.

b. Management Fee: The management fee for this Series,
calculated in accordance with paragraph 3 of this
Investment Advisory Agreement, shall be at the annual
rate of 0.75 of 1% of the average daily net assets
of the Series.
6. Heartland Large Cap Value Fund

a. Effective Date: October 11, 1996.

b. Management Fee: The management fee for this Series,
calculated in accordance with paragraph 3 of this
Investment Advisory Agreement, shall be at
the annual rate of 0.75 of 1% of the average daily
net assets of the Series.

7. Heartland Short Duration High-Yield Municipal Fund

a. Effective Date: January 2, 1997.

b. Management Fee: The management fee for this
Series, calculated in accordance with paragraph 3 of
this Investment Advisory Agreement, shall be at the
annual rate of 0.40 of 1% of the average daily net
assets of the Series.

8. Heartland High-Yield Municipal Bond Fund

a. Effective Date: January 2, 1997.

b. Management Fee: The management fee
for this Series, calculated in accordance with
paragraph 3 of this Investment Advisory Agreement,
shall be at the annual rate of 0.60 of 1% of the
average daily net assets of the Series.
C-14